AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 6, 2006
REGISTRATION NO. 333-131779
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT #1
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
M-WISE, INC.
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(NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
DELAWARE 4812 11-3536906
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(STATE OR JURISDICTION OF PRIMARY SIC CODE (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
3 Sapir Street The Company Corporation
Herzeliya Pituach, Israel 46852 2711 Centerville Road, Suite 400
Telephone +972-9-9611212 Wilmington, Delaware 19808
(Address, including zip code, and Telephone (800) 420-9771
telephone number, including area code (Name, address, including
of Registrant's principal executive area code, of agent for service)
offices)
copy to:
Arthur S. Marcus, Esq.
Sunny J. Barkats, Esq.
Gersten Savage LLP
600 Lexington Avenue, 9th Floor
New York, New York 10022
Tel. (212) 752-9700; Fax (212) 980-5192
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO
THE PUBLIC: AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION
STATEMENT.
If the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box:
[ ]
CALCULATION OF REGISTRATION FEE
- ------------------------ --------------------- ---------------------- --------------------- ----------------------
Title of Each Class of Amount to Be Proposed Maximum Proposed Maximum Amount of
Securities to be Registered Offering Price Aggregate Offering Registration Fee
Registered Price
- ------------------------ --------------------- ---------------------- --------------------- ----------------------
common stock, $.0017 20,000,000 .19 3,800,000 $447.26
par value(2)
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common stock, $0017 10,000,000 .19 1,900,000 $223.63
par value (3)
- ------------------------ --------------------- ---------------------- --------------------- ----------------------
Total(4) 30,000,000 $.19 5,700,000 $670.89
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(1) Estimated solely for purposes of calculating the registration
fee pursuant to Rule 457(c) based on a closing price of $.19
per share On February 8, 2006. The common stock is traded on
the OTC Bulletin Board.
(2) Represents shares of our common stock issuable under an equity
line of credit in the amount of $10,000,000. In accordance
with Rule 416(a), the Registrant is also registering hereunder
an indeterminate number of shares that may be issued and
resold to prevent dilution resulting from stock splits, stock
dividends or similar transactions. In addition, should a
decrease in the exercise price as a result of an issuance or
sale of shares below the then current market price result in
our having insufficient shares, we will not reply upon Rule
416, but will file new registration statement to cover the
resale of such additional shares should that become necessary.
(3) Represents shares of common stock owned by a selling
shareholder which we have agreed to register.
(4) Previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
PRELIMINARY PROSPECTUS
M-WISE, INC.
30,000,000 SHARES OF COMMON STOCK
Subject to Completion, Dated April 7, 2006
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy, nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
This prospectus relates to the resale of up to 30,000,000 shares of our
Common Stock, par value $0.0017 per share ("Common Stock") of which: (i)
20,000,000 shares issuable to Dutchess Private Equities Fund, LP ("Dutchess");
and (ii) 10,000,000 shares which are owned by Miretsky Holdings Limited.
Dutchess and Miretsky are referred to collectively as "Selling Securityholders".
The Selling Securityholders may sell their common stock from time to time at
prevailing market prices.
Our Common Stock is registered under Section 12(g) of the Securities
Exchange Act of 1934, as amended, and is quoted on the over-the-counter market
and prices are reported on the OTC Bulletin Board under the symbol "MWIS." On
February 8, 2006, the closing price as reported was $0.19.
The selling securityholders, and any participating broker-dealers are
"underwriters" within the meaning of the Securities Act of 1933, as amended, and
any commissions or discounts given to any such broker-dealer may be regarded as
underwriting commissions or discounts under the Securities Act of 1933. The
selling securityholders have informed us that they do not have any agreement or
understanding, directly or indirectly, with any person to distribute their
common stock. We agree to pay the expenses of registering the foregoing shares
of our Common Stock.
INVESTMENT IN THE COMMON STOCK OFFERED BY THIS PROSPECTUS INVOLVES A
HIGH DEGREE OF RISK. YOU MAY LOSE YOUR ENTIRE INVESTMENT. CONSIDER CAREFULLY THE
"RISK FACTORS" BEGINNING ON PAGE 9 OF THIS PROSPECTUS BEFORE INVESTING.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is ____, 2006.
TABLE OF CONTENTS
Prospectus Summary 1
The Company 1
The Offering 2
Transactions Summary 2
Summary Financial Information 2
Risk Factors 4
Special Note Regarding Forward-Looking Statements 4
Use of Proceeds 7
Market for Our Shares 7
Holders 7
Dividend Policy 7
Management's Discussion and Analysis of Financial Condition and Results of Operations 8
Business 15
Description of Property 22
Legal Proceedings 22
Management 22
Executive Compensation 23
Security Ownership of Certain Beneficial Owners and Management __
Certain Relationships and Related Transactions 37
Description of Securities 29
Shares Eligible for Resale __
Selling Securityholders 29
Plan of Distribution __
Legal Matters 31
Experts 38
Where You Can find Additional Information 38
Index to Financial Statements F-1
PROSPECTUS SUMMARY
The following summary highlights some of the information in this
prospectus. It may not contain all of the information that is important to you.
To understand this offering fully, you should read the entire prospectus
carefully, including the risk factors and our financial statements and the notes
accompanying the financial statements appearing elsewhere in this prospectus.
All references to share amounts herein reflect a six-for-one forward split of
our common stock on November 20, 2003 and the conversion of all shares of
preferred stock into common stock on November 19, 2003.
THE COMPANY
We develop, manufacture and support a Mobile Content and Service
Delivery Platform marketed under the brand MOMA Platform. MOMA provides
middleware technology that mediates and integrates between various key
enterprise applications such as billing, reporting, provisioning, third-party
management, development, content, customer relationship management and
application platforms for cellular operators and other wireless application
service providers. Our clients include prominent global wireless application
service providers and wireless operators.
Our technology allows our clients to enable consumers to utilize and
purchase data and multimedia value added services, such as applications for
handset personalization (ring tones and images, for example), news,
entertainment and chat via cellular phones and other wireless devices. We
primarily operate through regional sales representatives to sell our products.
Our revenues are primarily derived from license fees and professional service
fees and we spend a significant portion of our revenues on continuing research
and development. Our cumulative losses as of December 31, 2005 were $10,639,491.
The segment of the technology industry in which we operate has been
characterized by volatility and financial instability.
1
THE OFFERING
SHARES OUTSTANDING
PRIOR TO OFFERING
Common Stock, $0.001 126,084,477
par value
Common Stock Offered
by Selling Securityholders 30,000,000
Use of Proceeds We will not receive any proceeds from the
sale by the Selling Securityholders of
shares in this offering, except upon draws
made pursuant to the equity line See "Use of
Proceeds."
Risk Factors An investment in our common stock involves a
high degree of risk and could result in a
loss of your entire investment.
OTC Symbol MWIS.OB
Executive Offices Our executive offices are located at 3 Sapir
Street, Herzeliya Pituach, Israel 46852. Our
telephone number is (011) 972-9-611212.
TRANSACTION WITH DUTCHESS PRIVATE EQUITIES FUND, LP
We have entered into an equity line credit agreement with Dutchess
Private Equities Fund, LP ("Dutchess"). Pursuant to this Agreement, Dutchess
shall commit to purchase up to $10,000,000 of the Company's Stock over the
course of 36 months ("Line Period"), after a registration statement of has been
declared effective ("Effective Date"). The amount that the Company shall be
entitled to request from each of the purchase "Puts", shall be equal to either
1) $300,000 or 2) 200% of the averaged daily volume (U.S market only) ("ADV")
multiplied by the average of the 3 daily closing prices immediately preceding
the Put Date. The ADV shall be computed using the ten (10) trading days prior to
the Put Date. The Purchase Price for the common stock identified in the Put
Notice shall be set at 93% of the lowest closing bid price of the common stock
during the Pricing Period. The Pricing Period is equal to the period beginning
on the Put Notice Date and ending on and including the date that is five (5)
trading days after such Put Notice Date. There are put restrictions applied on
days between the Put Date and the Closing Date with respect to that Put. During
this time, the Company shall not be entitled to deliver another Put Notice.
The Company shall automatically withdraw that portion of the put notice
amount, if the Market Price with respect to that Put does not meet the Minimum
Acceptable Price. The Minimum Acceptable Price is defined as 75% of the closing
bid price of the common stock for the ten (10) trading days prior to the Put
Date.
In connection with the equity line, the Company has agreed to pay
Instream Partners LLC, as placement agent, one percent (1%) of the gross
proceeds from each Put with a maximum of five thousand dollars ($5,000). The
Company agrees to bear all the reasonable expenses, if any, of Instream Partners
LLC in performing its services under this agreement including but not limited to
the fees and expenses of counsel, which shall be submitted to the Company as
estimate first for its approval, and such approval shall not unreasonably be
withheld.
SUMMARY CONSOLIDATED FINANCIAL DATA
The following summary consolidated financial data and other data are
qualified by reference to, and should be read in conjunction with, our financial
statements and their related notes appearing elsewhere in this prospectus and
"Management's Discussion and Analysis." The selected statement of operations
data shown below for the fiscal years ended December 31, 2005 and 2004 and the
balance sheet data as of December 31, 2005 are derived from our audited
financial statements included elsewhere in this prospectus.
2
Statement of Operations Data:
YEAR ENDED
December 31,
2005 2004
Sales $2,168,434 $1,361,055
Cost of Sales $ 641,414 $ 305,572
Gross Profit $1,527,020 $1,055,483
General and $1,563,174 $1,166,781
Administrative Expenses
Research and $ 534,933 $ 295,996
Development Expenses
Net Loss $ 644,692 $ 513,034
As of
December 31,
2005
Balance Sheet Data:
Current Assets $ 164,506
Total Liabilities $ 3,425,107
Stockholders' Equity (Deficiency) $(3,047,123)
3
RISK FACTORS
AN INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. IN
ADDITION TO OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, YOU SHOULD CAREFULLY
CONSIDER THE FOLLOWING RISK FACTORS AND OTHER INFORMATION IN THIS PROSPECTUS
BEFORE INVESTING IN OUR COMMON STOCK.
WE HAVE HAD OPERATING LOSSES AND LIMITED REVENUES TO DATE AND DO NOT
EXPECT TO BE PROFITABLE IN THE FORESEEABLE FUTURE.
We have incurred net losses for each of the years ended December 31,
2005 and 2004 in the amounts of $644,692 and $513,034, respectively. We expect
to continue to incur losses for at least the foreseeable future. Through
December 31, 2005, we had an accumulated deficit in the amount of $ 10,639,491.
We also have had limited revenues. Revenues for the years ended December 31,
2005 and 2004 were $2,168,434 and $1,361,055 , respectively. There can be no
assurance that we will achieve or sustain profitability in the foreseeable
future.
WITHOUT ADDITIONAL EQUITY OR DEBT FINANCING WE CANNOT CARRY OUT OUR BUSINESS
PLAN.
Our current business plan involves substantial costs, primarily those
costs associated with investment in infrastructure and supporting the sales
efforts of our channel partners. While cash generated by our operations will
cover most of such costs, any current anticipated revenues will be insufficient
to cover all of such costs. If we are unable to secure additional equity or debt
financing our results of operations will be adversely affected.
THE TIMING OF OUR SALES COULD FLUCTUATE AND LEAD TO PERFORMANCE DELAYS.
The timing of our sales have fluctuated in the past and, we believe,
are likely to continue to fluctuate from period to period depending on a number
of factors, including but not limited to the timing and receipt of significant
orders, the timing of milestone payments within the license schedules, the
timing of completion of contracts, increased competition, or changes in the
demand for our products and services. Timing of sales could cause a lack of cash
and delay our completion of contracts, and we could face cancellation of
contracts for that reason, which could have a materially adverse impact on our
operations.
WE OPERATE INTERNATIONALLY AND ARE SUBJECT TO CURRENCY FLUCTUATIONS, WHICH COULD
CAUSE US TO INCUR LOSSES EVEN IF OUR OPERATIONS ARE PROFITABLE.
We currently operate directly and through regional sales
representatives in the European Union, United Kingdom, United States, Mexico,
Colombia, Brazil, the Philippines and Taiwan. Our research and development
operations are conducted in Israel and we expect to operate in additional
markets, each with its own currency. Contracts can be denominated in one of
several currencies. A change in currency rates could cause us losses as we
perform under the contract or as we are paid. We do not engage in currency
trading operations to minimize this risk, but we might if warranted in the
future. Also, our revenues earned abroad may be subject to taxation by more than
one jurisdiction, and this could have the effect of reducing our earnings.
WE ARE DEPENDENT UPON CERTAIN MAJOR CUSTOMERS, AND THE LOSS OF ONE OR MORE OF
SUCH CUSTOMERS COULD ADVERSELY AFFECT OUR REVENUES AND PROFITABILITY.
During the year ended December 31, 2005, approximately 52% of our sales
were from sales to one customer. During the year ended December 31, 2004,
approximately 67% of our sales were from sales to two customers, and 54% of
sales were to one customer. During the year ended December 31, 2003,
approximately 78% of our sales were from sales to one customer. The agreement
with a customer typically includes a down payment over a period in which our
system is installed, and subsequent payments, which are a function of actual use
by the end-users of the system. At the current stages of our business, the loss
of any one of our major customers would seriously affect our revenues and
profit.
4
OUR AUDITORS HAVE RENDERED A GOING CONCERN EMPHASIS OPINION ON OUR
FINANCIAL STATEMENTS.
Our auditors have expressed concern as to our ability to continue as a
going concern. If our business is ultimately unsuccessful, the assets on our
balance sheet could be worth significantly less than their carrying value and
the amount available for distribution to stockholders on liquidation would
likely be insignificant.
PENNY STOCK RULES COULD MAKE IT HARD TO RESELL YOUR SHARES.
Our common stock does not meet the listing requirements for any trading
market other than the OTC Bulletin Board. Consequently, the liquidity of our
securities could be impaired, not only in the number of securities which could
be bought and sold, but also through delays in the timing of transactions,
reduction in securities analysts' and the news media's coverage of us, and lower
prices for our securities than might otherwise be attained.
In addition, the "penny stock" rules limit trading of securities not
traded on NASDAQ or a recognized stock exchange, or securities which do not
trade at a price of $5.00 or higher, in that brokers making trades in those
securities must make a special suitability determination for purchasers of the
security, and obtain the purchaser's consent prior to sale. The application of
these rules may make it difficult for purchasers in this offering to resell
their shares.
U.S. INVESTORS MAY HAVE TROUBLE IN ATTEMPTING TO ENFORCE LIABILITIES BASED UPON
U.S. FEDERAL SECURITIES LAWS AGAINST US AND OUR SUBSIDIARIES AND OUR NON-U.S.
RESIDENT DIRECTORS.
Our research and development operations are conducted through our
subsidiary, m-Wise Ltd., which is incorporated and located in Israel, and our
marketing and sales operations are conducted either directly by us or through
regional sales representatives. All of our tangible assets are located outside
the United States. In addition, all of our directors are non-US citizens. As a
result, it may be difficult or impossible for United States investors to serve
process within the United States upon management or to enforce a judgment upon
management for civil liabilities in United States courts.
RISKS RELATED TO OUR LOCATION IN ISRAEL
OUR RESEARCH AND DEVELOPMENT FACILITIES ARE LOCATED IN ISRAEL AND WE HAVE
IMPORTANT FACILITIES AND RESOURCES LOCATED IN ISRAEL WHICH COULD BE NEGATIVELY
AFFECTED DUE TO MILITARY OR POLITICAL TENSIONS.
Our Israeli subsidiary, m-Wise Ltd., is incorporated under the laws of
the State of Israel and our research and development facilities as well as
significant executive officers are located in Israel. Although a substantial
portion of our sales are currently being made to customers outside of Israel,
political, economic and military conditions in Israel could nevertheless
directly affect our operations. Since the establishment of the State of Israel
in 1948, a number of armed conflicts have taken place between Israel and its
Arab neighbors and a state of hostility, varying in degree and intensity, has
led to security and economic problems for Israel. We could be adversely affected
by any major hostilities involving Israel, the interruption or curtailment of
trade between Israel and its trading partners, a significant increase in
inflation, or a significant downturn in the economic or financial condition of
Israel. Despite the progress towards peace between Israel and its Arab
neighbors, the future of these peace efforts is uncertain. Several Arab
countries still restrict business with Israeli companies which may limit our
ability to make sales in those countries. We could be adversely affected by
restrictive laws or policies directed towards Israel or Israeli businesses.
CERTAIN OF OUR OFFICERS AND EMPLOYEES ARE REQUIRED TO SERVE IN THE ISRAEL
DEFENSE FORCES AND THIS COULD FORCE THEM TO BE ABSENT FROM OUR BUSINESS FOR
EXTENDED PERIODS.
Several of our male employees located in Israel are currently obligated
to perform annual reserve duty in the Israel Defense Forces and are subject to
being called for active military duty at any time. The loss or extended absence
of any of our officers and key personnel due to these requirements could harm
our business.
THE RATE OF INFLATION IN ISRAEL MAY NEGATIVELY IMPACT OUR COSTS IF IT EXCEEDS
THE RATE OF DEVALUATION OF THE NIS AGAINST THE DOLLAR.
Substantially all of our revenues are denominated in dollars or are
dollar-linked, but we incur a portion of our expenses, principally salaries and
related personnel expenses in Israel, in New Israeli Shekels (NIS). In 2005, 38%
of our costs were incurred in NIS. As a result, we are exposed to the risk that
the rate of inflation in Israel will exceed the rate of devaluation of the NIS
in relation to the US Dollar or that the timing of this devaluation will lag
behind inflation in Israel. In that event, the dollar cost of our operations in
Israel will increase and our dollar-measured results of operations will be
adversely affected. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
5
RISKS RELATED TO HOLDING OUR SECURITIES
EXISTING STOCKHOLDERS MAY EXPERIENCE SIGNIFICANT DILUTION FROM THE SALE OF OUR
COMMON STOCK PURSUANT TO THE INVESTMENT AGREEMENT.
The sale of our common stock to Dutchess Private Equities Fund, LP in
accordance with the Investment Agreement may have a dilutive impact on our
shareholders. As a result, our net income per share could decrease in future
periods and the market price of our common stock could decline. In addition, the
lower our stock price is at the time we exercise our put option, the more shares
of our common stock we will have to issue to Dutchess Private Equities Fund, II,
LP in order to drawdown on the Equity Line. If our stock price decreases, then
our existing shareholders would experience greater dilution. At a stock price of
$0.10 or less, we would have to issue all 107,526,882 shares in order to
drawdown on the full Equity Line.
The perceived risk of dilution may cause our stockholders to sell their
shares, which would contribute to a decline in the price of our common stock.
Moreover, the perceived risk of dilution and the resulting downward pressure on
our stock price could encourage investors to engage in short sales of our common
stock. By increasing the number of shares offered for sale, material amounts of
short selling could further contribute to progressive price declines in our
common stock.
DUTCHESS PRIVATE EQUITIES FUND II, LP WILL PAY LESS THAN THE THEN-PREVAILING
MARKET PRICE OF OUR COMMON STOCK WHICH COULD CAUSE THE PRICE OF OUR COMMON STOCK
TO DECLINE.
Our common stock to be issued under the Investment Agreement will be
purchased at a 7% discount to the lowest closing bid price during the five
trading days immediately following our notice to Dutchess Private Equities Fund,
LP of our election to exercise our "put" right. Dutchess Private Equities Fund,
LP has a financial incentive to sell our shares immediately upon receiving the
shares to realize the profit between the discounted price and the market price.
If Dutchess Private Equities Fund, LP sells our shares, the price of our common
stock may decrease. If our stock price decreases, Dutchess Private Equities
Fund, LP may have a further incentive to sell such shares. Accordingly, the
discounted sales price in the Investment Agreement may cause the price of our
common stock to decline.
6
USE OF PROCEEDS
We will not receive any proceeds from the sale of the securities being
registered herein. We may receive up to $10,000,000 in connection with draw
downs under the Equity Line. We intend to use such proceeds for working capital,
including potential acquisitions. We have not entered into any agreements to
acquire any other entity.
DIVIDEND POLICY
We have not paid any dividends on our common stock. We currently intend
to retain any earnings for use in our business, and therefore do not anticipate
paying cash dividends in the foreseeable future.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our securities are currently traded on the OTC Bulletin Board under the
symbol "MWIS". As of April 6, 2006, there were 29 record holders of stock of our
common stock.
Set forth below are the range of high and low bid quotations for the periods
indicated as reported by the OTC Bulletin Board. The market quotations reflect
interdealer prices, without retail mark-up, mark-down or commissions and may not
necessarily represent actual transactions.
Quarter Ending High Low
3/31/05 $0.72 $0.15
6/30/05 $0.46 $0.10
9/30/05 $0.30 $0.10
12/31/05 $0.25 $0.12
On April 6, 2006, the closing bid price of the Company's common stock was $.11
per share.
There are currently outstanding warrants for the purchase of 17,889,174 shares
of common stock and 5,815,305 shares of common stock reserved under employee
stock option plans pursuant to which additional shares may be issued. As of
April 6, 2006, 126,084,477 shares of common stock are issued and outstanding.
