As filed with the Securities and Exchange Commission on September 16, 2005
Registration No.
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2/A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
MOBILE REACH INTERNATIONAL, INC.
--------------------------------------------
(Name of small business issuer in our charter)
4812
--------------------------
(Primary Standard Industrial
Classification Code Number)
Delaware 20-01221007
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2054 KILDAIRE FARM ROAD SUITE 353
CARY, NORTH CAROLINA 27511
(919) 336-2500
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(Address and telephone number of principal executive offices)
A. CHISTOPHER JOHNSON
MOBILE REACH INTERNATIONAL, INC.
2054 KILDAIRE FARM ROAD SUITE 353
CARY, NORTH CAROLINA 27511
(919) 336-2500
-------------------------------------------------------
(Name, address and telephone number of agent for service)
Copies of all communications, including all communications sent to the agent
for service, should be sent to:
Jeffrey M. Quick, Esq.
Quick Law Group PC
1035 Pearl Street, Suite 414
Boulder, Colorado 80302
(303) 625-1056
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
From time to time after the effective date of the Registration Statement.
If any of 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, other than securities offered only in connection with dividend or interest
reinvestment plans, 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. |_|
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CALCULATION OF REGISTRATION FEE
===============================================================================
Proposed
maximum Proposed
offering maximum
Title of each price aggregate Amount of
class of securities Amount to be per offering registration
to be registered registered (1) share price fee(7)
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Common Stock ........ 2,470,542 (2) $1.65 (6) $ 4,076,394.30 $ 0.00
........ 1,239,549 (3) $0.61 (6) $ 727,387.18 $ 0.00
........ 1,192,438 (4) $1.65 (6) $ 1,967,522.70 $ 0.00
100,000 (5) $1.65 (6) $ 165,000 $ 0.00
TOTAL 5,002,529 $ 6,936,304 $ 0.00
(1) Pursuant to Rule 416 under the Securities Act of 1933, as amended, this
Registration Statement also covers such indeterminate number of additional
shares of Common Stock as may be issuable solely upon conversion of the Notes
and exercise of the Warrants (as defined below) solely to prevent dilution
resulting from stock split, stock dividends or similar transactions (and not as
a result of adjustments resulting from any variation in the market price of our
securities).
(2) Represents 2,470,542 shares of our Common Stock, par value $0.0001 (the
"Common Stock"), issuable upon conversion of $700,000 of principal amount of our
8% convertible promissory notes ("Note" or the "Notes"), maturing on April 1,
2006, at a per share conversion price equal to the lesser of (i) $.0077 (the
"Closing Date Conversion Price"), or (ii) the average of the three lowest
closing bid prices for the ten trading days preceding the conversion date.
(3) Represents 1,239,549 shares of Common Stock issuable upon exercise of
warrants ("Warrants") at the issued to the holders of the Notes in connection
with the issuance of such Notes.
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(4) Represents 1,192,438 shares of Common Stock issuable pursuant to various
Settlement and Release Agreements entered into between us and various
stakeholders.
(5) Represents 100,000 shares of common stockissuable pursuant to an engagement
agreement in connection with the placement of the Notes.
(6) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933, as amended, based upon
the average of the high and low sale price of the Common Stock as reported on
the OTC Electronic Bulletin Board on September 9, 2005.
(7) The registration fee was paid in connection with the initial filing of the
Form SB-2 on September 21, 2005.
We hereby amend this Registration Statement on such date or dates as may be
necessary to delay our 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 this Registration Statement shall become effective on such
date as the Securities and Exchange Commission, acting pursuant to said Section
8(a), may determine.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THESE
SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL, NOR DOES IT SEEK AN OFFER TO BUY, THESE SECURITIES IN ANY STATE WHERE
THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED SEPTEMBER 1, 2005
PROSPECTUS
MOBILE REACH INTERNATIONAL, INC.
5,002,529 shares of Common Stock
This prospectus relates to the sale by the selling stockholders of 3,188,701
shares of our common stock, par value $0.0001 (the "Common Stock"). The selling
stockholders may sell the shares from time to time at the prevailing market
price or in negotiated transactions.
We will not receive any of the proceeds from the sale of the shares by the
selling stockholders.
Each of the selling stockholders may be deemed to be an "underwriter," as such
term is defined in the Securities Act of 1933.
Our common stock is quoted on the OTC Electronic Bulletin Board under the
trading symbol "MOBR". The last reported sales price per share of our Common
Stock as reported by the Over-The-Counter Bulletin Board on September 15, 2005,
was $1.65.
AS YOU REVIEW THIS PROSPECTUS, YOU SHOULD CAREFULLY CONSIDER
THE MATTERS
DESCRIBED IN "RISK FACTORS" BEGINNING ON PAGE 4.
Neither the Securities and Exchange Commission (the "SEC") nor any state
securities commission has approved or disapproved of these securities or passed
on the adequacy or accuracy of this prospectus. Any representation to the
contrary is a criminal offense.
The date of this Prospectus is _______________, 2005
PRINCIPAL EXECUTIVE OFFICE:
Mobile Reach International, Inc.
2054 Kildaire Farm Road Suite 353
Cary, North Carolina 27511
(919) 336-2500
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TABLE OF CONTENTS
Page
Prospectus Summary.........................................................8
Risk Factors...............................................................9
Use of Proceeds...........................................................14
Description of the Agreements with the Holders of the Convertible
Preferred Stock...........................................................14
Dividend Policy...........................................................15
Price Range of Common Stock ..............................................16
Management's Discussion and Analysis of Financial Condition and
Results of Financial Operation............................................16
Business..................................................................19
Description of Property...................................................25
Legal Proceedings.........................................................26
Management................................................................27
Executive Compensation....................................................29
Beneficial Ownership of Certain Shareholders, Directors and
Executive Officers........................................................30
Certain Relationships and Related Transactions............................31
Selling Stockholders......................................................32
Plan of Distribution......................................................36
Description of Securities.................................................38
Legal Matters.............................................................40
Experts...................................................................40
Where You can find more Information.......................................40
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YOU MAY RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE INFORMATION DIFFERENT FROM THAT CONTAINED IN THIS
PROSPECTUS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR THE SALE OF COMMON STOCK
MEANS THAT INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT AFTER THE DATE OF
THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL OR SOLICITATION OF ANY
OFFER TO BUY THESE SHARES OF COMMON STOCK IN ANY CIRCUMSTANCES UNDER WHICH THE
OFFER OR SOLICITATION IS UNLAWFUL.
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PROSPECTUS SUMMARY
THIS IS ONLY A SUMMARY AND DOES NOT CONTAIN ALL OF THE INFORMATION THAT MAY BE
IMPORTANT TO YOU. YOU SHOULD READ THE ENTIRE PROSPECTUS, ESPECIALLY "RISK
FACTORS" AND OUR FINANCIAL STATEMENTS AND THE RELATED NOTES INCLUDED IN THIS
PROSPECTUS, BEFORE DECIDING TO INVEST IN SHARES OF OUR COMMON STOCK.
MOBILE REACH INTERNATIONAL, INC.
We sell our software products and services to clients who desire to increase the
efficiency by which their employees access, utilize and exchange data using
mobile networks. Our solutions are not dependent upon any single product or
system. Currently, most mobile network hardware falls into one of two
categories. Some networks serve mobile devices that are always on and are always
connected to the network. Other networks serve mobile devices that are connected
to the network only when users desire to access or input information. We believe
that most companies would be best served by having networks that serve both
mobile users whose devices are always on and other devices that are occasionally
connected computers (OCC). Over time, we expect equipment manufacturers will
begin introducing networks that serve both types of users on the same network.
We anticipate the market will move toward standardized networks. By being ahead
of this trend, we believe our platform and adaptable online-offline connection
features will result in increased sales.
We began selling products and services
in mid 2000 as a mobile solution provider under the name Mobile Reach
Technologies, Inc. Our products and services were based on one of the leading
enterprise platforms, called Remedy Action Request System, a Service Management
solution. Today, we have expanded our goals beyond Remedy-based enterprise
platforms. Our expanded business model is to deliver the products and services
customers require to deploy enterprise-wide solutions to our businesses.
We have a history of operating losses and have incurred net losses in each
fiscal quarter since our inception. We expect to continue operating at a loss
through at least 2005 as we expect to incur significant outlays and expenses in
connection with our new business direction. As a result of recurring losses from
operations and a net deficit in both working capital and stockholders equity,
our independent registered accountants have included a "going concern"
explanatory paragraph in their audit reports on our audited 2004 financial
statements that expresses substantial doubt about our ability to continue as a
going concern. We anticipate that our existing cash resources will enable us to
maintain operations through the end of the second fiscal quarter of 2005. Our
existing resources may not be sufficient to support the commercial introduction,
production and marketing of our contemplated initial products. Unless we raise
additional funds, we may need to curtail expenditures which may result in a
delay in our initial product testing or marketing efforts, all of which can have
a material adverse effect on our business and prospects. We will need to raise
additional capital in order to complete our prospective product offerings,
expand business applications and realize our business plan. We have no
commitments for any such financing and there can be no assurance that we will
successfully raise any of the needed amounts on commercially acceptable terms or
at all. Even if we are successful in raising the needed capital, no assurance
can be provided that we will successfully commercialize our products or become
profitable.
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Mr. A. Christopher, our Chief Executive Officer, was appointed in June 2004 to
lead our company. Mr. Johnson has also been appointed to our Board of Directors.
We currently have eight full time employees and two part time employees.
Our principal address of 2054 Kildaire Farm Road, Suite 353 in Cary, North
Carolina, 27511 and our telephone number is (919) 336-2500.
RISK FACTORS
Investing in shares of our Common Stock involves significant risk. You should
consider the information under the caption "Risk Factors" beginning on page _ of
this Prospectus in deciding whether to purchase the Common Stock offered under
this Prospectus.
THE OFFERING
Securities offered by the
selling stockholders 5,002,529 shares of Common Stock. (1)
Shares outstanding before the
Offering 2,394,639 shares of Common Stock.
Use of Proceeds We will not receive any
proceeds from the sale of the Common Stock
by the selling stockholders.
(1) Includes (a) up to 2,470,542 shares of Registrant's Common Stock, par value
$0.0001 (the "Common Stock"), issuable upon conversion of $700,000 of principal
amount of our 8% convertible promissory notes of we ("Note" or the "Notes"),
maturing on April 1, 2006, at a per share conversion price equal to the lesser
of (i) $.0077 (the "Closing Date Conversion Price"), or (ii) the average of the
three lowest closing bid prices for the ten trading days preceding the
conversion date; (b) 1,239,549 shares of Common Stock issuable upon exercise of
Warrants at the issued to the holders of the Notes in connection with the
issuance of such Notes; (c) 1,192,438 shares of Common Stock issuable pursuant
to various Settlement and Release Agreements entered into between we and various
stakeholders; and (d) 100,000 shares of Common Stock issuable pursuant to
various consultant engagement agreements in connection with the placement of the
Notes and the restructuring of we. For a description of the agreement between us
and the holders of the Notes, see "DESCRIPTION OF THE AGREEMENTS WITH THE
HOLDERS OF THE 8% CONVERTIBLE PROMISSORY NOTES."
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RISK FACTORS
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
CAREFULLY CONSIDER THE RISKS AND UNCERTAINTIES DESCRIBED BELOW BEFORE YOU
PURCHASE ANY OF OUR COMMON STOCK. IF ANY OF THESE RISKS OR UNCERTAINTIES
ACTUALLY OCCURS, OUR BUSINESS, FINANCIAL CONDITION OR RESULTS OF OPERATIONS
COULD BE MATERIALLY ADVERSELY AFFECTED. IN THIS EVENT YOU COULD LOSE ALL OR PART
OF YOUR INVESTMENT.
RISKS CONCERNING OUR BUSINESS
Our financial results for the twelve-month fiscal year ending July 31, 2005 show
substantial losses and there is substantial doubt as to our ability to continue
as a going concern.
The financial statements for the twelve month period ended July31, 2005 reflect
additional substantial losses due to reorganization and evaluation of its
overall business. Specifically, however, we have sustained substantial operating
losses in the twelve months ended July 31, 2005 and the twelve months ended July
31, 2004 of $970,881 and $3,142,860, respectively. As of July 31, 2005 we are in
default on certain notes payable, payroll taxes and other payables. In addition,
we have used substantial amounts of working capital in our operations. Further,
at July 31, 2005, our current assets were $136,511 and current liabilities were
$1,540,135, our accumulated deficit as of July 31, 2005 was 8,759,323
Our independent auditor has indicated that it doubts that we
can continue as a going concern. Our independent auditor's opinion may
negatively affect our ability to raise additional funds, among other things.
Scharf Pera & Co., PLLC, our independent auditors, have expressed substantial
doubt about our ability to continue as a going concern given our recurring
losses from operations, negative working capital and net stockholder's deficit.
This opinion could materially limit our ability to raise additional funds by
issuing new debt or equity securities or otherwise. You should consider our
auditor's comments when determining if an investment in we are suitable.
We have a limited operating history and are not yet profitable.
We are a relatively new company that is not yet profitable. We expect to
continue to have substantial expenses before we earn significant income in
excess of our expenses. The establishment of any new business involves problems,
expenses, difficulties, complications and delays. It is not possible for anyone,
including us, to predict with certainty what all of these expenses,
complications and delays will be. We cannot guarantee to you that we will be
able to overcome these obstacles, and we cannot guarantee to you that we will
ever be profitable.
We depend upon a limited number of clients.
A significant portion of our revenues over the past two fiscals years were
derived of orders from a limited number of clients. The timing of receipt,
fulfillment and deployment of orders from the limited number of clients is
likely to cause significant fluctuations in our operating results, especially on
a quarterly basis.
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We are dependent on certain key personnel, including members of our management
team.
We currently have a very small senior management team and are highly dependent
on certain key individuals of this team. The operations would suffer
significantly if some or all of these individuals were to terminate their
relationship with us for any reason. Retaining and or replacing these
relationships will become even more important as we grow. We cannot assure the
investing public that it will be able to replace a key individual who terminates
his or her relationship with us. We will utilize best practices in recruitment
if and when it's necessary to replace key individuals. We do not have any
key-man life insurance on our current employees.
We are dependent on proprietary intellectual property, and our measures to
protect such property may be insufficient.
We rely on a combination of trade secrets, copyright and trademark laws,
nondisclosure and other contractual provisions and technical measures to protect
our proprietary rights in our products, such as Splitware. We have not
registered our copyrights or trademarks and instead we are relying on common law
to protect our rights. We cannot assure you that these protections are adequate
or that our competitors will not independently develop technologies that are
substantially equivalent or superior to our technology. We believe that our
products, trademarks and other proprietary rights do not infringe upon the
proprietary rights of third parties, but we cannot assure you that third parties
will not assert infringement claims against us in the future.
The wireless communications industry is highly competitive and we may be unable
to compete effectively.
The industry of providing mobile solutions for information technology systems is
highly competitive. Many companies compete nationwide to provide mobile
solutions to businesses and entities using information technology systems and
communications networks. If a competitor offers products and services that are
equal to or superior to our products and services, or offers products and
services at lower prices than we do, it may be difficult or impossible for us to
sell our products and services in sufficient volumes to sustain operations. We
cannot assure you that market demand will continue to grow, and increases in
capacity by us and our competitors may lead to greater competition in the
market, which competition would adversely affect our ability to sells our
products and services in sufficient volume to sustain operations.
Our market is changing rapidly and we may not be able to move fast enough to
accommodate the market's changes.
The market for information technology systems and communications networks is
changing rapidly as new technologies are introduced and old ones are abandoned.
While we will try to make changes in our products and services to keep up with
the changing market, we cannot assure you that rapid changes in products and
services will not make our products and services obsolete, such that we will be
unable to compete in the market.
Demand for our products may fail to materialize as expected.
The market for the products and services we offer is relatively new
and there is little hard data to validate market demand or predict how this
demand will be segmented. There could be much lower demand than believed, or
interest in our products and services could decline or die out, which would
adversely affect our ability to sustain operations.
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We may be subject to product liability or breach of contract claims if our
wireless solutions do not work as promised.
The mobile solutions in which we provide information technology are designed to
facilitate information flows over such systems. If our mobile solutions fail to
work as anticipated, customers may bring claims against us, despite limitations
on such claims in our contracts and agreements with customers. Defending against
such claims can be costly and time consuming, and could have a material adverse
effect on our operations, even if we are found not to have been at fault. We
have liability insurance and anticipate that we will continue such coverage if
it is available at a reasonable cost. Future increases in insurance premiums may
prevent us from maintaining adequate insurance coverage. A large damage award
against us could exceed our insurance coverage and adversely affect our
financial condition.
Unless an active trading market develops for our common stock, you may not be
able to sell your shares.
Although we are a reporting company and our common stock is listed on the
Over-the-Counter Bulletin Board, there is no active trading market for our
common stock. An active trading market may never develop or, if developed, it
may not be maintained even after we register the shares you purchase. Failure to
develop or maintain an active trading market will negatively affect the price of
our securities. You may be unable to sell your shares or such sales may lower
the market price, and therefore your investment would be a partial or complete
loss.
We are subject to the penny stock rules, and therefore you may find it more
difficult to sell your securities.
Broker-dealer practices in connection with transactions in "penny stocks" are
regulated by certain rules adopted by the Securities and Exchange Commission.
