UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(Mark
One)
þ
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
fiscal year ended December 31, 2008
Or
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
transition period from ____________ to ______________
Commission
file number 000-51743
m-Wise,
Inc.
|
(Exact
name of registrant as specified in its
charter)
|
|
|
|
(State
or other jurisdiction of
incorporation
or organization)
|
|
(I.R.S.
Employer
Identification
No.)
|
3
Sapir Street
Herzeliya
Pituach, Israel 46852
(Address
of principal executive offices) (Zip Code)
+972-73-2620000
(Registrant’s
telephone number, including area code)
Securities
registered under Section 12(b) of the Act:
None.
Securities
registered under Section 12(g) of the Act:
Common
Stock, par value $0.0017 per share
(Title of
class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
Yes
¨
No
þ
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
Yes
¨
No
þ
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes
þ
No
¨
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.
¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer
¨
|
Accelerated
filer
¨
|
Non-accelerated
filer
¨
(Do
not check if smaller reporting company)
|
Smaller
reporting company
þ
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes
¨
No
þ
As of
June 30, 2008, 139,322,145 shares of common stock were outstanding. The
aggregate market value of the common stock held by non-affiliates of the
registrant, as of June 30, 2008, the last business day of the 2
nd
fiscal
quarter, was approximately $4,495,354 based on the closing sale price for the
registrant’s common stock as quoted on the Over-the-Counter Bulletin Board on
that date. Shares of common stock held by each director, each officer and each
person who owns 10% or more of the outstanding common stock have been excluded
from this calculation in that such persons may be deemed to be affiliates. The
determination of affiliate status is not necessarily conclusive.
As of
March 31, 2009, there were 139,322,145 shares of our common stock issued and
outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
None.
TABLE
OF CONTENTS
Part
I
|
1
|
|
|
Item
1. Business
|
1
|
Item
1A. Risk Factors
|
7
|
Item
1B. Unresolved Staff Comments
|
7
|
Item
2. Properties
|
7
|
Item
3. Legal Proceedings
|
7
|
Item
4. Submission of Matters to a Vote of Security
Holders
|
7
|
|
|
Part
II
|
8
|
|
|
Item
5. Market for Registrant’s Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity
Securities
|
8
|
Item
6. Selected Financial Data
|
9
|
Item
7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations
|
9
|
Item
7A. Quantitative and Qualitative Disclosures About Market
Risk
|
16
|
Item
8. Financial Statements and Supplementary
Data
|
17
|
Item
9. Changes In and Disagreements with Accountants
on Accounting and Financial Disclosure
|
43
|
Item
9A [T]. Controls and
Procedures
|
43
|
Item
9B. Other Information
|
45
|
|
|
Part
III
|
45
|
|
|
Item
10. Directors, Executive Officers
, and Corporate Governance
|
45
|
Item
11. Executive Compensation
|
47
|
Item
12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
|
52
|
Item
13. Certain Relationships and Related Transactions
, and Director Independence
|
53
|
Item
14. Principal Accounting Fees and Services
|
56
|
|
|
Part
IV
|
57
|
|
|
Item
15 Exhibits, Financial Statement
Schedules
|
57
|
|
|
Signatures
|
59
|
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
discussion in this Annual Report regarding m-Wise, Inc. and our business and
operations contains "forward-looking statements." These forward-looking
statements use words such as "believes," "intends," "expects," "may," "will,"
"should," "plan," "projected," "contemplates," "anticipates," or similar
statements. These statements are based on our beliefs, as well as assumptions we
have used based upon information currently available to us. Because these
statements reflect our current views concerning future events, these statements
involve risks, uncertainties and assumptions. Actual future results may differ
significantly from the results discussed in the forward-looking statements. A
reader, whether investing in our common stock or not, should not place undue
reliance on these forward-looking statements, which apply only as of the date of
this report.
When
used in this Annual Report on Form 10-K, "m-Wise," "we," "our," and "us" refers
to m-Wise, Inc., a Delaware corporation.
PART
I
ITEM
1. 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 content delivery services, 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, and the sole officer and director
of which was Mordechai Broudo, our Chief Executive Officer; (ii) m-Wise S.r.l.
(Italy), which previously provided sales and customer support in Italy, and the
sole officer and director of which was Shay Ben-Asulin, our Chairman and
Secretary; and (iii) m-Wise Spain, S.L, which previously provided sales and
customer support in Spain, and the sole officer and director of which was
Mordechai Broudo. 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
currently primarily operate through m-Wise Ltd., our wholly owned
subsidiary in Israel. The officers of our Israeli subsidiary are
Mordechai Broudo, Chairman, Zach Sivan, Chief Executive Officer, 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 representatives in Taiwan, Philippines, Colombia, Brazil and the United
States.
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.
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 –
Content download – enables subscribers to download digital content such as
ringtones, pictures, animations, games and video files to their mobile
handsets
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 AND CONTENT DELIVERY SOLUTIONS
Our MOMA
Platform plays the role of content and service delivery platform which 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.
We
believe that middleware and content delivery solutions 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 providers, geographic
market, and other criteria.
THE
M-WISE STRATEGY
We
believe that we were early to recognize the role of middleware and content
delivery solutions 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/or 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 current 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 expand the range of our value proposition by
recruiting channel partners with the needed synergy for promoting products in
the nature of our solutions and with a strategic position to market our products
to an identified potential customer base.
We are
also working consistently in the expansion of the range of the solutions that
can be based on our technology. Recently we have started certain proactive moves
with the objective of expanding implementations of wireless marketing solutions,
such as advertising and customer loyalty programs based on our middleware and
content delivery solutions.
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 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);
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 handsets while downloading the content and transcoding
the content to comply with handsets' specifications; and
o
Allow third parties to customized presentation layers such as web
and WAP interfaces to display content and applications and link value added
services with such IP based interfaces.
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 performs the
following:
(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;
(e)
the platform enables the mobile operator to issue a variety of
reports regarding its services, including revenue breakdown, billing and
settlement;
(f)
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
(g) 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 Platform 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.
CUSTOMERS
Our
current wireless data customers include prominently global wireless application
service providers and wireless operators. For the year ended December 31, 2007,
Thumbplay represented 46% of our sales, Comtrend Corporation represented 14% of
our sales and Supportcomm represented 13% of our sales. For the year ended
December 31, 2008, Thumbplay represented 45% of our sales, Arvato Mobile
represented 17% of our sales and Comtrend Corporation represented 9% of our
sales.
None of
our customers are affiliated with us, our subsidiary, or any of our officers,
directors or principal shareholders.
SALES
CHANNELS
We
primarily operate through international and regional sales representatives to
distribute and sell our products on a project-by-project basis. For example, we
recently signed an OEM agreement with Comverse Technologies where according to
this agreement, Comverse will distribute our content delivery solutions to their
customer base which consists of a few hundred wireless operators. In this
framework, we cooperate with Comverse in RFP processes and demonstrations to
potential customers. The agreement with Comverse states a transfer price between
m-Wise and Comverse consisting of volume-based license fees, labor-based
professional services, and annual support and maintenance services.
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 consolidated
financial statements. We expect to continue significant research and development
activities to integrate new technologies into our platform. During the year
ended December 31, 2007, we expended $642,766 on research and development
activities. During the year ended December 31, 2008, we expended $758,693 on
research and development activities
INTELLECTUAL
PROPERTY
Our
intellectual property rights are important to our business. We protect our
intellectual property rights by 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 dozens of smaller
companies addressing niche content markets. Our larger competitors include
Unipier Ltd. in SMS and MMS, Mobilitech, Inc. in J2ME and centralized technology
platforms (middleware), Akumitti, End2end, 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 has been greatly enhanced since its release, and
our technical experience in integrating our middleware with various third-party
technologies already existing within the cellular operator or wireless
application service providers network (e.g. SMSCs, MMSCs and legacy billing
systems). We also believe our competitive strengths are further enhanced by our
presence in the market through our sales to large local and global wireless
service providers in each of the relevant vertical markets, partnering with
industry-leading global and regional OEM/channel partners as well as local sales
representatives, flexibility, and commercial experience in the
industry.
EMPLOYEES
Together
with our subsidiary, we employ a total of 15 employees, including our executive
officers. 3 employees are employed by m-Wise and 12 employees are employed by
m-Wise Israel, two of whom also provide their services to us (Messrs. Sivan and
Lewin). All employment agreements with our executive officers and directors are
described below 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 our technology platform, designing
our 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 2009-2010 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. 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 workday and the workweek, 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.
ITEM
1A. RISK FACTORS
Not
applicable.
ITEM
1B. UNRESOLVED STAFF COMMENTS
Not
applicable.
ITEM
2. PROPERTIES
Our
offices are located at 3 Sapir Street, Herzeliya Pituach, Israel 46852, in
leased office space of approximately 300 square meters (approximately 3,200
square feet), which we believe is adequate for our current and future operating
activities. Our monthly rent is $7,500.
ITEM
3. LEGAL PROCEEDINGS
We are
currently not involved in any material legal proceedings.
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
There
were no matters submitted for a vote of the stockholders during the quarter
ended December 31, 2008.
PART
II
ITEM
5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
MARKET
FOR COMMON STOCK
As of March 31, 2009, there were 24
owners of record of our common stock, which on March 1, 2005, started trading on
the Over-the-Counter Bulletin Board (the “OTC Bulletin Board”) under the symbol
"MWIS".
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
|
|
3/31/07
|
|
$
|
0.24
|
|
|
$
|
0.05
|
|
6/30/07
|
|
$
|
0.17
|
|
|
$
|
0.11
|
|
9/30/07
|
|
$
|
0.14
|
|
|
$
|
0.10
|
|
12/31/07
|
|
$
|
0.13
|
|
|
$
|
0.09
|
|
3/31/08
|
|
$
|
0.11
|
|
|
$
|
0.04
|
|
6/30/08
|
|
$
|
0.06
|
|
|
$
|
0.03
|
|
9/30/08
|
|
$
|
0.05
|
|
|
$
|
0.02
|
|
12/31/08
|
|
$
|
0.03
|
|
|
$
|
0.02
|
|
On March
30, 2009, the closing bid price of our common stock was $0.03 per
share.
There are
currently outstanding warrants for the purchase of 21,383,442 shares of common
stock and 54,078,197 shares of common stock reserved under employee stock option
plans pursuant to which additional shares may be issued. As of March 31, 2009,
139,322,145 shares of common stock are issued and outstanding.
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.
The
following table sets forth information relating to securities authorized for
issuance under our equity compensation plans as of December 31,
2008.
Equity
Compensation Plan Information
as
of December 31, 2008
Plan category
|
|
Number of
Securities to
be Issued
upon
Exercise of
Outstanding
Options,
Warrants
and Rights
|
|
Weighted
Average
Exercise
Price
of
Outstanding
Options,
Warrants
and
Rights
|
|
|
Number of
Securities
Remaining
Available
for Future
Issuance
under the
Plan
|
|
|
|
(a)
|
|
(b)
|
|
|
(c)
|
|
Equity
compensation plans approved by security holders
|
|
|
75,461,639
|
|
|
$
|
0.043
|
|
|
|
41,928
|
|
Equity
compensation plans not approved by security holders
|
|
|
0
|
|
|
$
|
—
|
|
|
|
0
|
|
Total
|
|
|
75,461,639
|
|
|
$
|
0.043
|
|
|
|
41,928
|
|
Recent
Sales of Unregistered Securities
Not
applicable.
ITEM
6. SELECTED FINANCIAL DATA
Not
applicable.
ITEM
7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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 years 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 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. Through November 11, 2003, we had 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.
During
calendar 2002, we channeled our research and development efforts to enhance and
update our middleware technology to interface with advanced and emerging
wireless technologies such as MMS (Multimedia Messaging Service - delivery of
highly enhanced images and audio files) and J2ME. 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.
Also
during calendar 2002, we restructured our sales efforts toward
establishing distribution channels via original equipment manufacturers (“OEM”s)
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 were therefore building partnerships with large original equipment
manufacturers and system integrators that already had 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. 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 pricing tag.
During calendar
year 2004, we followed the market evolution with respect to the enhanced ability
to deliver downloadable content directly to mobile phones and invested
significant research and development efforts to comply with such new market
trends. We substantially improved the MOMA Platform mobile content management
abilities, especially with respect to content adaptation to a growing number and
types of mobile handsets, and connectivity between the MOMA platform and content
presentation layers such as Internet and WAP interfaces. We also concluded sales
agreements with new wireless operators and wireless application service provider
clients, and at the same time, improved our product positioning in the
market.