EQUITY COMPENSATION PLAN INFORMATION
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Equity Compensation Plan Information
====================================================================================================
Number of securities Number of securities
to be issued upon Weighted-average remaining available
exercise of exercise price of for future issuance
outstanding options, outstanding options, under equity
warrants and rights warrants and rights compensation plans
Plan category (a) (b) (c)
====================================================================================================
Equity compensation plans
approved by security holders 23,704,479 $0.1021 41,928
====================================================================================================
Equity compensation plans
not approved by security
holders
====================================================================================================
Total 23,704,479 $0.1021 41,928
- ----------------------------------------------------------------------------------------------------
7
MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERVIEW
We were incorporated in February 2000 and commenced operations
immediately thereafter. We initially primarily provided pan-European wireless
application service provider operations by hosted MOMA Platform services to
customers in the United Kingdom, Spain, France and Italy. We established data
centers in Spain, Italy and France that were connected to our main data center
in the United Kingdom. We had connectivity and billing arrangements with
cellular operators that enabled us to provide our hosted services. Altogether we
were enabling delivery and billing of value added data services to over 100
million wireless users by our clients, such as content and media providers,
advertising agencies and entertainment companies.
We gained strong credibility and experience as a wireless application
service provider during calendar 2000 and 2001, while we continued to build and
develop our wireless middleware product. The wireless application service
providers' operations provided us the ability to commercially test our product
across multiple geographic and vertical markets, to test our Platform's
management of multiple applications and services across various operators and
partners, and to test our time-to-market and cost efficiencies in developing
value added services using different protocols for the transmission of data and
methods of user service interactions (e.g. SMS, IVR and J2ME). SMS, which stands
for Short Messaging Service, is built into all GSM cellular phones and enables
subscribers to send and receive text messages of up to 160 characters. IVR,
which stands for Interactive Voice Response, is utilized, among others, for
billing certain value added services using premium-rate fixed-line phone
systems. J2ME, which utilizes Java programming technology built into certain
cellular phones, enables applications to be written once for a wide range of
devices, to be downloaded dynamically, and to leverage each device's native
capabilities. However, we lacked sufficient financial and management resources
to dominate the pan-European wireless application service providers market and
achieve profitability. During the year ended December 31, 2001 we had no
revenues and a net loss of $4,442,913. By December 31, 2001 we had invested
$569,389 in equipment and had capital and lease costs of $84,414.
Due to the high costs and low revenues in the European wireless
application service provider (ASP) market, in 2002 our management decided to
transition our focus away from pan-European wireless application service
providers, toward installing and licensing our middleware technology at
cellular0 operators and wireless application service providers worldwide, and to
operate through original equipment manufacturers (OEMs) and regional sales
representatives to sell our products. Therefore, our management decided to
liquidate, or allow the liquidation of the UK subsidiary, m-Wise Ltd, and its
three subsidiaries in Italy, France and Spain, by creditors and local legal
authorities. Our UK subsidiary was dissolved pursuant to Section 652A of the
Companies Act of 1985 on November 11, 2003. As of November 11, 2003 we invested
$3.2 million in the UK subsidiary and its subsidiaries. The operations of those
subsidiaries were accounted for as discontinued operations in the financial
statements.
Our shift away from hosted wireless application services using our
platform enabled us to focus more on the core middleware benefits of our
technology in fiscal 2002. This shift toward installed platforms also coincided
with growing interest, as documented by wireless industry analysts, among
cellular operators and service providers for wireless middleware's capability to
support strategic service delivery.
In fiscal 2002 we channeled our research and development efforts to
enhance and update our middleware technology to interface with advanced and
emerging wireless technologies such as MMS (Multimedia Messaging Service -
delivery of highly enhanced images and audio files) and J2ME. We also upgraded
our middleware platform to incorporate modules for application deployment and
management, for centralized management of multiple value added services and
multiple third-party content and media providers, and for managing increased
data traffic and real-time billing and reporting requirements.
In fiscal 2002 we restructured our sales efforts toward establishing
distribution channels via original equipment manufacturers (OEMs) and
partnerships with major IT vendors and system integrators. During this period,
we took important steps to move from a direct sales strategy to using channel
partners and original equipment manufacturers to distribute our products. We are
therefore building partnerships with large original equipment manufacturers and
system integrators that already have large sales teams, existing relationships
with cellular operators, the visibility and brand value to interest potential
new clients and the requisite financial backing to support the long sales cycle
and finance our customers where necessary.
8
In fiscal 2003 we had to direct our research and development resources
in an effort to respond to specific business opportunities that were introduced
to us by our distributors and original equipment manufacturers and to be able to
meet our customers enhanced requirements in elements such as increased
transactions volume support and new J2ME possibilities. We also had to make
significant cuts in our expenses to offset the effects of the delay in
finalizing agreements with several prospective clients. We believe that we have
managed to do so without affecting the quality of our products and the level of
customer service we provide. We believe that our current product offering is
very attractive to the market both in terms of quality and price tag.
In fiscal year 2004 we have followed the market evolution with respect
to the enhanced ability to deliver downloadable content directly to mobile
phones and invested significant research and development efforts to comply with
such new market trends. We have substantially improved the MOMA platform mobile
content management abilities, especially with respect to content adaptation to a
growing number and types of mobile handsets, and connectivity between the MOMA
platform and content presentation layers such as Internet and WAP interfaces. We
have also been able to conclude sales agreements with new wireless operators and
wireless application service provider clients and at the same time improve our
product positioning in the market.
In fiscal year 2005 we have continued to follow-up with the rapid
changes n the mobile entertainment market, especially with the growing
introduction of enhanced mobile entertainment services through the third
generation infrastructure for wireless services and the continuous development
of wireless handsets and their ability to present higher levels of multi media.
We have therefore invested significant research and development efforts in
complying with these changes and indeed the delivery of enhanced mobile
entertainment services became a central part of the MOMA platform
functionalities. We have also identified a growing trend in the market that
changes the way potential wireless operators and application service provider
customers acquire mobile entertainment platform functionalities. We have
identified that many potential customers prefer to outsource platform
functionalities to service providers (ASPs) rather than to purchase platform and
install on site (Customer Premises Model). We have therefore invested
significant funds and efforts in the infrastructure that is required for this
ASP model. Indeed many of the customers that we acquired in 2005 chose to use
the hosted license model and this also had an influence on our cash-flow as the
business model of such model is based on monthly payments of on-going license
and professional service fees instead of lump-sum license fee that is typical of
the customer site installed model. We believe that the hosted model is actually
beneficiary to the stability of the revenues flow as although we have to waive
relatively large initial fees against platform license, in the long term we are
being compensated in steady and growing streams of monthly revenues.
Revenues
We experienced rapid revenue growth between the years ended December
31, 2000 and December 31, 2002. Our revenues grew from $26,216 in the year ended
December 31, 2000 to $1,051,975 in the year ended December 31, 2002, however, we
experienced a sharp decline in our revenues during the year ended December 31,
2003 to $361,721, a decrease of 66% which management believes resulted from a
generally soft telecommunications sector and demonstrates the dynamic nature of
our business. A significant portion of the decline in revenues related to the
decline in business from Comtrend (from $403,870 in 2002 to $11,480 in 2003. The
2002 Comtrend revenues were from the sale of the license, while in 2003 Comtrend
revenues was limited to support fees.) Our growing dependency on third parties'
marketing capability and our significantly reduced sales resources prevented us
from achieving enough sales in that fiscal year. Our revenues grew from $361,721
in the year ended December 31, 2003 to $1,361,055 in the year ended December 31,
2004 and to $2,168,434 in the year ended December 31, 2005. Management believes
that our efforts to refocus our resources towards building relationships with
OEMS may yield additional contracts. Although we are in negotiations for several
new contracts there can be no assurance that such contracts will be secured or
that they will generate significant revenue. We derive revenues from product
sales, licensing, revenue share, customer services and technical support.
When we license our MOMA platform solutions to our customers we
generate revenues by receiving a license payment, ongoing support fees which are
typically 15% of the annual license payment, and professional service fees which
are generated from our customers request for additional training, IT
administration and tailoring of our products for their specific needs. When we
license our products to our customers we install our product at a location
specified by our client. We also derive revenue through our hosted services,
whereby we enable customers to remotely use features of our MOMA platform (such
as a mobile content sales and delivery service for ring tones and color images),
which is installed and hosted at our location, and receive a set-up fee for
launching the services for them, as well as a portion of our customer's revenues
generated through our platform. When we provide hosted services we maintain the
MOMA platform at our location on behalf of our customer.
9
Customers and customer concentration. Historically we have derived the
majority of our revenues from a small number of customers and, although our
customer base is expanding, we expect to continue to do so in the future. In the
year ended December 31, 2005, approximately 52% of our sales were derived from
sales to one non-affiliated customer (First Advanced Multi-Media Entertainment).
In the year ended December 31, 2004, approximately 54% of our sales were derived
from sales to another customer(Unefon S.A.).
Geographical breakdown. We sell our products primarily to customers in
Europe and the Far East. For the year ended December 31, 2005, we derived 54% of
our revenues from sales in the Far East, 35% of our revenues from sales in
Europe and 11% from sales in America. Of these revenues 99% were derived from
sales by the company and 1% of our revenues were derived from sales by our
subsidiary. For the year ended December 31, 2004, we derived 55% of our revenues
from sales in North America and 40% of our revenues from sales in Europe. Of
these revenues, 88% were derived from sales by the company and 12% of our
revenues were derived from sales by our subsidiary. For the year ended December
31, 2003, we derived 97% of our revenues from sales in Europe and 3% of our
revenues from sales in the Far East. Of these revenues, 97% were derived from
sales by the company and 3% of our revenues were derived from sales by our
subsidiary. Sales in North America declined, as we did not succeed in acquiring
new customers in that region. We did not lose any customer in the region, and
continued to generate revenues, though marginal, from customers we acquired in
previous years.
Cost of revenues
Customer services and technical support cost of revenues consist of the
salary and related costs for our technical staff that provide those services and
support and related overhead expenses.
Operating expense
Research and development. Our research and development expenses consist
primarily of salaries and related expenses of our research and development
staff, as well as subcontracting expenses. All research and development costs
are expensed as incurred except equipment purchases that are depreciated over
the estimated useful lives of the assets.
General and administrative. Our general and administrative expenses
consist primarily of salaries and related expenses of our executive, financial,
administrative and sales and marketing staff. These expenses also include costs
of professional advisors such as legal and accounting experts, depreciation
expenses as well as expenses related to advertising, professional expenses and
participation in exhibitions and tradeshows.
Financing income and expenses
Financing income consists primarily of interest earned on our cash
equivalents balances and other financial investments and foreign exchange gains.
Financing expenses consist primarily of interest payable on bank loans and
foreign exchange losses.
Critical Accounting Policies. We prepare our consolidated financial
statements in conformity with accounting principles generally accepted in the
U.S. As such, we are required to make certain estimates, judgments and
assumptions that we believe are reasonable based upon the information available.
These estimates and assumptions affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
the periods presented. To fully understand and evaluate our reported financial
results, we believe it is important to understand our revenue recognition
policy.
Revenue recognition. Revenues from products sales are recognized on a
completed-contract basis, in accordance with Staff Accounting Bulletin No. 101
"Revenue Recognition in Financial Statements" ("SAB No. 101"), Statement of
Position 97-2 "Software Revenue Recognition" and Statement of Position 81-1
"Accounting for Performance of Construction-Type and Certain Production-Type
Contracts". The Company has primarily short-term contracts whereby revenues and
costs in the aggregate for all contracts is expected to result in a matching of
gross profit with period overhead or fixed costs similar to that achieved by use
of the percentage-of-completion method. Accordingly, financial position and
results of operations would not vary materially from those resulting from the
use of the percentage-of- completion method. Revenue is recognized only after
all the three stages of deliverables are complete; installation, approval of
acceptance tests results by the customer and when the product is successfully
put into real-life application. Customers are billed, according to individual
agreements, a percentage of the total contract fee upon completion of work in
each stage; approximately 40% for installation, 40% upon approval of acceptance
tests by the customer and the balance of the total contract price when the
software is successfully put into real-life application. The revenues, less its
associated costs, are deferred and recognized on completion of the contract and
customer acceptance. Amounts received for work performed in each stage are not
refundable.
10
On-going service and technical support contracts are negotiated
separately at an additional fee. The technical support is separate from the
functionality of the products, which can function without on-going support.
Technology license revenues are recognized in accordance with SAB No.
101 at the time the technology and license is delivered to the customer,
collection is probable, the fee is fixed and determinable, a persuasive evidence
of an agreement exists, no significant obligation remains under the sale or
licensing agreement and no significant customer acceptance requirements exist
after delivery of the technology.
Revenue share is recognized as earned based on a certain percentage of
our clients' revenues from selling services to end users. Usage is determined by
receiving confirmation from the clients.
Revenues relating to customer services and technical support are
recognized as the services are rendered ratably over the period of the related
contract.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2005 COMPARED TO YEAR ENDED DECEMBER 31, 2004
Revenues
License fees and products. Revenues from license fees and products
increased 73% to $1,251,438 for the year ended December 31, 2005 from $721,926
for the same period in 2004. The increase primarily consisted of $1,135,350 of
revenues derived from our contract with First Advanced Multi-Media
Entertainment.
Revenue share. Revenues from revenue share increased 392% to $131,560
for the year ended December 31, 2005 from $26,752 for the same period in 2004.
Customer services and technical support. Revenues from customer
services and technical support increased 25% to $767,078 for the year ended
December 31, 2005 from $612,377 for the same period in 2004. The increase
primarily consisted of revenues from ongoing customers who were not our
customers during 2004.
Cost of revenues
License fees and products. Cost of license fees and products increased
348% to $286,959 for the year ended December 31, 2005 from $64,000 for the year
ended December 31, 2004. This increase was primarily due to higher revenues from
License fees and products.
Customer services and technical support. Cost of customer services and
technical support increased 47% to $354,455 for the year ended December 31, 2005
from $241,572 for the year ended December 31, 2004. This increase was primarily
due to higher revenues from customer services and technical support.
Operating expenses
Research and development. Research and development expenses increased
81% to $534,933 for the year ended December 31, 2005 from $295,996 for the year
ended December 31, 2004. This increase was primarily due to a $229,102 increase
in payroll and related expenses and a $52,170 decrease in government grant
received, partially offset by a $34,550 decrease in travel expenses. Research
and development expenses, stated as a percentage of revenues, increased to 25%
for the year ended December 31, 2005 from 22% year ended December 31, 2004.
General and administrative. General and administrative expenses
increased 34% to $1,563,174 for the year ended December 31, 2005 from $1,166,781
for the year ended December 31, 2004. This increase was primarily due to a
$500,000 wage expense due to common shares issued for services rendered and a
$73,117 increase in rent expenses, partially offset by a $46,017 decrease in
travel expenses and a $32,291 decrease in communications expenses. General and
administrative expenses, stated as a percentage of revenues, decreased to 72%
for the year ended December 31, 2005 from 86% for the year ended December 31,
2004.
11
Financing income and expenses
Financing income. Our Financing income decreased 9,836% to $40 for the
year ended December 31, 2005 from $2,442 for the same period in 2004.
Financing expenses. Our financing expenses increased 11% to $73,645 for
the year ended December 31, 2005 from $66,182 for the same period in 2004.
YEAR ENDED DECEMBER 31, 2004 COMPARED TO YEAR ENDED DECEMBER 31, 2003
Revenues
License fees and products. Revenues from license fees and products
increased 390% to $721,926 for the year ended December 31, 2004 from $147,450
for the same period in 2003. The increase primarily consisted of $605,000 of
revenues derived from our contract with Unefon S.A.
Revenue share. Revenues from revenue share increased 17% to $26,752 for
the year ended December 31, 2004 from $22,800 for the same period in 2003.
Customer services and technical support. Revenues from customer
services and technical support increased 220% to $612,377 for the year ended
December 31, 2004 from $191,471 for the same period in 2003. The increase
primarily consisted of revenues from ongoing customers who were not our
customers during 2003.
Cost of revenues
License fees and products. Cost of license fees and products increased
223% to $64,000 for the year ended December 31, 2004 from $19,793 for the year
ended December 31, 2003. This increase was primarily due to higher revenues from
License fees and products.
Customer services and technical support. Cost of customer services and
technical support increased 126% to $241,572 for the year ended December 31,
2004 from $106,840 for the year ended December 31, 2003. This increase was
primarily due to higher revenues from customer services and technical support.
Operating expenses
Research and development. Research and development expenses increased
5% to $295,996 for the year ended December 31, 2004 from $282,845 for the year
ended December 31, 2003. This increase was primarily due to a $19,378 increase
in travel expenses and a $18,044 increase in depreciation expenses, partially
offset by a $32,893 decrease in subcontractors expenses. Research and
development expenses, stated as a percentage of revenues, decreased to 22% for
the year ended December 31, 2004 from 78% year ended December 31, 2003 as a
result of our increased revenues.
General and administrative. General and administrative expenses
decreased 9% to $1,166,782 for the year ended December 31, 2004 from $1,277,979
for the year ended December 31, 2003. This decrease was primarily due to a
$298,169 decrease in professional services, a $167,739 decrease in payroll and
related expenses mainly due to options granted for employee services in the year
ended December 31, 2003 and a $90,719 decrease in consulting expenses, partially
offset by a $250,331 increase in marketing expenses and a $87,281 increase in
travel expenses. General and administrative expenses, stated as a percentage of
revenues, decreased to 86% for the year ended December 31, 2004 from 353% for
the year ended December 31, 2003.
Financing income and expenses
Financing income. Our Financing income increased 1,670% to $2,442 for
the year ended December 31, 2004 from $138 for the same period in 2003.
Financing expenses. Our financing expenses decreased 3% to $66,182 for
the year ended December 31, 2004 from $68,556 for the same period in 2003.
12
LIQUIDITY AND CAPITAL RESOURCES
Our principal sources of liquidity since our inception have been
private sales of equity securities, stockholder loans, borrowings from banks and
to a lesser extent, cash from operations. We had cash and cash equivalents of
$573 as of December 31, 2005 and $124,854 as of December 31, 2004. Our initial
capital came from an aggregate investment of $1.3 million from Cap Ventures Ltd.
To date, we have raised an aggregate of $5,300,000 from placements of our equity
securities (including the investment by Cap Ventures and a $4,000,000 investment
by Syntek Capital AG and DEP Technology Holdings Ltd.). We have also borrowed an
aggregate of $1,800,000 from Syntek Capital AG and DEP Technology Holdings Ltd.
(See "Certain Transactions") and as of the date of this prospectus we have no
funds available to us under bank lines of credit. We have a credit line
agreement with Miretzky Holdings Limited. As of December 31, 2005, $ 280,403 is
outstanding under the credit line. The credit line is for $300,000. The credit
line has no termination date and does not provide for interest payments. Other
than the said credit line agreement with Miretzky, we do not have any
commitments from any of our affiliates or current stockholders, or any other
non-affiliated parties, to provide additional sources of capital to us. We will
need approximately $1.0 million for the next twelve months for our operating
costs which mainly include salaries, office rent and network connectivity, which
total approximately $60,000 per month, and for working capital. We intend to
finance this amount from our ongoing sales and through draws on our equity line.
Currently we do not believe that our future capital requirements for equipment
and facilities will be material.
Operating activities. For the year ended December 31, 2005 we used
$494,943 of cash in operating activities primarily due to our net loss of
$644,692 and a $656,090 decrease in deferred revenues, partially offset by
$500,000 wages and salaries paid by issuance of shares and a $189,688 increase
in other payables and accrued liabilities.
For the year ended December 31, 2004 we generated $134,031 of cash in
operating activities primarily due to a $614,104 increase in deferred revenues,
partially offset by our net loss of $513,034.
Investing and financing activities.
Property and equipment consist primarily of computers, software, and office
equipment.
For the year ended December 31, 2005, net cash used in investing
activities was $55,885 consisting of an investment in equipment. For the year
ended December 31, 2004, net cash used in investing activities was $82,817
consisting of an investment in equipment.
For the year ended December 31, 2005, net cash provided by financing
activities was $426,547 due to a $291,265 increase in advances from shareholders
and a $75,141 increase in notes payables. For the year ended December 31, 2004,
net cash provided by financing activities was $41,102 due to a $44,334 increase
in notes payables, partially offset by a $3,232 decrease in bank indebtedness.
Market Risk
We do not currently use financial instruments for trading purposes and
do not currently hold any derivative financial instruments that could expose us
to significant market risk.
Corporate Tax Rate
Our net operating loss carry-forwards in the United States for tax
purposes amount to approximately $9.9 million as of September 30, 2005.
Impact of Inflation and Currency Fluctuation
Substantially all of our revenues are denominated in dollars or are
dollar-linked, but we incur a portion of our expenses, principally salaries and
related personnel expenses in Israel, in New Israeli Shekels (NIS). In 2005, 38%
of our costs were incurred in NIS. As a result, we are exposed to the risk that
the rate of inflation in Israel will exceed the rate of devaluation of the NIS
in relation to the US Dollar or that the timing of this devaluation will lag
behind inflation in Israel. In that event, the dollar cost of our operations in
Israel will increase and our dollar-measured results of operations will be
adversely affected.