Penny stocks generally are equity securities with a price of less than $5.00
(other than securities registered on certain national securities exchanges or
quoted on the NASDAQ Stock Market provided that current price and volume
information with respect to transactions in such securities is provided by the
exchange or system). The rules require that a broker-dealer, prior to a
transaction in a penny stock not otherwise exempt from the rules, deliver to the
buyer a standardized risk disclosure document that provides information about
penny stocks and the risks in the penny stock market. The broker-dealer also
must provide the customer with current bid and offer quotations for the penny
stock, the compensation of the broker-dealer and our salesperson in connection
with the transaction and monthly account statements showing the market value of
each penny stock held in the customer's account. In addition, the rules
generally require that prior to a transaction in a penny stock; the
broker-dealer must make a special written determination that the penny stock is
a suitable investment for the purchaser and receive the purchaser's written
agreement to the transaction. These disclosure requirements may have the effect
of reducing the liquidity of penny stocks. Our securities are subject to the
penny stock rules, and thus investors in the offering may find it difficult to
sell their securities.
Our founders, officers and directors beneficially own approximately 32% of our
stock on a fully diluted basis; their interests could conflict with yours;
significant sales of stock held by any or all of them could have a negative
effect on our stock price; shareholders may be unable to exercise control.
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As of August 23, 2005, our founders, officers and
directors beneficially owned approximately 32% of our common stock on a fully
diluted basis. In addition, employees own additional shares and rights to
acquire shares. As a result, the founders, officers and directors will have
significant ability to:
o elect or defeat the election of our directors;
o amend or prevent amendment of our articles of incorporation or bylaws;
o effect or prevent a merger, sale of assets or other corporate
transaction; and
o control the outcome of any other matter submitted to the stockholders
for vote.
As a result of this ownership and position, our founders, officers and directors
are able to significantly influence all matters requiring stockholder approval,
including the election of directors and approval of significant corporate
transactions. In addition, sales of significant amounts of shares held by any or
all of our founders, officers and directors, or the prospect of these sales,
could adversely affect the market price of our common stock. Stock ownership by
our founders and management may discourage a potential acquirer from making a
tender offer or otherwise attempting to obtain control of us, which in turn
could reduce our stock price or prevent our stockholders from realizing a
premium over our stock price.
We do not expect to pay dividends. Therefore, you may not rely on your ownership
of our stock as a source of income.
We do not anticipate paying cash dividends in the foreseeable future. Therefore,
you may not rely on ownership of our stock as a source of income.
FORWARD-LOOKING STATEMENTS
This Prospectus contains certain financial information and statements regarding
our operations and financial prospects of a forward-looking nature. Any
statements contained in this prospectus, which are not statements of historical
fact, may be deemed to be forward-looking statements. Without limiting the
generality of the foregoing, words such as, "may", "will", "intend", "expect",
"believe", "anticipate", "could", "estimate", "plan" or "continue" or the
negative variations of those words or comparable terminology are intended to
identify forward-looking statements. We make forward-looking statements in this
prospectus, regarding, among other items:
o statements regarding our overall strategy relating to the design,
development, implementation and marketing of our proposed products;
o statements regarding the plans and objectives of our management for
future operations and the size and nature of the costs we expect to
incur and the people and services we may employ;
o statements regarding the future of broadband access solutions and
opportunities therein, our competition or regulations that may affect
us;
o statements regarding our ability to compete with third parties;
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o any statements using the words "anticipate," "believe," "estimate,"
"expect," "intend," "may," "will," "should," "expect," "plan,"
"predict," "potential," "continue" and similar words; and
o any statements other than historical fact.
There can be no assurance of any kind that such forward-looking information and
statements will be reflective in any way of our actual future operations and/or
financial results, and any of such information and statements should not be
relied upon either in whole or in part in connection with any decision to invest
in the shares. There are a number of important factors that could cause actual
events or our actual results to differ materially from those indicated by such
forward-looking statements. These factors include, without limitation, those set
forth above under the caption "Risk Factors" included in this prospectus and
other factors expressed from time to time in our filings with the Securities and
Exchange Commission ("SEC"). We do not undertake to update any forward-looking
statements.
USE OF PROCEEDS
The selling stockholders will receive the net proceeds from sales of the shares
of the Common Stock included in this Prospectus. We will not receive any
proceeds from the sale of Common Stock by the selling stockholders.
Assuming all of the warrants and options for which the underlying shares of
Common Stock that are covered by this Prospectus are exercised for cash, we have
received approximately $750,000.00 in cash proceeds (before deducting fees and
commission). See, also "DESCRIPTION OF AGREEMENTS WITH THE HOLDERS OF THE 8%
CONVERTIBLE PROMISSORY NOTES."
DESCRIPTION OF THE AGREEMENTS WITH THE HOLDERS OF THE 8% CONVERTIBLE PROMISSORY
NOTES
We are registering the shares offered hereby primarily in order to satisfy our
obligations to the holders of our 8% Convertible Promissory Notes.
From April 28, 2005 through August 15, 2005, we executed definitive agreements
for the purchase by institutional, accredited investors (collectively, the
"Investors") of $750,000 of principal amount of 8% convertible promissory notes
of we ("Note" or the "Notes"), maturing on April 1, 2006, convertible at the
Investor's option, into shares of our Common Stock at a per share conversion
price equal to the lesser of (i)
70% of the average of the closing bid prices of the Common Stock as reported by
Bloomberg, L.P. for the principal trading market of we for the three trading
days immediately preceding the closing on April 28, 2005 (the "Closing Date
Conversion Price"), or (ii) the average of the three lowest closing bid prices
for the ten trading days preceding the conversion date. In connection with the
issuance of the Notes, we issued to the Investors five-year common stock
purchase Warrants to purchase the number of shares of Common Stock which would
be issued on the closing date assuming the conversion of all of the outstanding
Notes on the closing date at the Closing Date Conversion Price. The exercise
price of the Warrants is equal to the Closing Date Conversion Price. Following
the effective date of the Registration Statement (as defined below), the
Warrants shall provide for cashless exercise. The conversion price of the Notes
and the exercise price of the Warrants are subject to adjustment for certain
dilution events or in the event of certain capital adjustments or similar
transactions, such as a stock split or merger. Subject to certain excepted
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issuances, the Investors have a right of first refusal with respect to any
proposed sale of Company securities for a period of one year following the
effective date of the Registration Statement.
From the entire transaction, we received gross proceeds of $750,000 and net
proceeds of approximately $635,000, after payment of offering related fees and
expenses. From April 28, 2005 to July 31, 2005 we received$500,000 of the
750,000 convertible promissory notes; the remaining $250,000 was received by the
company during the month of August 2005, and is reflected in our quarterly
report ended October 31, 2005.
Provided that we are not in default under the Notes or other transaction
documents, we will have the right, subject to the conversion rights of the
Investors under the Notes, to prepay the principal amount and accrued but unpaid
interest of the Notes at any time for an amount equal to 120% of the original
principal amount of the Notes.
The Notes could not be converted prior to we increasing the number of authorized
shares of Common Stock (the "Share Increase") to allow for any such conversions.
On June 27, 2005, we filed and mailed a definitive information statement (the
"Information Statement") notifying stockholders of the Share Increase approval.
We affected the Share Increase on July 18, 2005.
We will be obligated to pay liquidated damages to the holders of the Notes in
respect of the filing of this Registration Statement after the required filing
date of July 29, 2005, or if the effectiveness of the Registration Statement is
not declared effective by August 28, 2005, or if the effectiveness of the
Registration Statement is subsequently suspended for more than certain specified
permitted periods (each, an "Event Date"), and for certain other specified
events, in an amount equal to 1% for the first 30 days (or portion thereof)
following an Event Date and 2% for each thirty day period (or portion thereof)
thereafter.
All of the securities issued in the transactions described above were issued
without registration under the Securities Act in reliance upon the exemption
provided in Section 4(2) of the Securities Act or under Regulation D thereunder.
The recipients of securities in each such transaction represented to us that
they were acquiring the securities for investment only and not with a view to or
for sale in connection with any distribution thereof. In each case, we believe
the recipients were all "accredited investors" within the meaning of Rule 501(a)
of Regulation D under the Securities Act or had such knowledge and experience in
financial and business matters as to be able to evaluate the merits and risks of
an investment in our Common Stock. All recipients had adequate access to
information about our company. None of the transactions described above involved
general solicitation or advertising.
Reference is made to the form of Warrant, the Convertible Note and the
Subscription Agreement filed as exhibits to our Current Report on Form 8-K that
was filed on May 3, 2005 for more complete description of the complex provisions
that are summarized under this caption.
DIVIDEND POLICY
We have not declared or paid dividends on our Common Stock since our formation,
and we do not anticipate paying dividends in the foreseeable future. Declaration
or payment of dividends, if any, in the future, will be at the discretion of our
Board of Directors and will depend on our then current financial condition,
results of operations, capital requirements and other factors deemed relevant by
the board of directors.
15
PRICE RANGE OF OUR COMMON STOCK
Our Common Stock is traded on the OTC Electronic Bulletin Board of the National
Association of Securities Dealers, Inc., Automated Quotation System under the
symbol "MOBR". Prior to July 29, 2005, our Common Stock was quoted under the
symbol "MBRI". Although trading in our Common Stock has occurred on a relatively
consistent basis, the volume of shares traded has been sporadic. There can be no
assurance that an established trading market will develop, that the current
market will be maintained or that a liquid market for our Common Stock will be
available in the future. Investors should not rely on historical stock price
performance as an indication of future price performance.
The following table shows the quarterly high and low bid prices for our Common
Stock over the last three completed fiscal years and current first quarter
current fiscal year, as reported on the OTC Bulletin Board. The prices represent
quotations by dealers without adjustments for retail mark-ups, mark-downs or
commission and may not represent actual transactions. The closing price of our
Common Stock on August 19, 2005 was $1.95 per share.
High Low
---- ---
Fiscal year ended
July 31, 2003
First quarter - (Aug, Sept, Oct) $0.45 $0.17
Second quarter - (Nov, Dec, Jan) $0.40 $0.11
Third quarter - (Feb, Mar. Apr.) $0.25 $0.13
Fourth quarter - (May, Jun, Jul) $1.01 $0.48
Fiscal year ending
July 31, 2004
First quarter $0.90 $0.13
Second quarter $0.65 $0.20
Third quarter $0.40 $0.20
Fourth quarter $0.30 $0.08
Fiscal year ended
July 31, 2005
First quarter $0.09 $0.03
Second quarter $0.06 $0.02
Third Quarter $0.04 $0.01
Fourth quarter (1) $0.02 $0.01
(1) On July 29, 2005, we affected an eight-for-one reverse split of our Common
Stock more fully described in the Information Statement filed on July 27, 2005
As of August 19, 2005, there were approximately 900 holders of record of our
Common Stock. We believe that an insignificant number of shares of our Common
Stock are held in either nominee name or street name brokerage accounts;
consequently, we are unable to determine the exact number of beneficial owners
since the effective reverse of our common stock.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto included elsewhere in this Prospectus.
You should read the following discussion of our business and results of
operations in conjunction with the consolidated financial statements included
herein. The results shown in this 10-QSB are not necessarily indicative of the
results we will achieve in any future periods.
16
REVENUES
Financial Discussion
Mobile Reach revenues primarily comprise of licensing and services fees, which
the Company recognizes as revenue when the product or services are provided to
the client. The attached pro-forma consolidated financial data; is provided for
comparative purpose only and does not claim to be indicative of the actual
financial position or result of the Company's carry forward operations.
Total revenue for the twelve-month period ended July 31, 2005 was $607,374
compared to $1,589,859 reported for the year ended July 31, 2004. Total Net loss
for the twelve-month period ended July 31, 2005 was $970,881 or $0.97 per
diluted common share, compared to $3,142,860, or $9.01 per diluted common share
for the period ended July 31 2004. In the execution of its operational plan
during the last fiscal year, the Company's management and Board of Director's
were focused on a reorganization and evaluation of its overall business.
Financing activities and the costs associated assisted and funded its
operations.
Sources of Revenue
Revenues are derived from the sale of software licenses, services and
maintenance as well as equipment (hardware). License and maintenance revenues
are normally generated from licensing of our products to end-users and
resellers. Service revenues are generated from consulting services sold to
end-users and software subscription services provided to customers. As described
below:
Year Ended Year Ended
Sources of Revenue July 31, 2005 July 31, 2004
------------- -------------
Software Licenses, maintenance and 405,796 591,193
support fees
Professional Services 113,913 132,225
Product sales (hardware) 87,665 854,710
---------- ----------
Totals 607,374 1,589,859
The Cost of Sales associated with the delivery of the Company's solutions is
expected to be proportioned as the repeatable model is implemented with future
clients. As a result, the Company recognized an above average cost associated
for the twelve months ended July 31, 2004.
The Company sales and marketing expenses consist primarily of compensation and
related costs for ramping up efforts around product marketing, associated
personnel, travel and entertainment and other related costs. The Company expects
sales and marketing expenses to decrease as a percentage of sales as the Company
continues to leverage its reseller relationships and strategic clients to
further its sales and marketing initiatives.
SG&A for the twelve month ended July 31, 2004 consisted primarily of
compensation and related costs associated with financing activities. The Company
expects its general and administrative expenses to decrease as a percentage of
its annual revenues primarily due to traction the Company's products are
receiving in the marketplace.
17
LIQUIDITY AND CAPITAL RESOURCES
As of July 31 2005, we had assets and liabilities of $211,431. Our independent
auditors, who audited our financial statements for the period ended July 31,
2005, have expressed substantial doubt about our ability to continue as a going
concern given our recurring losses from operations, negative working capital and
net stockholders' deficit. In response to these issues, we have continued our
cost cutting measures and balance sheet clean up for periods ending July 31,
2005.
CRITICAL ACCOUNTING POLICIES
In preparing the consolidated financial statements in conformity with accounting
principles generally accepted in the United States, the Company makes estimates,
assumptions and judgments that can have a material impact on its net revenue,
operating income and net income (loss), as well as on the value of certain
assets on its consolidated balance sheet. The Company believes that the
estimates, assumptions and judgments involved in the accounting policies
described below have the greatest potential impact on its consolidated financial
statements. The Company considers these to be its critical accounting policies.
The policies described below are not intended to be a comprehensive list of all
the Company's accounting policies. In many cases, the accounting treatment of a
particular transaction is specifically dictated by generally accepted accounting
principles, with no need for management judgment in their application. There are
also areas in which management judgment in selecting any available alternative
would not produce a materially different result. The Company's audited
consolidated financial statements and notes thereto contain significant
accounting policies and other disclosures required by generally accepted
accounting principles. The accounting policies that are considered critical to
an understanding of the consolidated financial statements are highlighted below.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In January 2003 and revised in December 2003, the Financial Accounting Standards
Board ("FASB") issued FASB Interpretation No. 46, "Consolidation of Variable
Interest Entities" ("FIN 46"), an interpretation of Accounting Research Bulletin
No. 51. FIN 46 expands upon and strengthens existing accounting guidance that
addresses when a company should include in our financial statements the assets,
liabilities and activities of another entity. A variable interest entity is any
legal structure used for business purposes that either does not have equity
investors with voting rights or has equity investors that do not provide
sufficient financial resources for the entity to support our activities. FIN 46
requires a variable interest entity to be consolidated by a company if that
company is subject to a majority of the risk of loss from the variable interest
entity's activities or entitled to receive a majority of the entity's residual
returns or both. The consolidation requirements of FIN 46 apply immediately to
variable interest entities created after January 31, 2003. The consolidation
requirements apply to older entities in the first fiscal year or interim period
beginning after June 15, 2003. The adoption of FIN 46 did not have a significant
impact on our financial statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150
addresses certain financial instruments that, under previous guidance, could be
18
accounted for as equity, but now must be classified as liabilities in statements
of financial position. These financial instruments include: 1) mandatorily
redeemable financial instruments, 2) obligations to repurchase the issuer's
equity shares by transferring assets, and 3) obligations to issue a variable
number of shares. SFAS No. 150 generally is effective for all financial
instruments entered into or modified after May 31, 2003, and otherwise effective
at the beginning of the first interim period beginning after June 15, 2003. The
adoption of SFAS 150 did not have a significant impact on our financial
statements.
BUSINESS
Mobile Reach International, Inc. (the "Company") was incorporated in the State
of Delaware in July 2003. At the time of incorporation, the Company was a
wholly-owned subsidiary of Asphalt Paving International, Inc. ("API"), a company
incorporated in the State of Florida in January 1998. API's shares were publicly
traded. However, API conducted no active business.
Immediately following the incorporation of the Company, API merged into the
Company and the shareholders of API owned all the stock of the Company. As a
result of the merger, the Company was the surviving corporation in the merger,
the state of incorporation of the corporate entity owned by API's shareholders
was changed to Delaware. On August 6, 2003, the Company's shares became publicly
traded on the Over-the-Counter Bulletin Board, under the symbol MBRI.
Immediately after the merger with API, the Company acquired all the shares of
Mobile Reach Technologies, Inc. ("MRT"), a North Carolina Corporation, in a
share exchange with all the shareholders of MRT. As a result of the share
exchange, MRT became a wholly owned subsidiary of the Company.
MRT was incorporated in North Carolina in July 2000, the Registrant continues to
conduct the business according to plan prior to the share exchange. MRT has
developed and sold mobile technology and services for information systems and
communications networks. In late 2000, MRT acquired its wholly-owned subsidiary,
Mobile Reach Technologies, GmbH ("MRT-Germany"), which is located in Germany, to
market the Company's products and services to the European market. As of the end
of the July 31 2005 the Company no longer operates the German subsidiary of MRT.
On December 17, 2003 Mobile Reach International, Inc. entered into an Agreement
of Plan of Merger with Waves Consulting Group, Inc. by and between MRI
Acquisitions Corp. As a result, Waves Consulting Group became a wholly owned
subsidiary of the Company.