During calendar
year 2005, we continued to follow-up with the rapid changes in the mobile
entertainment market, especially with the growing introduction of enhanced
mobile entertainment services through the third generation infrastructure for
wireless services, and the continuous development of wireless handsets and their
ability to present higher levels of multi media. We invested significant
research and development efforts in complying with these changes, and indeed,
the delivery of enhanced mobile entertainment services became a central part of
the MOMA Platform functionalities. We also identified a growing trend in the
market that changed the way potential wireless operators and application service
provider customers acquired mobile entertainment platform functionalities. We
identified that many potential customers preferred to outsource platform
functionalities to service providers (ASPs) rather than to purchase platform and
install on site (Customer Premises Model). We invested significant funds and
efforts in the infrastructure that was 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 was 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 was actually beneficial 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.
During calendar
year 2006, we invested extensive efforts in establishing our customer base and
expanding our distribution channels. We implemented a very large project for our
Brazilian customer, SupportComm, in which we went through a very significant
enhancement of our technology and its capacity. We also expanded the term and
scope of our relationship with our US based customer, Thumbplay, and
significantly expanded the range of products and services that we provide to
this customer who is currently the leading mobile entertainment service provider
in the US market. We worked very closely with Comverse Technologies in a
technical evaluation process that resulted in being selected by Comverse as
their OEM solution for content management and delivery. According to the
agreement, Comverse will distribute our technology to its customer base, and
this agreement represents a substantial expansion of our sales
opportunities.
During
calendar year 2007, we were able to acquire prestige and market leader
customers, and strengthen the profit share model that we began developing in
2005. We signed profit share based deals with News International, part of the
News Corp group, to deliver mobile entertainment services in conjunction of
leading UK newspapers, The Sun and The Times. We signed a profit share based
deal with Telcogames, a leading mobile games company, to provide a hosted
environment for the delivery of their services to their customers. This deal
expanded the reach of our technology and it made it available to the large
market of mobile games provider which we actively pursue. We signed a deal with
Arvato Mobile, part of the great media group Bertelsmann and one of the largest
leaders in mobile entertainment worldwide, to provide large variety of mobile
content management and delivery services on a profit share model. We also
strengthened our relationships with existing customers such as Thumbplay,
SupportComm, Logia Mobile and Interchan (formerly Comtrend) by providing the
needed support and technical expertise to their expansion and expanding the
basis for cooperation. We clearly saw that our business shift made in 2005 from
a license model to profit share model started to bear the desired
outcome by generating a stable business environment for recurring revenues and
consistently increasing profitability. Also during 2007, we made considerable
business development investments in the penetration into the US market and the
establishment of a local sales and marketing presence.
During
calendar year 2008, we expanded our business in our primary markets of the USA
and Brazil. Our US presence, which we established in 2007, is developing and
expanding as we had hoped, and we signed new deals in this territory this year.
We have geared our special expertise in the mobile entertainment industry and
signed deals with records labels such as Universal Motown Republic Group and
Interscope which are part of the Universal Records Group, to deliver various
artist specific mobile content experience. We started working with the leading
WPP advertising agency, Burson Marsteller, and delivered a relatively small
mobile marketing project for them with the expectation to become their selected
technology partner in this market segment and launch additional projects in
2009. We also laid the groundwork for two additional significant business deals
in the US which we expect to execute early in 2009. We also secured two major
deals in the territory of Brazil with Zero 9 and Daivid2Mobile’s Boltcel,
leaders in the Italian mobile entertainment market that plan to launch their
services in Brazil using our technology. We expect to see significant results of
these deals in 2009. We have also been able to strengthen our partnerships with
existing customers, Thumbplay, Arvato Mobile, Interchan, Logia Mobile and
Supportcomm and have been able to benefit from the revenue share model that we
have established with some of them and see growth in our revenues following
their growth in business. Unfortunately we have had to depart from customers
such as The Sun newspaper (one of the accounts we had in News International),
due to expiration of our contract, and Telcogames, due to Telcogames bankruptcy
procedures. We have seen the implication of the global economy downturn
reflected in the activity of some of our customers, yet despite that, we have
seen a significant improvement in our revenue growth of 23% from last
year.
During 2009, we plan to emphasize the
resource-saving advantages of our technology, and are planning to target those
potential customers who can significantly benefit from outsourcing their
technical services to us instead of continuing the research and development
in-house. We believe that 2009 will be characterized by serious efforts by many
enterprises to save on expenses as a result of the current state of the global
economy, and we plan to offer our relative advantages in that respect.
Additionally, we intend to deepen our presence in the emerging market of Brazil
and expand our business alliances in that region with an objective to expand
beyond Brazil and extend our technology offering to large neighboring regions
such as Mexico and Argentina. We also plan to expand further into the mobile
entertainment market in the USA, especially in the music market, and leverage
our existing relationship with Universal Records to gain additional mobile
entertainment and infotainment deals. In all cases, we plan to continue our
software-as-a-service based business model and use our successes in an effort to
generate reoccurring revenues that will provide us with future
stability.
We
believe that the strength of our technology and position in the market allows
some of our potential customers to become more effective with our technology and
therefore, despite of the global economy downturn and based on the current sales
pipeline we have, we expect 2009 to be another year of growth in revenues where
we expect to achieve profitability.
Revenues
We derive
revenues from product sales, licensing, revenue share, customer services and
technical support. 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. $361,721 in the year ended December 31, 2003 to $1,361,055
in the year ended December 31, 2004, to $2,168,434 in the year ended December
31, 2005, to $2,230,264 in the year ended December 31, 2006, to $2,295,260 in
the year ended December 31, 2007 and to $2,833,626 in the year ended December
31, 2008, 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.
When we
license our MOMA Platform solutions to our customers, we generate revenues by
receiving a license payment, ongoing support fees which are typically 15% of the
annual license payment, and professional service fees which are generated from
our customers’ request for additional training, IT administration and tailoring
of our products for their specific needs. When we license our products to our
customers, we install our product at a location specified by our client. We also
derive revenue through our hosted services, whereby we enable customers to
remotely use features of our MOMA Platform (such as a mobile content sales and
delivery service for ring tones and color images), which is installed and hosted
at our location, and receive a set-up fee for launching the services for them,
as well as a portion of our customer's revenues generated through our platform.
When we provide hosted services, we maintain the MOMA Platform at our location
on behalf of our customer.
Customers
and customer concentration. Historically we have derived the majority of our
revenues from a small number of customers and, although our customer base is
expanding, we expect to continue to do so in the future. In the year ended
December 31, 2008, approximately 45% of our sales were derived from sales to
Thumbplay, 17% to Arvato Mobile and 9% to Comtrend Corporation.
In the
year ended December 31, 2007, approximately 46% of our sales were derived from
sales to Thumbplay, 14% to Comtrend Corporation and 13% to
Supportcomm.
Geographical
breakdown. We sell our products primarily to customers in America and Europe.
For the year ended December 31, 2008, we derived 71% of our revenues from sales
in America, 19% from sales in Europe and 10% from sales in the Far East. 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, 2007, we derived 65% of our revenues from sales in America, 17% from sales
in Europe and 18% from sales in the Far East. Of these revenues, 98% were
derived from sales by the Company, and 2% of our revenues were derived from
sales by our subsidiary.
Cost
of revenues
Cost of
revenues represents customer services and technical support cost of
revenues, which is comprised of the salaries and related costs for our
technical staff that provide those services and support, and related overhead
expenses.
Operating
expense
Our
operation expenses is comprised of research and development expenses and general
and administrative expenses.
Research
and development. Our research and development expenses consist primarily of
salaries and related expenses of our research and development staff, as well as
subcontracting expenses. All research and development costs are expensed as
incurred, except equipment purchases that are depreciated over the estimated
useful lives of the assets.
General
and administrative. Our general and administrative expenses consist primarily of
salaries and related expenses of our executive, financial, administrative and
sales and marketing staff. These expenses also include costs of professional
advisors such as legal and accounting experts, depreciation expenses as well as
expenses related to advertising, professional expenses and participation in
exhibitions and tradeshows.
Financing
income and expenses
Financing
income consists primarily of interest earned on our cash equivalents balances
and other financial investments and foreign exchange gains. Financing expenses
consist primarily of interest payable on bank loans and foreign exchange
losses.
Critical
Accounting Policies
We
prepare our consolidated financial statements in conformity with accounting
principles generally accepted in the United States. As such, we are required to
make certain estimates, judgments and assumptions that we believe are reasonable
based upon the information available.
These
estimates and assumptions affect the reported amounts of assets and liabilities
at the date of the consolidated financial statements and the reported amounts of
the periods presented. To fully understand and evaluate our reported
consolidated financial results, we believe it is important to understand our
revenue recognition policy.
Revenue
recognition. Revenues from products sales are recognized on a completed-contract
basis, in accordance with Staff Accounting Bulletin No. 101 "Revenue Recognition
in Financial Statements" ("SAB No. 101"), Statement of Position 97-2 "Software
Revenue Recognition" and Statement of Position 81-1 "Accounting for Performance
of Construction-Type and Certain Production-Type Contracts". We have primarily
short-term contracts whereby revenues and costs in the aggregate for all
contracts is expected to result in a matching of gross profit with period
overhead or fixed costs similar to that achieved by use of the
percentage-of-completion method. Accordingly, financial position and results of
operations would not vary materially from those resulting from the use of the
percentage-of- completion method. Revenue is recognized only after all the three
stages of deliverables are complete; installation, approval of acceptance tests
results by the customer and when the product is successfully put into real-life
application. Customers are billed, according to individual agreements, a
percentage of the total contract fee upon completion of work in each stage;
approximately 40% for installation, 40% upon approval of acceptance tests by the
customer and the balance of the total contract price when the software is
successfully put into real-life application. The revenues, less its associated
costs, are deferred and recognized on completion of the contract and customer
acceptance. Amounts received for work performed in each stage are not
refundable.
On-going
service and technical support contracts are negotiated separately at an
additional fee. The technical support is separate from the functionality of the
products, which can function without on-going support.
Technology
license revenues are recognized in accordance with SAB No. 101 at the time the
technology and license is delivered to the customer, collection is probable, the
fee is fixed and determinable, a persuasive evidence of an agreement exists, no
significant obligation remains under the sale or licensing agreement and no
significant customer acceptance requirements exist after delivery of the
technology.
Revenue
share is recognized as earned based on a certain percentage of our clients'
revenues from selling services to end users. Usage is determined by receiving
confirmation from the clients.
Revenues
relating to customer services and technical support are recognized as the
services are rendered ratably over the period of the related
contract.
RESULTS
OF OPERATIONS
YEAR
ENDED DECEMBER 31, 2008 COMPARED TO YEAR ENDED DECEMBER 31, 2007
Revenues
License fees and products. Revenues
from license fees and products increased 20% to $481,116 for the year ended
December 31, 2008 from $399,996 for the same period in 2007. The increase
is
primarily
due to
$67,520
in
revenues which was derived from one
contract with one new customer
during 2008
.
Revenue share. Revenues from revenue
share increased 13% to $976,771 for the year ended December 31, 2008 from
$864,894 for the same period in 2007. The increase primarily consisted of
revenues from current customers who were not our customers during 2007 and from
customers that did not generate revenues from selling services to end users
previously.
Customer services and technical
support. Revenues from customer services and technical support increased 34% to
$1,375,739 for the year ended December 31, 2008 from $1,030,370 for the same
period in 2007. The increase is primarily due to increased orders and
corresponding demand for customer services during 2008.
Cost
of revenues
License
fees and products. Cost of license fees and products increased 22% to $73,104
for the year ended December 31, 2008 from $59,999 for the year ended December
31, 2007. This increase was primarily due to higher revenues from license fees
and products during 2008.
Customer
services and technical support. Cost of customer services and technical support
increased 85% to $1,032,996 for the year ended December 31, 2008 from $558,527
for the year ended December 31, 2007. This increase was in line with our
increased revenues from customer services and technical support, following
increased orders and corresponding demand for customer service during
2008.
Operating
expenses
Research
and development. Research and development expenses increased 18% to $758,693 for
the year ended December 31, 2008 from $642,766 for the year ended December 31,
2007. This increase was primarily due to a $68,680 increase in employee options
vested and a $55,021 increase in payroll and related expenses. Research and
development expenses, stated as a percentage of revenues, decreased to 27% for
the year ended December 31, 2008, from 28% year ended December 31,
2007.
General
and administrative. General and administrative expenses increased 17% to
$1,940,732 for the year ended December 31, 2008 from $1,656,740 for the year
ended December 31, 2007. This increase was primarily due to a $332,498 increase
in employee options vested, partially offset by a $118,983 decrease in bad debts
expenses. General and administrative expenses, stated as a percentage of
revenues, decreased to 69% for the year ended December 31, 2008, from 72% for
the year ended December 31, 2007.