13
Our auditors have included an explanatory paragraph in their report on
our financial statements, relating to the uncertainty of our business as a going
concern, due to our limited operating history, our lack of historical
profitability, and limited funds. Management believes that it will be able to
raise the required funds for operations from bank financings, or from one or
more future offerings, and to be able to achieve our business plan. Risks
inherent in the business as discussed under the caption "Risk Factors" may
affect the outcome of Management's plans.
14
BUSINESS
BACKGROUND
We were incorporated in Delaware in February 2000 under the name of
Wireless Auctions, Inc. We develop, manufacture, market and support a software
and hardware-based wireless application platform marketed under the brand MOMA
platform. A platform, in the wireless industry, is an entry point for services
and content from different types of media (such as the Internet, magazines,
television) into the mobile networks, and through them to their customers-
mobile phone users. The MOMA platform enables cellular operators and wireless
application service providers to provide data and multimedia value-added
services and content to their customers such as: person to person telephone
calls, text messaging, ring tones, sports news and alerts, pictures and TV
voting for contest shows, over wireless networks. Our platform is an end-to-end
application and middleware platform that includes monitoring, billing,
reporting, content management, customer care, application development, generic
application engines, third-party provisioning and centralized third-party
management tools. These services are called value-added services in the wireless
industry. Our platforms have been utilized since March 2000 in over 300
applications across more than 50 European and Asian networks for over 50 various
internationally known content and media providers. These include applications
such as games, information services, alerts, advertising and promotions, which
were developed and delivered on a hosted basis for content and media providers,
through our wholly-owned UK subsidiary and its Italian, French and Spanish
subsidiaries. In the second half of 2002, we ceased operating and owning
hardware infrastructure in order to concentrate on licenses and installed sales
of our technology, and the operations of our UK subsidiary and its European
subsidiaries were discontinued. Shay Ben-Asulin and Mordechai Broudo were the
directors of our wholly-owned UK subsidiary. Our UK subsidiary had three
wholly-owned subsidiaries: (i) m-Wise s.a.r.l. (France), which previously
provided sales and customer support in France, the sole officer and director is
Mordechai Broudo, our Chief Executive Officer; (ii) m-Wise S.r.l. (Italy), which
previously provided sales and customer support in Italy, the sole officer and
director is Shay Ben-Asulin, our Chairman and Secretary; and (iii) m-Wise Spain,
S.L, which previously provided sales and customer support in Spain, the sole
officer and director is Mordechai Broudo. Our Israeli subsidiary is legally
active in its jurisdiction of incorporation, however, our UK subsidiary was
dissolved pursuant to Section 652A of the Companies Act of 1985 on November 11,
2003. The liquidation of our UK subsidiary and its subsidiaries is not likely to
affect our revenues in Europe as our European clients contract directly with us,
or via a channel partner.
We operate mainly through m-Wise Ltd., our wholly-owned subsidiary in
Israel. The officers of our Israeli subsidiary are Mordechai Broudo, Chief
Executive Officer, Shay Ben-Asulin, Chairman, Asaf Lewin, Chief Technology
Officer, and Gabriel Kabazo, Chief Financial Officer, and the directors are Shay
Ben-Asulin and Mordechai Broudo. We currently sell our MOMA Platform directly,
through potential channel partners and through regional representative in
Taiwan, Philippines Colombia, Brazil and the USA.
INDUSTRY BACKGROUND
GROWING MARKET FOR VALUE-ADDED SERVICES.
The wireless communications market primarily consists of cellular
telephone networks, but also includes pagers, personal digital assistants, and
private mobile networks such as those used by utility companies and delivery
services. Value added services constitute significant additional revenue sources
for wireless networks and wireless application service providers (WASPs), and
have become essential components of cellular services in only a few years. This
has been documented by industry analysts and journalists, as well as by the
financial reports from various cellular operators that describe data services as
a growing percentage of the carriers' revenues.
15
Originally utilized solely for telephone communications, the wireless
phone networks have added data and multimedia content for the benefit of their
subscribers, such as:
X SMS - short messaging service - enables subscribers to send and receive short
(160 character) text messages and graphics images;
X EMS - enhanced message service - enables subscribers to send and receive high
quality images and graphics;
X MMS - multimedia messaging service - enables the delivery of further enhanced
images and audio files;
X WAP - web application protocol - enables subscribers to access the internet
and send and receive email;
X Interactive media, such as quizzes and online gaming, enabled, inter alia, by
Java (J2ME) technology;
X Subscriber information, such as stock quotes or sports news;
X "Push" technology, enabling content providers to broadcast advertisements to
subscribers;
X Community services such as chat and dating; and
X Entertainment media, including radio stations, music and magazines.
Our technology is referred to as middleware or a Content and Service
Delivery Platform as it integrates the wireless telecommunications providers
with mainstream information technology industries. Providers developing
middleware technology supply a means of integrating the wireless
telecommunications providers, mainstream IT, and content and media provider
industries to deliver value added services to wireless subscribers. The
introduction of the wireless value added services industry has put an onus on
cellular operators and service providers to use their internal operational
infrastructure as an externally-facing, strategic service delivery platform.
Wireless middleware technology seeks to form a crucial part of this platform,
thus facilitating the cellular operators and service providers' efforts to
connect to content partners and then deliver compelling services to their
wireless subscriber base, regardless of the device used by the subscribers.
GROWING IMPORTANCE OF MIDDLEWARE
Our MOMA Platform plays the role of content and service delivery
Platform provides a centralized approach to middleware. We view the role of our
middleware as central to the service offering by reducing the complexity in the
supply chain. Wireless operators and wireless application service providers
currently negotiate with a large number of industry players to deliver content,
including access providers, payment providers, content aggregators and
applications developers. We emphasize our business value as reducing service
development costs for wireless operators and wireless application service
providers by providing a single horizontal platform on which to build and
deliver value added services, and on which to manage value added services
content and billing relationships. We believe that the single middleware
solution reduces the time spent negotiating with third parties to implement and
run new services and then manage those agreements.
16
We believe that middleware will play a central role in the wireless
operator and wireless application service providers' service delivery offering.
The core middleware will be installed on the operator and wireless application
service provider's network to fulfill the functions of service development and
management, with smaller versions of the platform installed at the operator or
wireless application service providers' subsidiaries in additional geographic
markets to share central sources of information. This approach lowers the costs
for the operator by centralizing the processes that are currently built
individually by content provider, geographic market and other criteria.
THE M-WISE STRATEGY
We believe that we were early to recognize the role of middleware in an
increasingly complex platform strategy, and that we positioned ourselves to
successfully prove the capacity of our content and service delivery platform to
act as middleware for wireless value added services regardless of different
standards, device types and billing infrastructures. One of the ways in which we
are promoting our middleware technology is by addressing wireless operators and
wireless application service providers requirements for a centralized platform
on which to build and manage value added services content and applications from
a number of different providers. In a similar approach, we are targeting
wireless application service providers in order to provide them with a
centralized platform on which to develop and deliver their own service offering.
We believe that a strong synergy underlies for us in acquiring a mobile content
provider that sells directly to consumers. With the power of our superior
technology and geographical reach, a direct approach to consumers can have a
tremendous effect on our revenues and profitability.
We are always actively seeking to acquire a mobile content and
content-related service provider that is generating revenues by marketing
directly to consumers. The acquisition of such candidate will integrate the
synergies of the mobile content provider with our MOMA platform. We believe that
the acquisition of such companies coupled with our superior technology, can
create the strategic synergies necessary to contribute financially to the future
growth and success of the Company. We have not entered into any agreements to
acquire any other entity.
17
PRODUCTS
We develop, manufacture, market and support a software and
hardware-based Content and Service Delivery Platform marketed under the brand
MOMA Platform (MOMA is a middleware, i.e. a bundle of hardware and software
parts that together provide all the functionalities described herein). The
hardware consists of off the shelf products, which include an array of servers,
network switches, high availability power supply and digital storage devices,
that our some of customers purchase per our specifications or that we may
purchase on their behalf, typically for no additional consideration other than
the cost of such hardware components. Other customers may use an extension of
the MOMA platform that is hosted by us, as an outsourced service for content and
service delivery. The main software that runs these hardware components consists
of the MOMA proprietary software code which we have developed. In addition, we
use standard off the shelf software for which we purchase licenses for our use
or on behalf of our customers and freeware (such as Linux, JSP, Microsoft SQL,
Checkpoint's firewall solutions, Tomcat).
Our MOMA platform provides operators and service providers of wireless
data systems an end-to end range of functionalities necessary to develop, manage
and launch wireless value added services and transactions. These functionalities
include, among others, the ability to:
o Minimize the capital, commercial, training and technical
requirements by providing a common platform for the operator
or wireless application service provider's IT, marketing,
customer care and billing departments to manage current and
next-generation wireless value added services;
o Minimize costs by providing a common platform for all
third-party content and service providers to connect and bill
through the operator or wireless application service
provider's wireless network;
o Increase value added services revenues by accelerating the
time to market for third-parties, and by increasing the number
of content providers, media companies and other enterprises
able to enter the wireless value added services market;
o Centralize and itemize the operator or wireless application
service provider's reporting and billing for all value added
services by third party, delivery channel (e.g. SMS, MMS or
other) or billing mechanism (e.g. premium messaging, IVR,
pre-paid data-card or other); and
o Mitigate many typical problems, such as real-time billing,
anti-spam policies, itemized value added services billing and
adequate customer support, through the delivery of a live
window and centralized controls for all value added services,
billing modules and third-party providers.
o Manage and deliver mobile oriented content catalogues and
adapt such content to the large variety of mobile handsets by
automatically identifying handset while downloading the
content and transcodig the content to comply with handsets'
specifications
o Allow third parties to customized presentation layers such as
web and WAP interface to display content and applications and
link value added services with such IP based interfaces
18
One example of how our middleware or MOMA platform works is as follows:
(i) a consumer watching television sees an advertisement inviting
the consumer to purchase and download a new ring tone for
their cellular phone, by sending a SMS via their cellular
phone;
(ii) our customer, the mobile operator, will then send back to the
consumer a SMS or a WAP Push message, redirecting them to a
download site on the Internet, where the consumer may retrieve
the requested ring tone.
To enable this type of service a middleware, such as our MOMA Platform is
required:
(a) the platform receives the consumer's SMS from the network, in
this case the request to download a certain ring tone;
(b) the platform then composes the response SMS to the consumer;
(c) the platform hosts the download site for the new ring tone and
enables the mobile operator to monitor the response to the
advertisement offering the new ring tone in real time;
(d) the platform identifies the type of handset approaching for
the ringtone download and adapt to selected ringtone to the
given handset prior to the download event by such handset
(d) the platform enables the mobile operator to issue a variety of
reports regarding its services, including revenue breakdown,
billing and settlement;
(e) the platform enables our client to modify the content of their
services, i.e. edit language of messages, add new content
items for sale; and
(f) the platform interfaces with the mobile operator's network and
can flexibly determine the billing and pricing arrangement
between the consumer and mobile operator.
The functions described above are performed by the MOMA Plaform
proprietary code that we have developed, which requires standard operating
systems and hardware (mainly servers) to operate.
We provide our customers with various services, such as standard-level
product support and maintenance, product upgrades (typically at an annual fee of
15% of initial license price), and remote management and service monitoring,
that are priced separately. The MOMA Platform software is designed to enable its
users to customize and manage certain aspects of the product, such as the "look
and feel" of the user interface, the language of the user interface, and the
connection of the MOMA Platform to external services. Further customization,
when required, is also priced in addition to the license fee.
Our MOMA Platform, embodied in hardware and software technology,
provides operators of mobile data systems the capability to offer the above
services and other interactive content services. Our technology facilitates
necessary billing and customer service functions and interfaces with
commercially available media content.
19
CUSTOMERS
Our current wireless data customers include prominent global wireless
application service providers and wireless operators. For 2002, 36% of our
revenues were derived from our contract with one customer and 73% with three
customers. For the year ended December 31, 2002, iTouch Plc represented 36% of
our sales, Comtrend Corporation represented 25% of our sales and Vodafone
Omnitel represented 12% of our sales. For the year ended December 31, 2003,
iTouch Plc represented 78% of our sales. For the year ended December 31, 2004,
Unefon S.A. represented 54% of our sales. For the year ended December 31, 2005,
First Advanced Multi-Media Entertainment represented 52% of our sales.
None of our customers are affiliated with us, our subsidiaries, or any of our
officers, directors or principal shareholders.
SALES CHANNELS
We primarily operate through regional sales representatives to
distribute and sell our products on a project by project basis. For example, we
recently made a joint approach with a local Brazilian vendor to one of the major
wireless application service providers in Brazil as a response to an RFP
(request for proposal) issued by the said WASP for a content management and
service delivery system, which is one of the core and proprietary components of
our MOMA platform. The response and the commercial proposal were submitted
through the local vendor, who assisted in all the needed coordination and
negotiations with the Brazilian customer and will also serve as our local
representative once an agreement is signed. Such regional sales representative
typically receives 10% - 20% of the net revenues received by m-Wise against the
projects that were acquired through them.
RESEARCH AND DEVELOPMENT
We devote significant resources to research and development. In January
2003 we were jointly awarded with Hewlett Packard an SIIRD Grant
(Singapore-Israel Research and Development Foundation government grant of
$186,343 USD) to upgrade the MOMA platform to support MMS and J2ME (Java
technology for wireless applications) for wireless carriers in the Far East.
This grant was funded during the years ended December 31, 2003 and 2004 and is
reflected in our financial statements. We expect to continue significant
research and development activities to integrate new technologies into our
platform. During the years ended December 31, 2003 and 2004 we expended $282,845
and $296,996, respectively, on research and development activities. During the
year ended December 31, 2005, we expended $534,933 on research and development
activities.
20
INTELLECTUAL PROPERTY
Our intellectual property rights are important to our business. We
protect our intellectual property rights with a combination of copyright, the
use of contractual provisions with our customers and partners embodied in our
license and partnership agreements, and procedures to maintain the
confidentiality of trade secrets. Most of our intellectual property is embodied
in software. The functionality of all software can eventually be reverse
engineered, given enough time and resources. We rely on common law for
protection of our trademarks "MOMA Gateway" and "m-Wise".
COMPETITION
We encounter competition from numerous competitors, including hundreds
of smaller companies addressing niche content markets. Our larger competitors
include Unipier Ltd in service delivery plaforms,, Mobilitech, Inc. content and
service delivery platforms (middleware), Akumitti Ltd. in digital content
platforms, Openwave Systems Inc. in application platforms, and LogicaCMG and
Materna GmbH Information & Communications in the middleware arena. We believe
our competitive strengths are our superior technology, which was greatly
enhanced since its release, and our technical experience in integrating our
platform with various third-party technologies already existing within the
cellular operator or wireless application service providers network (e.g. SMSCs,
MMSCs and legacy billing systems). We also believe our competitive strengths are
further enhanced by our strong presence in the market through our sales to large
local and global wireless service providers in each of the relevant vertical
markets as well as local sales representatives, flexibility, and commercial
experience in the industry.
EMPLOYEES
Along with our subsidiary we employ an aggregate of 15 employees,
including our officers. Three employees (Messrs. Broudo, Ben-Asulin and Kabazo)
are employed by m-Wise and 12 employees are employed by m-Wise Israel, one of
whom also provide his services to us (Mr. Lewin). All employment agreements with
officers and directors are described under the caption "Executive Compensation".
We believe our employee relations to be excellent. None of our employees is
represented by a labor union, and all are employed on a full-time basis.
Since we have determined to pursue an aggressive objective, which will
require us to maintain competitive advantages in a range of areas, we intend to
maintain a small core of highly skilled technical experts in key areas. This
team will be responsible for maintaining the leadership of the technology
platform, designing the future technology upgrades and products, and utilizing
outsourced development firms on an as-needed basis to implement the necessary
codes and assist in dealing with peaks derived from sales and projects.
We anticipate that managing potential growth during 2006-2007 while
maintaining a small core team will require us to hire additional personnel, as
required by growing sales volumes In the event that the level of our business
increases we may have to hire additional personnel. We would expect that such
personnel would include a few additional personnel for technical support,
account management and sales support for the distribution channels.
21
Israeli law and certain provisions of the nationwide collective
bargaining agreements between the Histadrut (General Federation of Labor in
Israel) and the Coordinating Bureau of Economic Organizations (the Israeli
federation of employers' organizations) apply to our Israeli employees. These
provisions principally concern the maximum length of the work day and the work
week, minimum wages, paid annual vacation, contributions to a pension fund,
insurance for work-related accidents, procedures for dismissing employees,
determination of severance pay and other conditions of employment. We provide
our employees with benefits and working conditions above the required minimum.
Furthermore, pursuant to such provisions, the wages of most of our employees are
subject to cost of living adjustments, based on changes in the Israeli CPI
(Consumer Price Index). The amounts and frequency of such adjustments are
modified from time to time. Israeli law generally requires the payment of
severance pay upon the retirement or death of an employee or upon termination of
employment by the employer or, in certain circumstances, by the employee. We
typically fund our ongoing severance obligations for our Israeli employees by
making monthly payments for managers' insurance policies and severance funds.
Israeli law provides that employment arrangements with employees who
are not in senior managerial positions or positions who require a special degree
of personal trust, or whose working conditions and circumstances do not
facilitate employer supervision of their hours of work, must provide for
compensation which differentiates between compensation paid to employees for a
work week (as defined under Israeli law) or for maximum daily work hours and
compensation for overtime work. The maximum number of hours of overtime is
limited by law. Certain of our employment compensation arrangements are fixed
and do not differentiate between compensation for regular hours and overtime
work. Therefore, we may face potential claims from these employees asserting
that the fixed salaries do not compensate for overtime work, however, we do not
believe that these claims would have a material adverse effect on us.
FACILITIES
Our offices are located at 3 Sapir Street, Herzeliya Pituach, Israel
46852, in leased office space of approximately 300m2, which we believe is
adequate for our current and future operating activities. Our monthly rent is
$4,000.
LEGAL PROCEEDINGS
We are currently not involved in any material legal proceedings.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The members of our Board of Directors serve until the next annual
meeting of stockholders, or until their successors have been elected. The
officers serve at the pleasure of the Board of Directors. The following are our
directors and executive officers. All officers dedicate their full business time
to our operations.
NAME AGE POSITION
Morderchai Broudo 47 Chief Executive Officer and Director
Shay Ben-Asulin 37 Chairman of the Board and Secretary
Gabriel Kabazo 33 Chief Financial Officer
Asaf Lewin 40 Chief Technology Officer
MR. MORDECHAI BROUDO is one of our co-founders and has been a director since our
inception. Mr. Broudo has been acting as our Chief Executive Officer since June
2001. Before founding m-Wise, Mr. Broudo was the Chief Technology Officer of
Need2Buy.com, Inc., now known as River One Inc., which was funded by Mitsubishi
and several leading venture capital firms, from November 1999 to March 2000.
River One provides management software and services for manufacturers to control
processes between customers and suppliers. From January 1997 to April 1998, Mr.
Broudo served as the Managing Director of the New York office of Mercado DTL, a
provider of advanced intelligent data management systems. Mr. Broudo received a
Bachelors Degree in Computer Science from Queens College, New York, in 1991.
MR. SHAY BEN-ASULIN is one of our co-founders and has been a director since our
inception. Mr. Ben-Asulin has been acting as our Secretary and Chairman of the
Board of Directors since June 2001, focusing mainly on our European operations,
corporate strategy and funding and product planning. Before founding m-Wise, Mr.
Ben-Asulin served as the Business Development and Wireless Content Manager, from
April 1999 to March 2000, of PassCall Advanced Technologies Ltd., an Israeli
start-up company based in New York, focused on web-based content and
applications to wireless phones. In this position, Mr. Ben-Asulin acquired
extensive knowledge and expertise of the wireless communications market, and
developed sales and business development channels with US cellular operators,
system integrators and media companies. From January 1998 to September 1999, Mr.
Ben-Asulin served as the Chief Executive Officer of Mishin Investments Ltd., a
privately-owned company that promoted multinational projects and investments in
the Middle East region through business alliances in Israel and countries such
as Jordan, Oman, Qatar and Egypt.
MR. GABRIEL KABAZO, CPA, has served as our Chief Financial Officer since October
2002. From August 2000 to September 2002, Mr. Kabazo was the Controller of On
Track Innovations Ltd., a high-tech manufacturing company in the business of
contactless smart cards traded on the NASDAQ, with several subsidiaries
worldwide (North America, South Africa, Asia and Europe) and over 200 employees,
where he supervised the finance and accounting activities of the various
subsidiaries, the ongoing management of the accounting department, preparation
of budget plans, financial reports and reports to the SEC. Mr. Kabazo has led
several initiatives to enhance efficiency and reduce company spending as
required from market conditions and played a principal role in the preparation
of On Track Innovations Ltd.'s public offering, working closely with company
management, external attorneys and underwriters. From December 1997 to July
2000, Mr. Kabazo worked as a CPA, Senior Level, at Luboshitz Kasierer, one of
Israels leading CPA firms. Mr. Kabazo received a Bachelors Degree in Accounting
and Economics from the Faculty of Management of Tel-Aviv University in 1997, a
Masters Degree in Business Administration from the Sauder School of Business of
the University of British Columbia in 2006 and is a Certified Public Accountant
registered in Israel since 1999.