In November, 2004 the Company's board voted in favor of closing the operations
of Mobile Reach Solutions, Inc. a wholly owned subsidiary of Mobile Reach
International, Inc. Working capital necessary to run the business was not
available to the Company to successfully operate the subsidiary. The board
resolved it was in the best interests of the shareholders to focus its business
efforts on Mobile Reach Technologies its sole remaining subsidiary. Furthermore,
the Company is continued its efforts and dissolutions of its Germany Subsidiary
of MRT. The Company does not anticipate any losses on this discontinuation other
than losses from operations incurred in the regular course of business after
July 31, 2005.
19
On July 28, 2005 the Company affected an 80 to 1 reverse split of its common
shares and the Company's symbol effectively changed from MBRI to MOBR on the
Over-the-Counter Bulletin Board.
On August 23, 2005, the Company, Objective Spectrum, Inc. ("Objective Spectrum")
and the shareholders of Objective Spectrum (the "Shareholders") entered into
Agreement And Plan Of Merger whereby the Company acquired all of the issued and
outstanding common stock of Objective Spectrum (the "Shares"). In consideration
of the Shares, the Company issued to the Shareholders 375,000 unregistered
shares of the common stock of the Company.
The Company conducts all its business through its subsidiaries. Since November
2004 the only operating subsidiary is Mobile Reach Technologies, Inc. ("MRT")
The Company, and or its subsidiaries are hereafter collectively referred to as
the Company or Mobile Reach or the Registrant.
Mobile Reach Technologies - Business
The Company began selling products and services in mid 2000 as a mobile solution
provider under the name Mobile Reach Technologies, Inc. The Company's products
and services were based on one of the leading enterprise platforms, called
Remedy Action Request System, a Service Management solution. Today, Mobile Reach
has expanded its goals and offerings. The Company's expanded business model is
to deliver the products and services customers require to deploy enterprise-wide
solutions to its businesses.
Mobile Reach is the recognized leader for providing IT Asset Management
solutions on bar code scanners to enterprises and government entities. The
Company's mission is to exploit this leadership position to become the world's
leading provider of location-based mobility software.
The Company has fully developed proprietary software that performs a function
for enterprises and government agencies wishing to access critical data directly
at the point of activity. The Company has many well known and satisfied
customers including some of the largest Fortune 100 companies.
The Company delivers expertise and experience in providing completely automated
workflow solutions to enterprises and government agencies on a world-wide basis.
This includes consultation, engineering of customized solutions for specific
tasks, creation of associated polices and procedures, implementation of a system
of hardware and/or software to accomplish the task, integration into existing
systems and operations, training of users and maintenance of the completed
project.
Products
The primary product offered by the Company is branded with the name Splitware.
The primary use of the Company's Splitware product is to:
- Automate and standardize the process of disseminating and
entering critical time-sensitive information to mobile workers in
both the enterprise and in government agencies.
- Make available location, navigation and tracking information to
both the mobile worker and the central control systems.
20
While the Company's technology is integrated into critical operations in the
medical and transportation industries, the Company is currently focused on the
IT Infrastructure Management industry.
IT Infrastructure Suite
IT Infrastructure offers the leading Mobile IT Service Management Suite to both
enterprise and government agencies. This suite of highly flexible mobile
applications takes a uniquely integrated approach to automating IT service and
support. Each application in the suite is a complete solution that can be
implemented independently for quick return on investment (ROI) but that
ultimately function together to deliver business-IT alignment.
Demand for the Company's Splitware product is from enterprises and government
agencies that need to improve the management of critical IT infrastructure is on
the rise due to compliance regulations from Sarbanes-Oxley. The Company believes
this product suite will strengthen as all business sectors implement all areas
of Sarbanes-Oxley, of which IT infrastructure is high on many customers needs
list.
Healthcare Suite
Healthcare offers the leading mobile healthcare applications to both healthcare
institutions. This suite of highly flexible mobile applications takes a uniquely
integrated approach to automating common caregiver information needs.
To date, the Company has focused solely on the needs of one healthcare customer,
Duke University Health System. Three primary solutions have been provided and
used by caregivers at Duke:
Public Safety
Public Safety is in the formulation stage. Several substantial opportunities
have been identified with significant revenue/profit potential. The
opportunities identified enhance the effectiveness and efficiency of personnel
and officials belonging to law enforcement agencies, fire departments, border
and transportation security agencies, emergency management departments and other
public safety organizations.
Software
Splitware(TM) - is a scaleable mobile middleware platform Mobile Reach is
developing that will reside within the enterprise networks of its clients. It
provides seamless connectivity from back office systems to simultaneous mobile
users and devices.
The Company has designed its Splitware(TM) software to be compatible with
legacy, CRM (Customer Relationship Management) and ERP (Enterprise Resource
Planning) systems. This allows Mobile Reach to partner, develop and integrate
its proprietary applications with leading enterprise systems, including Oracle,
SAP, PeopleSoft, Siebel and Remedy, as well as customer-built back-office
databases.
21
Splitware's modular design enables IT professionals to plug-in a stand-alone
application or several scalable applications all at once or over an extended
period of time. Its permission based access panel allows administrators to
increase access to any or all-mobile users within minutes.
Splitware(TM) is compatible with Microsoft's open COM+ architecture and has been
designed to leverage Microsoft's .NET initiative for providing secure mobile
data solutions to enterprises and is currently in use with high security
applications. Splitware(TM) consists of several component capabilities that
Mobile Reach packages for individual customer installations based on the
specific client requirements. The component capabilities are all branded with
the "Split" name and include the following:
o Server - allows the user to interface to a variety of data sources (for
example, Oracle, Sybase, Remedy and SAP).
o Cache - provides data synchronization between mobile devices and network
servers.
o Forms - is a tool that provides a simple way to build a mobile applications -
this tool provides Mobile Reach with a great competitive advantage in delivery
of production grade mobile applications.
o Alert - provides a mechanism for urgent notification of individuals in the
mobile workforce.
o Scan - provides bar code scanner integration into mobile applications.
o Workflow - provides the capability to move information from individual to
individual within the mobile workforce.
o Chart - provides the capability for data charts and data graphs to display
complex information in an understandable format.
o Security - provides the capabilities for both user authentication (via
advanced password functionality) and privacy of data (via advanced encryption
functionality).
For each of the listed capabilities, Mobile Reach has enhanced each capability
based on market actual sales and customer requests. This allows Mobile Reach to
constantly keep its products relevant and competitive.
Currently, the Company has an agreement with Remedy Corporation to market and
integrate its mobile platforms with the Remedy Action Request System. The
Company's management team is beginning conversations with other enterprise and
mobile operators, but has no agreement with such companies to date.
Marketing
Mobile Reach has identified three separate approaches to reach its clients:
Direct. Mobile Reach will use its own sales force to market and sell its
products. Mobile Reach's Sales and Marketing teams are combined to respond
rapidly to the market and client needs. Each niche market, such as healthcare
(and within healthcare, markets such as hospitals and pharmacies), requires
teams to fully assess and meet its unique needs. The Company believes having the
most experienced sales reps and sales engineers entrenched in specific niche
markets, rather than broader industries, will lead to sales successes.
22
VAR. Mobile Reach will enter into agreements with `value added resellers' to
market the Company's products as part of its own solutions packages. VARs will
receive a discounted price from the Company for each license.
OEM. ("Original Equipment Manufacturers") Mobile Reach will seek out established
integrators to license one of the Company's products either on a limited basis
or a full proprietary basis. The integrator will essentially "license" the
particular technology from the Company on an exclusive basis for the purposes of
integration. The Company will seek a volume based per user fee from OEMs.
The Company will rely primarily on direct sales to sell both its software and
services. The Company intends to expand and recruit a sales force that is
segmented into product specialties and not generalists. Successfully delivering
Mobile Reach services will require experienced reps who understand the client's
industry and daily processes.
Business Strategy
Clients seek solutions that can be used with multiple products and systems to
better meet their growing needs. However, there can be no assurance that the
larger Enterprise Resource Planning (ERP) and Custom Relationship Management
(CRM) companies will allow or support this much needed change. Proprietary based
technologies often try to hide, allude to or disassociate themselves from
standardization.
The Company strives to become one of the first mobility solutions companies with
a software platform that works with multiple products and systems. Mobile Reach
has based its strategy on the following assumptions in regards to the mobile
industry:
(i) Other e-business enterprise software vendors will adopt the same principals
Siebel has adopted.
(ii) Wireless networks will advance at the rates projected by industry analysts.
(iii) Large clients will be inclined to select a platform that works with
multiple products and systems, as research indicates from Gartner, Aberdeen and
ITC.
(iv) The Company will be able to gain sales by heavily marketing to specific
niche markets, such as Healthcare.
Sales & Marketing
The Company's accounts receivable for the period ended July 31, 2005, decreased
by $270,851 to 57,708 compared to $328,559 for the twelve month period end July
31, 2004. The decrease in the Company's accounts receivable is attributed to the
Company re-aligning its operating subsidiaries and solely focusing its efforts
on its core product offering of Mobile Reach Technologies (MRT). See the
Management Discussion and Analysis for additional notes.
23
Mobile Reach's mission is to become the dominant provider of products and
services that enable mobile workers to enter and have access to information when
they need it. To accomplish this mission, Mobile Reach will listen to prospects,
clients, applications software companies, hardware companies, and value added
resellers to identify their key needs, develop products and services to address
their needs and communicate the value proposition in which Mobile Reach products
and services offer.
Intellectual Property
The Company has prepared two provisional patent applications for submittal,
encompassing the bulk of the Company's core technology processes. These
applications have not yet been filed. Mobile Reach expects to file these
applications soon and to file additional applications as the Company continues
to develop proprietary technologies and processes behind them. There can be no
assurance any patents will be granted as a result of the Company's applications,
or if granted that they will provide the Company with significant competitive
advantages.
Mobile Reach has not registered any trademarks used with its products nor any of
its copyrights. The Company relies on its common law rights to its trademarks
and on the laws relating to trade secrets and proprietary know-how for
protection of its copyrights. The Company practice is to require each of its
employees, consultants and advisors to execute a Non-Disclosure Agreement (NDA).
In general, the NDA states that the individuals must keep confidential and not
disclose to other parties any confidential information developed or learned by
the individuals during the course of their relationship with Mobile Reach except
in limited circumstances. Also, the NDA will state that Mobile Reach owns all
copyrights and inventions conceived or developed by the individuals during the
course of rendering services to the Company.
Employees
During the period ended July 31, 2005 the Company re-aligned its employees as
part of both a cost cutting measure and subsidiary restructuring. The Company
reduced its workforce from 21 employees at the beginning of its Fiscal 2004 down
to 12 for the period ending July 31, 2005.
The Company has broken down each employee under the following subsidiary below:
Nine work directly within Mobile Reach Technologies, Inc., as follows:
- - One in Management & Administrative
- - Two in Sales and Marketing
- - Four in Development and Technology
- - Two Consultants
The balance of the Company's employees (three), work for the parent company,
Mobile Reach International, Inc. as executives and administrative.
The Company owes its employees approximately $261,865 of accrued salaries and
expenses. Raising capital and generating revenue to pay accrued salary and
future salaries of current and future employees will be necessary to retain and
recruit the personnel the Company requires to achieve its goals.
24
Reliance on Key Personnel and Consultants
The Company is currently dependent upon its senior management, board of
directors and consultants, the loss of any of which may significantly affect the
performance of the Company and its ability to carry out the successful
development and commercialization of its software products and services. Failure
to retain management, directors and consultants or to attract and retain
additional key employees with necessary skills could have a material adverse
impact upon the Company's growth and profitability. The Company may be required
to recruit additional software development personnel, and expand its sales force
and customer support functions as well as train, motivate and manage its
employees. The Company's ability to assimilate new personnel will be critical to
its performance. Competition for qualified software development personnel and
other professionals is expected to increase. There can be no assurance that the
Company will be able to recruit the personnel required to execute its programs
or to manage these changes successfully.
Product Defects
The Company's complex software products may contain undetected errors or defects
when first introduced or as new versions are released. There can be no assurance
that, despite testing by the Company and by current and potential customers,
errors will not be found in new software products after commencement of
commercial shipments resulting in product recalls and market rejection of the
Company's software products and resulting in damage to the Company's reputation,
as well as lost revenue, diverted development resources and increased support
costs
Potential Fluctuations in Quarterly Financial Results
The Company's financial results vary from quarter to quarter based on factors
such as the timing of significant orders and contract completions and the timing
of new product introductions, delivery and professional services against
contracts. Any significant fluctuation in revenue could materially adversely
affect the Company. Operating results are difficult to predict and may
fluctuate, which may contribute to fluctuations in our stock price
Effects of Restructuring Activities
The Company reduced its workforce during the periods ending July 31, 2004 and
July 31, 2005 and will continue to monitor the proper level of labor investment
in future to manage expenses accordingly. There have been and may continue to be
substantial costs associated with this workforce reduction related to 401K's,
deferred salaries, and other employee-related costs and the Company's
restructuring plan may yield unanticipated consequences, such as attrition
beyond its planned reduction in workforce. This workforce reduction has placed
an increased burden on the Company's administrative, operational and financial
resources and has resulted in increased responsibilities for each of its
management personnel. As a result, the Company's ability to respond to
unexpected challenges may be impaired and it may be unable to take advantage of
new opportunities.
DESCRIPTION OF PROPERTY
The Company does not own any real estate or land. In connection with the
acquisition of Waves Consulting Group, Inc., The Company has certain obligations
that are assets of its non operating subsidiary and its former President -
specifically these vehicles were used primarily for servicing the Company's
clients. See notes to financial statements and Management Discussion and
Analysis for additional information.
25
The Company had a long term lease for 12,000 sq ft. of office space at Regency
Park in Cary North Carolina which it has occupied since November 1, 2003.
Subsequent to the Company's fiscal year end, July 31, 2004, the Company settled
the lease obligation and vacated the office, as part of its overall company
restructuring. See note to financial statements and Management Discussions and
Analysis for additional information.
Since September 2004 the Company has been renting office space on a month to
month basis of approximately 2400 sq ft. in the Research Triangle Park area of
North Carolina.
LEGAL PROCEEDINGS
During the year ended July 31, 2004, the Company had accrued $160,000 for
consulting fees representing a tentative settlement reached in arbitration with
a consultant. In April 2005, the claim went to arbitration and the Company was
found to have no liability to the consultant. As a result of the arbitration,
the Company recorded other income of $160,000 for the year ended July 31, 2005.
During the period ended July 31 2005 the company still had an unsettled claim
from a former employee for wages earned during 2002 in the amount of $49,000,
reflected in the Company's financials as a note payable. Both parties have been
in communication and are still in the process of attempting to settle the claim.
On June 22 2005, a former vendor to Mobile Reach Solutions, Inc. entered into
judgment for $57,739. The judgment pertained to orders in default, placed by
Mobile Reach Solutions during the fiscal year ended July 31 2004. Prior to the
judgment being entered into by Plaintiff, the Company and vendor attempted to
settle the claim. As of the fiscal year end July 31 2005 the Company was not
able to come to terms. As of the time of this report the vendor is still owed
the full amount, plus interest.
During the fiscal year ended July 31 2005 the Company defended itself against a
claim from a vendor against Mobile Reach International, Inc. for advertising and
related services in the amount of $17,199. The vendor claims has been recorded
into the Wake County Courts as a judgment against Mobile Reach International,
Inc.
The Company has recorded an account payable at July 31, 2005 of $75,000 to
terminate a lease for office space entered into in September 2003. Additionally,
the Company recorded $34,000 of rent expenses in the forfeiture of rental
security deposits in connection with this lease. The Company entered into an
agreement for termination of these lease in October 2004 and a settlement for
the related debt on June 20, 2005. The terms of the settlement agreement
requires the Company to pay 15,888 in past due expenses and issue 181,250 shares
of the Company's restricted common stock. At July 31, 2005 the $15,888 was
included in the accounts payable.
26
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND CONTROL PERSONS
The names, ages and positions of our directors, executive officers and key
employees are as follows:
Name Age Position
- ---- --- --------
A. Christopher Johnson 37 Chief Executive Officer, Director
Mark J. Lloyd 40 Vice President, Director
Brian R. Balbirnie 33 Chief Financial Officer
Richard Rosenblum 46 Director
David Stefansky 35 Director
The business experience, principal occupations and employment, as well as the
periods of service, of each of the Company's directors and executive officers
during at least the last five years are set forth below.
Alan Christopher Johnson has been a director since the Company's inception, and
became our interim Chief Executive Officer in August 2004. Mr. Johnson was
formally the Head Trader for Index Trading for CMT London, a firm he joined in
March 1999 to set up trading operations on the LIFFE. Mr. Johnson has an
extensive financial banking career that involves several international
derivative trading firms. Prior to joining CMT, in 1996 he co-founded S & J
Derivatives Trading GmbH, a market making firm in Germany that traded on the
Deutshe Terminborse. Mr. Johnson established trading operations for major
international banks in Japan and Germany. He has extensive risk management and
trading skills in equity options, future options, fixed income options, market
making, structuring derivative products and volatility trading. Previously, Mr.
Johnson worked for BNP Securities in Tokyo Japan and was in charge of
re-structuring the Nikkei Index trading operation.
Mark J. Lloyd has been a director since the Company's inception and is currently
our Vice President, Secretary, Chief Technical Officer and Vice President of
Business Development. Mr. Lloyd founded Mobile Reach Technologies in 2000 as a
mobile middleware company. He is responsible for understanding key mobility
technology trends across mobile devices and wireless networks, and how these
technologies can be effectively applied to deliver high-value solutions for
Mobile Reach's clients. Mark works both internally with staff members to set
technical direction, as well as directly with clients to identify areas where
mobile and wireless technologies can provide true business benefit to them. Mr.