Financing
income and expenses
Financing
expenses. Our financing expenses increased 18% to $63,823 for the year ended
December 31, 2008 from $54,296 for the same period in 2007. This increase was
primarily due to a $62,000 expense incurred due to warrants issued to a
stockholder as compensation for non-interest bearing credit line
facility.
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 $169,206 as of
December 31, 2008 and $365,513 as of December 31, 2007. 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 “Item
13 - Certain Relationships and Related Transactions
, and Director
Independence
“) and as of March 31, 2009 we have no lines of credit
agreements with banks. We have a $500,000 credit line agreement with Miretzky
Holdings Limited. As of December 31, 2008, $305,876 is outstanding under the
credit line. The credit line has no termination date and does not provide for
interest payments.
Other than the credit line agreement
with Miretzky, we do not have any commitments from any of our affiliates or
current stockholders, or any other non-affiliated parties, to provide additional
sources of capital to us. We do have an equity line for $10.0 million with
Dutchess Private Equity Fund, and for the year ended December 31, 2008 we have
drawn $828,675 under the Equity Line.
The Equity Line is not interest
bearing
We will
need approximately $1.8 million for the next twelve months for our operating
costs which mainly include salaries, office rent and network connectivity, which
total approximately $130,000 per month, and for working capital. We intend to
finance this amount from our ongoing sales and through the sale of either our
debt or equity securities or a combination thereof, to affiliates, current
stockholders and/or new investors. Currently we do not believe that our future
capital requirements for equipment and facilities will be material.
Operating
activities. For the year ended December 31, 2008 we used $161,641 of cash in
operating activities primarily due to our net loss of $1,035,722 and a $132,953
decrease in billings in excess of costs on uncompleted contracts, partially
offset by $583,477 employee options vested and a $157,815 increase in other
payables and accrued expenses. For the year ended December 31, 2007, we used
$309,829 of cash in operating activities primarily due to our net loss of
$724,675 and a $191,871 increase in accounts receivable, partially offset by
$181,622 employee options vested, a $136,633 increase in billings in excess of
costs on uncompleted contracts and a $101,937 decrease in prepaid and sundry
assets.
Investing
and financing activities.
Property
and equipment consist primarily of computers, software, and office
equipment.
For the
year ended December 31, 2008, net cash used in investing activities was $33,769
primarily consisting of an investment in equipment. For the year ended December
31, 2007, net cash used in investing activities was $25,557 consisting of an
investment in equipment.
For the
year ended December 31, 2008, net cash used in financing activities was $897
primarily due to a $4,207 decrease in advances from shareholders, partially
offset by a $3,310 sale of common shares under equity financing
agreement.
For the
year ended December 31, 2007, net cash provided by financing activities was
$695,827 primarily due to a $825,365 sale of common shares under equity
financing agreement, partially offset by a $126,288 decrease in
advances from shareholders.
Going
Concern
Our
auditors have included an explanatory paragraph in their report on our
consolidated 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.
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
approximately $12.1 million as of December 31, 2008.
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 2008, 47% 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 United States 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.
ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Not
applicable.
ITEM 8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
M-WISE,
INC. AND SUBSIDIARY
CONSOLIDATED
FINANCIAL STATEMENTS
YEARS
ENDED DECEMBER 31, 2008 AND 2007
CONTENTS
Report
of Registered Independent Public Accounting Firm - 2008
|
18
|
|
|
Report
of Registered Independent Public Accounting Firm - 2007
|
19
|
|
|
Consolidated
Balance Sheets
|
20
|
|
|
Consolidated
Statements of Operations and Comprehensive Loss
|
21
|
|
|
Consolidated
Statements of Stockholders' Deficit
|
22
|
|
|
Consolidated
Statements of Cash Flows
|
23
|
|
|
Notes
to Consolidated Financial Statements
|
24 -
42
|
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Board of Directors and
Stockholders of
m-Wise, Inc. and
Subsidiary
We have audited the accompanying
consolidated balance sheet of
m-Wise, Inc. and
Subsidiary
(the "Company")
as of December 31, 2008, and the related consolidated statements of operations
and comprehensive loss, stockholders' deficit and cash flows for the year ended
December 31, 2008. 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
audit.
We conducted our audit 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
. The Company is not required to have,
nor were we engaged to perform, an audit of its internal control over financial
reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. 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 our audit provides 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, 2008 and the results of
its operations and its cash flows for the year ended December 31, 2008 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 from operations, which
raises substantial doubt about its ability to continue as a going
concern. Management’s plans in regard to these matters are 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 12,
2009
|
|
|
REPORT
OF REGISTERED INDEPENDENT AUDITORS
To the
Board of Directors and Stockholders
of
m-Wise, Inc.:
We have
audited the accompanying consolidated balance sheet of m-Wise, Inc. and
subsidiary (a Delaware corporation) as of December 31, 2007, and the related
consolidated statements of operations, stockholders’ (deficit), and cash flows
for the year 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
audit.
We
conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States of America). 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. The Company is not required to have, nor were
we engaged to perform, an audit of its internal control over financial
reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. 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 audit provides a reasonable basis
for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of m-Wise, Inc.
and subsidiary as of December 31, 2007, and the results of its operations and
its cash flows for the year then 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 incurred losses since
inception, which raises substantial doubt about the Company’s ability to
continue as a going concern. Management’s plan regarding this matter
is also described in Note 1 to the consolidated financial
statements. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Respectfully
submitted,
/s/ Davis
Accounting Group P.C.
Cedar
City, Utah,
April 8,
2008.
M-WISE,
INC. AND SUBSIDIARY
Consolidated
Balance Sheets
As of
December 31, 2008 and 2007
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
Cash
|
|
$
|
169,206
|
|
|
$
|
365,513
|
|
Short-term
investment
|
|
|
7,769
|
|
|
|
-
|
|
Accounts
receivable - trade (net of allowance for doubtful accounts of $337,940;
2007 - $291,915)
|
|
|
606,610
|
|
|
|
710,782
|
|
Prepaid
and other current assets
|
|
|
35,591
|
|
|
|
21,238
|
|
|
|
|
|
|
|
|
|
|
Total
Current Assets
|
|
|
819,176
|
|
|
|
1,097,533
|
|
|
|
|
|
|
|
|
|
|
Long-term
Prepaid Expenses
|
|
|
13,523
|
|
|
|
19,758
|
|
Plant and Equipment, net
(note
3)
|
|
|
62,927
|
|
|
|
79,601
|
|
|
|
|
|
|
|
|
|
|
Total
Long-term Assets
|
|
|
76,450
|
|
|
|
99,359
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
895,626
|
|
|
$
|
1,196,892
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
Accounts
payable - trade
|
|
$
|
27,144
|
|
|
$
|
36,845
|
|
Other
payables and accrued expenses (note 4)
|
|
|
1,177,780
|
|
|
|
1,019,965
|
|
Advances
from stockholder (note 5)
|
|
|
305,876
|
|
|
|
310,083
|
|
Billings
in excess of costs on uncompleted contracts
|
|
|
3,680
|
|
|
|
136,633
|
|
|
|
|
|
|
|
|
|
|
Total
Current Liabilities
|
|
|
1,514,480
|
|
|
|
1,503,526
|
|
Accrued Severance Pay
(note
6)
|
|
|
114,631
|
|
|
|
39,916
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
|
1,629,111
|
|
|
|
1,543,442
|
|
|
|
|
|
|
|
|
|
|
Commitments
and Contingencies
(note 12)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Stock
(note 7)
|
|
|
236,848
|
|
|
|
236,610
|
|
Additional
Paid-in Capital
|
|
|
11,626,126
|
|
|
|
10,977,577
|
|
Accumulated
Deficit
|
|
|
(12,596,459
|
)
|
|
|
(11,560,737
|
)
|
|
|
|
|
|
|
|
|
|
Total
Stockholders'
Deficit
|
|
|
(733,485
|
)
|
|
|
(346,550
|
)
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' Deficit
|
|
$
|
895,626
|
|
|
$
|
1,196,892
|
|
M-WISE,
INC. AND SUBSIDIARY
Consolidated
Statements of Operations and Comprehensive Loss
For the
Years Ended December 31, 2008 and 2007
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Sales
|
|
|
|
|
|
|
Customer
services and technical support
|
|
$
|
1,375,739
|
|
|
$
|
1,030,370
|
|
Revenue
share
|
|
|
976,771
|
|
|
|
864,894
|
|
Product
sales and license
|
|
|
481,116
|
|
|
|
399,996
|
|
|
|
|
2,833,626
|
|
|
|
2,295,260
|
|
|
|
|
|
|
|
|
|
|
Cost
of Sales
|
|
|
1,106,100
|
|
|
|
618,526
|
|
|
|
|
|
|
|
|
|
|
Gross
Profit
|
|
|
1,727,526
|
|
|
|
1,676,734
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
1,940,732
|
|
|
|
1,656,740
|
|
Research
and development
|
|
|
758,693
|
|
|
|
642,766
|
|
|
|
|
|
|
|
|
|
|
Total
Expenses
|
|
|
2,699,425
|
|
|
|
2,299,506
|
|
|
|
|
|
|
|
|
|
|
Loss
from Operations
|
|
|
(971,899
|
)
|
|
|
(622,772
|
)
|
|
|
|
|
|
|
|
|
|
Other
Expenses
|
|
|
|
|
|
|
|
|
Interest
and other
|
|
|
(63,823
|
)
|
|
|
(54,296
|
)
|
|
|
|
|
|
|
|
|
|
Loss
before Income Taxes
|
|
|
(1,035,722
|
)
|
|
|
(677,068
|
)
|
|
|
|
|
|
|
|
|
|
Provision for
Income Taxes
(note 8)
|
|
|
-
|
|
|
|
(47,607
|
)
|
|
|
|
|
|
|
|
|
|
Net
Loss and Comprehensive Loss
|
|
$
|
(1,035,722
|
)
|
|
$
|
(724,675
|
)
|
|
|
|
|
|
|
|
|
|
(Loss) Per Share - Basic and
Diluted
(note
7)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
Weighted
Average Number of Common Shares
|
|
|
|
|
|
|
|
|
Outstanding - Basic and Diluted
|
|
|
139,265,378
|
|
|
|
137,055,668
|
|
M-WISE,
INC. AND SUBSIDIARY
Consolidated
Statements of Stockholders' Deficit
For the
Years Ended December 31, 2008 and 2007
|
|
Number
of
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Common
|
|
|
Capital
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Stockholders'
|
|
|
|
Shares
|
|
|
Stock
|
|
|
Capital
|
|
|
Deficit
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January 1, 2007
|
|
|
128,902,659
|
|
|
$
|
219,135
|
|
|
$
|
9,981,686
|
|
|
$
|
(10,836,062
|
)
|
|
|
(635,241
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
issuance pursuant to Equity Financing Agreement
|
|
|
6,515,483
|
|
|
|
11,076
|
|
|
|
814,269
|
|
|
|
-
|
|
|
|
825,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of stock options (note 7)
|
|
|
3,264,003
|
|
|
|
5,549
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,549
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of warrants
|
|
|
500,000
|
|
|
|
850
|
|
|
|
-
|
|
|
|
-
|
|
|
|
850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
vested for employee services (note 7)
|
|
|
-
|
|
|
|
-
|
|
|
|
181,622
|
|
|
|
-
|
|
|
|
181,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(724,675
|
)
|
|
|
(724,675
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007
|
|
|
139,182,145
|
|
|
$
|
236,610
|
|
|
$
|
10,977,577
|
|
|
$
|
(11,560,737
|
)
|
|
$
|
(346,550
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January 1, 2008
|
|
|
139,182,145
|
|
|
$
|
236,610
|
|
|
$
|
10,977,577
|
|
|
$
|
(11,560,737
|
)
|
|
$
|
(346,550
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
issuance pursuant to Equity Financing Agreement
|
|
|
140,000
|
|
|
|
238
|
|
|
|
3,072
|
|
|
|
-
|
|
|
|
3,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of warrants (note 7)
|
|
|
-
|
|
|
|
-
|
|
|
|
62,000
|
|
|
|
-
|
|
|
|
62,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
vested for employee services (note 7)
|
|
|
-
|
|
|
|
-
|
|
|
|
583,477
|
|
|
|
-
|
|
|
|
583,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,035,722
|
)
|
|
|
(1,035,722
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2008
|
|
|
139,322,145
|
|
|
$
|
236,848
|
|
|
$
|
11,626,126
|
|
|
$
|
(12,596,459
|
)
|
|
$
|
(733,485
|
)
|
M-WISE,
INC. AND SUBSIDIARY
Consolidated
Statements of Cash Flows
For the
Years Ended December 31, 2008 and 2007
|
|
2008
|
|
|
2007
|
|
Cash
Flows from Operating Activities
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(1,035,722
|
)
|
|
$
|
(724,675
|
)
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
42,664
|
|
|
|
57,061
|
|
Deferred
financing fees
|
|
|
-
|
|
|
|
12,628
|
|
Expense
paid by cashless exercise of stock options
and warrants
|
|
|
-
|
|
|
|
6,379
|
|
Employee
options vested
|
|
|
583,477
|
|
|
|
181,622
|
|
Issuance
of warrants
|
|
|
62,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(347,581
|
)
|
|
|
(466,985
|
)
|
Net
changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable – trade
|
|
|
104,172
|
|
|
|
(191,871
|
)
|
Prepaid
and other current assets
|
|
|
(14,353
|
)
|
|
|
101,937
|
|
Accounts
payable – trade
|
|
|
(9,691
|
)
|
|
|
12,856
|
|
Other
payables and accrued expenses
|
|
|
157,815
|
|
|
|
94,443
|
|
Billings
in excess of costs on uncompleted contracts
|
|
|
(132,953
|
)
|
|
|
136,633
|
|
Long
term prepaid expenses
|
|
|
6,235
|
|
|
|
(893
|
)
|
Accrued
severance pay
|
|
|
74,715
|
|
|
|
4,041
|
|
|
|
|
|
|
|
|
|
|
Net
Cash Used in Operating Activities
|
|
|
(161,641
|
)
|
|
|
(309,829
|
)
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Investing Activities
|
|
|
|
|
|
|
|
|
Acquisition
of plant and equipment
|
|
|
(26,000
|
)
|
|
|
(25,557
|
)
|
Acquisition
of short-term investment
|
|
|
(7,769
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net
Cash Used in Investing Activities
|
|
|
(33,769
|
)
|
|
|
(25,557
|
)
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Financing Activities
|
|
|
|
|
|
|
|
|
Payments
to stockholder
|
|
|
(4,207
|
)
|
|
|
(126,288
|
)
|
Sale
of common shares under Equity Financing agreement
|
|
|
3,310
|
|
|
|
825,365
|
|
Bank
indebtedness
|
|
|
-
|
|
|
|
(3,250
|
)
|
|
|
|
|
|
|
|
|
|
Net
Cash (Used in) Provided by Financing Activities
|
|
|
(897
|
)
|
|
|
695,827
|
|
|
|
|
|
|
|
|
|
|
Net
(Decrease) Increase in Cash
|
|
|
(196,307
|
)
|
|
|
360,441
|
|
Cash
- Beginning of Year
|
|
|
365,513
|
|
|
|
5,072
|
|
|
|
|
|
|
|
|
|
|
Cash
- End of Year
|
|
$
|
169,206
|
|
|
$
|
365,513
|
|
|
|
|
|
|
|
|
|
|
Interest
and Income Taxes Paid
|
|
|
|
|
|
|
|
|
During
period, the Company had cash flows arising from
income
taxes and interests paid as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
475
|
|
|
$
|
517
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
$
|
-
|
|
|
$
|
47,607
|
|
M-WISE,
INC. AND SUBSIDIARY
Notes to
Consolidated Financial Statements
December
31, 2008 and 2007
1.