22
MR. ASAF LEWIN has served as our Chief Technology Officer since June 2001. From
March 2000 to September 2000, Mr. Lewin was a co-founder and managing director
at eCaddo Ltd., an Israeli start-up company in the field of scheduling/pricing
solutions for online directories. From 1995 to March 2000, Mr. Lewin oversaw the
development of several extensive visual reconnaissance systems at Elron Software
(a wholly owned subsidiary of Elron Electronic Industries and a recognized
global leader in the development of innovative technology products and services
for advanced networking and Internet infrastructures), in the capacity of
division manager. Prior to his engagement by Elron Software in 1995, Mr. Lewin
was engaged by the development team at the Israeli Air Force Avionics Software
Center, where he participated in numerous research and development projects in a
variety of languages and development environments. He was honored with an award
of excellence from the Israeli Air Force Commander for a certain project. Mr.
Lewin received a Bachelors Degree (cum laude) in Aeronautical Engineering from
the Israeli Technion (the Israel Institute of Technology) in 1988.
AUDIT COMMITTEE
We do not have an audit committee. Because of our small size and the
risk attendant to a small public company, we are currently unable to attract an
audit committee financial expert to our Board of Directors.
EXECUTIVE COMPENSATION
The following table sets forth the cash and all other compensation paid
to our executive officers and directors during each of the last three fiscal
years, including compensation from our subsidiaries. The remuneration described
in the table includes our cost of any benefits which may be furnished to the
named executive officers, including premiums for health insurance and other
benefits provided to such individual that are extended in connection with the
conduct of our business. This table does not include certain options to purchase
common stock granted to corporations controlled by Messrs. Broudo and Ben-Asulin
10,432,560 and 10,876,080 shares, respectively) since such options were granted
in order to provide for anti-dilution protection, and not in connection with
such individuals' employment.
SUMMARY COMPENSATION TABLE
Annual Compensation ($) Long Term Compensation
----------------------- ----------------------
Awards Payouts
------ -------
Name and Other Annual Restricted Securities LTIP All Other
Principal Position Year Salary Bonus Compensation Stock Underlying Payouts Compensation
- ------------------ ---- ------ ----- ------------ Awards Options/SARs(#) ------- ------------
------ ---------------
Shay Ben-Asulin (1) 2005 $109,992
Chairman of the Board of 2004 $109,992
Directors and Secretary 2003 $109,992
Gabriel Kabazo 2005 $ 50,192 $500,000
CFO 2004 $ 50,192
2003 $ 49,608 552,114
Mordechai Broudo (1) 2005 $109,992
CEO 2004 $109,992
2003 $109,992
(1) The amounts shown for Messrs. Ben-Asulin and Broudo include for each
$109,992 accrued but not paid in 2003, 2004 and in 2005.
OPTION GRANTS IN LAST FISCAL YEAR
There were no options granted in the last fiscal year.
23
EMPLOYMENT AGREEMENTS
Mordechai Broudo has an employment agreement dated January 8, 2001, as
amended, pursuant to which he provides us with his services as Chief Executive
Officer, for an initial period of three years, renewed automatically unless
previously terminated. The agreement may be terminated, without cause, upon 90
days notice or by payment of three months salary, or may be immediately
terminated by us, without cause, provided that Mr. Broudo receives six months
severance pay. Mr. Broudo's current salary is $9,166 per month, plus 24 days
paid annual vacation.
Shay Ben-Asulin has an employment agreement dated January 8, 2001, as
amended, pursuant to which he provides us with his services as Chairman of the
Board of Directors and Secretary for an initial period of three years, renewed
automatically unless previously terminated. The agreement may be terminated,
without cause, upon 90 days notice or by payment of three months salary, or may
be immediately terminated by us, without cause, provided that Mr. Ben-Asulin
receives six months severance pay. Mr. Ben-Asulin's salary is $9,166 per month,
plus 24 days paid annual vacation.
Asaf Lewin has an employment agreement with the Israeli Subsidiary
dated June 1, 2001, as amended, and serves as our Chief Technology Officer and
the Chief Technology Officer of our Israeli subsidiary. Pursuant to his
employment agreement, he receives NIS 33,000 per month. He also receives a
manager's insurance policy, which will be transferred to him upon severance
unless his employment is terminated for cause (or under circumstances in which
Israeli law denies the right for severance payment). He also receives a
vocational studies fund from us in the amount of 7.5% of his monthly salary. His
employment agreement may be terminated upon 3 months notice without cause, or
immediately for cause. He has received an option to purchase 5,336,820 shares of
our common stock, subject to certain vesting schedules and certain other
restrictions.
Gabriel Kabazo has an employment agreement dated October 1, 2002, as
amended, and serves as our Chief Financial Officer and the Chief Financial
Officer of our Israeli subsidiary. Pursuant to his employment agreement, his
current salary is $4,183 per month. His employment agreement may be terminated
upon one month's notice without cause, or immediately for cause. He has received
an option to purchase 552,114 shares of our common stock, subject to certain
vesting schedules and certain other restrictions.
STOCK OPTION PLANS
We adopted an Israel Stock Option Plan (2003) (the "2003 Israeli Plan")
and an International Share Option Plan (2003) (the "2003 International Plan") on
January 16, 2003, by resolution of our Board of Directors and stockholders, and
an Israel Share Option Plan (2001) and an International Share Option Plan (2001)
by resolution of our Board of Directors and stockholders. The Plans enable us to
offer an incentive based compensation system to our employees, directors and
consultants and employees, directors and consultants of our subsidiaries and/or
affiliated companies.
No options were granted in 2002.
During the year ended December 31, 2003, options to purchase our shares
of common stock were issued to the following officers, directors and affiliates
of m-Wise (and its subsidiaries), as well as to certain employees, former
employees and service provider of m-Wise (and its subsidiaries), in the amounts
listed next to their names pursuant to the Israel Share Option Plan (2001),
Israel Stock Option Plan (2003) and the International Share Option Plan (2003):
Israel Share Option Plan (2001):
Gabriel Kabazo - 150,000 options.
Additionally, an aggregate of 2,250,000 options were issued pursuant to
the Israel Share Option Plan (2001) to other employees and former employees.
All options under the Israel Share Option Plan (2001) are exercisable
into shares of common stock on a one-for-one basis.
Israel Stock Option Plan (2003):
Inter-Content Development for the Internet
Ltd. -7,457,010 options.
24
Gabriel Kabazo - 402,114 options
Asaf Lewin - 5,336,820 options
Additionally, an aggregate of 2,859,906 options were issued pursuant to
the Israel Stock Option Plan (2003) to other employees.
All options under the Israel Stock Option Plan (2003) are exercisable
into shares of common stock on a one-for-one basis.
International Share Option Plan (2003):
Proton Marketing Associates, LLC - 10,432,560 options - beneficial owner is
Mordechai Broudo, our CEO.
Putchkon.com, LLC - 10,876,080 options - beneficial owner is Shay Ben-Asulin,
our Chairman.
Additionally, an aggregate of 3,752,454 options were issued pursuant to
the International Share Option Plan(2003) to former employees.
All options under the International Share Option Plan (2003) are
exercisable into shares of common stock on a one-for-one basis.
No options were granted in 2004.
In 2006 an aggregate of 1,260,000 options were issued pursuant to the
Israel Stock Option Plan (2003) to other employees.
ISRAEL SHARE OPTION PLAN (2001)
The Israel Share Option Plan (2001) is administered by the Board of
Directors, or a committee appointed by the Board. Our employees, directors,
service providers and consultants and those of our subsidiaries and affiliates
become participants in the Plan upon receiving option grants. There are
2,403,672 shares of common stock authorized under the Plan. We may increase the
number of shares authorized for issuance under the Plan and extend the
termination date of the Plan with the recommendation of the Board of Directors
and the approval of the general meeting of our stockholders. The Plan is
designed to conform to Section 102 of the Israeli Income Tax Ordinance and the
rules promulgated thereunder, however, the Board of Directors, may, at its
discretion, decide whether an option shall be granted pursuant to Section 102 or
otherwise, to a trustee, Optionee or otherwise. Where a conflict arises between
any section of the Plan, the option agreement and the provisions of the law and
the rules, the latter shall apply and the Board of Directors in its sole
discretion determines the necessary changes to be made to the Plan and its
determination regarding this matter shall be final and binding. As of the date
of this prospectus there were 2,400,000 options issued under the Israel Share
Option Plan (2001) of which 479,311 were exercised.
Options may be granted at a value as determined by the Board of
Directors. Unless otherwise determined by the Board of Directors, shares issued
upon exercise of options shall be issued and held by either the Optionee or a
trustee until the completion of an initial underwritten public offering of our
shares in the United States, or another jurisdiction decided by the Board of
Directors, pursuant to an effective registration statement or similar document,
but in the case of grants pursuant to Section 102, not less then the period
required or approved pursuant to Israeli law, regulations or rules promulgated
thereunder. A grantee who desires to exercise an option granted directly to him
(and not through the trustee) shall so notify us in writing in such form as
shall be prescribed by the Board of Directors from time to time. The Plan
terminates and no option shall be granted after the ten (10) year anniversary of
the Plan.
Unless otherwise directed by the Board of Directors, options vest,
subject to certain conditions, at the rate of 1/4 at the end of the first year
and 1/16 every 3 months thereafter. The term of the options shall not be more
than 8 years, provided that, and unless in each case the applicable option
agreement provides otherwise, upon our liquidation 1/2 of the outstanding
options held by or on behalf of a grantee shall be accelerated and become
immediately vested and exercisable and upon the occurrence of certain
"significant events" all outstanding options held by or on behalf on a grantee
shall be accelerated and become immediately fully vested and exercisable. Upon
dismissal of the employee for Cause, all options held by or on behalf of the
grantee immediately expire. If the grantee's employment is terminated as a
result of death, disability or retirement after age 60 with the approval of the
Board of Directors, then the vested portion of the option may be exercised for a
period of 12 (twelve) months.
25
In the event that a grantee is exempt from vesting periods the Board of
Directors is entitled to determine that where the grantee does not comply with
the conditions determined by the Board of Directors or ceases to be an employee,
the trustee, us or a company related to us thereof have the right to repurchase
the shares from the grantee for nominal or any other consideration paid by the
grantee, subject to applicable law. Any options which have been granted but not
exercised may again be used for awards under the Plan. If our shares should be
registered for trading on any stock exchange, then the options and/or shares
allotted in accordance with the Plan may be made conditional to any requirement
or instruction of the stock exchange authorities or of any other relevant
authority acting pursuant to applicable law as shall exist from time to time.
INTERNATIONAL SHARE OPTION PLAN (2003)
The International Share Option Plan (2003) is administered by the Board of
Directors, or a committee appointed by the Board comprised of one or more of our
directors (the "Administrator"). The Plan provides for the grant of Incentive
Stock Options, Nonstatutory Stock Options or other options, as determined by the
Administrator at the time of grant, to our employees, directors and consultants
and of our subsidiaries. There are 25,061,094 shares of common stock authorized
under the Plan. We may increase the number of shares authorized for issuance
under the International Plan or may make other modifications to the Plan without
stockholder approval, unless required under applicable law, however, no
amendment may adversely change the existing rights of any option holder. As of
the date of this prospectus there were 25,061,094 options issued under the
International Share Option Plan (2003), of which 24,007,619 were exercised.
Any options which have been granted but not exercised may again be used
for awards under the Plan. Nonstatutory stock options may be granted to service
providers (employees, directors or consultants of m-Wise and its subsidiaries).
Incentive stock options may only be granted to employees, including officers and
directors, employed by us and by our subsidiaries. However, notwithstanding such
designation, to the extent that the aggregate fair market value of the shares
with respect to which incentive stock options are exercisable for the first time
by the optionee during any calendar year exceeds $100,000, such options shall be
treated as nonstatutory stock options. Except for certain circumstances,
incentive stock options may not be granted at an exercise price less than 100%
of the fair market value of the stock as of the date of grant (110% as to any
10% stockholder at the time of grant); non-qualified stock options may not be
granted at a price less than 85% of fair market value of the stock as of the
date of grant (110% as to any 10% stockholder at time of grant).
Stock options may be exercised during a period of time fixed by the
Administrator except that no stock option may be exercised more than ten (10)
years (in the case of an incentive stock option, five (5) years if the optionee
holds more than 10% of our voting power, or such shorter terms as may be
provided in the option agreement) after the date of grant, provided that upon
our liquidation the vesting of the option may accelerate. If the optionee ceases
to be a service provider as a result of death or disability, then the vested
portion of the option may be exercised within such period of time as set forth
in the option agreement (of at least six (6) months) or for 12 (twelve) months
if the option agreement does not specify such date, but in no event later than
the expiration term of such option as set forth in the option agreement). Except
in the case of options granted to officers, directors and consultants, options
may become exercisable at a rate of no less than 20% per year over five (5)
years from the date of grant. In the discretion of the Administrator, payment of
the purchase price for the shares of stock acquired through the exercise of a
stock option may be made in cash, check, or by delivery of promissory notes or
consideration received by us by cashless exercise, or any combination of the
foregoing methods of payment. Any option granted under the Plan is exercisable
according to the terms of the Plan and of the option agreement and at such times
and under such conditions as determined by the Administrator and set forth in
the option agreement. Unless otherwise determined, shares issued upon exercise
of an option are issued to the Optionee or in the name of the Optionee to a
trustee, to be held either by the Optionee or by the trustee on behalf of the
optionee, unless otherwise determined, until the initial underwritten public
offering of our shares pursuant to an effective registration statement,
prospectus or similar document in the United States or such other jurisdiction
as is determined by the Board of Directors. In the event of a merger by us with
or into another corporation, or the sale of substantially all of our assets, and
the successor corporation refuses to assume or substitute the outstanding
options, then the option shall fully vest shall be fully exercisable for a
period of fifteen (15) days from the date of the notice thereof to the optionee,
and the option shall terminate upon the expiration of such period.
26
ISRAEL STOCK OPTION PLAN (2003)
The Israel Stock Option Plan (2003) is administered by the Board of Directors,
or a committee appointed by the Board. Our employees, directors, service
providers and consultants and those of our subsidiaries and affiliates become
participants in the Plan upon receiving option grants. There are 17,354,106
shares of common stock authorized under the Plan. We may increase the number of
shares authorized for issuance under the Plan and extend the termination date of
the Plan with the recommendation of the Board of Directors and the approval of
the general meeting of our stockholders. The Plan is designed to conform to
Section 102 of the Israeli Income Tax Ordinance and the rules promulgated
thereunder, however, the Board of Directors, may, at its discretion, decide
whether an option shall be granted pursuant to Section 102 or otherwise, to a
trustee, Optionee or otherwise. Where a conflict arises between any section of
the Plan, the option agreement and the provisions of the law and the rules, the
latter shall apply and the Board of Directors in its sole discretion determines
the necessary changes to be made to the Plan and its determination regarding
this matter shall be final and binding. As of the date of this prospectus there
were 17,315,850 options issued under the Israel Stock Option Plan (2003)of which
14,390,200 were exercised.
Options may be granted at a value as determined by the Board of
Directors. Unless otherwise determined by the Board of Directors, shares issued
upon exercise of options shall be issued and held either by the Optionee or by a
trustee until the completion of an initial underwritten public offering of our
shares in the United States, or another jurisdiction decided by the Board of
Directors, pursuant to an effective registration statement or similar document,
but in the case of grants pursuant to Section 102, not less then the period
required or approved pursuant to Israeli law, regulations or rules promulgated
thereunder. A grantee who desires to exercise an option granted directly to him
(and not through the trustee) shall so notify us in writing in such form as
shall be prescribed by the Board of Directors from time to time. The Plan
terminates and no option shall be granted after the ten (10) year anniversary of
the Plan.
Unless otherwise directed by the Board of Directors, options vest at
the rate of 1/4 at the end of the first year and 1/16 every 3 months thereafter.
The term of the options shall not be more than 8 years, provided that, and
unless in each case the applicable option agreement provides otherwise, upon our
liquidation 1/2 of the outstanding options held by or on behalf of a grantee
shall be accelerated and become immediately vested and exercisable and upon the
occurrence of certain "significant events" all outstanding options held by or on
behalf of a grantee shall be accelerated and become immediately fully vested and
exercisable. Upon dismissal of the employee for Cause, all options held by or on
behalf of the grantee immediately expire. If the grantee's employment is
terminated as a result of death, disability or retirement after age 60 with the
approval of the Board of Directors, then the vested portion of the option may be
exercised for a period of 12 (twelve) months.
In the event that a grantee is exempt from vesting periods the Board of
Directors is entitled to determine that where the grantee does not comply with
the conditions determined by the Board of Directors or ceases to be an employee,
the trustee, us or one of our related companies have the right to repurchase the
shares from the grantee for nominal or any other consideration paid by the
grantee, subject to applicable law. Any options which have been granted but not
exercised may again be used for awards under the Plan. If our shares should be
registered for trading on any stock exchange, then the options and/or shares
allotted in accordance with the Plan may be made conditional to any requirement
or instruction of the stock exchange authorities or of any other relevant
authority acting pursuant to applicable law as shall exist from time to time.
27
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information, as of the date
hereof, with respect to the beneficial ownership of the common stock by each
beneficial owner of more than 5% of the outstanding shares thereof, by each
director, each nominee to become a director and each executive named in the
Summary Compensation Table and by all executive officers, directors and nominees
to become directors of m-Wise. As of the date hereof we had 126,084,477 shares
of our common stock outstanding. Pursuant to the rules and regulations of the
Securities and Exchange Commission, shares of common stock that an individual or
group has a right to acquire within 60 days pursuant to the exercise of options
or warrants are deemed to be outstanding for the purposes of computing the
percentage ownership of such individual or group, but are not deemed to be
outstanding for the purposes of computing the percentage ownership of any other
person shown in the table.
PERCENTAGE PERCENTAGE
NAME AND ADDRESS SHARES OWNED COMMON STOCK BEFORE OFFERING
Shay Ben-Asulin(1) 14,369,344 11.4% 11.4%
Mordechai Broudo(2) 19,637,862 15.6 15.6
Miretzky Holdings Ltd. (3) 33,451,319 26.5 18.6
Gabriel Kabazo (4) 546,678 * *
Asaf Lewin(5) 5,234,824 4.1 4.1
Inter-content Development
for the Internet Ltd. (6) 11,164,953 8.9 8.9
Syntek capital AG (7) 13,672,641 10.4 10.4
DEP Technology Holdings Ltd. (8) 13,672,641 10.4 10.4
All officers and directors as a
group (4 persons) (1)(2)(4)(5) 39,788,708 31.2% 31.2%
*LESS THAN ONE PERCENT
(1) Shay Ben-Asulin is the beneficial owner of Putchkon.com, LLC, which owns
part of these shares. The address of Putchkon.com, LLC is c/o Doron Cohen -
David Cohen, Law Offices, 14 Abba Hillel Silver Rd. Ramat-Gan, Israel 52506.
(2) Mordechai Broudo is the beneficial owner of Proton Marketing Associates,
LLC, which owns part of these shares. The address of Proton Marketing
Associates, LLC is c/o Doron Cohen - David Cohen, Law Offices, 14 Abba Hillel
Silver Rd. Ramat-Gan, Israel 52506.
(3) The beneficial owner of Miretzky Holdings Ltd. is Mark Quirk. The address
for Miretzky Holdings, Ltd. is Clinch's House, Lord Street, Douglas, Isle of
Man, IM99 1RZ (PO Box 227).
(4) The address of Gabriel Kabazo is c/o m-Wise.
(5) Includes an aggregate of 1,586,782 options to purchase shares of common
stock, granted to Asaf Lewin. The address of Asaf Lewin is c/o m-Wise.
(6) The address of Inter-Content Development for the Internet Ltd. is 18 Yohanan
Ha'Sandlar St., Tel Aviv, Israel 63822. The beneficial owner of Inter-Content
Development for the Internet is Mr. Jacob Marinka.
(7) Includes an aggregate of 5,263,158 warrants to purchase shares of common
stock, granted to Syntek capital AG. The address of Syntek capital AG is
Zugspitzstrasse 15, Pullach 82049, Germany.
(8) Includes an aggregate of 5,263,158 warrants to purchase shares of common
stock, granted to DEP Technology Holdings Ltd. The address of DEP Technology
Holdings Ltd. Is Triangular Tower, 42nd Floor, 3 Azrieli Center, Tel Aviv 67023,
Israel.