Lloyd has several years of mobility experience including wireless device and
network experience with Ericsson, Nortel & AT&T Bell Laboratories in a wide
array of technologies including PDAs, SmartPhone, WAP Browsers, GSM digital
cellular phones, dual-mode cellular phones and SS7 switching systems. In
addition, Mr. Lloyd has a deep background in Software Processes and
Object-Oriented development. In 1992, he founded a company which developed and
commercialized a specialized CASE tool that enabled true Software Engineering
via automated support of domain separation, graphical modeling & source code
generation.
27
Brian R. Balbirnie has been the Chief Financial Officer since July 19, 2005;
previously Mr. Balbirnie served as Chief Operating Officer from December 2003
till July 31, 2004, responsible for the day to day operations, including all
facets of SEC reporting. His duties include directing corporate compliance,
investor relations as well as overseeing different business units. Before
joining Mobile Reach Mr. Balbirnie was a vice president and managing director
with Ivue Corporation and during his tenure, Mr. Balbirnie was involved in the
design and beta of one of the industries first Internet Broadcast player-less
technologies. Preceding Ivue, Mr. Balbirnie spent two years consulting with
several telecommunications companies in the Tampa Bay area, including GCS
Telecom and Target Television, assisting in operations and M&A to build strong
stockholder values and exit strategies.
Richard Rosenblum has been a director since March 7, 2005. Since July 2004, Mr.
Rosenblum has been a principal of Harborview Advisors, LLC, a firm that provides
structuring and financing advice to publicly and privately held firms. From
August 2004 through November 2004, Mr. Rosenblum was a Managing Director of
Greenfield Capital Partners, LLC, a private investment banking firm. From July
2001 until July 2004, Mr. Rosenblum was a Managing Director of Investment
Banking for vFinance Investments in New York, where he was responsible for
advising, structuring and financing publicly and privately held companies. From
July 2001 until July 2004, Mr. Rosenblum also served as Senior Managing Partner
of ACP Advisors in New York, where he was responsible for advising and raising
capital for emerging growth companies. From April 1999 until July 2001, Mr.
Rosenblum was a Managing Director at Robb Peck McCooey Financial Services, Inc.
in New York. Mr. Rosenblum also serves on the Board of Mobile Reach
International, Inc.
David Stefansky has been a director since March 7, 2005. Since July 2004, Mr.
Stefansky has been a principal of Harborview Advisors, LLC, a firm that provides
structuring and financing advice to publicly and privately held firms. From July
2001 until July 2004, Mr. Stefansky was a Managing Director of Investment
Banking for vFinance Investments in New York, where he was responsible for
advising, structuring and financing publicly and privately held companies.
Officers are elected by the Board of Directors and serve at the discretion of
the Board of Directors and hold office until a successor is elected and
qualified or until his/her earlier resignation or removal.
There are no family relationships between any of the above executive officers or
directors, and there is no arrangement or understanding between any of the above
executive officers or directors and any other person pursuant to whom the
officer or director was elected to hold office.
All directors hold office until the next annual meeting of stockholders and the
election and qualification of a successor.
BOARD COMMITTEES
Our Board of Directors has an audit committee and a compensation committee. The
audit committee reviews the results and scope of the audit and other services
provided by our independent public accountant. The compensation committee
establishes the compensation policies applicable to our executives.
28
EXECUTIVE COMPENSATION
- --------------------------------------------------------------------------------------------------------------------------
Annual Compensation (1) Long-Term Compensation
----------------------- ----------------------
Name and Principal Position Restricted Securities
Stock Stock Underlying Other
Year (2) Salary ($) (3) Bonus Awards(1) Options Compensation
---- ---------- ----- --------------- ------- ------------
Alan Christopher Johnson 2005 $160,000(i) - - - -
Chief Executive Officer 2004 - - - - -
2003 - - - - -
Mark J. Lloyd 2005 $175,000 - - - -
President & Chief Technical 2004 $120,000 - - 13,610
Officer 2003 120,000 - - - -
2002 118,850 - - - -
Brian R. Balbirnie 2005 $105,000 - - - -
Chief Financial Officer 2004 $160,000 - - - -
2003 $70,000 - - - -
(1) Excludes perquisites and other personal benefits, the aggregate annual
amount of which for each officer was less than the lesser of $50,000 or 10% of
the total salary and bonus reported.
(2) The fiscal year for 2002 was twelve-month period ended December 31, Fiscal
year 2003 was a seven-month period ended July 31, 2003. Fiscal 2004 was twelve
month period ended July 31, 2004; Fiscal 2005 was twelve month period ended July
31, 2005.
(3) The salary for the seven-month fiscal year 2003 represents the annualized
salary that would have been paid during a 12-month year.
(i) Deferred Salaries - named executive has not taken compensation from the
first date of employment agreement. Named executive has the option to convert
salaries from compensation into Companies Common shares during his employment
with the company.
OPTION GRANTS IN LAST FISCAL YEAR
During the fiscal year ending July 31, 2005 we did not issue any new option
grants.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End
Option Values
There are no outstanding options to purchase shares of the Company's Common
Stock with respect to the Named Executive Officers as of July 31, 2005
SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the Company's Common
Stock by each person (including any "group" as that term is used in Section
13(a)(3) of the Exchange Act of 1934) known to the Company to beneficially own
5% or more of the outstanding Common Stock, each of the Company's directors and
nominees, each of the Company's executive officers and each of the Company's
29
directors and executive officers as a group. The calculation of the percentage
of the Company's Common Stock beneficially owned as of August 23, 2005 is based
on 5,843,196 shares of Common Stock issued and outstanding as of that date post
reverse effectiveness..
In accordance with the rules promulgated by the Securities and Exchange
Commission (the "Commission"), the ownership includes shares currently owned as
well as shares that the named person has the right to acquire beneficial
ownership of within 60 days, including through the exercise of options, warrants
or other rights, or through the conversion of a security. Accordingly, more than
one person may be deemed to be beneficial owner of the same securities. Except
as otherwise indicated, each stockholder listed below has sole voting and
investment power of the shares beneficially owned by that person.
Name and Address of Amount and Nature of
Beneficial Owner Beneficial Owner Percent of Class
---------------- ---------------- ----------------
A. Christopher Johnson 540,243 9.26%
Mark J. Lloyd 405,481 6.95%
Brian R. Balbirnie 56,250 0.96%
Richard Rosenblum 461,726(1) 7.35%
David Stefansky 461,726 (2) 7.35%
Directors and officers
as a group
(5 persons) 1,906,954 30.91%
(1) Includes 387,500 shares of Common Stock owed indirectly by Harborview
Capital, 40,584 shares of Common Stock issuable upon exercise of warrants
issued to Harborview Master Fund. Also includes 12,500 shares of Common
Stock held by Harborview Capital Management, LLC ("Harborview") of which
Mr. Rosenblum is a principal; Also includes 8,157 shares of Common Stock
issuable upon exercise of warrants issued to Mr. Rosenblum in connection
with the 8% convertible Debenture. Furthermore Mr. Rosenblum owns 749
shares of common stock issued for services in connection with a February
27(,) 2004 debenture.
(2) Includes 387,500 shares of Common Stock owed indirectly by Harborview
Capital, 40,584 shares of Common Stock issuable upon exercise of warrants
issued to Harborview Master Fund. Also includes 12,500 shares of Common
Stock held by Harborview Capital Management, LLC ("Harborview") of which
Mr. Stefansky is a principal; Also includes 8,157 shares of Common Stock
issuable upon exercise of warrants issued to Mr. Stefansky in connection
with the 8% convertible Debenture. Furthermore Mr. Stefansky owns 749
shares of common stock issued for services in connection with a February
27(,) 2004 debenture.
30
EMPLOYMENT AGREEMENTS
In April, 2005, the Company and A. Christopher Johnson entered into an
employment agreement, effective as of April 1, 2005, pursuant to which Mr.
Johnson shall remain as the Chief Executive Officer of the Company shall be paid
an annual salary at the rate of $120,000. Mr. Johnson's salary is scheduled to
increase to $175,000 in the event the Company closes a financing with proceeds
to the Company in excess of $1 million. At his election, Mr. Johnson may convert
any accrued but unpaid salary into incentive stock options to purchase shares of
the Company's common stock at an exercise price equal to the closing price (on
the principal exchange on which the common stock is traded) of the common stock
on the business day immediately preceding the date of conversion. The agreement
further provides that if Mr. Johnson's employment is terminated other than for
cause (as defined in the employment agreement), he will be entitled to receive
an amount in cash equal to three months' base salary plus benefits for such
period.
Mark J. Lloyd, President and Chief Technology Officer, is entitled to receive a
base salary of $175,000 per year under his Employment Agreement. However, due to
the financial condition of the Company, Mr. Lloyd has been deferring his salary
at a rate of $4,583.00 per month, since April 2004. Upon the closing by the
Company of financing rounds totaling over $2 million, Mr. Lloyd's base salary
will increase to $175,000 per year. In such an event, Mr. Lloyd will also
receive a bonus equal to 12.5% of the net sales received by the Company on
certain of its contracts. Mr. Lloyd will also receive a cash bonus equal to
$93,600 upon the earlier to occur of the closing by the Company of financing
rounds totaling over $2 million or December 31, 2003. In the event of
termination of Mr. Lloyd's employment for any reason, Mr. Lloyd is eligible for
a severance payment of $93,600 in lieu of the cash bonus mentioned in the
preceding sentence, plus three months of his then-current salary. Mr. Lloyd is
eligible for options under the Company's Equity Compensation Plan at the
discretion of the Board.
Brian Balbirnie, our Chief Financial Officer, receives a base salary of $105,000
per year. He currently does not have an employment agreement with us. Previously
Mr. Balbirnie served as a consultant to the company and deferred compensation in
the amount of $21,000.00. As of July 31, 2005, the amount is still owed and
payable.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
One of the members of our Board and our Chief Executive Officer, Alan
Christopher Johnson, as part of a group of investors, entered into a Secured
Bridge Note dated May 31, 2004 for a total amount of $435,000. The Company, its
management, the Board and Alan Christopher Johnson have agreed in principle to
convert the $435,000.00 into a 8,400,000 shares of common stock pre-reverse
equal to 105,000 common shares post effective reverse or 1.49% of the issued and
outstanding common shares of the company.
On April 28, 2005, we entered into an employment agreement with A. Christopher
Johnson, effective as of April 1, 2005, pursuant to which Mr. Johnson shall
remain as the Chief Executive Officer of the Company shall be paid an annual
salary at the rate of $120,000. Mr. Johnson's salary is scheduled to increase to
$175,000 in the event the Company closes a financing with proceeds to the
Company in excess of $1 million. At his election, Mr. Johnson may convert any
accrued but unpaid salary into incentive stock options to purchase shares of the
Company's common stock at an exercise price equal he closing price (on the
principal exchange on which the common stock is traded) of the common stock on
the business day immediately preceding the date of conversion. The agreement
further provides that if Mr. Johnson's employment is terminated other than for
31
cause (as defined in the employment agreement), he will be entitled to receive
an amount in cash equal to three months' base salary plus benefits for such
period. Currently, we have not made any payments under the employment agreement.
On July 19, 2005, we appointed Brian R. Balbirnie as its Chief Financial
Officer. Mr. Balbirnie will receive an annual salary of $105,000. We and Mr.
Balbirnie do not currently plan to execute an employment agreement.
On August 23, 2005, we engaged Harborview Capital Management LLC to provide
various advisory services for 775,000 shares Common Stock which we are
registering hereunder. Messrs. Rosenblum and Stefanksy, each of a member of our
Board and each a Managing Director of Harborview Capital Management LLC, will
receive all of those shares in equal proportion.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act, requires officers and directors of the
Company and persons who own more than ten percent of the Common Stock, to file
initial statements of beneficial ownership (Form 3), and statements of changes
in beneficial ownership (Forms 4 or 5), of Common Stock with the SEC. Officers,
directors and greater than ten-percent stockholders are required by SEC
regulation to furnish the Company with copies of all such forms they file.
Based solely on review of the copies of such forms received by the Company
with respect to 2004, or written representations from certain reporting persons,
the Company believes that all filing requirements applicable to its directors
and officers and persons who own more than 10%.
SELLING STOCKHOLDERS
Up to 5,002,529 shares are being offered hereby under this prospectus, all of
which are being registered for sale for the account of the selling stockholders.
Except for selling stockholders with an asterisk (*) next to their names and
except for Mr. Richard Rosenblum and David Stefanksy, both directors in our
company who acquired a portion of his beneficial interest in consideration of
service on our board of directors, the selling stockholders acquired their
beneficial interests in the shares being offered hereby in connection with the
private placement described in this Prospectus under the caption "DESCRIPTION OF
THE AGREEMENTS WITH THE HOLDERS OF THE 8% CONVERTIBLE NOTES." Messrs. Richard
Rosenblum and David Stefansky, each a director in our company, acquired only
part of his beneficial interest in connection with these transactions.
SELLING STOCKHOLDER TABLE
The following table sets forth the shares beneficially owned, as of August 19,
2005, by the selling stockholders prior to the offering contemplated by this
Prospectus, the number of shares each selling stockholder is offering by this
Prospectus and the number of shares which each would own beneficially if all
such offered shares are sold.
Beneficial ownership is determined in accordance with SEC rules and includes
voting or investment power with respect to the securities.
32
- ------------------------------------ ---------------------- ---------------------- -------------------------------------
Number of Shares Number of Shares to Number of Shares Beneficially Owned
be Registered and Percent of Total Issued and
Beneficially Owned Pursuant to this Outstanding if All Shares
Prior to Offering(i) Prospectus Registered are Sold
- ------------------------------------ ---------------------- ---------------------- -------------------------------------
# of Shares % of Class
- ------------------------------------ ---------------------- ---------------------- ---------------------- --------------
- ------------------------------------ ---------------------- ---------------------- ---------------------- --------------
Bara Limited (1) 312,739 -0- 0.00%
- ------------------------------------ ---------------------- ---------------------- ---------------------- --------------
CMS Capital (2) 463,538 -0- 0.00%
- ------------------------------------ ---------------------- ---------------------- ---------------------- --------------
Redwood Capital Partners, Inc. (3) 208,493 -0- 0.00%
- ------------------------------------ ---------------------- ---------------------- ---------------------- --------------
Yokim Asset Management (4) 208,493 -0- 0.00%
- ------------------------------------ ---------------------- ---------------------- ---------------------- --------------
Chardan Capital Markets (5) 405,844 -0- 0.00%
- ------------------------------------ ---------------------- ---------------------- ---------------------- --------------
JM Investors (6) 304,383 -0- 0.00%
- ------------------------------------ ---------------------- ---------------------- ---------------------- --------------
Alpha Capital (7) 405,844 -0- 0.00%
- ------------------------------------ ---------------------- ---------------------- ---------------------- --------------
Professional Traders (8) 405,844 -0- 0.00%
- ------------------------------------ ---------------------- ---------------------- ---------------------- --------------
Whalehaven Capital Fund (9) 608,766 -0- 0.00%
- ------------------------------------ ---------------------- ---------------------- ---------------------- --------------
Mayer & Associates, LLC (10) 104,247 -0- 0.00%
- ------------------------------------ ---------------------- ---------------------- ---------------------- --------------
vFinance Investments, Inc. (11) 2,092 45,373 2,092 0.62%
- ------------------------------------ ---------------------- ---------------------- ---------------------- --------------
Harborview Master Fund (12) 202,922 -0- 0.00%
- ------------------------------------ ---------------------- ---------------------- ---------------------- --------------
David Stefansky* (13) 461,726 20,393 452,490 7.35%
- ------------------------------------ ---------------------- ---------------------- ---------------------- --------------
Richard Rosenblum* (14) 461,726 20,393 452,490 7.35%
- ------------------------------------ ---------------------- ---------------------- ---------------------- --------------
Samuel Krieger* 781 8,117 781 0.01%
- ------------------------------------ ---------------------- ---------------------- ---------------------- --------------
Ronald Nussbaum* 781 8,117 781 0.01%
- ------------------------------------ ---------------------- ---------------------- ---------------------- --------------
Jonathan C. Rich* 153 21,585 153 0.35%
- ------------------------------------ ---------------------- ---------------------- ---------------------- --------------
Carmelo Troccoli* 5,000 -0- 0.00%
- ------------------------------------ ---------------------- ---------------------- ---------------------- --------------
Delpresto Family LLC 50,000 -0- 0.00%
- ------------------------------------ ---------------------- ---------------------- ---------------------- --------------
Brad Drewyor* 6,874 68,750 6,874 0.08%
- ------------------------------------ ---------------------- ---------------------- ---------------------- --------------
Kevin Walker* 3,986 62,500 3,986 0.05%
- ------------------------------------ ---------------------- ---------------------- ---------------------- --------------
Paige Bendixsen* 16,250 37,500 16,250 0.10%
- ------------------------------------ ---------------------- ---------------------- ---------------------- --------------
Michael Le* 27,620 12,500 27,620 0.05%
- ------------------------------------ ---------------------- ---------------------- ---------------------- --------------
Nureco LLC* -- 28,569 -0- 0.00%
- ------------------------------------ ---------------------- ---------------------- ---------------------- --------------
IITS* -- 50,567 -0- 0.00%
- ------------------------------------ ---------------------- ---------------------- ---------------------- --------------
Regency* -- 181,250 -0- 0.00%
- ------------------------------------ ---------------------- ---------------------- ---------------------- --------------
William Clark* -- 100,000 -0- 0.00%
- ------------------------------------ ---------------------- ---------------------- ---------------------- --------------
Mark Wayner* -- 125,000 -0- 0.00%
- ------------------------------------ ---------------------- ---------------------- ---------------------- --------------
Brian Balbirnie* -- 56,250 -0- 0.00%
- ------------------------------------ ---------------------- ---------------------- ---------------------- --------------
Robert Souder* 1,371 250,000 1,371 0.02%
- ------------------------------------ ---------------------- ---------------------- ---------------------- --------------
Quick Law Group* -- 26,250 -0- 0.00%
- ------------------------------------ ---------------------- ---------------------- ---------------------- --------------
Wyrick Robbins* -- 70,000 -0- 0.00%
- ------------------------------------ ---------------------- ---------------------- ---------------------- --------------
ROI Group* 14,125 12,250 14,125 0.24%
- ------------------------------------ ---------------------- ---------------------- ---------------------- --------------
Ideal Management* -- 6,250 -0- 0.00%
- ------------------------------------ ---------------------- ---------------------- ---------------------- --------------
DRW Investments* -- 21,000 -0- 0.00%
- ------------------------------------ ---------------------- ---------------------- ---------------------- --------------
Stefan Ressing (GCSSR LLC)* 4,114 44,427 4,114 0.03%
- ------------------------------------ ---------------------- ---------------------- ---------------------- --------------
33
- ------------------------------------ ---------------------- ---------------------- -------------------------------------
Number of Shares Number of Shares to Number of Shares Beneficially Owned
be Registered and Percent of Total Issued and
Beneficially Owned Pursuant to this Outstanding if All Shares
Prior to Offering(i) Prospectus Registered are Sold
- ------------------------------------ ---------------------- ---------------------- -------------------------------------
# of Shares % of Class
- ------------------------------------ ---------------------- ---------------------- ---------------------- --------------
- ------------------------------------ ---------------------- ---------------------- ---------------------- --------------
Lynn Fontana* 2,344 25,000 2,344 0.00%
- ------------------------------------ ---------------------- ---------------------- ---------------------- --------------
Charles Joyce* 5,000 12,500 5,000 0.00%
- ------------------------------------ ---------------------- ---------------------- ---------------------- --------------
Lars Berglund* -- 1,875 -0- 0.00%
- ------------------------------------ ---------------------- ---------------------- ---------------------- --------------
- ------------------------------------ ---------------------- ---------------------- ---------------------- --------------
TOTAL 1,008,943 5,002,529 990,471 16.26%
- ------------------------------------ ---------------------- ---------------------- ---------------------- --------------
(1) Represents (i) 260,552 shares of Common Stock issuable upon conversion of
the Notes and (ii) 52,187 shares issuable upon the exercise of Warrants issued
in connection with the Notes. The selling stockholder advised us that it
purchased the Notes and Warrants solely for investment and not with a view to or
for resale or distribution of such securities. For more information on our
agreement with such selling stockholder, see "DESCRIPTION OF THE AGREEMENTS WITH
THE HOLDERS OF THE 8% CONVERTIBLE PROMISSORY NOTES."