|
Description
of Business and Going Concern
|
|
a)
|
Description of Business
|
m-Wise
Inc. (the "Company") is a Delaware corporation that develops interactive
messaging platforms for mobile phone-based commercial applications,
transactions, and information services with internet billing
capabilities.
The
Company's wholly-owned subsidiary, m-Wise Ltd., is located in Israel and was
incorporated in 2000 under the laws of Israel.
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, and has negative cash flows from operations
with negative working capital that raise substantial doubt as to its ability to
continue as a going concern. For the years ended December 31, 2008, and 2007,
the Company experienced net losses of $1,035,722 (2007 - $724,675), and working
capital deficit of $695,304 (2007 - $405,993).
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.
2.
|
Summary
of Significant Accounting Policies
|
The
accounting policies of the Company are in accordance with generally accepted
accounting principles in the United States of America, and their basis of
application is consistent with that of the previous year. Outlined
below are those policies considered particularly significant:
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 balances and transactions have been
eliminated on consolidation.
Short-term
investment is carried at quoted market value and consists of a term
deposit.
|
d)
|
Plant and Equipment, net
|
Plant and
equipment is stated at cost. Depreciation is based on the estimated
useful lives of the related 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
|
2 to 5 years
|
|
Straight
line
|
M-WISE,
INC. AND SUBSIDIARY
Notes to
Consolidated Financial Statements
December
31, 2008 and 2007
2.
|
Summary of Significant
Accounting Policies
(cont'd)
|
The
Company generates revenues from product sales, licensing, customer services,
technical support and revenue share.
Revenue
from product 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 are 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.
Revenues relating to customer services and technical support are recognized as
the services are rendered ratably over the period of the related
contract.
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.
Revenue
share is recognized as earned based on a certain percentage of the Company's
clients' revenues from selling services to end users. Usage is determined by
receiving confirmation from the clients.
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.
M-WISE,
INC. AND SUBSIDIARY
Notes to
Consolidated Financial Statements
December
31, 2008 and 2007
2.
|
Summary of Significant
Accounting Policies
(cont'd)
|
|
f)
|
Research and Development Costs
|
Research
and development costs are expensed as incurred.
The
preparation of financial statements, in conformity with generally accepted
accounting principles in the United States of America, requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
|
h)
|
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" ("SFAS
No. 105"), 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 Israeli financial
institutions.
The
Company 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.
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.
|
i)
|
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,
2008 and 2007, the carrying amounts of the Company's financial instruments
approximate their fair values due to the short-term maturities of these
instruments.
M-WISE,
INC. AND SUBSIDIARY
Notes to
Consolidated Financial Statements
December
31, 2008 and 2007
2.
|
Summary of Significant
Accounting Policies
(cont'd)
|
The
Company calculates net loss per share based on SFAS No. 128, "Earnings Per
Share". Basic loss per share is computed by dividing the net loss attributable
to the common stockholders by the weighted average number of common shares
outstanding. 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.
|
k)
|
Impact of Recently Issued Accounting
Standards
|
In
February 2008, the Financial Accounting Standards Board (“FASB”) issued FASB
Staff Position (“FSP”) on SFAS No. 140-3, “Accounting for Transfers of Financial
Assets and Repurchase Financing Transactions” (“FSP SFAS 140-3”). The
objective of this FSP is to provide guidance on accounting for a transfer of a
financial asset and a repurchase financing. This FSP presumes that an
initial transfer of a financial asset and a repurchase financing are considered
part of the same arrangement (linked transaction) under SFAS No. 140,
“Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities” ("SFAS 140"). However, if certain criteria are met,
the initial transfer and repurchase financing shall not be evaluated as a linked
transaction and shall be evaluated separately under SFAS No. 140. FSP
SFAS 140-3 is effective for financial statements issued for fiscal years
beginning after November 15, 2008, and interim periods within these fiscal
years. Earlier application is not permitted. The Company
is currently reviewing the effect, if any, the proposed guidance will have on
its consolidated financial statements.
In
February 2008, the FASB issued FASB Staff Positions (FSP) SFAS No. 157-1,
“Application of FASB Statement No. 157 to FASB Statement No. 13 and Other
Accounting Pronouncements That Address Fair Value Measurements for Purposes of
Lease Classification or Measurement under Statement 13,” and FSP SFAS No. 157-2,
“Effective Date of FASB Statement No. 157.” FSP SFAS 157-1 removes leasing
transactions from the scope of SFAS No. 157, while SFAS No. 157-2 defers the
effective date of SFAS 157 to the fiscal year beginning after November 15, 2008
for nonfinancial assets and nonfinancial liabilities that are recognized or
disclosed at fair value in the financial statements on a nonrecurring basis. It
does not defer recognition and disclosure requirements for financial assets and
financial liabilities, or for nonfinancial assets and nonfinancial liabilities
that are remeasured at least annually. The Company is currently reviewing the
effect, if any, the proposed guidance will have on its consolidated financial
statements.
M-WISE,
INC. AND SUBSIDIARY
Notes to
Consolidated Financial Statements
December
31, 2008 and 2007
2.
|
Summary of Significant
Accounting Policies
(cont'd)
|
|
k)
|
Impact of Recently Issued Accounting Standards
(cont'd)
|
In March
2008, the FASB issued FASB Statement No. 161, “Disclosures about Derivative
Instruments and Hedging Activities - an amendment of FASB Statement 133” (“SFAS
No. 161”). SFAS No. 161 enhances required disclosures regarding derivatives and
hedging activities, including enhanced disclosures regarding how: (a) an entity
uses derivative instruments; (b) derivative instruments and related hedged items
are accounted for under SFAS No. 133, “Accounting for Derivative Instruments and
Hedging Activities”; and (c) derivative instruments and related hedged items
affect an entity’s financial position, financial performance, and cash flows.
Specifically, SFAS No. 161 requires:
|
•
|
Disclosure
of the objectives for using derivative instruments be disclosed in terms
of underlying risk and accounting
designation;
|
|
•
|
Disclosure
of the fair values of derivative instruments and their gains and losses in
a tabular format;
|
|
•
|
Disclosure
of information about credit-risk-related contingent features;
and
|
|
•
|
Cross-reference
from the derivative footnote to other footnotes in which
derivative-related information is
disclosed.
|
SFAS No.
161 is effective for fiscal years and interim periods beginning after November
15, 2008. Earlier application is encouraged. The Company’s management does not
expect the adoption of this pronouncement to have a material impact on its
consolidated financial statements.
In April
2008, FASB issued FASB Staff Position SFAS No. 142-3, “Determination of the
Useful Life of Intangible Assets” (“FSP SFAS No. 142-3”). FSP SFAS
No. 142-3 amends the factors that should be considered in developing renewal or
extension assumptions used to determine the useful life of a recognizable
intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets”
(“SFAS No. 142”). The intent of FSP SFAS No. 142-3 is to improve the
consistency between the useful life of a recognizable intangible asset under
SFAS No. 142 and the period of expected cash flows used to measure the fair
value of the asset under SFAS 141(R), “Business Combinations” and other U.S.
generally accepted accounting principles. FSP SFAS No. 142-3 is
effective for financial statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those fiscal
years. Early adoption is prohibited. The Company does not
anticipate that the adoption of FSP SFAS No. 142-3 will have an impact on its
financial position or results of operations.
|
In
May 2008, FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted
Accounting Principles" ("SFAS 162"). SFAS 162 identifies the sources of
accounting principles and the framework for selecting the principles used
in the preparation of financial statements of nongovernmental entities
that are presented in conformity with generally accepted accounting
principles (“GAAP”) in the United States (the GAAP hierarchy). SFAS 162 is
effective 60 days following the SEC’s approval of the Public Company
Accounting Oversight Board amendments to AU Section 411, "The Meaning of
Present Fairly in Conformity With Generally Accepted Accounting
Principles". The Company is currently reviewing the effect, if any, the
proposed guidance will have on its consolidated financial
statements.
|
M-WISE,
INC. AND SUBSIDIARY
Notes to
Consolidated Financial Statements
December
31, 2008 and 2007
2.
|
Summary of Significant
Accounting Policies
(cont'd)
|
|
k)
|
Impact
of Recently Issued Accounting Standards
(cont'd)
|
|
In
September 2008, FASB issued FSP SFAS 133-1 and FIN 45-4, "Disclosures
about Credit Derivatives and Certain Guarantees: An Amendment of FASB
Statement No. 133 and FASB Interpretation No. 45; and Clarification of the
Effective Date of FASB Statement No. 161" (“FSP SFAS 133-1 and FIN
45-4”). FSP SFAS 133-1 and FIN 45-4 amends FASB Statement No.