STOCKHOLDERS' AGREEMENT
Cap Ventures Ltd., Miretzky Holdings Ltd., Proton Marketing Associates,
LLC, Putchkon.com, LLC, and certain other stockholders holding an aggregate of
75,176,408 shares of common stock have entered into a stockholders' agreement
dated January 11, 2001, agreeing to restrictions on transfer. Under an
Investors' Rights Agreement dated January 11, 2001, we agreed to provide certain
stockholders with demand registration rights, to file our reports in accordance
with Section 13 of the Securities Exchange Act of 1934 and otherwise ensure that
its financial information is "publicly available" for purposes of Rule 144;
provide the investors thereunder with copies of our financial statements on a
periodic basis; provide access to our books and records; obtain key man life
insurance in the amount of $1,000,000 on each of Messrs. Broudo and Ben-Asulin
(which has not been complied with); The holders were also granted certain
registration rights which are inapplicable to this registration statement.
Certain rights under the Investors' Rights Agreement terminate immediately prior
to a firm commitment underwriting under the Securities Act, or a public offering
effected on the London, Paris or Frankfurt Stock Exchanges, provided such firm
commitment underwriting is for no less than $20,000,000 net of underwriting
discounts and commissions and such underwriting reflects m-Wise a pre-money
valuation of no less than $60,000,000.
28
SELLING SECURITYHOLDERS
We agreed to register for resale shares of common stock by the selling
securityholders listed below. The selling securityholders may from time to time
offer and sell any or all of their shares that are registered under this
prospectus. The selling securityholders, and any participating broker-dealers
are "underwriters" within the meaning of the Securities Act of 1933, as amended.
All expenses incurred with respect to the registration of the common stock will
be borne by us, but we will not be obligated to pay any underwriting fees,
discounts, commissions or other expenses incurred by the selling securityholders
in connection with the sale of such shares.
The following table sets forth information with respect to the maximum
number of shares of common stock beneficially owned by the selling
securityholders named below and as adjusted to give effect to the sale of the
shares offered hereby. The shares beneficially owned have been determined in
accordance with rules promulgated by the SEC, and the information is not
necessarily indicative of beneficial ownership for any other purpose. The
information in the table below is current as of the date of this prospectus. All
information contained in the table below is based upon information provided to
us by the selling securityholders and we have not independently verified this
information. The selling securityholders are not making any representation that
any shares covered by the prospectus will be offered for sale. The selling
securityholders may from time to time offer and sell pursuant to this prospectus
any or all of the common stock being registered.
Except as indicated below, none of the selling securityholders has held
any position or office with us, nor are any of the selling securityholders
associates or affiliates of any of our officers or directors. Except as
indicated below, no selling stockholder is the beneficial owner of any
additional shares of common stock or other equity securities issued by us or any
securities convertible into, or exercisable or exchangeable for, our equity
securities. No selling stockholder is a registered broker-dealer or an affiliate
of a broker-dealer.
For purposes of this table, beneficial ownership is determined in
accordance with SEC rules, and includes voting power and investment power with
respect to shares and shares owned pursuant to warrants exercisable within 60
days. The "Number of Shares Beneficially Owned After the Offering" column
assumes the sale of all shares offered.
As explained below under "Plan of Distribution," we have agreed with
the selling securityholders to bear certain expenses (other than broker
discounts and commissions, if any) in connection with the registration
statement, which includes this prospectus.
Number of
Shares Number of Shares
Beneficially Number of Beneficially
Owned Prior to Shares Owned After
Name Offering(1)(2) Offered the Offering
- -------------------------- -------------- --------- ----------------
Dutchess Private Equities
Fund, LP (3) 20,000,000 20,000,000 0
Miretzky Holdings (4) 33,451,319 10,000,000 23,451,319
- ------------
(1) Unless otherwise indicated, the selling securityholders have sole voting and
investment power with respect to their shares of common stock. The inclusion of
any shares in this table does not constitute an admission of beneficial
ownership for the selling securityholders.
29
(2) The actual number of shares of Common Stock offered in this prospectus, and
included in the registration statement of which this prospectus is a part,
includes such additional number of shares of common stock as may be issued or
issuable upon draws under the Equity Line.
(3) Michael Novielli and Douglas Leighton are the managing members of Dutchess
Capital Management, LLC, which is the general partner to Dutchess Private
Equities Fund , LP.
(4) The beneficial owner of Mirezky Holdings Ltd. is Mark Quirk.
30
PLAN OF DISTRIBUTION
The selling securityholders and any of their respective pledges,
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. The selling securityholders
may use any one or more of the following methods when selling shares:
o with the selling securityholders to sell a specified number of
such shares at a stipulated price per share;
o through the writing of options on the shares;
o a combination of any such methods of sale; and 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 its account;
o an exchange distribution in accordance with the rules of the
applicable exchange;
o privately negotiated transactions;
o short sales after this registration statement becomes
effective;
o broker-dealers may agree
o any other method permitted pursuant to applicable law.
The selling securityholders may also sell shares under Rule 144 under the
Securities Act of 1933, if available, rather than under this prospectus. The
selling securityholders will have the sole and absolute discretion not to accept
any purchase offer or make any sale of shares if they deem the purchase price to
be unsatisfactory at any particular time.
The selling securityholders may also engage in short sales against the box after
this registration statement becomes effective, 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 securityholders or their respective pledgees, donees, transferees or
other successors in interest, may also sell the shares directly to market makers
acting as principals and/or broker-dealers acting as agents for themselves or
their customers. Such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the selling securityholders and/or
the purchasers of shares for whom such broker-dealers may act as agents or to
whom they sell as principal or both, which compensation as to a particular
broker-dealer might be in excess of customary commissions. Market makers and
block purchasers purchasing the shares will do so for their own account and at
their own risk. It is possible that a selling stockholder will attempt to sell
shares of common stock in block transactions to market makers or other
purchasers at a price per share which may be below the then market price. The
selling securityholders cannot assure that all or any of the shares offered in
this prospectus will be issued to, or sold by, the selling securityholders. The
selling securityholders and any brokers, dealers or agents, upon effecting the
sale of any of the shares offered in this prospectus, are "underwriters" as that
term is defined under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, or the rules and regulations under such acts.
In such event, any commissions received by such broker-dealers or agents and any
profit on the resale of the shares purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act.
Discounts, concessions, commissions and similar selling expenses, if any,
attributable to the sale of shares will be borne by a selling stockholder. The
selling securityholders may agree to indemnify any agent, dealer or
broker-dealer that participates in transactions involving sales of the shares if
liabilities are imposed on that person under the Securities Act of 1933.
31
The selling securityholders may from time to time pledge or grant a security
interest in some or all of the shares of common stock owned by them and, if they
default in the performance of their secured obligations, the pledgee or secured
parties may offer and sell the shares of common stock from time to time under
this prospectus after we have filed an amendment to this prospectus under Rule
424(b)(3) or any other applicable provision of the Securities Act of 1933
amending the list of selling securityholders to include the pledgee, transferee
or other successors in interest as selling securityholders under this
prospectus.
The selling securityholders also may transfer the shares of common stock in
other circumstances, in which case the transferees, pledgees or other successors
in interest will be the selling beneficial owners for purposes of this
prospectus and may sell the shares of common stock from time to time under this
prospectus after we have filed an amendment to this prospectus under Rule
424(b)(3) or other applicable provision of the Securities Act of 1933 amending
the list of selling securityholders to include the pledgee, transferee or other
successors in interest as selling securityholders under this prospectus.
We are required to pay all fees and expenses incident to the registration of the
shares of common stock. We have agreed to indemnify the selling securityholders
against certain losses, claims, damages and liabilities, including liabilities
under the Securities Act of 1933.
Each of the selling securityholders acquired the securities offered hereby in
the ordinary course of business and have advised us that they have not entered
into any agreements, understandings or arrangements with any underwriters or
broker-dealers regarding the sale of their shares of common stock, nor is there
an underwriter or coordinating broker acting in connection with a proposed sale
of shares of common stock by any selling stockholder. If we are notified by any
selling stockholder that any material arrangement has been entered into with a
broker-dealer for the sale of shares of common stock, if required, we will file
a supplement to this prospectus. If the selling securityholders use this
prospectus for any sale of the shares of common stock, they will be subject to
the prospectus delivery requirements of the Securities Act of 1933.
The anti-manipulation rules of Regulation M under the Securities Exchange Act of
1934 may apply to sales of our common stock and activities of the selling
securityholders.
32
CERTAIN TRANSACTIONS
RESEARCH AND DEVELOPMENT SERVICES AGREEMENTS, LICENSE AGREEMENTS AND
LOAN GREEMENT. We have entered into a License Agreement with each of our United
Kingdom, France, Spain, Italy and Israeli subsidiaries, and into Research and
Development Services Agreements with the Israeli subsidiary, m-Wise Ltd. The
License Agreements provide for the grant of a non-exclusive, irrevocable
andnon-transferable license to each of the said subsidiaries to use, sublicense,
sell, market and distribute our technology and platform, for no consideration.
As part of our corporate and sales channel's reorganization process, these
agreements were terminated by us as of April 1, 2003. The Research and
Development Services Agreements with our Israeli subsidiary provide for the
performance of research and development services of the components to be
included in our technology and platform, by our Israeli subsidiary. During 2000,
in consideration for the services, we paid our Israeli subsidiary service fees
in an amount equal to the sum of all costs of the subsidiary, plus a fee equal
to 5% of such costs (a "cost plus" basis), or $473,883. As of 2001, we paid our
Israeli subsidiary service fees on a "cost" basis, however the parties may
change the consideration from time to time, and when we become profitable, the
consideration shall be on a "cost plus" basis, or another structure agreed by
the parties. The Research and Development Services and License agreements
provide for the sole ownership by us of our technology, platform, derivative
invention and intellectual property. The amounts paid in during the years ended
December 31, 2001, 2002, 2003, 2004 and 2005 to our Israeli subsidiary were
$1,522,000 , $1,760,000, $665,000, $683,964 and $1,161,113, respectively.
The Loan Agreement with the United Kingdom subsidiary and its
subsidiaries provides for the extension by us of a loan in the amount of
$3,200,000 to the United Kingdom subsidiary, which was made by us between April
2000 and January 2003. The outstanding loan amount, together with simple
interest at a rate per annum of 4% shall be due and payable on the earlier of:
(i) August 31, 2006, or (ii) upon the occurrence of (A) any of the following
"exit events": (i) a consolidation, merger or reorganization of the subsidiary
with or into, or the sale of all or substantially all of the subsidiary's
assets, or substantially all of the subsidiary's issued and outstanding share
capital to any other company, or any other person, other than a wholly-owned
subsidiary of the subsidiary, or (ii) any transaction or series of related
transactions in which more than fifty percent (50%) of the outstanding share
capital of the subsidiary following such transaction or series of related
transactions is held by a shareholder or group of shareholders that held less
than fifty percent (50%) of the outstanding share capital of the subsidiary
prior to such transaction or series of transactions; or (B) (i) the insolvency
of the subsidiary; (ii) the commission of any act of bankruptcy by the
subsidiary; (iii) the execution by the subsidiary of a general assignment for
the benefit of creditors; (iv) the filing by or against the subsidiary of any
petition in bankruptcy or any petition for relief under the provisions of any
law for the relief of debtors, and the continuation of such petition without
dismissal for a period of ninety (90) days or more; (v) the appointment of a
receiver or trustee to take possession of a material portion of the property or
assets of the subsidiary and the continuation of such appointment without
dismissal for a period of ninety (90) days or more; or (vi) the subsidiary
ceases to conduct business in the normal course for a period of ninety (90) days
or more. The loans extended by the UK subsidiary to its subsidiaries were to be
repaid on the same terms and in the same manner as provided for with respects to
the loan extended us.
The loan in the amount of $3,200,000 to our UK subsidiary was used by
our subsidiary primarily for: the establishment of its subsidiaries, salaries of
employees, network costs, office rent and for working capital and general
corporate purposes of the subsidiaries.
Due to the high costs and low revenues in the European application service
provider (ASP) market, in 2002 our management decided to transition our focus
away from pan-European wireless application service providers, and toward
installing and licensing our middleware technology at cellular operators and
wireless application service providers worldwide, and to operate through
original equipment manufacturers (OEMs) and regional sales representatives to
sell our products. Therefore, our management decided to liquidate, or allow the
liquidation of the UK subsidiary, m-Wise Ltd., and its three subsidiaries in
Italy, France and Spain, by creditors and local legal authorities. Our UK
subsidiary was dissolved pursuant to Section 652A of the Companies Act of 1985
on November 11, 2003.
We do not expect to be repaid the loan amount. The operations of those
subsidiaries were accounted for as discontinued operations in the financial
statements. The subsidiaries have no ability to pay creditors or to continue as
a going concern.
33
PROMISSORY NOTE dated July 10, 2002 (canceling and replacing certain
Promissory Notes dated March 13, 2002) with each of Syntek Capital AG and DEP
Technology Holdings Ltd. During 2002, Syntek Capital and DEP, then the sole
holders of shares of our Series B preferred stock (which has subsequently been
converted into shares of our common stock) and represented on our Board of
Directors, extended to us a loan in the aggregate amount of $1,800,000. Pursuant
to the Promissory Notes, we are required to repay the loan amount, together with
accrued interest from the date of the Promissory Notes and until the date of
repayment, during the period of January 1, 2003 through December 31, 2007. The
interest rate is determined according to the per annum LIBOR rate offered by
Citibank North America as of the date of the Promissory Notes, and thereafter
such LIBOR rate offered on each anniversary of the date of the Promissory Notes,
to apply for the following 12 month period. The repayment of the loan amount,
together with the accrued interest thereon, is to be made exclusively from our
annual revenues generated during the repayment period, as recorded in our
audited annual financial statements in such way that each of the Syntek Capital
and DEP Technology Holdings shall be entitled to receive 2.5% of the revenues on
account of the repayment of the loan amount until the earlier to occur of: (i)
each of Syntek Capital and DEP Technology Holdings has been repaid the entire
loan amounts; or (ii) any event in which the loan amount becomes due and
payable, as described below. Actual payments are on a quarterly basis, within 45
days following the last day of the quarter, based upon the quarterly financial
reports. The entire unpaid portion of the loan amount shall be automatically and
immediately due and payable upon the earlier to occur of (i) December 31, 2007;
(ii) the closing of an exit transaction; or (iii) an event of default. An "exit
transaction" includes, INTER ALIA: (a) the acquisition of m-Wise by means of
merger, acquisition or other form of corporate reorganization in which our
stockholders prior to such transaction hold less than 50% of the share capital
of the surviving entity, (b) sale of all or substantially all of our assets or
any other transaction resulting in our assets being converted into securities of
any other entity, (c) the acquisition of all or substantially all of our issued
shares, (d) the sale or exclusive license of our intellectual property other
than in the ordinary course of business; or (e) a public offering of our
securities. An "event of default" includes, INTER ALIA: (a) our breach of any
ofour material obligations under the Promissory Notes (including any default on
any payment due under the Promissory Notes) which has not been remedied within
20 days of written notice by Syntek Capital and DEP Technology Holdings (b) the
suspension of the transaction of our usual business or our insolvency, (c) the
commencement by us of any voluntary proceedings under any bankruptcy
reorganization, arrangement, insolvency, readjustment of debt, receivership,
dissolution or liquidation law or statute of a jurisdiction, or if we shall be
adjudicated insolvent or bankrupt by a decree of a court of competent
jurisdiction; if we shall petition or apply for, acquiesce in, or consent to,
the appointment of any receiver or trustee of us or for all or any part of our
property or if we apply for an arrangement with our creditors or participants;
or if we shall make an assignment of our intellectual property for the benefit
of our creditors (other than in the ordinary course of business), or if we shall
admit in writing our inability to pay our debts as they mature or if any of our
intellectual property is purchased by or assigned to any one of our founders
(and/or affiliates thereof) under liquidation proceedings without the prior
written consent of Syntek Capital and DEP Technology Holdings, (d) or if there
shall be commenced against us any proceedings related to us under any
bankruptcy, reorganization, arrangement, insolvency, readjustment of debt,
receivership, dissolution or liquidation law or statute of any jurisdiction, and
any such proceedings shall remain undismissed for a period of thirty (30) days,
or if by any act we indicate our consent to, approval of or acquiescence in, any
such proceeding; or if a receiver or trustee shall be appointed for us or for
all or a substantial part of our property, and any such receivership or
trusteeship shall remain undischarged for a period of thirty (30) days; or (e if
there shall have been a material deterioration of our business, financial
condition or operations. Under the Promissory Notes, we undertook that until the
repayment of the loan amount: (i) we shall not create or suffer to create a
pledge, charge or other encumbrance over any or all of our assets except for
such pledge, charge or encumbrance in favor of a bank under the terms of a loan
or line of credit granted by a bank to us, provided that we gave prior notice to
Syntek Capital and DEP Technology Holdings with respect such pledge, charge or
encumbrance at least ten (10) days prior to its creation; (ii) we shall not
engage or permit any of our subsidiaries to engage in any business other than
the business engaged in by us at the date of the Promissory Notes and any
business substantially similar or related thereto (or incidental thereto); (iii)
we shall not declare or pay a dividend or make any distribution or payment on
account of our shares, except for the purpose of purchasing common stock of
m-Wise held by Ogen LLC as applicable under a certain undertaking of the
principals of Ogen LLC towards m-Wise; (iv) we shall deliver to Syntek Capital
and DEP Technology Holdings audited financial statements within 90 days of the
end of our fiscal year, accompanied by the report of a firm of independent
certified public accountants of recognized standing and unaudited quarterly
financial statements signed by our Chief Financial Officer within 30 (thirty)
days of the end of each quarter and we shall also deliver to Syntek Capital and
DEP Technology Holdings any information which we make generally available to our
stockholders or which Syntek Capital and DEP Technology Holdings may otherwise
reasonably require. As of September 30, 2005, we have to pay $166,800 of the
loan amount, based on 5.0% of our revenues subsequent to January 1, 2003. As of
the date hereof, we have not paid any amount due to the lenders. Neither Syntek
nor DEP Technology is represented on our current Board of Directors and neither
is affiliated with any of our officers, directors or principal stockholders. As
of December 31, 2005, the outstanding balance of the loan was $1,959,034.
On December 22, 2005, we entered into a Termination and Release Agreement with
Syntek capital AG, Syntek agreed to accept shares of common stock and warrants
in exchange for the cancellation of the Note and an extinguishments of all other
obligations other than as set forth in the Agreement, which had a balance of
$967,787 as of December 22, 2005. we issued Syntek an aggregate of 5,561,994
shares of our common stock and warrants to purchase 5,263,158 shares of our
Common stock at $.19 per shares for a period of three years. The 5,561,994
shares were calculated based on a share price of $.17 per share, which was the
weighted average closing price for the 30 trading days prior to December 22,
2005. The Agreement further provides that in the event that we do not consummate
an acquisition with a targeted company in the business of developing network
platforms for corporations, cellular carriers and wireless application service
providers prior to February 28, 2006, we will be obligated to issue Syntek an
additional 638,230 shares of common stock.
34
As the acquisition did not take place we issued Syntek additional
638,230 shares of common stock.
On February 2, 2006, we entered into a Termination and Release Agreement with
DEP Technology Holdings Ltd. . Pursuant to the Agreement, DEP agreed to accept
shares of common stock and warrants in exchange for the cancellation of the Note
and an extinguishments of all other obligations other than as set forth in the
Agreement, which had a balance of $967,787 as of December 22, 2005. we issued
DEP an aggregate of 5,561,994 shares of our common stock and warrants to
purchase 5,263,158 shares of our Common stock at $.19 per shares for a period of
three years. The 5,561,994 shares were calculated based on a share price of
$.174 per share, which was the weighted average closing price for the 30 trading
days prior to December 22, 2005. The Agreement further provides that in the
event that we do not consummate an acquisition with a targeted company in the
business of developing network platforms for corporations, cellular carriers and
wireless application service providers prior to February 28, 2006, we will be
obligated to issue DEP an additional 638,230 shares of common stock. As the
acquisition did not take place we issued DEP additional 638,230 shares of common
stock.