(2) Represents (i) 338,880 shares of Common Stock issuable upon conversion of
the Notes, and (ii) 124,658 shares issuable upon the exercise of Warrants issued
in connection with the Notes. The selling stockholder advised us that it
purchased the Notes and Warrants solely for investment and not with a view to or
for resale or distribution of such securities. For more information on our
agreement with such selling stockholder, see "DESCRIPTION OF THE AGREEMENTS WITH
THE HOLDERS OF THE 8% CONVERTIBLE PROMISSORY NOTES."
(3) Represents (i) 173,701 shares of Common Stock issuable upon conversion of
the Notes, and (ii) 34,792 shares issuable upon the exercise of Warrants issued
in connection with the Notes. The selling stockholder advised us that it
purchased the Notes and Warrants solely for investment and not with a view to or
for resale or distribution of such securities. For more information on our
agreement with such selling stockholder, see "DESCRIPTION OF THE AGREEMENTS WITH
THE HOLDERS OF THE 8% CONVERTIBLE PROMISSORY NOTES."
(4) Represents (i) 173,701 shares of Common Stock issuable upon conversion of
the Notes, and (ii) 34,792 shares issuable upon the exercise of Warrants issued
in connection with the Notes. The selling stockholder advised us that it
purchased the Notes and Warrants solely for investment and not with a view to or
for resale or distribution of such securities. For more information on our
agreement with such selling stockholder, see "DESCRIPTION OF THE AGREEMENTS WITH
THE HOLDERS OF THE 8% CONVERTIBLE PROMISSORY NOTES."
(5) Represents (i) 243,506 shares of Common Stock issuable upon conversion of
the Notes, and (ii) 162,338 shares issuable upon the exercise of Warrants issued
in connection with the Notes. The selling stockholder advised us that it
purchased the Notes and Warrants solely for investment and not with a view to or
for resale or distribution of such securities. For more information on our
agreement with such selling stockholder, see "DESCRIPTION OF THE AGREEMENTS WITH
THE HOLDERS OF THE 8% CONVERTIBLE PROMISSORY NOTES."
(6) Represents (i) 182,630 shares of Common Stock issuable upon conversion of
the Notes, and (ii) 121,753 shares issuable upon the exercise of Warrants issued
in connection with the Notes. The selling stockholder advised us that it
purchased the Notes and Warrants solely for investment and not with a view to or
for resale or distribution of such securities. For more information on our
agreement with such selling stockholder, see "DESCRIPTION OF THE AGREEMENTS WITH
THE HOLDERS OF THE 8% CONVERTIBLE PROMISSORY NOTES."
(7) Represents (i) 243,506 shares of Common Stock issuable upon conversion of
the Notes, and (ii) 162,338 shares issuable upon the exercise of Warrants issued
in connection with the Notes. The selling stockholder advised us that it
purchased the Notes and Warrants solely for investment and not with a view to or
34
for resale or distribution of such securities. For more information on our
agreement with such selling stockholder, see "DESCRIPTION OF THE AGREEMENTS WITH
THE HOLDERS OF THE 8% CONVERTIBLE PROMISSORY NOTES."
(8) Represents (i) 243,506 shares of Common Stock issuable upon conversion of
the Notes, and (ii) 162,338 shares issuable upon the exercise of Warrants issued
in connection with the Notes. The selling stockholder advised us that it
purchased the Notes and Warrants solely for investment and not with a view to or
for resale or distribution of such securities. For more information on our
agreement with such selling stockholder, see "DESCRIPTION OF THE AGREEMENTS WITH
THE HOLDERS OF THE 8% CONVERTIBLE PROMISSORY NOTES."
(9) Represents (i) 365,260 shares of Common Stock issuable upon conversion of
the Notes, and (ii) 243,506 shares issuable upon the exercise of Warrants issued
in connection with the Notes. The selling stockholder advised us that it
purchased the Notes and Warrants solely for investment and not with a view to or
for resale or distribution of such securities. For more information on our
agreement with such selling stockholder, see "DESCRIPTION OF THE AGREEMENTS WITH
THE HOLDERS OF THE 8% CONVERTIBLE PROMISSORY NOTES."
(10) Represents (i) 86,851 shares of Common Stock issuable upon conversion of
the Notes, and (ii) 17,396 shares issuable upon the exercise of Warrants issued
in connection with the Notes. The selling stockholder advised us that it
purchased the Notes and Warrants solely for investment and not with a view to or
for resale or distribution of such securities. For more information on our
agreement with such selling stockholder, see "DESCRIPTION OF THE AGREEMENTS WITH
THE HOLDERS OF THE 8% CONVERTIBLE PROMISSORY NOTES."
(11) Represents (i) 12,224 shares of Common Stock issuable upon conversion of
the Notes, and (ii) 8,149 shares issuable upon the exercise of Warrants issued
in connection with the Notes, and (iii) 25,000 shares issued in connection with
agreement dated August 2005. The selling stockholder advised us that it
purchased the Notes and Warrants solely for investment and not with a view to or
for resale or distribution of such securities. For more information on our
agreement with such selling stockholder, see "DESCRIPTION OF THE AGREEMENTS WITH
THE HOLDERS OF THE 8% CONVERTIBLE PROMISSORY NOTES."
(12) Represents (i) 121,753 shares of Common Stock issuable upon conversion of
the Notes, and (ii) 81,168 shares issuable upon the exercise of Warrants issued
in connection with the Notes. The selling stockholder advised us that it
purchased the Notes and Warrants solely for investment and not with a view to or
for resale or distribution of such securities. For more information on our
agreement with such selling stockholder, see "DESCRIPTION OF THE AGREEMENTS WITH
THE HOLDERS OF THE 8% CONVERTIBLE PROMISSORY NOTES."
(13) Represents 12,236 shares of Common Stock issuable upon conversion of the
Notes, Includes 387,500 shares of Common Stock owed indirectly by Harborview
Capital, 40,584 shares of Common Stock issuable upon exercise of warrants issued
to Harborview Master Fund. Also includes 12,500 shares of Common Stock held by
Harborview Capital Management, LLC ("Harborview") of which Mr. Stefansky is a
principal; Also includes 8,157 shares of Common Stock issuable upon exercise of
warrants issued to Mr. Stefansky in connection with the 8% convertible
debenture. Furthermore Mr. Stefansky owns 749 shares of common stock issued for
services in connection with a February 27, 2004 debenture.
35
(14) Represents 12,236 shares of Common Stock issuable upon conversion of the
Notes, Includes 387,500 shares of Common Stock owed indirectly by Harborview
Capital, 40,584 shares of Common Stock issuable upon exercise of warrants issued
to Harborview Master Fund. Also includes 12,500 shares of Common Stock held by
Harborview Capital Management, LLC ("Harborview") of which Mr. Rosenblum is a
principal; Also includes 8,157 shares of Common Stock issuable upon exercise of
warrants issued to Mr. Rosenblum in connection with the 8% convertible
debenture. Furthermore Mr. Rosenblum owns 749 shares of common stock issued for
services in connection with a February 27, 2004 debenture.
RELATIONSHIP BETWEEN MOBILE REACH AND THE SELLING STOCKHOLDERS
Harborview Capital Management holds approximately 15% of our issued and
outstanding shares of Common Stock as of August 23, 2005 (without giving effect
to the purchase of their beneficial interests in the transaction described in
the section "DESCRIPTION OF THE AGREEMENTS WITH THE HOLDERS OF THE 8%
CONVERTIBLE PROMISSORY NOTES). Each of David Stefanksy and Richard Rosenblum
currently serve as non-employee directors of our company. Quick Law Group PC has
provided and continues to provide legal services to our company. Except as
otherwise described above, none of the selling shareholders (i) are affiliates
or controlled by an affiliate of our company (ii) are now or were at any time in
the past an officer or director of ours or any of any of our predecessors or
affiliates.
PLAN OF DISTRIBUTION
The selling stockholders and any of their respective pledgees, donees, assignees
and other successors-in-interest may, from time to time, sell any or all of
their shares of common stock on any stock exchange, market or trading facility
on which the shares are traded or in private transactions. These sales may be at
fixed or negotiated prices.
We have agreed, subject to certain limits, to bear all costs, expenses and fees
of registration of the shares of Common Stock offered by the selling
stockholders for resale. However, any brokerage commissions, discounts,
concessions or other fees, if any, payable to broker-dealers in connection with
any sale of the shares of Common Stock will be borne by the selling stockholders
selling those shares or by the purchasers of such shares.
Upon our being notified by a selling stockholder that any material arrangement
has been entered into with a broker-dealer for the sale of shares through a
block trade, special offering, exchange distribution or secondary distribution
or a purchase by a broker or dealer, a supplement to this prospectus will be
filed, if required, pursuant to Rule 424(b) under the Securities Act,
disclosing:
o The name of each such selling stockholder and of the participating
broker-dealer(s);
o The number of securities involved;
o The price at which such securities were sold;
o The commissions paid or discounts or concessions allowed to such
broker-dealer(s), where applicable;
o That such broker-dealer(s) did not conduct any investigation to verify the
information set out or incorporated by reference in this prospectus; and
o Other facts material to the transaction.
36
The selling stockholders may use any one or more of the following methods when
selling shares: o directly as principals;
o ordinary brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
o block trades in which the broker-dealer will attempt to sell the shares as
agent but may position and resell a portion of the block as principal to
facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the broker-dealer
for our account;
o an exchange distribution in accordance with the rules of the applicable
exchange;
o privately negotiated transactions;
o short sales that are in compliance with the applicable laws and regulations
of any state or the United States;
o broker-dealers may agree with the selling stockholders to sell a specified
number of such shares at a stipulated price per share;
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
The selling stockholders may also sell shares under Rule 144 under the
Securities Act of 1933, as amended (the "Securities Act"), if available, rather
than under this Prospectus.
Any sales of the shares may be effected through the OTC Bulletin Board, in
private transactions or otherwise, and the shares may be sold at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices.
The selling stockholders may also engage in short sales against the box, puts
and calls and other transactions in our securities or derivatives of our
securities and may sell or deliver shares in connection with these trades. The
selling stockholders may pledge their shares to their brokers under the margin
provisions of customer agreements. If a selling stockholder defaults on a margin
loan, the broker may, from time to time, offer and sell the pledged shares. We
believe that the selling stockholders have not entered into any agreements,
understandings or arrangements with any underwriters or broker-dealers regarding
the sale of their shares other than ordinary course brokerage arrangements, nor
is there an underwriter or coordinating broker acting in connection with the
proposed sale of shares by the selling stockholders.
Broker-dealers engaged by the selling stockholders may arrange for other
brokers-dealers to participate in sales. If the selling stockholders effect
sales through underwriters, brokers, dealers or agents, such firms may receive
compensation in the form of discounts, concessions or commissions from the
selling stockholders or the purchasers of the shares for whom they may act as
agent, principal or both in amounts to be negotiated. Those persons who act as
broker-dealers or underwriters in connection with the sale of the shares may be
selected by the selling stockholders and may have other business relationships
with, and perform services for, us. The selling stockholders do not expect these
commissions and discounts to exceed what is customary in the types of
transactions involved.
37
Any selling stockholder or broker-dealer who participates in the sale of the
shares may be deemed to be an "underwriter" within the meaning of Section 2(11)
of the Securities Act. Any commissions received by any underwriter or
broker-dealer and any profit on any sale of the shares as principal may be
deemed to be underwriting discounts and commissions under the Securities Act.
The anti-manipulation provisions of Rules 101 through 104 of Regulation M
promulgated under the Exchange Act may apply to purchases and sales of shares of
common stock by the selling stockholders. In addition, there are restrictions on
market-making activities by persons engaged in the distribution of the common
stock. We have advised each selling stockholder that it may not use shares of
Common Stock issuable upon conversion of the Notes or the Warrants and included
in this Registration Statement to cover short sales of Common Stock made prior
to the date on which the Registration Statement shall have been declared
effective.
Under the securities laws of certain states, the shares may be sold in such
states only through registered or licensed brokers or dealers. In addition, in
certain states the shares may not be able to be sold unless the Common Stock has
been registered or qualified for sale in such state or an exemption from
registration or qualification is available and is complied with.
We are required to pay expenses incident to the registration, offering and sale
of the shares pursuant to this offering. We estimate that our expenses will be
approximately $20,000.in the aggregate. We have agreed to indemnify certain
selling stockholders and certain other persons against certain liabilities,
including liabilities under the Securities Act or to contribute to payments to
which such selling stockholders or their respective pledgees, donees,
transferees or other successors in interest may be required to make in respect
thereof. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons, we have
been advised that in the opinion of the SEC, such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
DESCRIPTION OF SECURITIES
COMMON STOCK
We are authorized to issue up to 500,000,000 shares of Common Stock. As of
August 19, 2005, there were 2,394,639 shares of Common Stock outstanding.
Holders of the common stock are entitled to one vote per share on all matters to
be voted upon by the stockholders. Holders of Common Stock are entitled to
receive ratably such dividends, if any, as may be declared by the Board of
Directors out of funds legally available therefore. Upon the liquidation,
dissolution, or winding up of our company, the holders of Common Stock are
entitled to share ratably in all of our assets which are legally available for
distribution after payment of all debts and other liabilities and liquidation
preference of any outstanding common stock. Holders of common stock have no
preemptive, subscription, redemption or conversion rights. The outstanding
shares of Common Stock are validly issued, fully paid and nonassessable.
PREFERRED STOCK
We are authorized to issue up to 10,000,000 shares of preferred stock, par value
$.0001 per share. As of August 19, 2005, there were no shares of preferred stock
issued and outstanding. The preferred stock are issuable in series, and in
38
connection with the issuance of any series of preferred stock and to the extent
now or hereafter permitted by law, the board of directors is authorized to fix
by resolution the designation of each series, the stated value of the shares of
each series, the dividend rate or rates of each series and the date or dates and
other provisions respecting the payment of dividends, the provisions, if any,
respecting the redemption of the shares of each series and, subject to
requirements of law, the voting rights, the terms, if any, upon which the shares
of each series shall be convertible into or exchangeable for any other shares of
stock of we and any other relative, participating, optional or other special
rights, and qualifications, limitations or restrictions thereof, of the shares
of each series.
TRANSFER AGENT
Our transfer agent is Interwest Transfer Company Inc., 1981 East Murray Holladay
Road, Suite 100, Salt Lake City, Utah 84117, Attention: Shareholder Relations,
telephone number: (801) 272-9294.
AUDITOR
Since July 2003, our principal independent accountants have remained Scharf,
Pera & Co., P.L.L.C ("Scharf").