133, “Accounting for Derivative Instruments and Hedging Activities”, to
require disclosures by sellers of credit derivatives, including credit
derivatives embedded in a hybrid instrument. FSP SFAS 133-1 and
FIN 45-4 also amends FASB Interpretation No. 45, “Guarantor’s Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees
of Indebtedness of Others”, to require an additional disclosure about the
current status of the payment/performance risk of a guarantee. Further,
FSP SFAS 133-1 and FIN 45-4 clarifies the Board’s intent about the
effective date of FASB Statement No. 161, “Disclosures about Derivative
Instruments and Hedging Activities”. FSP SFAS 133-1 and FIN 45-4 is
effective for reporting periods (annual or interim) ending after November
15, 2008. The adoption of FSP SFAS 133-1 and FIN 45-4 will have no impact
on the Company’s consolidated financial
statements.
|
|
In
December 2008, FASB issued FSP SFAS 132 (R)-1, “Employers’ Disclosures
about Postretirement Benefit Plan Assets”, (“FSP SFAS 132 (R)-1”). FSP
SFAS 132 (R)-1 provides guidance on an employer’s disclosures about plan
assets of a defined benefit pension or other postretirement plan. It also
includes a technical amendment that requires a nonpublic entity to
disclose net periodic benefit cost for each annual period for which a
statement of income is presented. FSP SFAS 132 (R)-1is effective for
fiscal years ending after December 15, 2009. The adoption of
FSP SFAS 132 (R)-1 will have no impact on the Company’s consolidated
financial statements.
|
M-WISE,
INC. AND SUBSIDIARY
Notes to
Consolidated Financial Statements
December
31, 2008 and 2007
Plant and
equipment is comprised of the following:
|
|
|
|
|
2008
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
Accumulated
|
|
|
|
Cost
|
|
|
Depreciation
|
|
|
Cost
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Furniture
and equipment
|
|
$
|
69,940
|
|
|
$
|
37,405
|
|
|
$
|
63,832
|
|
|
$
|
38,311
|
|
Computer
equipment
|
|
|
140,751
|
|
|
|
110,701
|
|
|
|
342,755
|
|
|
|
289,841
|
|
Leasehold
improvements
|
|
|
2,592
|
|
|
|
2,250
|
|
|
|
2,592
|
|
|
|
1,426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
213,283
|
|
|
$
|
150,356
|
|
|
$
|
409,179
|
|
|
$
|
329,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
carrying amount
|
|
|
|
|
|
$
|
62,927
|
|
|
|
|
|
|
$
|
79,601
|
|
Depreciation
expenses of $39,086 (2007 - $53,163) and $3,578 (2007 - $3,898) have been
included in research and development, and general and administrative expenses,
respectively.
4.
|
Other
Payables and Accrued Expenses
|
Other
payables and accrued expenses consisted of the following as of December 31, 2008
and 2007:
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Employee
payroll accruals
|
|
$
|
627,041
|
|
|
$
|
538,349
|
|
Accrued
payroll taxes
|
|
|
28,611
|
|
|
|
32,820
|
|
Accrued
expenses
|
|
|
522,128
|
|
|
|
448,796
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,177,780
|
|
|
$
|
1,019,965
|
|
M-WISE,
INC. AND SUBSIDIARY
Notes to
Consolidated Financial Statements
December
31, 2008 and 2007
5.
|
Advances
from Stockholder
|
The
advances from the Company's major stockholder are non-interest bearing,
unsecured and have no fixed terms of repayment. According to an agreement dated
January 2003, the stockholder granted a credit facility of $500,000 to the
Company in return for preferred class "C" shares as described in note
7. As of December 31, 2008 and 2007, the line of credit had an
outstanding balance of $305,876 and $310,083, respectively.
The
Company accounts for its potential severance liability of its Israeli subsidiary
in accordance with EITF 88-1, "Determination of Vested Benefit Obligation for a
Defined Benefit Pension Plan". The Company's liability for severance pay is
calculated pursuant to applicable labour laws in Israel on the most recent
salary of the employees multiplied by the number of years of employment as of
the balance sheet date for all employees. The Company's liability is fully
accrued and reduced by monthly deposits with severance pay funds and insurance
policies. As at December 31, 2008 and 2007, the amount of the
liabilities accrued were $272,653 and $169,335, respectively. Severance pay
expenses for the years ended December 31, 2008, and 2007 were $105,951 and
$71,752 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 of December
31, 2008, and 2007, were $158,022 and $129,419, respectively. Income
earned from the deposit funds for 2008, and 2007, was immaterial.
M-WISE,
INC. AND SUBSIDIARY
Notes to
Consolidated Financial Statements
December
31, 2008 and 2007
Authorized:
210,000,000
|
Common
stock, par value $0.0017 per share
|
170,000,000
|
Preferred
stock
|
|
Series
"A":
|
convertible,
voting, par value of $0.0017 per share
|
|
Series
"B":
|
10%
non-cumulative dividend, redeemable, convertible, voting, par
value of $0.0017 per share
|
|
Series
"C":
|
10%
non-cumulative dividend, convertible, voting, par value of $0.0017 per
share
|
|
|
|
2008
|
|
|
2007
|
|
Issued:
|
|
|
|
|
|
|
|
139,322,145
|
Common
stock (2007 - 139,182,145)
|
|
$
|
236,848
|
|
|
$
|
236,610
|
|
Stock
Options and Warrants:
The
Company has accounted for its stock options and warrants in accordance with SFAS
No. 123(R) "Share-Based Payments" ("SFAS No. 123(R)"), and SFAS No. 148,
"Accounting for Stock - Based Compensation - Transition and Disclosure - an
amendment of FASB Statements No. 123" ("SFAS No. 148"). The value of options
granted has been estimated by the Black Scholes option pricing model. The
assumptions are evaluated annually and revised as necessary to reflect market
conditions and additional experience. The following assumptions were
used:
|
|
2008
|
|
|
2007
|
|
|
|
Israel
|
|
|
International
|
|
|
Israel
|
|
|
International
|
|
Interest
rate
|
|
|
1.2
|
%
|
|
|
1.2
|
%
|
|
|
4.5
|
%
|
|
|
4.5
|
%
|
Expected
volatility
|
|
|
138
|
%
|
|
|
138
|
%
|
|
|
80
|
%
|
|
|
80
|
%
|
Expected
life in years
|
|
|
3
|
|
|
|
5
|
|
|
|
4
|
|
|
|
6
|
|
Warrants:
In April
2000, 56,180 warrants, equivalent to 337,080 shares after the Company's
six-for-one forward stock split, were issued to one of the stockholders with his
preferred Class "A" shares for a total investment of $750,000. The warrants will
expire in the event of an initial public offering of the Company's securities.
The warrants have an exercise price for preferred Class "A" shares of the
Company at $4.45 per share, equivalent to $0.74 after the six-for-one 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 one-to-one basis in
2003.
M-WISE,
INC. AND SUBSIDIARY
Notes to
Consolidated Financial Statements
December
31, 2008 and 2007
7.
|
Capital Stock
(cont'd)
|
Warrants
(cont'd):
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 one-to-six in
accordance with the forward stock split of the common shares. After
the conversion and the forward split, there were warrants to purchase 7,025,778
shares outstanding.
On April
4, 2007, 505,732 of the above warrants have been converted into common shares
and the number of warrants outstanding as at December 31, 2008 was
6,520,046.
On
December 22, 2005, the Company entered into an agreement with Syntek Capital AG
("Syntek"), as part of the agreement for conversion of the note payable into
common shares, 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, 2008, the warrants have not been converted into common
stock.
On
February 2, 2006, the Company entered into an identical agreement with DEP
Technology Holdings Ltd. The value assigned to the warrants was
$218,114. As of December 31, 2008, the warrants have not been converted into
common stock.
On
December 29, 2008, the Company issued warrants to a stockholder as compensation
for non-interest bearing credit line facility provided from March 2004 to
December 31, 2008, which was valued at $62,000. The stockholder can purchase up
to 4,000,000 common shares of the Company at an exercise price of $0.04. The
warrants will expire in 2012.
Capital
Stock:
On April
28, 2006, the Company issued 2,818,182 shares of common stock to its external
consultant in exchange for consulting services. It was agreed upon by the
parties that the fair value of such services was $310,000. As of December 31,
2006, $206,667 was charged to consulting expense and $103,333 has been deferred
and amortized over the term of the contract. The balance of $103,333
was amortized and charged to consulting expense in 2007.
M-WISE,
INC. AND SUBSIDIARY
Notes to
Consolidated Financial Statements
December
31, 2008 and 2007
7.
|
Capital Stock
(cont'd)
|
Capital
Stock (cont'd):
On March
6, 2007, the Company exercised its right pursuant to the February 6, 2006 equity
financing agreement with Dutchess Private Equity Fund ("DPEF"). The agreement
entitled the Company to sell up to 20,000,000 of the Company's common shares (to
maximum of $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 three 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 five 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 DPEF and a current significant stockholder
can sell up to 30,000,000 common shares at market value. During the year ended
December 31, 2007, 6,515,483 common shares were issued under the agreement for
$825,365.
During
the year ended December 31, 2008, 140,000 common shares were issued under the
DPEF equity financing agreement for $3,310.
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.
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, 2008, 3,672 options under the Israel 2001 Share Option Plan for
common stock were not yet granted and available for future grant.
M-WISE,
INC. AND SUBSIDIARY
Notes to
Consolidated Financial Statements
December
31, 2008 and 2007
7.
|
Capital Stock
(cont'd)
|
Stock
Options (cont'd):
Under the
Israel 2003 Stock Option Plan, management authorized stock options (on a post
conversion, post split basis) for 16,094,106 preferred Class "B" shares, 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. On January 5, 2006, the share
option plan was amended to authorize an additional 1,260,000 stock options and
the exercise price per share for the new options will be $0.12 for options
granted after January 5, 2006. On August 14, 2006, the share option plan was
amended to authorize an additional 6,000,000 stock options at an exercise price
of $0.04. On June 16, 2008, the exercise price of 17,080,000 options granted
under the Israel 2003 Stock Option Plan and 15,750,000 options granted under the
2003 International Share Option Plan was amended to $0.03. As of December 31,
2008, 38,256 options under the Israel 2003 Stock Option Plan were not yet
granted and available for future grant.
On
January 16, 2007, 1,250,000 stock options at an exercise price of $0.08 and
280,000 stock options at an exercise price of $0.05 were granted, all under the
Israel 2003 Share Option Plan.
In February,
2007, 872,864 stock options under the Israel 2001 Share Option Plan were
exercised.
In March
2007, 1,586,782 stock options under the Israel 2003 Stock Option Plan and
400,000 stock options under the Israel 2001 Share Option Plan were
exercised.
On June
22 2007, 132,914 stock options under the Israel 2003 Stock Option Plan and
168,213 stock options under the Israel 2001 Share Option Plan were
exercised.
On June
29, 2007, 180,000 stock options at an exercise price of $0.13 were granted under
the Israel 2003 Stock Option Plan.
On July
1, 2007, 103,230 stock options under the Israel 2003 Stock Option Plan were
exercised.
On
September 14, 2007, 500,000 stock options at an exercise price of $0.11 were
granted under the International 2003 Share Option Plan.
On
December 14, 2007, 5,500,000 stock options at an exercise price of $0.09 were
granted under the Israel 2003 Stock Option Plan.
On
December 16, 2007, 400,000 stock options at an exercise price of $0.09 were
granted under the Israel 2003 Stock Option Plan.
On
December 14, 2007, 5,250,000 stock options at an exercise price of $0.09 were
granted under the International 2003 Share Option Plan.
On
January 4, 2008, 500,000 stock options at an exercise price of $0.09 were
granted under the International 2003 Share Option Plan.
M-WISE,
INC. AND SUBSIDIARY
Notes to
Consolidated Financial Statements
December
31, 2008 and 2007
7.
|
Capital Stock
(cont'd)
|
Stock
Options (cont'd):
On June
16, 2008, the Company lowered the exercise price of 17,080,000 options in its
Israel 2003 Stock Option Plan and 15,750,000 options in the International 2003
Share Option Plan to $0.03, resulting in additional compensation costs of
$41,059 in accordance with SFAS 123(R), Paragraph A150. $35,229 and $5,830 have
been included in general and administrative and research and development
expenses, respectively.