AGREEMENT, SECURITY AGREEMENT, ESCROW AGREEMENT AND UNDERTAKING. In
July 2002, Proton Marketing Associates, LLC, Putchkon.com, LLC (each a founding
stockholder of m-Wise and represented on our Board of Directors) and
Inter-Content Development for the Internet Ltd. (the "Buying stockholders")
purchased all of our Series B preferred stock (all of which has been converted
into shares of our common stock) then held by DEP Technology Holdings Ltd. And
Syntek Capital AG, thus becoming the sole holders of our Series B preferred
stock (all of which has been converted into shares of our common stock), except
for options granted to purchase Series B preferred stock (prior to the
conversion thereof to shares of our common stock). In consideration for the
stock purchased, each of the Buying stockholders is required to pay each of DEP
Technology Holdings and Syntek Capital, upon the consummation of any
"liquidation event" (as described below), an amount equal to 50% (to be reduced
by 5 percentage points at the end of each 6 months commencing as of July 1,
2002, provided that from and after June 30, 2005, such percentage shall equal
20%) of any gross distribution to or any gross proceeds received by the Buying
stockholders by reason of their ownership of, or rights in, any of our shares or
options to purchase our shares, whether such shares are held by the Buying
stockholders directly, indirectly, or by an affiliate (the "Founders
securities"). The consideration will be paid upon the consummation of a
liquidation event which is defined as the: (i) sale, transfer, conveyance,
pledge or other disposal by the Buying stockholders or any affiliate thereof of
any of their Founders securities; (ii) any event in which the Buying
stockholders or any affiliate thereof receive stock (in kind or cash dividends)
from us or any surviving corporation following the consummation of a merger and
acquisition transaction (any transaction in which we shall merge into or
consolidate with any other corporation in which we are not the surviving
entity); or (iii) the initial public offering of our securities. In the event of
an initial public offering of our securities, the consideration shall be paid in
Founders securities and shall equal 50% (as adjusted) of the securities held by
the Buying stockholders prior to the public offering. Until payment of the
consideration as aforesaid, the purchased Series B preferred stock (all of which
has been converted into shares of our common stock) and any securities as shall
be issued and/or granted to either of the Buying stockholders during the terms
of the Agreement (the "Secured collateral"), are subject to a certain first
priority interest granted in favor of each of DEP Technology Holdings and Syntek
Capital (and subject to adjustment as aforesaid) pursuant to a Security
Agreement signed between the parties, and are placed in escrow pursuant to a
certain Escrow Agreement until the occurrence of a liquidation event, such as
the sale, transfer, conveyance, pledge or other disposal by the Buying
stockholders of any of their securities in m-Wise or the consummation of an
initial public offering of our securities. Under the Security Agreement, the
Buying stockholders undertook, INTER ALIA, not to encumber or pledge or to
suffer any such encumbrance, pledge, attachment or other third party rights on
any of the Secured collateral. In an event of default in any transfer of the
consideration pursuant to the Agreement, DEP Technology Holdings and Syntek
Capitals shall have all rights of a secured creditor subject to the terms of the
Agreement and may immediately take ownership of any part of the Secured
collateral and sell, assign or transfer any part of the Secured collateral.
Under a Letter of Consent, Approval and Undertaking, each beneficial owner of
Proton Marketing Associates, Putchkon.com and Inter-Content Development for the
Internet undertook towards DEP Technology Holdings and Syntek Capital, INTER
ALIA, not to transfer any securities and that such transfer shall be null and
void unless approved in writing by DEP Technology Holdings and Syntek Capital.
Pursuant to a certain Termination and Release Agreement dated as of December
22, 2005, by and among Shay Ben Asulin, Mati Broudo, Kobi Morenko, Proton
Marketing LLC, Putchkon.Com LLC and Inter-Content Development for the Internet
Ltd. (collectively, the "Founders") and Syntek capital AG.Syntek agreed to
exchanged certain of its rights for 5,744,074 shares in the company held by the
Founders.
35
As of April 3, 2006 only 2,209,259 shares were transferred from the founders to
Syntek capital AG.
Pursuant to a certain Termination and Release Agreement dated as of February 2,
2006, by and among Shay Ben Asulin, Mati Broudo, Kobi Morenko, Proton Marketing
LLC, Putchkon.Com LLC and Inter-Content Development for the Internet Ltd.
(collectively, the "Founders") and DEP Technology Holdings Ltd..DEP agreed to
exchange certain of its rights for 5,744,074 shares in the company held by the
Founders.
As of April 3, 2006 only 2,209,259 shares were transferred from the founders to
DEP Technology Holdings Ltd.
In January 2003, we issued Miretzky Holdings Limited 37,891,548 shares
of our Series C Preferred Stock, which were subsequently converted into
37,891,548 shares of our common stock, in consideration for the provision of a
credit line in the amount of $300,000.
In 2004 and 2005, we accrued $109,992 and $109,992, respectively, for
each of Shay Ben-Asulin and Mordechai Bruodo as salary for their management of
our activities. Each of Messrs. Ben-Asulin and Broudo are full time employees of
ours. Since we did not have funds available to pay such amounts we have accrued
it.
OGEN LLC and Chinese Whispers LLC are considered to be "promoters" of
m-Wise, as well as our officers and directors. All transactions between us and
our "promoters" required to be included in this "Certain Transactions" section
have been disclosed.
36
DESCRIPTION OF SECURITIES
COMMON STOCK
Our Certificate of Incorporation authorizes the issuance of 210,000,000 shares
of common stock, $.0017 par value per share, of which 126,084,477 shares were
issued and outstanding as of the date of this prospectus. Holders of shares of
common stock are entitled to one vote for each share on all matters to be voted
on by the stockholders. Holders of shares of common stock have no cumulative
voting rights. Holders of shares of common stock are entitled to share ratably
in dividends, if any, as may be declared, from time to time by the Board of
Directors in its discretion, from funds legally available therefore and subject
to any preferential rights conferred to the holders of preferred stock, if any.
In the event of a liquidation, dissolution or winding up of m-Wise, the holders
of shares of common stock shall be entitled to receive all of the assets of
m-Wise available for distribution to the holders of common stock ratably in
proportion to the number of shares of common stock held by them. There are no
conversion rights, redemption or sinking fund provisions with respect to the
common stock. On November 20, 2003, we effected a six-for-one forward split of
our common stock.
Meetings of stockholders may be called by the Board of Directors. Holders of a
majority of the shares outstanding and entitled to vote at the meeting must be
present, in person or by proxy, for a quorum to be present to enable the conduct
of business at the meeting.
PREFERRED STOCK
Our Certificate of Incorporation authorizes the issuance of 170,000,000 shares
of blank check preferred stock, $.0017 par value. We previously had 325,000
shares of Series A preferred stock, 3,000,000 shares of Series B preferred stock
and 20,000,000 shares of Series C preferred stock authorized, all of which have
been cancelled. There are currently no shares of our preferred stock
outstanding.
Our Board of Directors has authority, without action by the stockholders, to
issue all or any portion of the authorized but unissued shares of preferred
stock in one or more series and to determine the voting rights, preferences as
to dividends and liquidation, conversion rights, and other rights of such
series. We consider it desirable to have preferred stock available to us to
provide increased flexibility in structuring possible future acquisitions and
financings, and in meeting corporate needs which may arise. If opportunities
arise that would make desirable the issuance of preferred stock through either a
public offering or private placements, the provisions for preferred stock in our
Certificate of Incorporation would avoid the possible delay and expense of a
stockholders' meeting, except as may be required by law or regulatory
authorities. Issuance of the preferred stock could result, however, in a series
of securities outstanding that will have certain preferences with respect to
dividends and liquidation over the common stock, which would result in dilution
of the income per share and net book value of the common stock. Issuance of
additional common stock pursuant to any conversion right that may be attached to
the terms of any series of preferred stock may also result in dilution of the
net income per share and the net book value of the common stock. The specific
terms of any series of preferred stock will depend primarily on market
conditions, terms of a proposed acquisition or financing, and other factors
existing at the time of issuance. Therefore, it is not possible at this time to
determine in what respect a particular series of preferred stock will be
superior to our common stock or any other series of preferred stock which we may
issue. The Board of Directors may issue preferred stock in future financings,
but has no current plans to do so at this time.
The issuance of preferred stock could have the effect of making it more
difficult for a third party to acquire a majority of our outstanding voting
stock.
TRANSFER AGENT
the transfer agent for our common stock is Manhattan Transfer Registrar Company,
57 Eastwood Road, Miller Place, NY 11764, and its telephone number is (631)
928-7655.
INTEREST OF NAMED EXPERTS AND COUNSEL
The legality of the common stock offered by this prospectus and certain legal
matters in connection with the offering will be passed upon for us by Gersten
Savage LLP, New York, New York.
37
EXPERTS
Our audited financial statements included in this Prospectus as of December 31,
2005 and 2004 have been audited by SF Partnership LLP, independent certified
public accountants, to the extent and for the periods set forth in their report
thereon, and are included in reliance upon such report given upon the authority
of such firm as experts in accounting and auditing,
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed a registration statement under the Securities Act with respect to
the securities offered hereby with the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549. This prospectus, which is a part of the registration
statement, does not contain all of the information contained in the registration
statement and the exhibits and schedules thereto, certain items of which are
omitted in accordance with the rules and regulations of the Commission. For
further information with respect to us and our securities offered, reference is
made to the registration statement, including all exhibits and schedules
thereto, which may be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, at prescribed rates during regular business hours. Statements
contained in this prospectus as to the contents of any contract or other
document are not necessarily complete, and in each instance reference is made to
the copy of such contract or document filed as an exhibit to the registration
statement, each such statement being qualified in its entirety by such
reference. We will provide, without charge upon oral or written request of any
person, a copy of any information incorporated by reference herein. This request
should be directed to m-Wise at 3 Sapir Street, Herzeliya Pituach, Israel 46852,
telephone +972-9- 9611212.
We are required to file reports and other information with the Commission. All
of such reports and other information may be inspected and copied at the
Commission's public reference facilities described above. The public may obtain
information on the operation of the public reference room in Washington , D.C.
by calling the Commission at 1-800-SEC-0330. The Commission maintains a web site
that contains reports, proxy and information statements and other information
regarding issuers that file electronically with the Commission. The address of
such site is http://www.sec.gov. In addition, we intend to make available to our
shareholders annual reports, including audited financial statements and such
other reports as we may determine.
38
INDEMNIFICATION
We have adopted provisions in our certificate of incorporation and bylaws that
limit the liability of our directors and provide for indemnification of our
directors and officers to the full extent permitted under the Delaware General
Corporation Law ("DGCL"). Under our certificate of incorporation, and as
permitted under the Delaware General Business Act, directors are not liable to
us or our stockholders for monetary damages arising from a breach of their
fiduciary duty of care as directors. Such provisions do not, however, relieve
liability for breach of a director's duty of loyalty to us or our stockholders,
liability for acts or omissions not in good faith or involving intentional
misconduct or knowing violations of law, liability for transactions in which the
director derived as improper personal benefit or liability for the payment of a
dividend in violation of Delaware law. Further, the provisions do not relieve a
director's liability for violation of, or otherwise relieve us or our directors
from the necessity of complying with federal or state securities laws or affect
the availability of equitable remedies such as injunctive relief or recission.
At present, there is no pending litigation or proceeding involving any of our
directors, officers, employees or agents where indemnification will be required
or permitted. We are not aware of any threatened litigation or proceeding that
may result in a claim for indemnification by any director or officer.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Act") may be permitted to our directors, officers and controlling
persons pursuant to the foregoing provisions, or otherwise, we have been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by m-Wise of expenses incurred or paid by a director, officer
or controlling person of m-Wise in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, 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 and will be
governed by the final adjudication of such issue.
39
m-Wise, Inc.
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2005 AND 2004
CONTENTS
Independent Auditors' Report F-2
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Stockholders' Equity F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-8
INDEPENDENT AUDITORS' REPORT
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
m-Wise, Inc.
We have audited the accompanying consolidated balance sheets of m-Wise,
Inc. and subsidiaries (the "Company") as of December 31, 2005 and 2004, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated 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 audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as of December 31, 2005 and 2004, and the results of its operation, changes in
its accumulated deficit and its cash flows for the years ended, in conformity
with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
1 to the consolidated financial statements, the Company has suffered recurring
losses since inception which raises substantial doubt about its ability to
continue as a going concern. Management's plan in regard to these matters is
also described in Note 1. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
"SF PARTNERSHIP, LLP"
Toronto, Canada
CHARTERED ACCOUNTANTS
March 13, 2006
F-2
m-Wise, Inc.
Consolidated Balance Sheets
December 31, 2005 and 2004
2005 2004
ASSETS
CURRENT
Cash and cash equivalents $ 573 $ 124,854
Accounts receivable - trade (net of allowance for doubtful accounts of
$52,327; 2004 - $42,450) 153,034 154,904
Prepaid and sundry assets 10,899 7,467
--------------------------
164,506 287,225
Long-Term Prepaid Expenses 22,297 14,595
Equipment (note 3) 165,915 220,779
Deferred Financing Fees 25,266 37,894
--------------------------
$ 377,984 $ 560,493
--------------------------
LIABILITIES
CURRENT
Bank indebtedness $ 11,068 $ 16,736
Trade accounts payable 94,904 148,553
Other payables and accrued expenses (note 4) 996,565 806,877
Advances from shareholders (note 5) 291,265 --
Billings in excess of costs on uncompleted contracts 13,800 669,890
Notes payable - current portion (note 6) 199,000 90,000
--------------------------
1,606,602 1,732,056
Accrued Severance Pay (note 7) 58,471 16,517
Notes Payable (note 6) 1,760,034 1,793,893
--------------------------
3,425,107 3,542,466
--------------------------
STOCKHOLDERS' EQUITY
Capital Stock (note 8) $ 192,974 $ 118,162
Paid-in Capital 7,399,394 6,894,664
Accumulated Deficit (10,639,491) (9,994,799)
--------------------------
(3,047,123) (2,981,973)
--------------------------
$ 377,984 $ 560,493
--------------------------
(THE ACCOMPANIED NOTES OF THE FINANCIAL STATEMENTS IS AN INTEGRAL PART OF THESE
STATEMENTS)
F-3
m-Wise, Inc.
Consolidated Statements of Operations
Years Ended December 31, 2005 and 2004
2005 2004
Net Sales $ 2,168,434 $ 1,361,055
Cost of Sales 641,414 305,572
----------------------------
Gross Profit 1,527,020 1,055,483
----------------------------
EXPENSES
General and administrative 1,563,174 1,166,781
Research and development 534,933 295,996
Financial 73,605 63,740
----------------------------
2,171,712 1,526,517
----------------------------
Loss Before Income Taxes (644,692) (471,034)
Income taxes -- 42,000
----------------------------
Net Loss $ (644,692) $ (513,034)
----------------------------
Basic Loss Per Share $ (0.01) (0.01)
----------------------------
FULLY DILUTED LOSS PER SHARE (note 8) $ (0.01) (0.01)
----------------------------
Basic Weighted Average Number of Shares 80,845,633 69,506,898
----------------------------
(THE ACCOMPANIED NOTES OF THE FINANCIAL STATEMENTS IS AN INTEGRAL PART OF THESE
STATEMENTS)
F-4
m-Wise, Inc.
Consolidated Statements of Stockholders' Equity
Period from January 1, 2004 to December 31, 2005
Accumulated
Number of Other Additional
Common Comprehensive Paid in Accumulated
Shares $ Loss Capital Deficit
- ----------------------------------------------------------------------------------------------------
Balance, January 1,
2004 69,506,898 $ 118,162 $ -- $ 6,869,184 $ (9,481,764)
Option vested for
employee services -- -- -- 25,480 --
Net Loss -- -- -- -- (513,035)
------------------------------------------------------------------------------
Balance, December 31,
2004 69,506,898 $ 118,162 $ -- $ 6,894,664 $ (9,994,799)
------------------------------------------------------------------------------
Balance, January 1,
2005 69,506,898 $ 118,162 $ -- $ 6,894,664 $ (9,994,799)
Options vested for
employee services -- -- -- 13,733 --
Shares issued for
employee services 5,000,000 8,500 -- 491,500 --
Exercise of stock
options 39,007,260 66,312 -- (503) --
Net Loss -- -- -- -- (644,692)
------------------------------------------------------------------------------
Balance, December 31,
2005 113,514,158 $ 192,974 $ -- $ 7,399,394 $(10,639,491)
------------------------------------------------------------------------------
(THE ACCOMPANIED NOTES OF THE FINANCIAL STATEMENTS IS AN INTEGRAL PART OF THESE
STATEMENTS)
F-5
m-Wise, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31, 2005 and 2004
2005 2004
Cash Flows From Operating Activities
Net loss $(513,035) $(1,139,237)
Adjustments required to reconcile net loss to net cash used in
operating activities:
Depreciation 110,751 118,412
Employees stock options vested 13,733 25,480
Wages and salaries paid by issuance of shares 500,000 --
Net changes in assets & liabilities
Accounts receivable - trade 1,871 (89,722)
Prepaid and sundry assets (3,434) 5,234
Trade accounts payable (53,650) (49,665)
Other payables and accrued liabilities 189,688 22,046
Billings in excess of costs on uncompleted contracts (656,090) 614,104
Long-term prepaid expenses (7,702) (7,296)
Deferred financing fees 12,628 12,628
Accrued severance pay 41,954 (4,156)
------------------------
(494,943) 134,031
------------------------
Cash Flows From Investing Activities
Acquisition of equipment (55,885) (82,817)
------------------------
Cash Flows From Financing Activities
Advances from shareholders 291,265 --
Proceeds from issuance of Promissory Notes 75,141 44,334
Proceeds from stock options exercised 65,809 --
Bank indebtedness - net (5,668) (3,232)
------------------------
426,547 41,102
------------------------
Net (Decrease) Increase in Cash and Cash Equivalents (124,281) 92,316
Cash and Cash Equivalents - beginning of year 124,854 32,538
------------------------
Cash and Cash Equivalents - end of year $ 573 $ 124,854
------------------------
Interest and Income Taxes Paid
During the year, the company had cash flows arising from interest
and income taxes paid as follows:
Interest paid
$ 1,583 $ 7,226
------------------------
Income taxes paid
$ -- $ --
------------------------
(THE ACCOMPANIED NOTES OF THE FINANCIAL STATEMENTS IS AN INTEGRAL PART OF THESE
STATEMENTS)
F-6
m-Wise, Inc.
Notes to Consolidated Financial Statements
December 31, 2005 and 2004
1. Description of Business and Going Concern
a) Description of Business
m-Wise Inc. (the "Company") is a Delaware corporation which develops
interactive messaging platforms for mobile phone-based commercial
applications, transactions and information services with internet
billing capabilities.
The Company's wholly-owned subsidiary , m-Wise LTD., is located in
Israel and was incorporated in 2000 under the laws of Israel.
b) Going Concern
The Company's consolidated financial statements are presented on a
going concern basis, which contemplates the realization of assets
and satisfaction of liabilities in the normal course of business.
The Company has experienced recurring losses since inception that
raise substantial doubt as to its ability to continue as a going
concern. For the years ended December 31, 2005 and 2004, the Company
experienced net losses of $644,692 and $513,034 respectively.
The Company is in an industry where operational fluctuation is
usually higher than other ordinary industries. The accompanying
financial statements reflect management's current assessment of the
impact to date of the economic situation on the financial position
of the Company. Actual results may differ materially from
management's current assessment.
The Company's ability to continue as a going concern is also
contingent upon its ability to secure additional financing,
continuing sale of its products and attaining profitable operations.
The Company is pursuing additional financing, but there can be no
assurance that the Company will be able to secure financing when
needed or obtain financing on terms satisfactory to the Company, if
at all.
The consolidated financial statements do not include any adjustments
to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of
liabilities that may result from the possible inability of the
Company to continue as a going concern.
F-7
m-Wise, Inc.
Notes to Consolidated Financial Statements
December 31, 2005 and 2004
2. Summary of Significant Accounting Policies
The accounting policies of the Company are in accordance with U.S.
generally accepted accounting principles, and their basis of application
is consistent with that of the previous year. Outlined below are those
policies considered particularly significant:
a) Reporting Currency
A majority of the Company's revenues are generated in U.S. dollars.
In addition, a substantial portion of the Company's costs are
incurred in U.S. dollars. Management has determined that the U.S.
dollar will be used as the Company's functional and reporting
currency.
b) Basis of Consolidation
The consolidated financial statements include the operations of
m-Wise Inc. and its wholly-owned subsidiary. Intercompany's balances
and transactions have been eliminated.
c) Cash and Cash Equivalents
Cash equivalents include cash and highly liquid investments with
initial maturities of three months or less.
d) Deferred Financing Fees
Deferred financing fees relate to a non-interest bearing credit line
facility of $300,000 provided by a shareholder as disclosed in note
5. The overdraft from the credit facility will be non-interest
bearing and there will be no covenants with which the Company will
need to comply. The credit line facility has no expiration date and
management expects to retain the facility for a period of at least
five years. Accordingly, the fees are being amortized using the
straight-line method over five years.
e) Equipment and Depreciation
Equipment is stated at cost. Depreciation is based on the estimated
useful lives of the assets and is provided using the undernoted
annual rates and methods:
Furniture and equipment 6-15% Straight-line
Computer equipment 33% Straight-line
Leasehold improvements Straight-line over the term of the lease.
F-8
m-Wise, Inc.
Notes to Consolidated Financial Statements
December 31, 2005 and 2004
2. Summary of Significant Accounting Policies (cont'd)
f) Revenue Recognition
The Company generates revenues from product sales, licensing,
customer services and technical support.
Revenues from products sales are recognized on a completed-contract
basis, in accordance with Staff Accounting Bulletin No. 101 "Revenue
Recognition in Financial Statements" ("SAB No. 101"), Statement of
Position 97-2 "Software Revenue Recognition" and Statement of
Position 81-1 "Accounting for Performance of Construction-Type and
Certain Production-Type Contracts". The Company has primarily
short-term contracts whereby revenues and costs in the aggregate for
all contracts is expected to result in a matching of gross profit
with period overhead or fixed costs similar to that achieved by use
of the percentage-of-completion method. Accordingly, financial
position and results of operations would not vary materially from
those resulting from the use of the percentage-of-completion method.