During the three most recent fiscal years ending July 31, 2003 and through July
31, 2005, we have not consulted with Scharf regarding either:
(i) the application of accounting principles to any specified transaction,
either completed or proposed, or the type of audit opinion that might be
rendered on our financial statements, and neither a written report was provided
to us nor oral advice was provided that Marcum concluded was an important factor
considered by us in reaching a decision as to the accounting, auditing or
financial reporting issue; or
39
(ii) any matter that was either subject of disagreement or event, as defined in
Item 304(a)(1)(iv)(A) of Regulation S-B and the related instruction to Item 304
of Regulation S-B, or a reportable event, as that term is explained in Item
304(a)(1)(iv)(A) of Regulation S-B.
Scharf's opinion in our report on our financial statements for the year ended
July 31, 2004 expressed substantial doubt with respect to our ability to
continue as a going concern.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES
Pursuant to our certificate of incorporation and by-laws, our officers and
directors are indemnified by us to the fullest extent allowed under Delaware law
for claims brought against them in their capacities as officers and directors.
Indemnification is not allowed if the officer or director does not act in good
faith and in a manner reasonably believed to be in our best interest, or if the
officer or director had no reasonable cause to believe his conduct was lawful.
Accordingly, indemnification may occur for liabilities arising under the Act.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted for our directors, officers and controlling persons pursuant to the
foregoing provisions or otherwise, we have been advised that in the opinion of
the SEC, such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
INTEREST OF NAMED EXPERTS AND COUNSEL
Quick Law Group PC, in settlement for fees owed, received 26,250 shares of
Common Stock in connection with legal services rendered by them.
LEGAL MATTERS
The validity of the common stock offered under this prospectus will be passed on
for us by Quick Law Group PC.
EXPERTS
The financial statements as of July 31, 2005, and 2004 included in this
Prospectus and elsewhere in the Registration Statement of which this Prospectus
forms a part, have been audited, respectively, by Scharf, Pera & Co., P.L.L.C ,
independent registered public accounting firm. The report expresses an
unqualified opinion and includes an explanatory paragraph related to our ability
to continue as a going concern and have been included in reliance upon the
reports of such firms given upon their authority as experts in accounting and
auditing.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the Securities and Exchange Commission ("Commission"). You may
read and copy any reports, statements or other information on file at the
Commission's public reference room in Washington, D.C. You can request copies of
those documents, upon payment of a duplicating fee, by writing to the
Commission.
We have filed with the SEC under the Securities Act a Registration Statement on
Form SB-2 (the "Registration Statement"), of which this prospectus is a part,
with respect to the shares offered hereby. This prospectus, which constitutes a
40
part of the Registration Statement, does not contain all of the information set
forth in the Registration Statement, certain items of which are contained in
exhibour and schedules as permitted by the rules and regulations of the
Securities and Exchange Commission. Statements made in this prospectus as to the
contents of any contract, agreement or other document referred to herein are not
necessarily complete. With respect to each contract, agreement or other document
filed as an exhibit to the Registration Statement or in a filing incorporated by
reference herein or otherwise, reference is made to the exhibit for a more
complete description of the matters involved, and each statement shall be deemed
qualified in our entirety by this reference.
We are subject to the informational requirements of the Exchange Act and file
periodic reports, proxy statements and other information with the SEC. Reports
and other information filed by us may be inspected and copied at the public
reference facilities maintained by the SEC at:
Judiciary Plaza 450 Fifth Street, N. W.
Room 1024
Washington, D.C. 20549
Copies of such material may be obtained by mail from the Public Reference Room
of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. In addition, the SEC maintains a Web site at HTTP://WWW.SEC.GOV
containing reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC, including us. The
SEC's telephone number is 1-800-SEC-0330.
41
MOBILE REACH INTERNATIONAL, INC. AND SUBSIDIARIES
-------------------------------------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
YEARS ENDED JULY 31, 2005 AND 2004
----------------------------------
Pages
INDEPENDENT AUDITORS' REPORT F1
FINANCIAL STATEMENTS:
Consolidated Balance Sheet F2
Consolidated Statements of Income F3
Consolidated Statement of Stockholders' Deficit F4
Consolidated Statements of Cash Flows F5 - F6
Notes to Consolidated Financial Statements F7 - F22
Board of Directors
Mobile Reach International, Inc. and Subsidiaries
Charlotte, North Carolina
INDEPENDENT AUDITORS' REPORT
----------------------------
We have audited the accompanying consolidated balance sheet of Mobile Reach
International, Inc. and Subsidiaries as of July 31, 2005, and the related
consolidated statements of income, consolidated statement of changes in
stockholders' deficit and consolidated statements of cash flows for the years
ended July 31, 2005 and 2004. 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 the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audits 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 Mobile Reach International,
Inc. and Subsidiaries as of July 31, 2005 and 2004, and the results of its
operations and its cash flows for the years ended July 31, 2005 and 2004, 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 operations
and has net stockholders' deficit, which raise substantial doubt about its
ability to continue as a going concern. Management's plans regarding those
matters are also included in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
October 26, 2005
/s/ Scharf Pera & Co., PLLC
- -----------------------------
Scharf Pera & Co., PLLC
Charlotte, North Carolina
(F1)
MOBILE REACH INTERNATIONAL, INC. AND SUBSIDIARIES
-------------------------------------------------
CONSOLIDATED BALANCE SHEET
--------------------------
JULY 31, 2005
-------------
ASSETS
------
CURRENT ASSETS:
Cash $ 78,353
Accounts receivable - trade 57,708
Other assets 450
-----------
Total current assets 136,511
PROPERTY AND EQUIPMENT - NET 74,920
-----------
$ 211,431
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
CURRENT LIABILITIES:
Current portion of long-term debt $ 23,038
Notes payable 88,759
Accounts payable 580,016
Accrued expenses 261,865
Accrued taxes and withholdings 538,170
Deferred income 48,287
-----------
Total current liabilities $ 1,540,135
LONG-TERM DEBT (net of current portion) 63,267
CONVERTIBLE DEBENTURES 1,025,000
COMMITMENTS AND CONTINGENCIES --
STOCKHOLDERS' DEFICIT:
Preferred stock; $.0001 par value;
100,000,000 shares authorized --
Common stock; par value $.0001; 500,000,000
shares authorized, 585,700 shares issued
and outstanding, 1,808,939 shares to be
issued 6,342,352
Accumulated deficit (8,759,323)
-----------
(2,416,971)
-----------
$ 211,431
===========
See Notes to Consolidated Financial Statements
(F2)
MOBILE REACH INTERNATIONAL, INC. AND SUBSIDIARIES
-------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
FOR THE YEARS ENDED JULY 31, 2005 AND 2004
------------------------------------------
2005 2004
----------- -----------
NET REVENUES:
Software license, maintenance, and support
fees $ 405,796 $ 591,193
Product sales 87,665 854,710
Professional services 113,913 132,225
Other revenue -- 11,731
----------- -----------
Total revenues 607,374 1,589,859
COST AND EXPENSES:
Cost of revenues 68,419 937,833
Sales and administrative 1,488,735 3,547,034
Depreciation 39,635 46,548
Bad debt expense 17,565 31,705
----------- -----------
Total cost and expenses 1,614,354 4,563,120
----------- -----------
LOSS FROM OPERATIONS (1,006,980) (2,973,261)
----------- -----------
OTHER (EXPENSE) INCOME:
Interest expense (104,798) (242,532)
Contingency gain -- 105,000
Net liabilities exceeding assets on
acquisition -- (22,148)
Loss on sale of property (19,451) (10,263)
Loss on disposal of unit (7,641) --
Other income - litigation settlement 160,000 --
Other income 7,989 344
----------- -----------
Total other income (expenses) 36,099 (169,599)
----------- -----------
NET LOSS BEFORE INCOME TAXES (970,881) (3,142,860)
=========== ===========
INCOME TAX (EXPENSE) BENEFIT -- --
----------- -----------
NET LOSS (970,881) (3,142,860)
=========== ===========
NET LOSS PER SHARE - BASIC AND DILUTED (0.97) (9.01)
=========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
- BASIC AND DILUTED 996,728 348,646
=========== ===========
See Notes to Consolidated Financial Statements
(F3)
MOBILE REACH INTERNATIONAL, INC. AND SUBSIDIARIES
-------------------------------------------------
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
-----------------------------------------------
FOR THE YEARS ENDED JULY 31, 2005 AND 2004
------------------------------------------
Common Stock
---------------------------------------
Pre-reverse Post-reverse
Split Split Accumulated
Shares Shares Amount Deficit Total
----------- ----------- ----------- ----------- -----------
Balances at July 31,2003 23,636,180 295,453 $ 3,321,288 $(4,645,582) $(1,324,294)
Issuance of common stock 5,005,168 62,565 1,006,027 -- 1,006,027
Issuance of stock as fee for
services 803,125 10,039 86,500 -- 86,500
Issuance of stock in
settlement of litigation 700,000 8,750 74,716 -- 74,716
Issuance of stock on option
exercise 1,949,962 24,375 4,026 -- 4,026
Issuance of stock on
acquisition 1,300,000 16,250 -- -- --
Net Loss -- -- -- (3,142,860) (3,142,860)
----------- ----------- ----------- ----------- -----------
Balances at July 31,2004 33,394,435 417,432 4,492,557 (7,788,442) (3,295,885)
Issuance of stock in
settlement of debt 158,168,686 1,977,109 1,849,795 -- 1,849,795
Shares issued due to rounding
on reverse split -- 98 -- -- --
Net Loss -- -- -- (970,881) (970,881)
----------- ----------- ----------- ----------- -----------
Balances at July 31,2005 191,563,121 2,394,639 $ 6,342,352 $(8,759,323) $(2,416,971)
=========== =========== =========== =========== ===========
See Notes to Consolidated Financial Statements
(F4)
MOBILE REACH INTERNATIONAL, INC. AND SUBSIDIARIES
-------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE YEARS ENDED JULY 31, 2005 AND 2004
------------------------------------------
2005 2004
----------- -----------
Cash flows from operating activities:
Net loss $ (970,881) $(3,142,860)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 39,635 48,068
Stock issued for compensation and fees 220,720 161,216
Loss on disposal of equipment 19,451 17,693
Liabilities in excess of assets -- 22,148
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 270,851 (153,197)
(Increase) in prepaid expenses (450) --
Increase in accounts payable 499 669,120
(Decrease) increase in accrued expenses,
taxes & withholdings (93,389) 376,302
(Decrease) increase in deferred revenue (2,539) 50,214
----------- -----------
Net cash used in operating activities (516,103) (1,951,296)
----------- -----------
Cash flows from investing activities:
Proceeds from the sale of equipment -- 4,730
Purchases of property and equipment -- (46,223)
----------- -----------
Net cash used in investing activities -- (41,493)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of notes payable 180,000 --
Principal payments on notes payable (80,180) --
Proceeds from long-term debt -- 605,000
Principal payments on long-term debt (15,603) (170,440)
Proceeds from issuance of debentures 500,000 525,000
Proceeds from common stock issuance -- 1,006,220
----------- -----------
Net cash provided by financing
activities 584,217 1,965,780
----------- -----------
Net increase (decrease) in cash 68,114 (27,009)
Cash - beginning of year 10,239 37,248
----------- -----------
Cash - end of year $ 78,353 $ 10,239
=========== ===========
See Notes to Consolidated Financial Statements
(F5)
MOBILE REACH INTERNATIONAL, INC. AND SUBSIDIARIES
-------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE YEARS ENDED JULY 31, 2005 AND 2004
------------------------------------------
(continued)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
- --------------------------------------------------
2005 2004
-------- --------
Cash payments for:
Interest $ 20,166 $ 6,579
Cash received from:
Interest 2 215
Conversion of notes payable to common stock 926,770 --
Conversion of long-term debt to common stock 396,450 --
Conversion of accrued interest to common stock 147,746 --
Conversion of accounts payable and accrued
wages to common stock 388,579 --
Acquisition of Waves
Assets assumed:
Cash $ -- $ 2,923
Accounts receivable -- 143,194
Inventory -- 7,457
Property and equipment - net -- 127,494
-------- --------
-- 281,068
-------- --------
Liabilities assumed:
Accounts payable -- 67,134
Notes payable -- 109,024
Long-term debt -- 110,965
Accrued expenses -- 16,093
-------- --------
-- 303,216
-------- --------
Net liabilities in excess of assets assumed $ -- $ 22,148
======== ========
See Notes to Consolidated Financial Statements
(F6)
MOBILE REACH INTERNATIONAL, INC. AND SUBSIDIARIES
-------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
FOR THE YEARS ENDED JULY 31, 2005 AND 2004
------------------------------------------
Note 1 - Going Concern:
- -----------------------
The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America, which
contemplates continuation of Mobile Reach International, Inc. (the "Company") as
a going concern. However, the Company has sustained substantial operating losses
for the years ended July 31, 2005 and 2004 of $970,881 and $3,142,860,
respectively. The Company, as of July 31, 2005, is in default on certain notes
payable, payroll taxes and other payables. In addition, the Company has used
substantial amounts of working capital in its operations. Further, at July 31,
2005, the Company's current liabilities exceed current assets by $1,404,074, and
the Company has a stockholders' deficit of $8,759,323.
In view of these matters, management has sought out additional investment
sources to raise additional funds. However, no assurance can be given that the
Company will continue as a going concern without the successful completion of
additional financing. The accompanying consolidated financial statements do not
include any adjustments that might be necessary if the Company is unable to
continue as a going concern.
As a result of the delinquencies and defaults, the Company may be subject
to collection actions whenever agreements can not be reached, including, but not
limited to, litigation, foreclosure and/or seizure of assets and bank accounts.
Note 2 - Business Combinations:
- -------------------------------
Mobile Reach International, Inc., a Delaware Corporation, was formed in
July 2003. The Company completed a share exchange agreement with Asphalt Paving
International, Inc. ("API") on July 30, 2003. Subsequently, the Company
completed a share exchange agreement with Mobile Reach Technologies, Inc.
("MRT") (including its German subsidiary, Mobile Reach Technologies, GmbH) on
July 31, 2003. Former stockholders of MRT received 231,547 shares of common
stock of the Company, and the former stockholders of API received 63,906 shares
of common stock of the Company. Due to the stockholders of MRT receiving the
larger portion of the voting rights of the combined entity (Mobile Reach
International, Inc.), the share exchange agreements and mergers have been
treated as a reverse acquisition of API by MRT. The Company accounted for the
acquisition of API as prescribed by the Statement of Financial Accounting
Standards ("SFAS") No. 141, "Business Combinations". The Company did not record
any amount for goodwill on the acquisition of API, because API had no assets or
liabilities on the date of acquisition.
Effective January 2, 2004, the Company completed a share exchange agreement
with Waves Consulting Group, Inc. ("Waves"), which sells and services digital
telecommunications and computer network systems. The Company exchanged 16,250
shares of restricted common stock for all the issued and outstanding common
(F7)
stock of Waves. The Company accounted for the acquisition of Waves as prescribed
by SFAS No. 141, "Business Combinations". The Company did not record any amount
of goodwill for this merger. However, the Company did record an expense of
$22,148 representing the amount that Waves' liabilities exceeded assets on
January 2, 2004. The consolidated financial statements include the results from
operations for Waves from January 2, 2004 to July 31, 2004. Subsequent to the
acquisition, the Company changed this subsidiary's name to Mobile Reach
Solutions, Inc. ("MRS").
During the year ended July 31, 2004, management of the Company began the
process of discontinuation of the businesses of Mobile Reach Solutions, Inc. and
Mobile Reach Technologies, GmbH. The Company did not anticipate any losses on
this discontinuation other than losses from operations incurred in the regular
course of business.
Note 3 - Summary of Significant Accounting Policies:
- ----------------------------------------------------
Organization and principles of consolidation:
The accompanying consolidated financial statements include the accounts
of MRS, Mobile Reach Technologies, Inc. ("MRT") and its subsidiary company,
Mobile Reach Technologies, GmbH (German Company).
The Company's principle operations have been conducted under the names
of its wholly owned subsidiaries MRS and MRT. The consolidated financial
statements include the holding company Mobile Reach International, Inc. along
with its subsidiaries mentioned above. All significant inter-company
transactions and balances have been eliminated on consolidation.
Nature of business:
Mobile Reach Technology, Inc. sells mobility software products and
development services in the United States of America and Europe.
Mobile Reach Solutions, Inc. sells and services digital
telecommunication and computer network systems in the United States of America.
Reverse stock split:
On July 29, 2005, the Company obtained written consent of its Board of
Directors and the holders of a majority of its outstanding voting securities to
effectuate a 1 for 80 reverse stock split. All share amounts and per share
amounts have been retroactively restated to reflect the reverse stock split.
Cash and cash equivalents:
The Company considers all highly liquid investments having an original
maturity of three months or less to be cash equivalents. Amounts invested may
exceed federally insured limits at any given time.
(F8)
Property and equipment:
Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the assets ranging from
two to five years. Maintenance and repairs are charged to operations and
betterments are capitalized.
Income taxes:
The Company accounts for income taxes under the provisions of SFAS No.
109, "Accounting for Income Taxes." SFAS No.109 requires recognition of deferred
income tax assets and liabilities for the expected future income tax
consequences, based on enacted tax laws, of temporary differences between the
financial reporting and tax bases of assets and liabilities.
Loss per share:
The Company calculates loss per share in accordance with SFAS No. 128,
"Earnings per Share", which requires the presentation of basic and diluted
earnings per share. Basic loss per share excludes dilution and is computed by
dividing loss by the weighted-average number of common shares outstanding for
the period. Diluted loss per share reflects the potential dilution that could
occur if securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the entity. Potential common shares are excluded
from the computation of diluted earnings per share when a loss exists because
the effect would be antidilutive (Note 12).