The
options vest gradually over a period of four years from the date of grant for
the Israel Plan and ten years (no less than 20% per year for five years for
options granted to employees) for the International Plan. The term of each
option shall not be more than eight years from the date of grant in Israel and
ten years from the date of grant in the International Plan. The
outstanding options that have vested have been expensed in the consolidated
statements of operations as follows:
Year
ended December 31, 2001
|
|
$
|
9,000
|
|
Year
ended December 31, 2002
|
|
|
-
|
|
Year
ended December 31, 2003
|
|
|
384,889
|
|
Year
ended December 31, 2004
|
|
|
25,480
|
|
Year
ended December 31, 2005
|
|
|
13,733
|
|
Year
ended December 31, 2006
|
|
|
117,044
|
|
Year
ended December 31, 2007
|
|
|
181,622
|
|
Year
ended December 31, 2008
|
|
|
583,477
|
|
|
|
|
|
|
|
|
$
|
1,315,245
|
|
M-WISE,
INC. AND SUBSIDIARY
Notes to
Consolidated Financial Statements
December
31, 2008 and 2007
7.
|
Capital Stock
(cont'd)
|
The
following table summarizes the activity of common stock options during 2008 and
2007:
|
|
2008
|
|
|
2007
|
|
|
|
Israel
|
|
|
International
|
|
|
Israel
|
|
|
International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding,
beginning of year
|
|
|
18,209,767
|
|
|
|
16,776,797
|
|
|
|
14,233,508
|
|
|
|
11,026,797
|
|
Granted
|
|
|
8,500,000
|
|
|
|
11,900,000
|
|
|
|
7,610,000
|
|
|
|
5,750,000
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,264,003
|
)
|
|
|
-
|
|
Forfeited
|
|
|
(808,367
|
)
|
|
|
(500,000
|
)
|
|
|
(369,738
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding,
end of year
|
|
|
25,901,400
|
|
|
|
28,176,797
|
|
|
|
18,209,767
|
|
|
|
16,776,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average fair value of options granted during the year
|
|
$
|
0.0160
|
|
|
$
|
0.0172
|
|
|
$
|
0.0575
|
|
|
$
|
0.0595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average exercise price of common stock options, beginning of
year
|
|
$
|
0.0493
|
|
|
$
|
0.0792
|
|
|
$
|
0.0217
|
|
|
$
|
0.0727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average exercise price of common stock options granted in the
year
|
|
$
|
0.0318
|
|
|
$
|
0.0414
|
|
|
$
|
0.0878
|
|
|
$
|
0.0917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average exercise price of common stock options, end of
year
|
|
$
|
0.0315
|
|
|
$
|
0.0356
|
|
|
$
|
0.0493
|
|
|
$
|
0.0792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average remaining contractual life of common stock options
|
|
3
years
|
|
|
5
years
|
|
|
4
years
|
|
|
6
years
|
|
The stock
options have not been included in the calculation of the diluted earnings per
share as their effect would be anti-dilutive.
M-WISE,
INC. AND SUBSIDIARY
Notes to
Consolidated Financial Statements
December
31, 2008 and 2007
The
Company accounts for income taxes in accordance with SFAS No. 109, "Accounting
for Income Taxes" ("SFAS No.109"). This standard prescribes the use of the
liability method whereby deferred tax asset and liability account balances are
determined based on differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates. The effects
of future changes in tax laws or rates are not anticipated.
Under
SFAS No. 109, income taxes are recognized for the following: a) amount of tax
payable for the current year, and b) deferred tax liabilities and assets for
future tax consequences of events that have been recognized differently in the
financial statements than for tax purposes. Management determined that the
values of its assets and liabilities recorded for financial reporting purposes
are not materially different from their values for income tax purposes and
therefore, no deferred tax assets/liabilities have been recorded in the
accompanying financial statements to account for the temporary
differences.
The
Company has deferred income tax assets as follows:
|
|
2008
|
|
|
2007
|
|
Deferred
income tax assets
|
|
|
|
|
|
|
Loss
carryforwards
|
|
$
|
3,049,000
|
|
|
$
|
2,782,000
|
|
Less:
Valuation allowance
|
|
|
(3,049,000
|
)
|
|
|
(2,782,000
|
)
|
|
|
|
|
|
|
|
|
|
Total net deferred tax
assets
|
|
$
|
-
|
|
|
$
|
-
|
|
For the
years ended December 2008 and 2007, the Company provided a valuation allowance
equal to the deferred income tax assets because it is not presently more likely
than not that they will be realized.
As of
December 31, 2008, the Company had approximately $12,073,000 tax loss
carryforwards in the United States. Tax loss carryforwards in the United States,
if not utilized, will expire in 20 years from the year of origin as
follows:
December
31, 2020
|
|
$
|
909,500
|
|
2021
|
|
|
2,398,000
|
|
2022
|
|
|
778,000
|
|
2023
|
|
|
5,005,000
|
|
2024
|
|
|
581,000
|
|
2025
|
|
|
560,500
|
|
2026
|
|
|
196,000
|
|
2027
|
|
|
700,000
|
|
2028
|
|
|
945,000
|
|
|
|
|
|
|
|
|
$
|
12,073,000
|
|
The
Company had approximately $112,000 in tax losses in its Israeli subsidiary
during the year ended December 31, 2008 which will carryforward
indefinitely.
M-WISE,
INC. AND SUBSIDIARY
Notes to
Consolidated Financial Statements
December
31, 2008 and 2007
9.
|
Related
Party Transactions
|
During
the year ended December 31, 2008, the Company incurred directors' consulting
fees and salaries in the amount of $139,992 (2007 - $147,000). As of December
31, 2008, $570,392 (2007 - $486,098) was unpaid and included in other payables
and accrued expenses.
These
transactions were in the normal course of business and recorded at an exchange
value established and agreed upon by the related parties.
10.
|
Significant
Customers
|
In 2008,
the Company had two major customers which primarily accounted for 45% and 17% of
total revenues. In 2007, the Company had four major customers which accounted
for 46%,14%,13% and 11% of total revenues.
11.
|
Segmented
Information
|
|
|
|
Israel
|
|
|
USA
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
revenue
|
2008
|
|
$
|
31,784
|
|
|
$
|
2,801,842
|
|
|
$
|
2,833,626
|
|
|
2007
|
|
|
49,569
|
|
|
|
2,245,691
|
|
|
|
2,295,260
|
|
Net
loss
|
2008
|
|
|
(112,357
|
)
|
|
|
(923,365
|
)
|
|
|
(1,035,722
|
)
|
|
2007
|
|
|
(22,590
|
)
|
|
|
(702,085
|
)
|
|
|
(724,675
|
)
|
Total
assets
|
2008
|
|
|
134,107
|
|
|
|
761,519
|
|
|
|
895,626
|
|
|
2007
|
|
|
129,816
|
|
|
|
1,067,076
|
|
|
|
1,196,892
|
|
In 2008,
the Company derived 10% (2007 - 18%) of its revenues from sales to the Far East,
19% from sales to Europe (2007 - 17 %) and 71% (2007 - 65 %) from sales to
America.
12.
|
Commitments
and Contingences
|
The
Company is committed under an operating lease for its premises expiring June 30,
2010. Minimum annual payments (exclusive of taxes, insurance, and maintenance
costs) are as follows:
2009
|
|
$
|
70,800
|
|
2010
|
|
|
35,400
|
|
|
|
|
|
|
|
|
$
|
106,200
|
|
In
addition, the Company is committed under operating vehicle leases as
follows:
2009
|
|
$
|
69,870
|
|
2010
|
|
|
31,980
|
|
2011
|
|
|
1,460
|
|
|
|
|
|
|
|
|
$
|
103,310
|
|
Rent
expense paid in 2008 and 2007 was $66,350 and $55,998,
respectively.
13.
|
Financial
Instruments
|
Unless
otherwise noted, it is management's opinion that the Company is not exposed to
significant interest, currency or credit risks arising from the financial
instruments.
14.
|
Fair
Value Measurements
|
Effective
January 1, 2008, the Company adopted SFAS 157, except as it applies to the
nonfinancial assets and nonfinancial liabilities subject to FSP SFAS
157-2. SFAS 157 clarifies that fair value is an exit price,
representing the amount that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market
participants. As such, fair value is a market-based measurement that
should be determined based on assumptions that market participants would use in
pricing an asset or a liability. As a basis for considering such
assumptions, SFAS 157 establishes a three-tier value hierarchy, which
prioritizes the inputs used in the valuation methodologies in measuring fair
value:
|
Level
1 -
|
Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
|
|
Level 2 -
|
Include other inputs that are directly or indirectly observable in the marketplace.
|
|
Level 3 -
|
Unobservable inputs which are supported by little or no market activity.
|
The fair value
hierarchy also requires an entity to maximize the use of observable inputs and
minimize the use of unobservable inputs when measuring fair value.
Cash and
short term investment (level 1), accounts receivable, accounts payable-trade,
other payables and accrued expenses and advances from stockholder (level 2) are
reflected in the consolidated balance sheets at carrying value, which
approximates fair value due to the short-term nature of these
instruments.
The fair
value of the financial instruments approximates their carrying values, unless
otherwise noted.
15
.
|
Comparative
Information
|
Certain
figures for the year ended December 31, 2007 have been reclassified to conform
with the current year's financial statement presentation.
ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
On
February 23, 2009, we terminated our engagement with Davis Accounting Group P.C.
as our registered independent auditors. On February 23, 2009, we
retained SF Partnership LLP, Chartered Accountants, to serve as our registered
independent auditors. SF Partnership LLP, Chartered Accountants have
provided an audit report on our consolidated financial statements as of December
31, 2008 included in this Annual Report. .
We
decided to terminate our engagement with Davis Accounting Group
P.C. as part of the efforts to reduce operating expenses of our
Company. This decision was accepted and ratified by our Board of Directors as of
February 23, 2009.
The
reports of Davis Accounting Group P.C. on our consolidated financial statements
for the years ended December 31, 2006, and 2007, contained no adverse opinion or
disclaimer of opinion, nor were they qualified or modified as to audit scope or
accounting principles, except as to uncertainty regarding our ability to
continue as a going concern. In addition, from the date of Davis
Accounting Group P.C.’s engagement, through the date of the termination of the
engagement, we had no disagreements with them on any matter of accounting
principles or practices, financial statement disclosure, or auditing cope or
procedure, which disagreements, if not resolved to their satisfaction, would
have caused them to make reference to the subject matter of the disagreements in
their report. In addition, during that time period, no “reportable
events” occurred, as described in Item 304(a)(1)(iv) of Regulation
S-K.
ITEM
9A[T]. CONTROLS AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures and Changes in Internal Control over
Financial Reporting
Our
management, with the participation of our chief executive officer and chief
financial officer, evaluated the effectiveness of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”)) as of December 31, 2008.
In designing and evaluating our disclosure controls and procedures, management
recognized that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving their objectives
and management necessarily applied its judgment in evaluating the cost-benefit
relationship of possible controls and procedures. Based on this evaluation, our
chief executive officer and chief financial officer concluded that, as of
December 31, 2008, our disclosure controls and procedures were (1) effective in
that they were designed to ensure that material information relating to us is
made known to our chief executive officer and chief financial officer by others
within the Company, as appropriate to allow timely decisions regarding required
disclosures, and (2) effective in that they provide that information required to
be disclosed by us in our reports that we file or submit under the Exchange Act
is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission’s rules and
forms.
Management’s
Responsibility for Financial Statements
Our
management is responsible for the integrity and objectivity of all information
presented in this Annual Report on Form 10-K. The consolidated financial
statements were prepared in conformity with accounting principles generally
accepted in the United States of America and include amounts based on
management’s best estimates and judgments. Management believes the consolidated
financial statements fairly reflect the form and substance of transactions and
that the financial statements fairly represent the Company’s financial position
and results of operations.
Management’s
Report on Internal Control Over Financial Reporting
Management
of the Company is responsible for establishing and maintaining adequate internal
control over financial reporting. Internal control over financial reporting is
defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act
as a process designed by, or under the supervision of, a company’s principal
executive and principal financial officers, or persons performing similar
functions, and effected by a company’s board of directors, management and other
personnel to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. Internal control over
financial reporting includes those policies and procedures
that:
|
•
|
pertain
to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of a company’s
assets;
|
|
|
|
|
•
|
provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that a company’s receipts and expenditures are
being made only in accordance with authorizations of the company’s
management and directors; and
|
|
|
|
|
•
|
provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of a company’s assets that
could have a material effect on the financial
statements.
|
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate. Our management assessed the
effectiveness of our internal control over financial reporting as of December
31, 2008. In making this assessment, management used the criteria set forth by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in
Internal Control — Integrated Framework.
Based on
our assessment, our management has concluded that, as of December 31, 2008, our
internal control over financial reporting was effective based on those
criteria.
This
annual report does not include an attestation report of the Company's registered
public accounting firm regarding internal control over financial reporting.
Management's report was not subject to attestation by the Company's registered
public accounting firm pursuant to temporary rules of the SEC that permit the
company to provide only management's report in this annual report.
Changes
in Internal Control Over Financial Reporting
There
were no changes during the quarter ended December 31, 2008 in our internal
control over financial reporting or in other factors that materially affected,
or are reasonably likely to materially affect, our internal controls over
financial reporting.
ITEM
9B. OTHER INFORMATION
None.
PART
III
ITEM
10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE
GOVERNANCE
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
|
Mordechai
Broudo
|
|
50
|
|
Chairman
of the Board & Secretary
|
Shay
Ben-Asulin
|
|
40
|
|
Director
|
Zach
Sivan
|
|
38
|
|
Chief
Executive Officer
|
Gabriel
Kabazo
|
|
36
|
|
Chief
Financial Officer
|
Asaf
Lewin
|
|
43
|
|
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 Secretary and Chairman of the Board
of Directors since February 2007 and served as our Chief Executive
Officer from June 2001 to February 2007. 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 also served as our Secretary and Chairman of the Board
of Directors from June 2001 until February 2007, 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 ZACH
SIVAN has served as our Chief Executive Officer since February 2007 and has
served as our vice president sales & marketing since January 2002. Mr. Sivan
has a proven track record in sales, business development, distribution channel
development and M&A within the telecoms and enterprise messaging industries.