Revenue is recognized only after all three stages of deliverables
are complete; installation, approval of acceptance test results by
the customer and when the product is successfully put into real-life
application. Customers are billed, according to individual
agreements, a percentage of the total contract fee upon completion
of work in each stage; approximately 40% for installation, 40% upon
approval of acceptance tests by the customer and the balance of the
total contract price when the software is successfully put into
real-life application. The revenues, less its' associated costs, are
deferred and recognized on completion of the contract and customer
acceptance. Amounts received for work performed in each stage are
not refundable.
On-going service and technical support contracts are negotiated
separately at an additional fee. The technical support is separate
from the functionality of the products, which can operate without
on-going support.
Technology license revenues are recognized in accordance with SAB
No. 101 at the time the technology and license is delivered to the
customer, collection is probable, the fee is fixed and determinable,
a persuasive evidence of an agreement exists, no significant
obligation remains under the sale or licensing agreement and no
significant customer acceptance requirements exist after delivery of
the technology.
Revenues relating to customer services and technical support are
recognized as the services are rendered ratably over the period of
the related contract.
The Company does not sell products with multiple deliverables. It is
management's opinion that EITF 00-21, "Revenue Arrangements With
Multiple Deliverables" is not applicable.
F-9
m-Wise, Inc.
Notes to Consolidated Financial Statements
December 31, 2005 and 2004
2. Summary of Significant Accounting Policies (cont'd)
g) Research and Development Costs
Research and development costs are expensed as incurred.
h) Government Grants
Government grants are recognized as income over the periods
necessary to match them with the related costs that they are
intended to compensate.
i) Use of Estimates
The preparation of financial statements, in conformity with U.S.
generally accepted accounting principles, requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
j) Concentration of Credit Risk
SFAS No. 105, "Disclosure of Information About Financial Instruments
with Off-Balance Sheet Risk and Financial Instruments with
Concentration of Credit Risk", requires disclosure of any
significant off-balance sheet risk and credit risk concentration.
The Company does not have significant off-balance sheet risk or
credit concentration. The Company maintains cash and cash
equivalents with major Israel financial institutions.
The Company's provides credit to its clients in the normal course of
its operations. Depending on their size, financial strength and
reputation, customers are given credit terms of up to 60 days. The
Company carries out, on a continuing basis, credit checks on its
clients and maintains provisions for contingent credit losses which,
once they materialize, are consistent with management's forecasts.
For other debts, the Company determines, on a continuing basis, the
probable losses and sets up a provision for losses based on the
estimated realizable value. For the years ended 2005 and 2004, all
uncollectible amounts have been written off and there was no further
provision for doubtful accounts.
Concentration of credit risk arises when a group of clients having a
similar characteristic such that their ability to meet their
obligations is expected to be affected similarly by changes in
economic or other conditions. The Company does not have any
significant risk with respect to a single client.
F-10
m-Wise, Inc.
Notes to Consolidated Financial Statements
December 31, 2005 and 2004
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
k) Fair Value of Financial Instruments
The estimated fair value of financial instruments has been
determined by the Company using available market information and
valuation methodologies. Considerable judgment is required in
estimating fair value. Accordingly, the estimates may not be
indicative of the amounts the Company could realize in a current
market exchange. At December 31, 2004 and 2005, the carrying amounts
of cash equivalents, short-term bank deposits, trade receivables and
trade payables approximate their fair values due to the short-term
maturities of these instruments.
l) Loss per Common Share
The Company calculates net loss per share based on SFAS No. 128,
"Earnings Per Share". Basic loss per share is computed by dividing
net loss attributable to the common stockholders by the weighted
average number of common shares outstanding. Fully diluted loss per
share is computed similar to basic loss per share except that the
denominator is increased to include the number of additional common
shares that would have been outstanding if the potential common
shares had been issued and if the additional common shares were
dilutive.
m) Impact of Recently Issued Accounting Standards
In December 2004, the FASB issued a revision to SFAS No. 123,
"Share-Based Payment" (Statement 123). This Statement requires a
public entity to measure the cost of employee services received in
exchange for an award of equity instruments based on the grant-date
fair value of the award (with limited exceptions). That cost will be
recognized over the period during which the employee is required to
provide service in exchange for the award requisite service period
(usually the vesting period). No compensation cost is recognized for
equity instruments for which employees do not render the requisite
service. Employee share purchase plans will not result in
recognition of compensation cost if certain conditions are met;
those conditions are much the same as the related conditions in
Statement 123. This Statement is effective for public entities that
do not file as a small business issuers as of the beginning of the
first interim or annual reporting period that begins after June 15,
2005. This Statement applies to all awards granted after the
required effective date and to awards modified, repurchased, or
cancelled after that date. The cumulative effect of initially
applying this Statement, if any, is recognized as of the required
effective date and is not expected to have a material impact on the
Company's consolidated financial statements.
In May 2005, the FASB issued Statement No. 154, Accounting Changes
and Error Corrections - A Replacement of APB Opinion No. 20 and FASB
Statement No. 3 (Statement No. 154). Statement No. 154 changes the
requirements for the accounting for and reporting of a change in
accounting principle. Statement No. 154 requires retrospective
application of any change in accounting principle to prior periods'
financial statements. Statement No. 154 is effective for the first
fiscal period beginning after December 15, 2005. We do not expect
the implementation of Statement No. 154 to have a significant impact
on our consolidated financial statements.
F-11
m-Wise, Inc.
Notes to Consolidated Financial Statements
December 31, 2005 and 2004
3. Equipment
Equipment is comprised as follows:
2005 2004
ACCUMULATED Accumulated
COST DEPRECIATION Cost Depreciation
-----------------------------------------------
Furniture and equipment $ 57,852 $ 26,318 $ 57,551 $ 20,033
Computer equipment 371,119 240,425 514,355 343,921
Leasehold improvements 19,344 15,657 36,945 24,118
-----------------------------------------------
$448,315 $282,400 $608,851 $388,072
-----------------------------------------------
Net carrying amount $165,915 $220,779
-----------------------------------------------
Depreciation expenses of $94,797 (2004 - $103,716) and $15,954 (2004 -
$14,696) have been included in research and development, and general and
administrative expenses respectively.
4. Other Payables and Accrued Expenses
2005 2004
Employee payroll accruals $664,886 $500,071
Accrued payroll taxes 45,266 14,271
Accrued expenses 286,413 277,535
Others -- 15,000
-----------------------
$996,565 $806,877
F-12
m-Wise, Inc.
Notes to Consolidated Financial Statements
December 31, 2005 and 2004
5. Advances from Shareholders
The advances from the shareholders are non-interest bearing and have no
fixed terms of repayment.
According to an agreement dated January 2003, a shareholder granted a
credit facility of $300,000 to the Company in return for preferred class
"C" shares as described in note 8. At the year end, the line of credit has
an outstanding balance of $280,403.
6. Notes Payable
2005 2004
Syntek Capital AG - a significant shareholder until July 2002 $ 900,000 $900,000
DEP Technology Holdings Ltd. - a significant shareholder
until July 2002 900,000 900,000
Accrued interest 159,034 83,893
-----------------------
1,959,034 1,883,893
Less: Current portion 199,000 90,000
-----------------------
$1,760,034 $1,793,893
-----------------------
The promissory notes are unsecured, bear interest at the per annum LIBOR
rate offered by Citibank North America. The annual principal repayments
are calculated as a total of 5% of annual prior year's revenues.
Under the loan agreements, the Company is not allowed to declare dividends
except for the purpose of redemption of common stock owned by Ogen LLC,
one of the stockholders of the Company.
The Company may not create a pledge, charge or other encumbrance over any
or all of its assets for financing without the lenders' consent and must
provide notice to the lender at least 10 days prior to any such action.
On December 22, 2005, the Company entered into an agreement with Syntek
Capital AG ("Syntek") whereby the entire amount of the note payable of
$900,000, plus accrued interest, will be converted into common stock of
the Company on the condition that a merger under negotiation takes place.
In accordance with the agreement, as the merger did not close before
February 28, 2006, an additional 638,230 shares of the Company' common
stock will be issued for the conversion as described in note 15.
The agreement further required that the three founding shareholders of the
Company transfer 11.25% of their shareholding in the common stock of the
Company to Syntek. The transactions were finalized after the year end as
per note 15.
In addition, in accordance with the conversion agreements, the Company
will issue warrants to Syntek for the purchase of up to 5,263,158 common
shares of the Company at an exercise price of $0.19 per warrant.
Subsequent to the year end as disclosed in note 15, the Company entered
into the same agreement as above with DEP Technology Holdings Ltd. ("DEP")
to convert its note payable plus accrued interest to common stock of the
Company.
F-13
m-Wise, Inc.
Notes to Consolidated Financial Statements
December 31, 2005 and 2004
6. Notes Payable (cont'd)
After the above mentioned conversions and transfers are completed, each of
Syntek and DEP will own 9% of the total outstanding common stock of the
Company. If the warrants are exercised, their percentage ownership in the
Company will increase to 13%.
7. Accrued Severance Pay
The Company accounts for its potential severance liability of its Israel
subsidiary in accordance with EITF 88-1, "Determination of Vested Benefit
Obligation for a Defined Benefit Pension Plan". The Company's liability
for severance pay is calculated pursuant to applicable labour laws in
Israel on the most recent salary of the employees multiplied by the number
of years of employment as of the balance sheet date for all employees. The
Company's liability is fully accrued and reduced by monthly deposits with
severance pay funds and insurance policies. As at December 31, 2004 and
2005, the amount of the liabilities accrued were $59,802 and $112,533
respectively. Severance pay expenses for the years ended December 31, 2004
and 2005 were $2,016 and $45,682 respectively.
The deposit funds include profits accumulated up to the balance sheet date
from the Israeli company. The deposited funds may be withdrawn only upon
the fulfillment of the obligation pursuant to Israeli severance pay laws
or labour agreements. Cash surrender values of the deposit funds as at
December 31, 2004 and 2005 were $43,285 and $54,062 respectively. Income
earned from the deposit funds for 2004 and 2005 was immaterial.
8. Capital Stock
Authorized
210,000,000 Common shares
170,000,000 Preferred shares
Series "A": convertible, voting, par value of $0.0017 per share
Series "B": 10% non-cumulative dividend, redeemable, convertible,
voting, par value of $0.0017 per share
Series "C": 10% non-cumulative dividend, convertible, voting, par
value of $0.0017 per share
2005 2004
Issued
113,514,158 Common shares (2004 - 69,506,898) $ 192,974 $ 118,162
-----------------------
F-14
m-Wise, Inc.
Notes to Consolidated Financial Statements
December 31, 2005 and 2004
8. Capital Stock (cont'd)
Stock Warrants and Options:
The Company has accounted for its stock options and warrants in accordance
with SFAS 123 "Accounting for Stock - Based Compensation" and SFAS 148
"Accounting for Stock - Based compensation - Transition and Disclosure."
Value of options granted has been estimated by the Black Scholes option
pricing model. The assumptions are evaluated annually and revised as
necessary to reflect market conditions and additional experience. The
following assumptions were used:
2005 2004
ISRAEL INTERNATIONAL Israel International
Interest rate 8% 8% 5% 5%
Expected volatility 80% 80% 50% 50%
Expected life in years 6 8 7 9
Warrants:
In April 2000, 56,180 warrants, equivalent to 337,080 shares after the 1
to 6 forward stock split, were issued to one of the shareholders with his
preferred Class "A" shares for a total investment of $750,000. Warrants
will expire in the event of an initial public offering of the Company's
securities. Warrants have an exercise price for preferred Class "A" shares
of the Company at $4.45 per share, equivalent to $0.74 after the 1 to 6
forward stock split. No value has been assigned to the warrants and the
total investment net of par value of preferred Class "A" shares has been
presented as additional paid in capital. The warrants for preferred Class
"A" shares were converted into warrants for common shares on a 1 to 1
basis during the year.
In January 2003, the Company issued warrants to purchase 180,441 Class "B"
preferred shares of the Company for deferral of debt for legal services
rendered, which was valued at $10,000. The warrants will expire in 2010.
The warrants for preferred Class "B" shares have been converted into
warrants for common shares during the year at a ratio of 1 to 6.3828125.
After the conversion, the warrants were further split at the ratio of 1 to
6 in accordance with the forward stock split of the common shares. After
the conversion and the forward split, there were warrants to purchase
7,025,788 shares outstanding.
On December 22, 2005, the Company entered into an agreement with Syntek
Capital AG, as part of the agreement for conversion of the note payable
into common shares as mentioned in note 6, whereby the Company issued
warrants to purchase up to 5,263,158 common shares of the Company at an
exercise price of $0.19. As of December 31, 2005, the warrants have not
been converted into common shares.
Subsequent to the year end the Company entered into a similar agreement
with DEP Technology Holdings Ltd. as mentioned in note 6. The warrants
were issued subsequent to the year end as per note 15.
F-15
m-Wise, Inc.
Notes to Consolidated Financial Statements
December 31, 2005 and 2004
8. Capital Stock (cont'd)
Capital Stock:
In January 2003, the Company issued 4,297,816 common shares, equivalent to
25,786,896 after the 1 to 6 forward stock split, for $250,000 of offering
costs with regard to the registration of its securities with the
Securities Exchange Commission. In November 2003 it was agreed upon by the
parties that the fair value of the offering costs was only $60,000 and
therefore 19,786,896 of the post-split shares were forfeited. The offering
costs have been charged to professional services expense in the year.
In January 2003, the Company issued 6,315,258 Class "C" preferred shares
to a shareholder for providing a non-interest bearing credit line facility
of $300,000. These shares were issued at par value, which approximates the
fair market value of the financing fees relating to the credit line
facility. At December 31, 2005, the line of credit has an outstanding
balance of $280,403. The 6,315,258 Class "C" preferred shares were
subsequently converted into 37,891,548 common shares post forward stock
split.
On November 19, 2003, the Company, in accordance with the holders, agreed
to convert all the 268,382 Class "A", 489,456 Class "B", and 6,315,258
Class "C" preferred shares into common shares. Following the conversion,
the Company granted a 1 to 6 forward stock split of its common shares. The
conversion has been recorded prospectively in the consolidated financial
statements, while the forward stock split has been recorded retroactively.
On July 29, 2005, the Company issued 5,000,000 common shares, at par
value, to its Chief Financial Officer as compensation for services
rendered from September 2002 to December 2005. It was agreed upon by the
parties that the fair value of such services was $500,000, all of which
has been charged to wage expense.
Stock Options:
In February 2001 the Board of Directors of the Company adopted two option
plans to allow employees and consultants to purchase ordinary shares of
the Company.
Under the Israel 2001 share option plan management authorized stock
options for 2,403,672 common shares of the Company having a $0.0017
nominal par value each and an exercise price of $0.0017, and under the
International 2001 share option plan, stock options for 300,000 common
shares having a $0.0017 nominal par value each and an exercise price of
$0.0017. As of December 31, 2005, 3,672 options under the Israel 2001
share option plan for common stock were not yet granted.
Under the Israel 2003 share option plan management authorized stock
options (on a post conversion, post split basis) for 16,094,106 preferred
Class "B" shares, which were converted to options for common shares of the
Company having a $0.0017 nominal par value each and an exercise price of
$0.0017, and under the International 2003 share option plan stock options
(on a post conversion, post split basis) for 25,061,094 preferred Class
"B" shares which were converted to options for common shares of the
Company having a $0.0017 nominal par value each and an exercise price of
$0.0017. As of December 31, 2005, 38,256 options under the Israel 2003
share option plan were not yet granted.
F-16
m-Wise, Inc.
Notes to Consolidated Financial Statements
December 31, 2005 and 2004
8. Capital Stock (cont'd)
In the year ended December 31, 2005, a total of 39,007,260 common stock
options were exercised by the employees.
The options vest gradually over a period of 4 years from the date of grant
for Israel and 10 years (no less than 20% per year for five years for
options granted to employees) for the International plan. The term of each
option shall not be more than 8 years from the date of grant in Israel and
10 years from the date of grant in the International plan. The outstanding
options that have vested have been expensed in the consolidated statements
of operations as follows:
Year ended December 31, 2001 $ 9,000
Year ended December 31, 2002 --
Year ended December 31, 2003 384,889
Year ended December 31, 2004 25,480
Year ended December 31, 2005 433,102
The following table summarizes the activity of common stock options during
2005 and 2004:
2005 2004
Israel International Israel International
- -------------------------------------------------------------------------------------------------------------
Outstanding, beginning of year 18,455,850 25,361,094 18,455,850 25,361,094
Exercised (14,699,641) (24,307,618) -- --
Forfeited (11,017) (26,679) -- --
----------------------------------------------------------
Outstanding, end of year 3,745,192 1,026,797 18,455,850 25,361,094
----------------------------------------------------------
Weighted average exercise price of
common stock options, beginning of year $ 0.0017 $ 0.0017 $ 0.0017 $ 0.0017
----------------------------------------------------------
Weighted average exercise price of
common stock options granted in the year $ -- $ -- $ -- $ --
----------------------------------------------------------
Weighted average exercise price of
common stock options, end of year $ 0.0017 $ 0.0017 $ 0.0017 $ 0.0017
----------------------------------------------------------
Weighted average remaining
contractual life of common stock
options 6 YEARS 8 YEARS 7 years 9 years
----------------------------------------------------------
The stock options have not been included in the calculation of the diluted
earnings per share as their inclusion would be antidilutive.
F-17
m-Wise, Inc.
Notes to Consolidated Financial Statements
December 31, 2005 and 2004
9. Government Grants
In prior years, the Israeli subsidiary received approximately $164,000
from a joint Israeli-Singapore government grant program. The amount was
recorded as a reduction of the research and development expense incurred
in the year. The maximum amount approved for the grant was $186,330, which
the Company is recording on a cash basis. The Company completed the
project in 2004.
The Israeli subsidiary is required to pay the government agency royalties
in the amount of 2.5% of gross sales from the products and services being
developed relating to the grant, limited to the amount of the grant. If
the product is not marketable, the grant will not be repaid. As at
December 31, 2005 the products have been developed but no sales have been
made. As such, no amount has been paid or accrued as royalties.
10. Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". This Standard prescribes the use of the
liability method whereby deferred tax asset and liability account balances
are determined based on differences between financial reporting and tax
bases of assets and liabilities and are measured using the enacted tax
rates. The effects of future changes in tax laws or rates are not
anticipated.
Under SFAS No. 109 income taxes are recognized for the following: a)
amount of tax payable for the current year, and b) deferred tax
liabilities and assets for future tax consequences of events that have
been recognized differently in the financial statements than for tax
purposes. Management determined that accounting values of its assets and
liabilities recorded are not materially different from their tax values
and therefore no deferred tax assets/liabilities have been setup to
account for the temporary differences.
The Company has deferred income tax assets as follows:
2005 2004
Deferred income tax assets
Net operating loss carryforwards $ 2,558,000 2,387,500
Valuation allowance for deferred income tax assets (2,558,000) (2,387,500)
-------------------------
$ -- --
-------------------------
The Company provided a valuation allowance equal to the deferred income
tax assets because it is not presently more likely than not that they will
be realized.
F-18
m-Wise, Inc.
Notes to Consolidated Financial Statements
December 31, 2005 and 2004
10. INCOME TAXES (cont'd)
As at December 31, 2005, the Company has approximately $10,232,000 in tax
losses in the United States parent and insignificant tax losses in its
Israeli subsidiary. Losses in the United States, if not utilized, will
expire in twenty years from the year of origin as follows:
December 31, 2020 $ 909,500
2021 2,398,000
2022 778,000
2023 5,005,000
2024 581,000
2025 560,500
$10,232,000
11. Related Party Transactions
During the year, the Company incurred directors consulting fees and
salaries in the amount of $220,000 (2004 - $220,000). At the year end,
$513,000 (2004 - $357,000) was unpaid and included in other payables and
accrued expenses.
These transactions were in the normal course of business and recorded at
an exchange value established and agreed upon by the above mentioned
parties.
12. Major Customers
In 2004, the Company had two major customers which primarily accounted for
67% of the total revenue, of which 19% was in Europe and 81% was in
America.
In 2005, sales to one major customer in Asia accounted for 52% of the
total revenue.
F-19
m-Wise, Inc.
Notes to Consolidated Financial Statements
December 31, 2005 and 2004
13. Segmented Information
Israel USA Total
Gross revenue 2005 $ 18,358 $2,150,076 $2,168,434
2004 168,348 1,192,707 1,361,055
Net income (loss) 2005 (83,779) (560,913) (644,692)
2004 (758,216) 245,181 (513,035)
Total assets 2005 210,628 167,356 377,984
2004 318,856 241,637 560,493
In 2005, the Company derived 54% (2004, 5%) of its revenues from sales to
the Far East, 35% from sales to Europe (2004, 40%) and 11% (2004, 55%)
from sales to America.
F-20
m-Wise, Inc.