Use of accounting estimates:
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
certain assets and liabilities and disclosures. Accordingly, the actual amounts
could differ from those estimates. Any adjustments applied to estimated amounts
are recognized in the year in which such adjustments are determined.
Fair value of financial instruments:
The Company's financial instruments include cash, accounts receivable,
accounts payable, accrued liabilities, credit facilities and long-term debt. The
carrying amounts of these financial instruments approximate fair value due to
their short maturities and variable rates of interest. The carrying amounts of
long-term debt approximate their fair values based on current rates available
for similar types of instruments.
The Company did not have any outstanding financial derivative
instruments.
Reclassifications:
Certain amounts in the financial statements for the year ended July 31,
2004 have been reclassified for comparative purposes to conform with the
presentation in the current year financial statements.
(F9)
Revenue recognition:
Revenues are generated from the license of software products,
professional service arrangements, maintenance and support services. Software
license revenue is recognized in accordance with the American Institute of
Certified Public Accountants ("AICPA") Statement of Position ("SOP") 97-2
"Software Revenue Recognition" ("SOP 97-2") and related interpretations and
amendments as well as Technical Practice Aids issued from time to time by the
AICPA.
Revenue from software arrangements is recognized only when persuasive
evidence of an agreement exists, delivery has occurred, the fee is fixed or
determinable, and collectibility is probable. Under certain circumstances,
software license revenue is deferred until all criteria of SOP 97-2 are met.
Certain arrangements contain provisions which result in the recognition of
revenue from software licenses ratably over the term of the contract or in
accordance with long-term contract accounting.
In instances when professional services are performed on fixed price
agreements of relatively short duration, the completed contract method of
accounting is used whereby revenue is recognized when the work is completed.
Customer payments and billed amounts due from customers in excess of recognized
revenue are recorded as deferred revenue.
Revenue from maintenance and support agreements is recognized on a
straight-line basis over the term of the related agreement.
Revenue from product sales is recognized when the product is shipped
from suppliers to the customer. Customer prepayments for hardware products are
classified as customer deposits.
For software arrangements with multiple elements, revenue is recognized
using the residual method prescribed by SOP 98-9, "Modification of SOP 97-2
`Software Revenue Recognition' with Respect to Certain Transactions." Revenue
applicable to undelivered elements, principally software maintenance, training
and implementation services, is determined based on vendor specific objective
evidence ("VSOE") of the fair value of those elements. VSOE is established by
the price of the element when it is sold separately (i.e., the renewal rate for
software maintenance and normal prices charged for training and professional
services). Revenue applicable to elements for which VSOE of fair value is not
determinable is deemed equal to the remainder/residual amount of the fixed
arrangement price. Assuming none of the undelivered elements and VSOE of fair
value exists for all undelivered elements are essential to the functionality of
any of the delivered elements, the residual revenue attributed to the delivered
elements is recognized when all other criteria for revenue recognition for those
elements have been met.
Product development:
Costs for advertising and research and development are expensed as
incurred.
Accounting for stock-based compensation:
Employee stock awards under the Company's compensation plans are
accounted for in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"), and related
(F10)
interpretations. The Company provides the disclosure requirements of SFAS No.
123, "Accounting for Stock-Based Compensation" and related interpretations.
Stock-based awards are accounted for under the provisions of SFAS No. 123, which
allows the Company only to disclose the effects on net income or loss of the
fair value of the options.
Segment information:
The Company adopted SFAS No.131, "Disclosures about Segments of an
Enterprise and Related Information" regarding operating segments in financial
statements. SFAS 131 also establishes standards for related disclosures about
products, services and geographic areas. Operating segments are identified as
components of an enterprise about which separate discrete financial information
is available for evaluation by the chief operating decision maker, or decision
making group, in making decisions how to allocate resources and assess
performance. The information disclosed herein, materially represents all of the
financial information related to the Company's principal operating segments.
Concentrations of credit risk:
The Company has no significant off-balance-sheet concentration of
credit risk such as foreign exchange contracts, options contracts or other
foreign hedging arrangements. The Company maintains its cash balances with
multiple reputable financial institutions in the form of demand deposits.
Recent pronouncements:
In November 2004, the FASB has issued FASB Statement No. 151,
"Inventory Costs, an Amendment of ARB No. 43, Chapter 4" ("SFAS No. 151"). The
amendments made by SFAS No. 151 are intended to improve financial reporting by
clarifying that abnormal amounts of idle facility expense, freight, handling
costs, and wasted materials (spoilage) should be recognized as current-period
charges and by requiring the allocation of fixed production overheads to
inventory based on the normal capacity of the production facilities. The
guidance is effective for inventory costs incurred during fiscal years beginning
after June 15, 2005. Earlier application is permitted for inventory costs
incurred during fiscal years beginning after November 23, 2004. The provisions
of SFAS No. 151 will be applied prospectively. The Company does not expect the
adoption of SFAS No. 151 to have a material impact on its consolidated financial
position, results of operations or cash flows.
In December 2004, the FASB issued FASB Statement No. 123R, "Share-Based
Payment, an Amendment of FASB Statement No. 123" ("SFAS No. 123R"). SFAS No.
123R requires companies to recognize in the statement of operations the
grant-date fair value of stock options and other equity-based compensation
issued to employees. SFAS No. 123R is effective beginning in the Company's first
quarter of the 2006 fiscal year. The Company believes that the adoption of this
standard will have no material impact on its financial statements.
In December 2004, the FASB issued SFAS Statement No. 153, "Exchanges of
Nonmonetary Assets." The statement is an amendment of APB Opinion No. 29, which
eliminates the exception for nonmonetary exchanges of similar productive assets
and replaces it with a general exception for exchanges of nonmonetary assets
that do not have commercial substance. The Company believes that the adoption of
this standard will have no material impact on its financial statements.
(F11)
In March 2004, the Emerging Issues Task Force ("EITF") reached a
consensus on Issue No. 03-1, "The Meaning of Other-Than-Temporary Impairment and
its Application to Certain Investments." The EITF reached a consensus about the
criteria that should be used to determine when an investment is considered
impaired, whether that impairment is other-than-temporary, and the measurement
of an impairment loss and how that criteria should be applied to investments
accounted for under SFAS No. 115, "Accounting In Certain Investments In Debt and
Equity Securities." EITF 03-1 also included accounting considerations subsequent
to the recognition of an other-than-temporary impairment and requires certain
disclosures about unrealized losses that have not been recognized as
other-than-temporary impairments. Additionally, EITF 03-1 includes new
disclosure requirements for investments that are deemed to be temporarily
impaired. In September 2004, the FASB delayed the accounting provisions of EITF
03-1; however the disclosure requirements remain effective for annual reports
ending after June 15, 2004. The Company will evaluate the impact of EITF 03-1
once final guidance is issued.
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and
Error Corrections." This statement applies to all voluntary changes in
accounting principle and requires retrospective application to prior periods'
financial statements of changes in accounting principle, unless this would be
impracticable. This statement also makes a distinction between "retrospective
application" of an accounting principle and the "restatement" of financial
statements to reflect the correction of an error. This statement is effective
for accounting changes and corrections of errors made in fiscal years beginning
after December 15, 2005. We are evaluating the effect the adoption of this
interpretation will have on its financial position, cash flows and results of
operations.
Note 4 - Property and Equipment:
- --------------------------------
The principal categories and estimated useful lives of property and
equipment at July 31, 2005 are as follows:
Estimated
Useful Lives
------------
Computer equipment and software $ 18,455 3 Years
Automobiles & trucks 120,747 5 Years
---------
139,202
Less: accumulated depreciation (64,282)
---------
$ 74,920
==========
(F12)
Note 5 - Notes Payable:
- -----------------------
Notes payable at July 31, 2005 consisted of the following:
Note payable to a vendor dated February
2005; due in eighteen monthly installments
of $1,007 including interest at six percent. 11,731
Note payable to a vendor dated July 2005;
due in eighteen monthly installments of
$390 including interest at eight percent. 6,153
Note payable to a vendor dated December
2004; due in six monthly installments of
$2,836 including interest at eighteen
percent, note is in default. 17,027
Note payable to former employee and former
owner of Waves dated December 2004; bearing
no interest and no specified
repayment terms. 3,940
Note payable for accrued wages; bearing
interest at six percent; due and payable
with interest at the earliest of (a)
Company obtaining debt or equity funding
greater than $1,000,000 in a quarter or
(b) Company earns revenues of $1,000,000
in a quarter 49,908
-----------
$ 88,759
Note 6 - Accrued Expenses:
- --------------------------
Accrued expenses at July 31, 2005 consisted of the following:
Accrued salaries and wages $ 210,260
Accrued interest 33,600
Accrued other expenses 18,005
-----------
$ 261,865
Accrued salaries and wages arise from the Company's inability to pay
certain employees their full salaries and wages at certain periods throughout
2004, 2003, 2002 and 2001.
Note 7 - Accrued Taxes and Withholdings:
- ----------------------------------------
Accrued taxes and withholdings at July 31, 2005 of $538,170 are comprised
of employee withholdings, payroll taxes, interest and penalties. The Company is
in arrears in remitting withholdings and payroll taxes as required by the
Internal Revenue Service.
Note 8 - Long-Term Debt:
- ------------------------
Long-term debt at July 31, 2005 consisted of the following:
Notes payable dated August and October
2003; due in sixty monthly installments of
$1,873 including interest at 6.98 percent;
secured by vehicles costing $120,747. $ 86,305
-----------
86,305
Less: current portion (23,038)
-----------
$ 63,267
(F13)
At July 31, 2005, long-term debt is due in aggregate annual installments as
follows:
Year ending July 31,
2006 $ 23,038
2007 24,699
2008 26,480
2009 12,088
Thereafter --
-----------
$ 86,305
===========
Note 9 - Convertible Debentures:
- --------------------------------
In March 2004, the Company issued $525,000 of five percent convertible
debentures that mature on March 15, 2007. The debentures were convertible into
the Company's common stock at a conversion price of $0.16 per share. In an
effort to entice the debenture holders from this series of debentures to invest
in the second series mentioned later, the Company agreed to re-price the
conversion feature and the warrants of the March 2004 issuance to $0.01 per
share through a settlement agreement signed by all parties. All interest and
penalties accrued through March 2005 on the five percent debentures was treated
as additional paid-in capital on warrants issued with the March 2005 series
debenture mentioned below. See Note 11 for further details. Interest accrued on
debentures that are converted into common stock may be paid in cash or with
common stock (conversion price $0.01 per share). In connection with the issuance
of these debentures, the Company issued 12,202 common stock purchase warrants at
the original exercise price of $0.32 per share. However, as part of the
settlement agreement, these warrants were also re-priced to $0.01 per share. The
warrants expire March 31, 2006 and no warrants were exercised at July 31, 2005.
In March 2005, the Company began offering a second series of convertible
debentures. This series required investors from the March 2004 series to invest
a minimum of twenty percent over and above the value of their holdings in the
March 2004 series. This series of convertible debentures mature April 27, 2007
and have an interest rate of eight percent. The debentures are convertible into
the Company's common stock at a conversion price of $0.01 per share. Interest
accrues from March 17, 2005 and may be paid in cash or in the Company's common
stock at a conversion price of $0.01 per share. In connection with these
debentures, the Company issued to the holders of the March 2004 five percent
convertible debentures that invested additional funds an additional 202,046
common stock purchase warrants at an exercise price of $0.01 per share.
Subsequent investors were issued 608,766 common stock purchase warrants at an
exercise price of $0.0077 per share. These warrants expire April 27, 2010 and no
warrants were exercised at July 31, 2005.
Note 10 - Stockholders' Equity:
- -------------------------------
In November 2004, the Company obtained written consent of its Board of
Directors and the holders of a majority of its outstanding voting securities to
raise the authorized amount of common stock shares from 50,000,000 to
500,000,000 shares and raise preferred stock shares authorized from 10,000,000
to 100,000,000.
(F14)
On July 29, 2005, the Company obtained written consent of its Board of
Directors and the holders of a majority of its outstanding voting securities to
effectuate a 1 for 80 reverse stock split. The reverse stock split did not
change the number of authorized shares or the par value of the Company's common
stock. Except for changes as a result of the treatment of fractional shares,
each shareholder holds the same percentage of common stock outstanding
immediately following the reverse split as such shareholder had immediately
prior to the reverse stock split. The effect of this action is reflected in the
accompanying financial statements as of the first day of the first period
presented.
In June 2005, the Company settled debt to a vendor of $32,612 with 181,250
shares of the Company's restricted common stock.
In May 2005, the Company settled $19,250 in debt to consultants and
employees with 255,428 shares of the Company's restricted common stock. The debt
consisted of $8,000 in deferred wages and $11,250 in consulting and professional
fees. Additionally, the Company settled approximately $498,118 in notes payable
and accrued interest owed to an officer with 418,750 shares of the Company's
restricted common stock.
In March 2005, the Company settled debt amounting to approximately
$1,029,779 for 579,500 shares of the Company's restricted common stock. The debt
consisted of $856,494 in notes payable and accrued interest along with
approximately $173,285 in accounts payable. Additionally, the Company settled
$16,154 in accrued wages to an officer of the Company for 56,250 shares of the
Company's restricted common stock.
In February 2005, the Company settled debt amounting to approximately
$218,250 for 266,636 shares of the Company's restricted common stock. The debt
settled included notes payable and accrued interest of $154,941 along with
accounts payable to vendors of $63,309. Additionally, the Company settled $100
in unreimbursed expenses with its former chairman for 12,500 shares of the
Company's restricted common stock.
In November 2004, the Company settled $1,668 in accounts payable with a
former employee for 1,875 shares of the Company's restricted common stock.
In December 2004, the Company settled approximately $12,305 in notes
payable with a former employee and former owner of Waves for 37,500 shares of
the Company's restricted common stock.
As discussed in Note 2, the Company issued 16,250 shares of restricted
common stock in the acquisition of Waves.
During the year ended July 31, 2004, the Company received $1,006,027 for
62,565 shares of common stock.
(F15)
During the year ended July 31, 2004, the Company recorded expenses for
services from consultants for investment banking and investor relations fees of
$86,500 in exchange for 10,039 shares of restricted common stock.
In May 2004, the Company settled litigation with a former employee in
exchange for 8,750 shares of common stock. The Company had previously accrued
$74,716 for compensation due to the former employee.
During the year ended July 31, 2004, options for 24,375 shares of
restricted common stock were exercised (See Note 11).
The Company is authorized to issue 100,000,000 shares of preferred stock.
At July 31, 2005, no shares were issued or outstanding.
Note 11 - Stock Options and Warrants:
- -------------------------------------
The following table summarizes the changes in options outstanding and the
related prices for the shares of the Company's restricted common stock issued to
employees, consultants and shareholders at July 31, 2005:
Number of Weighted- Average
Options Exercise Price
------- --------------
Outstanding July 31, 2003 48,895 0.07
Options issued 54,250 0.02
Options expired (872) 0.02
Options exercised (24,375) 0.002
-------------
Outstanding July 31, 2004 77,898 0.05
Options issued 16,667 0.16
Options cancelled/expired (61,594) 0.10
Options exercised (25,012) 0.01
-------------
Outstanding July 31, 2005 7,959 0.01
=============
The Company has adopted the disclosure only provisions of SFAS 123
"Accounting for Stock-Based Compensation". The Company determined that the
options issued had no value using the Black-Scholes pricing model and a fifty
percent volatility factor at the date of grant. Accordingly, the net loss of
$970,881 and $3,142,860 for the years ended July 31, 2005 and 2004,
respectively, would be unchanged because no compensation would be recognized.
During the year ended July 31, 2005, the Company issued 202,046 warrants at
an exercise price of $0.01 per share. As part of the agreement for the eight
percent convertible debenture offering, the five percent convertible debenture
holders had agreed to waive all penalties and interest accrued on the five
percent debentures. The $22,969 of accrued interest is included in paid-in
capital as the value of the warrants offered. In addition, the Company issued
608,766 warrants at an exercise price of $0.0077 per share to the holders of
eight percent interest bearing convertible debentures mentioned in Note 9 that
did not hold any of the five percent debentures. Using the Black-Scholes pricing
model and fifty percent volatility factor, the Company determined that these
warrants had no value and there was no expense recorded for the grant of the
warrants. The warrants had not been exercised at July 31, 2005.
(F16)
During the year ended July 31, 2004, the Company issued 2,500 warrants at
an exercise price of $0.001 per share and 12,500 warrants at an exercise price
of $0.01 per share in connection with the issuance of notes payable. Using the
Black-Scholes pricing model and fifty percent volatility factor, the Company
determined the warrants had no value and there was no expense recorded for the
grant of the warrants. During the year ended July 31, 2005, these warrants had
either been cancelled as part of the debt settlements mentioned in Note 10 or
have terminated due to their expiration date.
In March 2004, the Company issued 12,202 warrants at an exercise price of
$0.32 per share to holders of debentures (Note 9). Additionally, investment
banking consultants involved in the issuance of the debentures were issued 7,786
warrants at the exercise price of $0.32 per share. As mentioned in Note 9 on
March 27, 2005, these warrants were re-priced to $0.01 per share. Using the
Black-Scholes pricing model and fifty percent volatility factor, the Company
determined the warrants had no value and there was no expense recorded for the
grant of the warrants. The warrants had not been exercised at July 31, 2005.