As vice president business development for Onset Technology, a messaging
software provider, Mr. Sivan led the company's European sales and strategic
alliances with large vendors. His prior background also includes serving as
vice president planning & business development at New E-mail
Communication Systems, and as an advocate at Tunik & Co. Law
firm.
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.
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, although we continue to seek an
expert.
SECTION
16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section
16(a) of the Securities Exchange Act of 1934 requires our directors, executive
officers and any person who owns more than 10% of our common stock (the
"Reporting Persons") to file with the Securities and Exchange Commission reports
of ownership and reports of changes in ownership of our common stock. Under
Securities and Exchange Commission rules, we are to receive copies of all
Section 16(a) forms that these Reporting Persons file. Based solely on our
review of the copies of such forms received by us, or written representations
from the Reporting Persons, we believe that during the fiscal year ended
December 31, 2008, the following transaction were reported late or not
reported:
Name
|
|
Number
of Late
Reports
|
|
|
Number
of Transactions
Not
Reported
on a Timely Basis
|
|
|
Failure
to File
Requested
Forms
|
|
Gabi
Kabazo
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
Mordechai
Broudo
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
Shay
Ben Asulin
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
Zach
Sivan
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
CODE OF
ETHICS
In April
2005, we adopted a code of ethics for our principal executive officer and senior
financial officer. The Code of Ethics requires that senior management avoid
conflicts of interest; maintain the confidentiality of information relating to
our company; engage in transactions in shares of our common stock only in
compliance with applicable laws and regulations and the requirements set forth
in the Code of Ethics; and comply with other requirements which are intended to
ensure that such officers conduct business in an honest and ethical manner and
otherwise act with integrity and in the best interest of our Company. The code
of ethics was filed with the SEC on April 14, 2005 as Exhibit 14 to our Annual
report on Form 10-KSB.
ITEM
11.
EXECUTIVE COMPENSATION
The
following table sets forth the cash and all other compensation paid to our
executive officers and directors during 2006, 2007 and 2008, including
compensation from our subsidiary. 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.
Summary
Compensation Table for 2006, 2007 and 2008
Name
and
principal
position
|
Year
|
|
Salary
$
(1)
|
|
Bonus
$
|
|
Stock
Awards
$
|
|
Option
Awards $ (2)
|
|
Non-equity
Incentive-Plan
Compensation
$
|
|
All
Other Compensation
$
|
|
Total
$
|
|
Zach
Sivan
|
2008
|
|
|
117,915
|
|
—
|
|
|
—
|
|
71,500
|
|
|
—
|
|
—
|
|
|
189,415
|
|
CEO
|
2007
|
|
|
77,685
|
|
—
|
|
|
—
|
|
148,900
|
|
|
—
|
|
—
|
|
|
226,585
|
|
|
2006
|
|
|
39,896
|
|
—
|
|
|
—
|
|
73,575
|
|
|
—
|
|
—
|
|
|
113,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gabi
Kabazo
|
2008
|
|
|
108,000
|
|
—
|
|
|
—
|
|
50,050
|
|
|
—
|
|
—
|
|
|
158,050
|
|
CFO
|
2007
|
|
|
81,000
|
|
—
|
|
|
—
|
|
101,150
|
|
|
—
|
|
—
|
|
|
182,150
|
|
|
2006
|
|
|
50,192
|
|
—
|
|
|
-
|
|
141,902
|
|
|
—
|
|
—
|
|
|
192,094
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mordechai
Broudo
|
2008
|
|
|
109,992
|
|
—
|
|
|
—
|
|
100,100
|
|
|
—
|
|
—
|
|
|
210,092
|
|
Chairman
|
2007
|
|
|
109,992
|
|
—
|
|
|
—
|
|
202,300
|
|
|
—
|
|
—
|
|
|
312,292
|
|
|
2006
|
|
|
109,992
|
|
—
|
|
|
—
|
|
272,000
|
|
|
—
|
|
—
|
|
|
381,992
|
|
(1) The
amounts shown for Mr. Broudo include $109,992 accrued but not paid for each of
2006, 2007 and 2008 for his services as Chairman..He did not receive any
additional compensation for his other duties as a director.
(2) The amounts shown represent the grant date fair market value of
the options issued and based on the Black Scholes Option Pricing Model as
described in Note 7 of the financial statements.
Director
Compensation
The
following table sets forth information regarding the compensation paid to Shay
Ben Asulin, our sole non-employee director, who served as our director during
the 2008 fiscal year. Compensation to Mordechai Broudo for his services as a
director is included in the Summary Compensation Table:
|
|
Fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earned
|
|
|
|
|
|
|
|
Nonqualified
|
|
|
|
|
|
|
|
or
Paid
|
|
|
|
|
|
Non-Equity
|
|
Deferred
|
|
|
|
|
|
|
|
in
|
|
Stock
|
|
Option
|
|
Incentive
Plan
|
|
Compensation
|
|
All
Other
|
|
|
|
|
|
Cash
|
|
Awards
|
|
Awards
|
|
Compensation
|
|
Earnings
|
|
Compensation
|
|
Total
|
|
Name
|
|
($)
|
|
($)
|
|
($)(1)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
Shay
Ben Asulin
|
|
|
30,000
|
|
—
|
|
|
7,150
|
|
—
|
|
|
—
|
|
—
|
|
|
37,150
|
|
(1)
|
The
amount shown represents the grant data fair market value of the options
issued and based on the Black Scholes Option Pricing Model as described in
Note 7 of the financial statements.
|
OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END TABLE
|
|
|
|
Option Awards
|
Name
|
|
Number of
|
|
Number of
|
|
Equity
Incentive
|
|
Option
|
|
Option
|
|
|
Securities
|
|
Securities
|
|
Plan Awards:
|
|
Exercise
|
|
Expiration
|
|
|
Underlying
|
|
Underlying
|
|
Number of
|
|
Price
|
|
Date
|
|
|
Unexercised
|
|
Unexercised
|
|
Securities
|
|
($)
|
|
|
|
|
Options
|
|
Options
|
|
Underlying
|
|
|
|
|
|
|
(#)
|
|
(#)
|
|
Unexercised
|
|
|
|
|
|
|
(Exercisable)
|
|
(Unexercisable)
|
|
Unearned
|
|
|
|
|
|
|
|
|
|
|
Options (#)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Zach
Sivan
|
|
5,000,000
|
|
|
-
|
|
-
|
|
|
0.04
|
|
12/29/2012
|
CEO
|
(1)
|
437,500
|
|
|
1,312,500
|
|
—
|
|
|
0.03
|
|
12/14/2015
|
|
(2)
|
1,406,250
|
|
|
1,093,750
|
|
—
|
|
|
0.03
|
|
8/14/2014
|
|
(3)
|
546,875
|
|
|
703,125
|
|
—
|
|
|
0.03
|
|
1/16/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gabi
Kabazo
|
|
3,500,000
|
|
|
-
|
|
-
|
|
|
0.04
|
|
12/29/2012
|
CFO
|
(4)
|
437,500
|
|
|
1,312,500
|
|
—
|
|
|
0.03
|
|
12/14/2015
|
|
(5)
|
1,271,250
|
|
|
988,750
|
|
—
|
|
|
0.03
|
|
8/14/2014
|
|
(6)
|
1,250,000
|
|
|
1,250,000
|
|
—
|
|
|
0.03
|
|
11/27/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mordechai
Broudo
|
|
7,000,000
|
|
|
-
|
|
-
|
|
|
0.04
|
|
12/29/2012
|
Chairman
|
(7)
|
5,000,000
|
|
|
5,000,000
|
|
—
|
|
|
0.03
|
|
11/27/2014
|
|
(8)
|
875,000
|
|
|
2,625,000
|
|
—
|
|
|
0.03
|
|
12/14/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shay
Ben Asulin
|
(9)
|
437,500
|
|
|
1,312,500
|
|
—
|
|
|
0.03
|
|
12/14/2015
|
Director
|
|
500,000
|
|
|
-
|
|
—
|
|
|
0.04
|
|
12/29/2012
|
(1)
|
Out
of the 1,312,500
unexercisable
stock
options, 437,500 will vest on December 14, 2009, 437,500 will vest on
December 14, 2010 and 437,500 will vest on December 14,
2011.
|
(2)
|
Out
of the 1,093,750
unexercisable
stock
options, 468,750 will vest on August 14, 2009 and 625,000 will vest on
August 14, 2010.
|
(3)
|
Out
of the 703,125
unexercisable
stock
options, 390,625 will vest on January 16, 2010 and 312,500 will vest on
January 16, 2011.
|
(4)
|
Out
of the 1,312,500
unexercisable
stock
options, 437,500 will vest on December 14, 2009, 437,500 will vest on
December 14, 2010 and 437,500 will vest on December 14,
2011.
|
(5)
|
Out
of the 988,750
unexercisable
stock
options, 423,750 will vest on August 14, 2009 and 565,000 will vest on
August 14, 2010.
|
(6)
|
Out
of the 1,250,000
unexercisable
stock
options, 625,000 will vest on November 27, 2009 and 625,000 will vest on
November 27, 2010.
|
(7)
|
Out
of the 5,000,000
unexercisable
stock
options, 2,500,000 will vest on November 27, 2009 and 2,500,000 will vest
on November 27, 2010.
|
(8)
|
Out
of the 2,625,000
unexercisable
stock
options, 875,000 will vest on December 14, 2009, 875,000 will vest on
December 14, 2010 and 875,000 will vest on December 14,
2011.
|
(9)
|
Out
of the 1,312,500
unexercisable
stock
options, 437,500 will vest on December 14, 2009, 437,500 will vest on
December 14, 2010 and 437,500 will vest on December 14,
2011.
|
|
|
Stock Awards
|
Name
|
|
Number
|
|
Market
|
|
Equity Incentive
|
|
Equity Incentive
|
|
|
of Shares
|
|
Value of Shares
|
|
Plan Awards:
|
|
Plan Awards:
|
|
|
or
|
|
or Units of
|
|
Number of
Unearned
|
|
Market or Payout
|
|
|
Units
|
|
Stock
|
|
Shares, Units or
Other
|
|
Value of
Unearned
|
|
|
of Stock
|
|
That
|
|
Rights
|
|
Shares, Units or
|
|
|
That
|
|
Have
|
|
That Have Not
Vested
|
|
Other Rights That
Have
|
|
|
Have
|
|
Not
|
|
(#)($)
|
|
Not Vested
|
|
|
Not
|
|
Vested ($)
|
|
|
|
|
|
|
Vested (#)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Zach
Sivan
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
CEO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gabi
Kabazo
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
CFO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mordechai
Broudo
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
Chairman
|
|
|
|
|
|
|
|
|
|
|
OPTION
GRANTS IN LAST FISCAL YEAR
During
the year ended December 31, 2008, options to purchase our shares of common stock
were issued to the following officers, directors as well as to certain employees
of m-Wise (and its subsidiaries), in the amounts listed next to their names
pursuant to the Israel Stock Option Plan (2003) and the International Share
Option Plan (2003):
International
Share Option Plan (2003):
Mati
Broudo – 7,000,000 options
Gabriel Kabazo – 3,500,000 options
Shay
Ben-Asulin – 500,000 options
Israel
Stock Option Plan (2003):
Zach
Sivan – 5,000,000 options
Additionally,
an aggregate of 900,000 options were issued pursuant to the International Share
Option Plan (2003) and 3,500,000 options were issued pursuant to the Israel
Stock Option Plan (2003) to other employees.
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.
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, 2005 or in 2006.
During
the year ended December 31, 2007, options to purchase our shares of common stock
were issued to the following officers, directors as well as to certain employees
of m-Wise (and its subsidiaries), in the amounts listed next to their names
pursuant to the Israel Stock Option Plan (2003) and the International Share
Option Plan (2003):
International
Share Option Plan (2003):
Mati
Broudo - 3,500,000 options
Shay
Ben-Asulin - 1,750,000 options
Israel
Stock Option Plan (2003):
Gabriel
Kabazo - 1,750,000 options
Zach
Sivan - 3,000,000 options
Additionally,
an aggregate of 500,000 options were issued pursuant to the International Share
Option Plan (2003) and 2,860,000 options were issued pursuant to the Israel
Stock Option Plan (2003) to other employees.
ITEM
12. SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
PRINCIPAL STOCKHOLDERS AND
HOLDINGS OF MANAGEMENT
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 139,322,145 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.