Notes to Consolidated Financial Statements
December 31, 2005 and 2004
14. Commitments
The Company is committed under an operating lease for its premises
expiring June 30, 2006. Minimum annual payments (exclusive of taxes,
insurance, and maintenance costs) under the lease is $21,000.
In addition, the Company is committed under operating vehicle leases as
follows:
2006 $ 87,000
2007 54,000
2008 12,000
$ 153,000
Rent expenses paid in 2005 and 2004 were $92,889 and $19,772 respectively.
15. Subsequent Events
a) Exercise of Stock Options
On March 7, 2006, 169,871 stock options under the Israel 2001 share
options plan were exercised.
b) Stock Options Granted
On January 12, 2006, 1,260,000 stock options under the Israel 2001 share
option plan were granted at an exercise price of $0.12.
c) Equity Financing Agreement
On February 10, 2006, the Company entered into an equity financing
agreement with a Delaware limited partnership ("DLP"), to sell up to
20,000,000 of the Company's common shares (up to $10,000,000) over the
course of 36 months. The amount that the Company shall be entitled to
request from each of the purchase "Puts", shall be equal to either 1)
$300,000 or 2) 200% of the average daily volume ("ADV") multiplied by the
average of the 3 daily closing prices immediately preceding the Put date.
The ADV shall be computed using the 10 trading days prior to the Put Date.
The Purchase Price for the common stock identified in the Put Notice shall
be set at 93% of the lowest closing bid price of the common stock during
the Pricing Period. The Pricing Period is equal to the period beginning on
the Put Notice date and ending on and including the date that is 5 trading
days after such Put Date. There are put restrictions applied on days
between the Put Date and the Closing Date with respect to that Put. During
this time, the Company shall not be entitled to deliver another Put
Notice.
In connection with the equity financing agreement, the Company has issued
a preliminary prospectus whereby the DLP and a current significant
shareholder can sell up to 30,000,000 common shares at market value.
F-21
m-Wise, Inc.
Notes to Consolidated Financial Statements
December 31, 2005 and 2004
15. Subsequent Events (cont'd)
d) Conversion of Note Payable into Common Shares
Pursuant to the December 22, 2005 agreement between the Company and Syntek
Capital AG, ("Syntek"), as mentioned in note 6, the $900,000 note payable
was converted into 6,200,224 common shares of the Company on March 8,
2006. Under the above agreement, each of the three founders of the Company
are committed to transfer 11.25% of their holdings in the Company's common
shares to Syntek. The transfer has not taken place yet.
On February 2, 2006, the Company entered into an agreement with DEP
Technology Holdings Ltd. ("DEP") The agreement was identical to the one
with Syntek. Pursuant to this agreement, the note payable owing to the
latter was converted into 6,200,224 common shares of the Company on March
8, 2006.
Under the agreement, the three founding shareholders will transfer 11.25%
of their shareholdings to DEP. To date, no shares have been transferred.
In addition, as part of the agreement, the Company issued warrants to
entitle DEP to purchase up to 5,263,158 common shares of the Company at an
exercise price of $0.19. To date no warrants have been exercised yet.
No dealer, salesman or other person is authorized to give any information
or to make any representations not contained in this Prospectus in
connection with the offer made hereby, and, if given or made, such
information or representations must not be relied upon as having been
authorized by us. This Prospectus does not constitute an offer to sell or
a solicitation to an offer to buy the securities offered hereby to any
person in any state or other jurisdiction in which such offer or
solicitation would be unlawful. Neither the delivery of this Prospectus
nor any sale made hereunder shall, under any circumstances, create any
implication that the information contained herein is correct as of any
time subsequent to the date hereof.
Until ______, 2006 (90 days after the date of this prospectus) all dealers
that effect transactions in these securities, whether or not participating
in this offering, may be required to deliver a prospectus. This is in
addition to the dealers' obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
F-22
M-WISE, INC.
PART II
Item 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
We have adopted provisions in its articles of incorporation and bylaws that
limit the liability of its directors and provide for indemnification of its
directors and officers to the full extent permitted under the Delaware General
Corporation Law. Under our articles of incorporation, and as permitted under the
Delaware General Corporation Law, directors are not liable to us or its
stockholders for monetary damages arising from a breach of their fiduciary duty
of care as directors. Such provisions do not, however, relieve liability for
breach of a director's duty of loyalty to us or its stockholders, liability for
acts or omissions not in good faith or involving intentional misconduct or
knowing violations of law, liability for transactions in which the director
derived as improper personal benefit or liability for the payment of a dividend
in violation of Delaware law. Further, the provisions do not relieve a
director's liability for violation of, or otherwise relieve us or our directors
from the necessity of complying with, federal or state securities laws or affect
the availability of equitable remedies such as injunctive relief or recission.
At present, there is no pending litigation or proceeding involving a director,
officer, employee or agent of us where indemnification will be required or
permitted. We are not aware of any threatened litigation or proceeding that may
result in a claim for indemnification by any director or officer.
Item 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Filing fee under the Securities Act of 1933 $ 671
Printing and engraving(1) $ 5,000
Legal Fees $10,000
Auditors Fees(1) $10,000
TOTAL $25,671
(1) Estimates
Item 26. RECENT SALES OF UNREGISTERED
SECURITIES.
During the past three years we have sold unregistered securities as described
below. Unless otherwise indicated, there was no underwriter involved in any of
the above transactions and there were no underwriting discounts or commissions
paid in connection therewith, except as disclosed above. Unless otherwise
indicated, the issuances of these securities were considered to be exempt from
registration under Section 4(2) of the Securities Act of 1933, as amended, and
the regulations promulgated thereunder. The purchasers of the securities in such
transactions represented their intention to acquire the securities for
investment only and not with a view to or for the sale in connection with any
distribution thereof and appropriate legends were affixed to the certificates
for the securities issued in such transaction. The purchasers of the securities
had adequate access to information about us. Each of the persons/entities listed
below, other than Ogen LLC is an accredited investor as defined in Rule 501(a)
of the Securities Act of 1933, as amended. To the best of our knowledge Ogen LLC
is a "sophisticated investor" in that it has been represented to m-Wise that
immediately prior to its sales of common stock to Ogen LLC, Ogen LLC had such
knowledge and experience in financial and business matters that it was capable
of evaluating the merits and risks of its investment in m-Wise.
TYPE OF NUMBER OF TOTAL
PURCHASER DATE SECURITY SECURITIES PRICE
Proton Marketing
Associates, LLC 02/03/00 Common 1,995,840 $ 3,326.4(1)(9)
Putchkon.com, LLC 02/03/00 Common 1,552,320 $ 2,587.2(1)(9)
Chinese Whispers, LLC 02/03/00 Common 604,800 $ 1,008 (1)(9)
Ogen, LLC 02/03/00 Common 887,040 $ 1,478.4 (1)(9)
Doron Cohen 02/03/00 Common 64,170 $ 106.95(1)(9)
Irit Cohen 02/03/00 Common 64,170 $ 106.95(1)(9)
Yuval Horn 02/03/00 Common 92,088 $ 153.48(1)(9)
Cap Ventures Ltd. 04/12/00 Series A 1,012,032 $ 750,000(1)(2)(9)
Cap Ventures Ltd. 09/04/00 Series A 337,080 $ 250,000(1)(9)
Cap Ventures Ltd. 11/15/00 Series A 261,180 $ 300,000(1)(9)
e-Street
International, AG 01/09/01 Series B 1,468,368 $2,000,162(1)(9)
D.E.P. Technology
Holdings Ltd. 01/09/01 Series B 1,468,368 $2,000,162(1)(9)
Doron Cohen -
David Cohen,
Law Offices 01/16/03 Warrants; 1,082,646 (4)(9)
Series B
Miretzky Holdings
Limited 01/25/03 Series C 37,891,548 (3)(9)
Hilltek Investments
Limited 06/24/03 Common 6,000,000 (5)(9)
Gabriel Kabazo 08/09/05 Common 5,000,000 (6)
D.E.P. Technology 03/08/06 Common 6,200,224 (7)
Holdings Ltd.
Syntek Capital AG 03/08/06 Common 6,200,224 (8)
(1) Purchaser paid cash for its securities.
(2) Plus a warrant to purchase 337,080 shares of common stock, at an exercise
price of $0.74 per share.
(3) In January 2003, m-Wise issued in consideration for the provision of a
credit line in an amount of $300,000, 37,891,548 shares of Series C preferred
stock to Miretzky Holdings Limited.
(4) On January 16, 2003, m-Wise issued Doron Cohen - David Cohen, Law Offices
1,082,646 warrants to purchase shares of Series B Preferred Stock in exchange
for their agreement to defer payment of their fees for legal services rendered,
the warrants were valued at $10,000. 20% of the shares underlying the warrants
are currently held by Doron Cohen - David Cohen, Law Offices and the remaining
80% were transferred on January 23, 2003, to the beneficial owners of the law
firm or their immediate family members: Mr. Doron Cohen, Ms. Irit Cohen and Mr.
Yuval Horn.
(5) On June 24, 2003, m-Wise issued 6,000,000 shares of its common stock to
Hilltek Investments Limited in exchange for consulting services rendered tous,
valued at $60,000.
(6) On August 9, 2005 m-Wise issued 5,000,000 shares of its common stock to
Gabriel Kabazo, the Company's Chief Financial Officer in exchange for his
services rendered to us, valued at $500,000.
(7) On March 8, 2006 m-Wise issued 6,200,224 shares of its common stock to DEP
Technology Holdings Ltd in exchange for a note payable which had a balance of
$967,787 as of December 22, 2005. m-Wise has also issued a warrant to purchase
5,263,158 shares of common stock, at an exercise price of $0.19 per share.
(8) On March 8, 2006 m-Wise issued 6,200,224 shares of its common stock to
Syntek Capital AG in exchange for a note payable which had a balance of $967,787
as of December 22, 2005. m-Wise has also issued a warrant to purchase 5,263,158
shares of common stock, at an exercise price of $0.19 per share.
(9) All share amounts reflect a six-for-one forward split effected in November
2003 and do not reflect any conversion of preferred stock or exercise of
warrants or options in shares of common stock.
Listed below is a list of options issued by us during the last three years
pursuant to each of our Option Plans, each of the options were issued to
employees of m-Wise:
Israel Share Option Plan (2001)
We have issued an aggregate of 2,400,000 options to purchase common Stock
pursuant to our Israel Share Option Plan (2001) to our employees and certain
former employees (including employees of our subsidiaries) for services rendered
to us.
Nir Frishman and Barak Galili (beneficial owners of Ogen, LLC ) 600,000 options
granted on January 16, 2003 Gabriel Kabazo 150,000 options granted on September
21, 2003 Nir Simionovich 360,000 options granted on September 21, 2003 Lior
Zolty 180,000 options granted on September 21, 2003 Miri Malkin 210,000 options
granted on September 21, 2003 Alona Shatchan 180,000 options granted on
September 21, 2003 Shay Kahlon 360,000 options granted on September 21, 2003
Igor Gladishev 180,000 options granted on September 21, 2003 Oded Arbel 180,000
options granted on September 21, 2003
International Share Option Plan (2001):
We have issued an aggregate of 300,000 options to purchase shares of our common
stock pursuant to our International Share Option Plan (2001) to an employee of
our subsidiary in exchange for services rendered to us.
James Crossley (beneficial owner of Chinese Whispers , LLC ) 300,000 options
granted on June 1, 2001
Israel Stock Option Plan (2003):
We have issued an aggregate of 17,315,850 options to purchase shares of our
common stock pursuant to our Israel Stock Option Plan (2003) to our employees
and certain former services providers (including employees and service providers
of our subsidiaries) for services rendered to us.
Inter-Content Development for the Internet Ltd. 7,457,010 options granted on
January 16, 2003 Gabriel Kabazo 402,114 options granted on September 21, 2003
Nir Simionovich 191,490 options granted on September 21, 2003 Zach Sivan
2,668,416 options granted on January 16, 2003 Asaf Lewin 5,336,820 options
granted on January 16, 2003 Kobi Tzruya 360,000 options granted on January 12,
2006 Tomer Shtilman 180,000 options granted on January 12, 2006 Yuval Menchik
180,000 options granted on January 12, 2006 Adi Armoza 180,000 options granted
on January 12, 2006 Assaf Flatto 180,000 options granted on January 12, 2006
Darya Krasilnikov 180,000 options granted on January 12, 2006 International
Share Option Plan (2003):
We have issued an aggregate of 25,061,094 options to purchase shares of our
common stock pursuant to our International Share Option Plan (2003) to our
employees and certain former employees (including employees of our subsidiaries)
in exchange for services rendered to us.
Proton Marketing Associates, LLC 10,432,560 options granted on January 16, 2003
Putchkon. com, LLC 10,876,080 options granted on January 16, 2003 Rony Cohen
2,668,416 options granted on January 16, 2003 Leora Penchina 1,084,038 options
granted on January 16, 2003
(1) Each option was issued to an employee or consultant of m-Wise in
consideration for services rendered to m-Wise.
EXHIBIT INDEX
3. Certificate of Incorporation and Bylaws
3.1. Amended and Restated Certificate of Incorporation(1)
3.2 Bylaws(1)
4. Instruments defining the rights of security holders
4.1 Purchase and registration rights agreement and schedule of details.(1)
5.1 Opinion of Gersten, Savage, Kaplowitz, Wolf & Marcus, LLP(2)
10. Material Contracts
10.1 Amended and Restated Employment Agreement with Mordechai Broudo(1)
10.2 Amendment to Amended and Restated Employment Agreement with Mordechai
Broudo(1)
10.3 Amended and Restated Employment Agreement with Shay Ben-Asulin(1)
10.4 Amendment to Amended and Restated Employment Agreement with Shay
Ben-Asulin(1)
10.5 Employment Agreement, Gabriel Kabazo(1)
10.6 Confidentiality rider to Gabriel Kabazo Employment Agreement(1)
10.7 Employment Agreement Asaf Lewin(1)
10.8 2003 International Share Option Plan (1)
10.9 Form of Option Agreement, 2003 International Share Option Plan(1)
10.10 2001 International Share Option Plan(1)
10.11 Form of Option Agreement, 2001 International Share Option Plan(1)
10.12 2003 Israel Stock Option Plan(1)
10.13 Form of Option Agreement, 2003 Israel Stock Option Plan(1)
10.14 2001 Israel Share Option Plan(1)
10.15 Form of Option Agreement, 2001 Israel Share Option Plan(1)
10.16 Investors' Rights Agreement dated January 11, 2001(1)
10.17 Stockholders Agreement(1)
10.18 Agreement for Supply of Software and Related Services dated October 14,
2002, by and between i Touch plc and m-Wise, Inc. (1)
10.19 Purchase agreement between m-Wise, Inc. and Comtrend Corporation dated
May 22, 2002(1)
10.20 Amended and Restated Consulting agreement between Hilltek Investments
Limited and m-Wise dated November 13, 2003(1)
10.21 Consulting agreement between Hilltek Investments Limited and m-Wise
dated June 24, 2003, subsequently amended see exhibit 10.20 above (1)
10.22 Amendment to Investors' Rights Agreement dated October 2, 2003(1)
10.23 Appendices to 2003 Israel Stock Option Plan (1)
10.24 Appendices to 2001 Israel Share Option Plan (1)
10.25 Credit Line Agreement between m-Wise, Inc. and Miretzky Holdings,
Limited dated January 25, 2004.(1)
10.26 Investement Agreement with Dutchess Private Equities Fund, LP dated
February 10, 2006(1)
10.27 Registration Rights Agreement with Dutchess Private Equities Fund, LP
dated February 10, 2006(1)
10.28 Placement Agent's Agreement with Instream Partners LLC dated February
10, 2006(1)
21. List of Subsidiaries(1)
23. Consents of Experts and Counsel
23.1 Consent of SF Partnership LLP(2)
23.2 Consent of Gersten, Savage, Kaplowitz, Wolf & Marcus, LLP included in
Exhibit 5.1 hereto (1)
All other Exhibits called for by Rule 601 of Regulation S-B are not
applicable to this filing.
(b) Financial Statement Schedules
All schedules are omitted because they are not applicable or because
the required information is included in the financial statements or notes
thereto.
(1) Previously filed as Exhibits in the Form SB-2 Reg. No. 333-106160
(2) Filed herewith.
Item 28. UNDERTAKINGS.
(a) The undersigned small business issuer hereby undertakes:
(1) To file, during any period in which it offers or sells
securities, a post-effective amendment to this registration
statement to:
(I) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together represent a fundamental change in the information in
the registration statement. 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) 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) (ss.230.424(b) of this chapter) if, in thE aggregate, the changes in
volume and price represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in the
effective registration statement; and
(iii) Include any material or changed information the plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities as at that time to be the initial
bona fide offering thereof.
(3) File a post effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
(e) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the small business issuer in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the small business issuer will,
unless in the opinion of its counsel that matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(f) The undersigned small business issuer hereby undertakes that it will:
(1) For purposes of determining any liability under the Securities Act that the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be a part of this registration
statement as of the time the Commission declared it effective.
(2) For the purpose of determining any liability under the Securities Act, that
each post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it meets all the requirements for filing on Form SB-2
and has duly caused this amendment to the registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized in the City of Tel
Aviv, on April 6, 2006.
M-WISE, INC.
By:/S/ SHAY BEN-ASULIN
-------------------
Shay Ben-Asulin
Chairman
In accordance with the requirements of the Securities Act of 1933, this
amendment to Registration Statement has been signed by the following persons in
the capacities indicated on April 6, 2006.
By:/S/ SHAY BEN-ASULIN
-------------------
Shay Ben-Asulin
By: /S/GABRIEL KABAZO Chief Financial Officer and Principal Accounting
------------------- Officer
Gabriel Kabazo
By: /S/ MORDECHAI BROUDO Chief Executive Officer
-------------------- and Director
Mordecai Broudo
EXHIBIT INDEX
3. Certificate of Incorporation and Bylaws
3.1. Amended and Restated Certificate of Incorporation(1)
3.2 Bylaws(1)
4. Instruments defining the rights of security holders
4.1 Purchase and registration rights agreement and schedule of details.(1)
5.1 Opinion of Gersten, Savage, Kaplowitz, Wolf & Marcus, LLP(1)
10. Material Contracts
10.1 Amended and Restated Employment Agreement with Mordechai Broudo(1)
10.2 Amendment to Amended and Restated Employment Agreement with Mordechai
Broudo(1)
10.3 Amended and Restated Employment Agreement with Shay Ben-Asulin(1)
10.4 Amendment to Amended and Restated Employment Agreement with Shay
Ben-Asulin(1)
10.5 Employment Agreement, Gabriel Kabazo(1)
10.6 Confidentiality rider to Gabriel Kabazo Employment Agreement(1)
10.7 Employment Agreement Asaf Lewin(1)
10.8 2003 International Share Option Plan (1)
10.9 Form of Option Agreement, 2003 International Share Option Plan(1)
10.10 2001 International Share Option Plan(1)
10.11 Form of Option Agreement, 2001 International Share Option Plan(1)
10.12 2003 Israel Stock Option Plan(1)
10.13 Form of Option Agreement, 2003 Israel Stock Option Plan(1)
10.14 2001 Israel Share Option Plan(1)
10.15 Form of Option Agreement, 2001 Israel Share Option Plan(1)
10.16 Investors' Rights Agreement dated January 11, 2001(1)
10.17 Stockholders Agreement(1)
10.18 Agreement for Supply of Software and Related Services dated October 14,
2002, by and between i Touch plc and m-Wise, Inc. (1)
10.19 Purchase agreement between m-Wise, Inc. and Comtrend Corporation dated
May 22, 2002(1)
10.20 Amended and Restated Consulting agreement between Hilltek Investments
Limited and m-Wise dated November 13, 2003(1)
10.21 Consulting agreement between Hilltek Investments Limited and m-Wise
dated June 24, 2003, subsequently amended see exhibit 10.20 above (1)
10.22 Amendment to Investors' Rights Agreement dated October 2, 2003(1)
10.23 Appendices to 2003 Israel Stock Option Plan (1)
10.24 Appendices to 2001 Israel Share Option Plan (1)
10.25 Credit Line Agreement between m-Wise, Inc. and Miretzky Holdings,
Limited dated January 25, 2004.(1)
10.26 Investement Agreement with Dutchess Private Equities Fund, LP dated
February 10, 2006 (1)
10.27 Registration Rights Agreement with Dutchess Private Equities Fund, LP
dated February 10, 2006 (1)
10.28 Placement Agent's Agreement with Instream Partners LLC dated February
10, 2006(1)
21. List of Subsidiaries(1)
23. Consents of Experts and Counsel
23.1 Consent of SF Partnership LLP(2)
23.2 Consent of Gersten, Savage, Kaplowitz, Wolf & Marcus, LLP included in
Exhibit 5.1 hereto (1)
All other Exhibits called for by Rule 601 of Regulation S-B are not
applicable to this filing.
(b) Financial Statement Schedules
All schedules are omitted because they are not applicable or because
the required information is included in the financial statements or notes
thereto.
(1) Previously filed as Exhibits in the Form SB-2 Reg. No. 333-106160
(2) Filed herewith.