Note 12 - Loss Per Share:
- -------------------------
A reconciliation of basic loss per share to diluted earnings per share is
presented below:
Per Share
Net Loss Shares Amount
----------- ----------- -----------
Year ended July 31, 2004:
Basic EPS
Loss available to common
shareholders $(3,142,860) 348,646 $ (9.01)
Effect of dilutive securities
Stock options and warrants -- -- --
----------- ----------- -----------
$(3,142,860) 348,646 $ (9.01)
=========== =========== ===========
Year ended July 31, 2005:
Basic EPS
Loss available to common
shareholders $ (970,881) 996,728 $ (0.97)
Effect of dilutive securities
Stock options and warrants -- -- --
----------- ----------- -----------
$ (970,881) 996,728 $ (0.97)
=========== =========== ===========
Note 13 - Income Taxes:
- -----------------------
Deferred income taxes are provided in recognition of temporary differences
in reporting certain revenues and expenses for financial statement and income
tax purposes.
(F17)
Net deferred tax assets (liabilities) consisted of the following components
as of July 31, 2005:
Current Long-Term Total
Year ended July 31, 2005:
Deferred tax assets:
Net operating loss carryover $ 197,106 $ 1,354,495 $ 1,551,601
----------- ----------- -----------
Deferred tax liabilities -- (5,249) (5,249)
----------- ----------- -----------
197,106 1,349,246 1,546,352
Valuation allowance (197,106) (1,349,246) (1,546,352)
----------- ----------- -----------
Net deferred tax asset $ -- $ -- $ --
=========== =========== ===========
The ultimate realization of these assets is dependent upon the generation
of future taxable income sufficient to offset the related deductions and loss
carryover within the applicable carryover period. The valuation allowance is
based on the uncertainty of the Company's ability to generate sufficient taxable
income in future years to fully utilize the net operating loss carryover.
Additionally, the realization of these assets is dependent upon the filing of
tax returns for the current and prior years which are unfiled.
The income tax provision differs from the amount of income tax determined
by applying the U.S. Federal income tax rate to pretax income for the year ended
July 31, 2005 due to the following:
Year Year
ended ended
7/31/2005 7/31/2004
----------- -----------
Computed "expected" tax benefit $ 1,546,352 $ 1,100,000
Increase (decrease) in income taxes
resulting from:
Temporary differences (1,551,601) (1,068,030)
Permanent differences 5,249 (31,970)
----------- -----------
$ -- $ --
=========== ===========
The Company has net operating loss carryforwards of approximately
$7,860,000, which begin to expire in 2020.
The Tax Reform Act of 1986 contains provisions which limit the ability to
utilize net operating loss, capital loss, and various tax credit carryovers in
the case of certain events including significant changes in ownership interest.
If the Company's tax carryovers are limited, and the Company has taxable income
which exceeds the permissible yearly net operating loss carryover, the Company
would incur a federal income tax liability even though these loss carryovers
would be available in future years.
Note 14 - Pro-Forma Financial Information:
- ------------------------------------------
The following pro-forma data summarizes the results of operations for the
years ended July 31, 2004, as if the mergers with Waves had been completed
August 1, 2003:
Year
ended
7/31/2004
Net revenue $ 2,125,115
Operating loss (3,326,744)
Loss per shared - basic and diluted (9.01)
(F18)
Note 15 - Employee Benefit Plan:
- --------------------------------
During the year ended July 31, 2004, the Company established a 401(k) plan
covering all employees over twenty-one years of age with more than thirty days
of service. Under the plan, participants are able to make voluntary
contributions of up to sixty percent of compensation and one hundred percent of
any bonuses received, subject to limitations. In addition, the Company can match
contributions on a discretionary but uniform basis. The Company included
contributions payable of $20,671 and $8,381 in accrued taxes and withholdings at
July 31, 2005 and 2004, respectively.
For the year ended July 31, 2005, the Company recorded no expenses related
to the plan.
Note 16 - Segment Information:
- ------------------------------
The Company reports financial results on the basis of two business
segments: a computer hardware application group and a software application
group.
The following is selected business segment financial information for the
year ended July 31, 2005:
Software Hardware
Applications Applications Eliminations Total
------------ ------------ ------------ -----
Revenues $463,018 $ 144,356 $ - $ 607,374
Operating loss (830,608) (140,273) - (970,881)
Depreciation 13,336 26,299 - 39,635
Segment assets 18,455 120,747 - 139,202
Expenditures for property
and equipment - - - -
The following is selected business segment financial information for the
year ended July 31, 2004:
Software Hardware
Applications Applications Eliminations Total
------------ ------------ ------------ -----
Revenues $ 446,918 $ 1,144,458 $ (1,517) $ 1,589,859
Operating loss (2,921,648) (221,212) - (3,142,860)
Depreciation 25,730 20,728 - 46,458
Segment assets 96,837 380,843 - 477,680
Expenditures for property
and equipment 19,011 31,436 - 50,447
Note 17 - Legal Matters:
- ------------------------
During the year ended July 31, 2004, the Company had accrued $160,000 for
consulting fees representing a tentative settlement reached in arbitration with
a consultant. In April 2005, the claim went to arbitration and the Company was
found to have no liability to the consultant. As a result of the arbitration,
the Company recorded other income of $160,000 for the year ended July 31, 2005.
(F19)
The Company has been in communication with and attempting to settle a claim
from a former employee for past due wages of approximately $49,900. The Company
has included the amount in notes payable for the years ended July 31, 2005 and
2004.
The Company has recorded an account payable at July 31, 2004 of $75,000 to
terminate a lease for office space entered into in September 2003. Additionally,
the Company recorded $34,000 of rent expense in the forfeiture of rental
security deposits in connection with this lease. The Company entered into an
agreement for termination of the lease in October 2004 and a settlement for the
related debt on June 20, 2005. The terms of the settlement agreement requires
the Company to pay $15,888 in past due expenses and issue 181,250 shares of the
Company's restricted common stock. At July 31, 2005, the $15,888 was included in
accounts payable.
The Company is delinquent with a number of unsecured creditors for which no
payment arrangements exist or for which no agreement to forestall collection
action has been agreed upon. Whenever feasible the Company negotiates with these
creditors to reach settlement agreements that are acceptable to the Company. As
a result of the delinquencies and defaults, the Company may be subject to
collection actions whenever agreements cannot be reached, including, but not
limited to, litigation, foreclosure and/or seizure of assets and bank accounts.
During the fiscal year ended July 31, 2005, the Company had not had
their interim financial statements, contained in forms 10-QSB, reviewed by an
independent certified public accountant as required by the Security and Exchange
Commission.
Note 18 - Other Matters:
- ------------------------
Concentrations:
During the year ended July 31, 2005, approximately thirty percent of
the Company's sales were to three customers.
Advertising:
Advertising costs are expensed as incurred. Total advertising costs
were approximately $9,000 and $7,500 for the years ended July 31, 2005 and 2004,
respectively.
Foreign cash and operations:
The Company's subsidiary Mobile Reach Technologies, GmbH ceased
operations in the year ended July 31, 2004. This subsidiary had foreign sales of
$7,724 for the year ended July 31, 2004. For the year ended July 31, 2005, the
Company recognized a loss of $7,641 for the closing of the segment.
Operating leases:
The Company leases office space on a month to month basis. Rent expense
of $50,200 and $150,501 were incurred for the years ended July 31, 2005 and
2004, respectively. The rent expense for the year ended July 31, 2004 includes
expenses from termination of lease (Note 17).
(F20)
Contingency gain (loss):
At July 31, 2003 the Company accrued a loss of $105,000 for a possible
claim arising from the Company's merger with API. Since the former majority
stockholder of API indemnified the Company against claims and during the year
ended July 31, 2004 there were no claims, the Company recorded a gain on the
reversal of the accrual.
Note 19 - Subsequent Events:
- ----------------------------
In August 2005, the Company executed an agreement and plan of merger with
Objective Spectrum, Inc. ("Objective"). The Company has agreed to purchase all
of Objective's issued and outstanding common stock for 375,000 shares of the
Company's restricted common stock. At the date of the agreement, a current
director and officer of the Company owned approximately ninety-two percent of
Objective's common stock. As a result of the acquisition, the Company will
obtain intellectual property rights to source code for use with the Company's
Splitware product.
In August 2005, the Company entered into two investment banking and
investor relations consulting contracts. In exchange for twenty-four months of
contracted service, the Company has agreed to issue 1,000,000 shares of the
Company's restricted common stock.
In August 2005, the Company received an additional $250,000 in funding on
the March 2005 eight percent convertible debentures. The additional debentures
included 405,844 in common stock purchase warrants with an exercise price of
$0.0077 per share expiring April 20, 2010.
(F21)
PART II. Information not Required in Prospectus
ITEM 24. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law (the "DGCL") provides, in
effect, that any person made a party to any action by reason of the fact that he
is or was a director, officer, employee or agent of the Company may and, in
certain cases, must be indemnified by the Company against, in the case of a
non-derivative action, judgments, fines, amounts paid in settlement and
reasonable expenses (including attorneys' fees) incurred by him as a result of
such action, and in the case of a derivative action, against expenses (including
attorneys' fees), if in either type of action he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Company. This indemnification does not apply, in a derivative action, to
matters as to which it is adjudged that the director, officer, employee or agent
is liable to the Company, unless upon court order it is determined that, despite
such adjudication of liability, but in view of all the circumstances of the
case, he is fairly and reasonably entitled to indemnity for expenses, and, in a
non-derivative action, to any criminal proceeding in which such person had
reasonable cause to believe his conduct was unlawful.
The Company's certificate of incorporation provides that no director of the
Company shall be liable to the Company or its stockholders for monetary damages
for breach of fiduciary duty as a director to the fullest extent permitted by
the DGCL.
The Company's bylaws provide that the Company shall indemnify to the fullest
extent permitted by Delaware law any and all of its directors and officers, or
former directors and officers, or any person who may have served at the
Company's request as a director or officer of another corporation, partnership,
joint venture, trust or other enterprise.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to our directors, officers and controlling persons
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by us of expenses incurred or paid by a director, officer or controlling
person of ours 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, we will, unless in the opinion of our 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 of 1933 and will be
governed by the final adjudication of such issue.
ITEM 25. Other Expenses of Issuance and Distribution
SEC Registration Fee.............................. $ 782.78
Blue Sky Fees and Expenses*....................... $ 3,000.00
Legal Fees and Expenses........................... $15,000.00
Printing and Engraving Expenses................... $ 1,000.00
Accountants' Fees and Expenses.................... $ 5,000.00
Miscellaneous..................................... $ 500.00
Total............................................. $25,282.78
----------
* Estimated.
II-1
ITEM 26. Recent Sales of Unregistered Securities.
During the past three years, the Company has issued unregistered securities in
the transactions described below. Securities issued in such transactions were
offered and sold in reliance upon the exemption from registration under Section
4(2) of the Securities Act of 1933 and/or Rule 701 promulgated thereunder,
relating to sales by an issuer not involving any public offering. The sales of
securities were made without the use of an underwriter and the certificates
evidencing the shares bear a restricted legend permitting the transfer thereof
only upon registration of the shares or an exemption under said Act.
On July 25, 2003, the Company was incorporated in the State of Delaware. On July
30, 2003, Asphalt Paving International, Inc., a Florida corporation, ("API")
merged into the Company, with the Company as the surviving company of the
merger. Immediately after the merger all the 5,112,460 shares of the Company's
common stock were owned by the shareholders of API in the same percentage
ownership they owned shares of API immediately prior to the merger.
On July 31, 2003, Mobile Reach International acquired all the outstanding shares
of Mobile Reach Technologies, Inc., a North Carolina corporation ("MRT"),
through a share exchange in which it issued 18,523,628 shares of its common
stock to the shareholders of MRT. The effect of the share exchange was to make
MRT a wholly-owned subsidiary of MRT and to change control of the Company. In
addition, the Company assumed outstanding options and warrants to purchase
4,766,472 shares of common stock, which are held by former holders of options
and warrants to purchase MRT common stock.
During the fiscal quarter ended October 31, 2003, the Company issued a total of
911,335 shares of its common stock to four accredited investors, with 142,857
shares issued at a price per share equal to $0.21, 192,308 shares issued at a
price per share equal to $0.13, 476,190 shares issued at a price per share equal
to $0.21 and 100,000 shares issued at a price per share equal to $0.25.
During the fiscal quarter ended January 31, 2004, the Company issued a total of
866,670 shares of its common stock to 12 accredited investors at a price per
share equal to $0.21 and 1,150,000 shares to five accredited investors at a
price per share equal to $0.20. The Company also issued a total of 400,000
shares of its common stock to two employees who had exercised options granted
pursuant to the Company's 2003 Equity Compensation Plan (the "Equity Plan") with
an exercise price of $0.0001 per share. In addition, the Company granted options
to purchase 3,350,000 shares of common stock under the Equity Plan to certain of
its employees, directors and/or consultants during this time period.
During the fiscal quarter ended April 30, 2004, the Company issued a total of
2,320,000 shares of its common stock to four accredited investors at a price per
share equal to $0.20. The Company issued 1,300,000 shares of its restricted
common stock to an officer, Mr. Bendixsen, at a price per share equal to
$0.0001. The Company also issued a total of 433,299 shares of its common stock
to seven employees who had exercised options granted pursuant to the Equity Plan
with an exercise price of $0.0001 per share and an additional 16,666 shares of
common stock to an employee who exercised an option under the Equity Plan with
an exercise price of $0.23 per share. In addition, the Company granted options
to purchase 990,000 shares of common stock to certain of its employees,
directors and/or consultants during this time period as well as one-year
warrants to purchase 1,200,000 shares of common stock to three consultants.
During the fiscal year ended July 31, 2005, the Company issued a total of
1,404,438 shares of its common stock to various accredited investors for the
settlement and release of various debts owed by the Company.
On August 23, 2005, the Company acquired all the outstanding shares of Objective
Spectrum, Inc., a North Carolina corporation ("Objective Spectrum"), through a
share exchange in which it issued 375,000 shares of its common stock to the
shareholders of Objective Spectrum.
II-2
ITEM 27. Exhibits.
Exhibit No. Description
Incorporated by Reference To
----------------------------
Exhibit Company's Exhibit Filed
No. Description Form Filed Number Herewith
--- ----------- ---- ----- ------ --------
2.1 Articles of Merger dated July 30, 2003 between
Company and Asphalt Paving International, Inc. 8-K 08/14/03 2.1
2.2 Articles of Share Exchange dated July 31, 2003 between
Company and Mobile Reach Technologies, Inc. 8-K 08/14/03 2.2
2.3 Agreement and Plan of Merger dated December 17, 2003 by
and among the Company, Waves Consulting Group, Inc.,
MRI Acquisition Corp. and the sole shareholders of Waves
Consulting Group, Inc 8-K 12/29/04 2.3
2.4 Agreement and Plan of Merger dated August 23, 2005 by
and among the Company, Objective Spectrum, Inc.,
and the shareholders of Objective Spectrum, Inc. 8-K 08/25/05 2.4
3.1 Certificate of Incorporation of Company. 8-K 08/14/03 3.1
3.2 Bylaws of Company. 8-K 08/14/03 3.2
4.1 Form of Common Stock Purchase Agreement dated April 28,
2005 among the Company and certain investors 8-K 05/03/05 4.1
4.2 Form of Convertible Note dated April 28, 2005 among the
Company and certain investors 8-K 05/03/05 4.2
10.1 2003 Equity Compensation Plan of Company. 8-K 08/14/03 10.1
10.2 Amended Standard Terms of Employment between Mobile
Reach Technologies, Inc. and Mark Lloyd dated January 1,
2003 8-K 08/14/03 10.2
10.3 Amended Special Terms and Conditions of Employment
between Mobile Reach Technologies, Inc. and Mark Lloyd,
dated January 1, 2003 8-K 08/14/03 10.3
10.4 Amended Standard Terms of Employment between Mobile
Reach Technologies, Inc. and A. Christopher Johnson 8-K 05/03/05 10.4
dated April 28, 2005
10.5 Form of Subscription Agreement dated April 28, 2005
among the Company and certain investors 8-K 05/03/05 10.5
21.1 Subsidiaries. 10-K 10/30/03 21.1
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ITEM 28. Undertakings
The undersigned registrant 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 Sections 10(a)(3) of the Securities Act
of 1933, as amended (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;
(2) That, for the purpose of determining any liability under the Securities Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be a bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
(4) Insofar as indemnification for liabilities arising under the Securities 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 Securities 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 of expenses incurred or paid by a director, officer or
controlling person of 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 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.
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SIGNATURES
In accordance with the Securities Act of 1933, as amended, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form SB-2 and authorized this registration statement
to be signed on its behalf by the undersigned, in the city of Cary, State of
North Carolina, on August 31, 2004.
MOBILE REACH INTERNATIONAL, INC.
By:
Alan Christopher Johnson Interim Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears
below constitutes and has appointed Mark J. Lloyd and Alan Christopher Johnson,
and each of them acting alone, his or her true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him or her and in
his or her name, place and stead, in any and all capacities, to sign in any and
all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same and all
exhibits thereto, and all documents in connection therewith, with the Securities
and Exchange Commission, granting said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
or she might or could do in person, hereby ratifying and confirming all that
said attorney-in-fact and agent, his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, as amended,
this registration statement was signed by the following persons in the
capacities and on the dates stated.
Signature Title Date
--------- ----- ----
/s/ Alan Christopher Johnson Chief Executive September 19, 2005
- ----------------------------- Officer and Director
Alan Christopher Johnson (Principal Executive
Officer)
/s/ Mark J. Lloyd Director September 19, 2005
- -----------------------------
Mark J. Lloyd
/s/ Richard Rosenblum Director September 19, 2005
- ----------------------------
Richard Rosenblum
/s/ David Stefansky Director September 19, 2005
- ----------------------------
David Stefansky
S-1