NAME
AND ADDRESS
|
|
SHARES
OWNED
|
|
|
PERCENTAGE
|
|
|
|
|
|
|
|
|
Shay
Ben-Asulin(1)
|
|
|
16,712,394
|
|
|
|
11.9
|
%
|
Mordechai
Broudo(2)
|
|
|
34,084,580
|
|
|
|
22.2
|
|
Miretzky
Holdings Ltd.(3)
|
|
|
32,423,392
|
|
|
|
22.6
|
|
Gabriel
Kabazo (4)
|
|
|
10,556,678
|
|
|
|
7.2
|
|
Asaf
Lewin(5)
|
|
|
5,055,017
|
|
|
|
3.6
|
|
Inter-content
Development
|
|
|
|
|
|
|
|
|
for
the Internet Ltd. (6)
|
|
|
8,513,841
|
|
|
|
6.1
|
|
DEP
Technology Holdings Ltd.(7)
|
|
|
8,799,407
|
|
|
|
6.1
|
|
Zach
Sivan(8)
|
|
|
12,827,514
|
|
|
|
8.7
|
|
|
|
|
|
|
|
|
|
|
All
officers and directors as a
|
|
|
|
|
|
|
|
|
group
(5 persons) (1)(2)(4)(5)(8)
|
|
|
79,236,183
|
|
|
|
53.6
|
%
|
(1)
Includes an aggregate of 2,250,000 options to purchase shares of common stock,
granted to Shay Ben-Asulin. 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)
Includes an aggregate of 20,500,000 options to purchase shares of
common stock, granted to Mordechai Broudo. 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)
Includes an aggregate of 10,010,000 options to
purchase shares of common stock, granted to Gabriel Kabazo. The
address of Gabriel Kabazo is c/o m-Wise.
(5) 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 DEP Technology Holdings Ltd. The address of DEP Technology Holdings
Ltd. Is Triangular Tower, 42nd Floor, 3 Azrieli Center, Tel Aviv 67023,
Israel.
(8)
Includes an aggregate of 10,500,000 options to
purchase shares of common stock, granted to Zach Sivan. The address
of Zach Sivan is c/o m-Wise.
ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE
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 our Israeli subsidiary, m-Wise Ltd. The License Agreements
provide for the grant of a non-exclusive, irrevocable adnoun-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, 2005, 2006, 2007 and 2008 to our Israeli subsidiary were $1,522,000,
$1,760,000, $665,000, $683,964, $1,161,113, 1,085,824, $1,528,781 and
$1,689,278, respectively.
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.
(“DEP”). During 2002, Syntek Capital and DEP, then the only 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 of
our 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 December 31, 2005, we had to pay $199,000 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 Promissory 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. 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.
.
As of
December 31, 2008, all the 5,744,074 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.
All
the 5,744,074 shares were transferred from the founders to DEP Technology
Holdings Ltd.
ITEM
14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The
following fees were paid to SF Partnership LLP for services rendered in 2008 and
2007
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
(1) Audit
Fees
|
|
$
|
44,738
|
|
|
$
|
36,517
|
|
|
|
|
|
|
|
|
|
|
(2) Audit
Related Fees
|
|
|
—-
|
|
|
|
—-
|
|
|
|
|
|
|
|
|
|
|
(3) Tax
Fees
|
|
|
—-
|
|
|
|
—-
|
|
|
|
|
|
|
|
|
|
|
(4) All
Other Fees
|
|
|
—-
|
|
|
|
—-
|
|
Audit
fees are comprised of the fees charged in conjunction with the audit of the
Company's annual financial statements, review of the Company's annual reports
filed with the Securities and Exchange Commission on Form 10-K/10-KSB, and
review of the information contained in the Company's quarterly filings with the
Securities and Exchange Commission on Form 10-Q/10-QSB.
PART
IV
ITEM
15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Exhibit
|
|
|
Number
|
|
Description
|
|
|
|
3.1
|
|
Amended
and Restated Certificate of Incorporation
(2)
|
3.2
|
|
Bylaws
(2)
|
4.1
|
|
Purchase
and registration rights agreement and schedule of details
(2)
|
10.1
|
|
Amended
and Restated Employment Agreement with Mordechai Broudo
(2)
|
10.2
|
|
Amendment
to Amended and Restated Employment Agreement with Mordechai Broudo
(2)
|
10.3
|
|
Amended
and Restated Employment Agreement with Shay Ben-Asulin
(2)
|
10.4
|
|
Amendment
to Amended and Restated Employment Agreement with Shay Ben-Asulin
(2)
|
10.5
|
|
Employment
Agreement, Gabriel Kabazo
(2)
|
10.6
|
|
Confidentiality
Rider to Gabriel Kabazo Employment Agreement
(2)
|
10.7
|
|
Employment
Agreement Asaf Lewin
(2)
|
10.8
|
|
2003
International Share Option Plan
(2)
|
10.9
|
|
Form
of Option Agreement, 2003 International Share Option Plan
(2)
|
10.10
|
|
2001
International Share Option Plan
(2)
|
10.11
|
|
Form
of Option Agreement, 2001 International Share Option Plan
(2)
|
10.12
|
|
2003
Israel Stock Option Plan
(2)
|
10.13
|
|
Form
of Option Agreement, 2003 Israel Stock Option Plan
(2)
|
10.14
|
|
2001
Israel Share Option Plan
(2)
|
10.15
|
|
Form
of Option Agreement, 2001 Israel Share Option Plan
(2)
|
10.16
|
|
Investors'
Rights Agreement dated January 11, 2001
(2)
|
10.17
|
|
Stockholders
Agreement
(2)
|
10.18
|
|
Agreement
for Supply of Software and Related Services dated October 14, 2002, by and
between i Touch plc and m-Wise, Inc.
(2)
|
10.19
|
|
Purchase
Agreement between m-Wise, Inc. and Comtrend Corporation dated May 22,
2002
(2)
|
10.20
|
|
Amended
and Restated Consulting agreement between Hilltek Investments Limited and
m-Wise dated November 13, 2003
(2)
|
10.21
|
|
Consulting
Agreement between Hilltek Investments Limited and m-Wise dated June 24,
2003, subsequently amended (see Exhibit 10.20 above)
(2)
|
10.22
|
|
Amendment
to Investors' Rights Agreement dated October 2, 2003
(2)
|
10.23
|
|
Appendices
to 2003 Israel Stock Option Plan
(2)
|
10.24
|
|
Appendices
to 2001 Israel Share Option Plan
(2)
|
10.25
|
|
Credit
Line Agreement between m-Wise, Inc. and Miretzky Holdings, Limited dated
January 25, 2004
(2)
|
10.26
|
|
Termination
and Release Agreement by and among the Company and Syntek capital AG.
(3)
|
10.27
|
|
Termination
and Release Agreement dated February 2, 2006, by and among the Company and
DEP Technology Holdings Ltd.
(4)
|
14
|
|
Code
of Ethics
(5)
|
21.1
|
|
List
of Subsidiaries
(2)
|
31.1
|
|
Certification
of Chief Executive Officer pursuant to Securities Exchange Act Rule
13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
(1)
|
31.2
|
|
Certification
of Chief Financial Officer pursuant to Securities Exchange Act Rule
13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
(1)
|
32.1
|
|
Certification
of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(1)
|
32.2
|
|
Certification
of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(1)
|
(1) Filed
herewith.
(2) Incorporated
by reference from the registration statement filed with the Securities and
Exchange Commission Registration Statement on Form SB-2, as amended (Reg. No.
333-106160).
(3) Incorporated
by reference to Exhibit 10.1 of the Current Report on Form 8-K filed on January
13, 2006.
(4) Incorporated
by reference to Exhibit 10.1 of the Current Report on Form 8-K filed on February
7, 2006.
(5) Incorporated
by reference to Exhibit 14 of the Annual Report on Form 10-KSB filed on April
14, 2005.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
|
m-Wise,
INC.
|
|
|
Date:
March 31, 2009
|
By:
|
/s/
Mordechai Broudo
|
|
|
Mordechai
Broudo
Chairman
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
March
31, 2009
|
By:
|
/s/ Mordechai
Broudo
|
|
|
Mordechai
Broudo
|
|
|
Chairman
|
|
|
|
March
31, 2009
|
By:
|
/s/ Gabriel Kabazo
|
|
|
Gabriel
Kabazo
|
|
|
Chief
Financial Officer
(
principal
financial officer
and
principal accounting
officer)
|
March
31, 2009
|
By:
|
/s/ Zach Sivan
|
|
|
Zach
Sivan
|
|
|
Chief
Executive Officer
|
|
|
|
March
31, 2009
|
By:
|
/s/ Shay Ben Asulin
|
|
|
Shay
Ben Asulin
|
|
|
Director
|
|
|
|
EXHIBIT
INDEX
Exhibit
|
|
|
Number
|
|
Description
|
|
|
|
3.1
|
|
Amended
and Restated Certificate of Incorporation
(2)
|
3.2
|
|
Bylaws
(2)
|
4.1
|
|
Purchase
and registration rights agreement and schedule of details
(2)
|
10.1
|
|
Amended
and Restated Employment Agreement with Mordechai Broudo
(2)
|
10.2
|
|
Amendment
to Amended and Restated Employment Agreement with Mordechai Broudo
(2)
|
10.3
|
|
Amended
and Restated Employment Agreement with Shay Ben-Asulin
(2)
|
10.4
|
|
Amendment
to Amended and Restated Employment Agreement with Shay Ben-Asulin
(2)
|
10.5
|
|
Employment
Agreement, Gabriel Kabazo
(2)
|
10.6
|
|
Confidentiality
Rider to Gabriel Kabazo Employment Agreement
(2)
|
10.7
|
|
Employment
Agreement Asaf Lewin
(2)
|
10.8
|
|
2003
International Share Option Plan
(2)
|
10.9
|
|
Form
of Option Agreement, 2003 International Share Option Plan
(2)
|
10.10
|
|
2001
International Share Option Plan
(2)
|
10.11
|
|
Form
of Option Agreement, 2001 International Share Option Plan
(2)
|
10.12
|
|
2003
Israel Stock Option Plan
(2)
|
10.13
|
|
Form
of Option Agreement, 2003 Israel Stock Option Plan
(2)
|
10.14
|
|
2001
Israel Share Option Plan
(2)
|
10.15
|
|
Form
of Option Agreement, 2001 Israel Share Option Plan
(2)
|
10.16
|
|
Investors'
Rights Agreement dated January 11, 2001
(2)
|
10.17
|
|
Stockholders
Agreement
(2)
|
10.18
|
|
Agreement
for Supply of Software and Related Services dated October 14, 2002, by and
between i Touch plc and m-Wise, Inc.
(2)
|
10.19
|
|
Purchase
Agreement between m-Wise, Inc. and Comtrend Corporation dated May 22,
2002
(2)
|
10.20
|
|
Amended
and Restated Consulting agreement between Hilltek Investments Limited and
m-Wise dated November 13, 2003
(2)
|
10.21
|
|
Consulting
Agreement between Hilltek Investments Limited and m-Wise dated June 24,
2003, subsequently amended (see Exhibit 10.20 above)
(2)
|
10.22
|
|
Amendment
to Investors' Rights Agreement dated October 2, 2003
(2)
|
10.23
|
|
Appendices
to 2003 Israel Stock Option Plan
(2)
|
10.24
|
|
Appendices
to 2001 Israel Share Option Plan
(2)
|
10.25
|
|
Credit
Line Agreement between m-Wise, Inc. and Miretzky Holdings, Limited dated
January 25, 2004
(2)
|
10.26
|
|
Termination
and Release Agreement by and among the Company and Syntek capital AG.
(3)
|
10.27
|
|
Termination
and Release Agreement dated February 2, 2006, by and among the Company and
DEP Technology Holdings Ltd.
(4)
|
|
|
|
14
|
|
Code
of Ethics
(5)
|
21.1
|
|
List
of Subsidiaries
(2)
|
31.1
|
|
Certification
of Chief Executive Officer pursuant to Securities Exchange Act Rule
13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
(1)
|
31.2
|
|
Certification
of Chief Financial Officer pursuant to Securities Exchange Act Rule
13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
(1)
|
32.1
|
|
Certification
of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(1)
|
32.2
|
|
Certification
of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(1)
|
(1) Filed
herewith.
(2) Incorporated
by reference from the registration statement filed with the Securities and
Exchange Commission Registration Statement on Form SB-2, as amended (Reg. No.
333-106160).
(3) Incorporated
by reference to Exhibit 10.1 of the Current Report on Form 8-K filed on January
13, 2006.
(4) Incorporated
by reference to Exhibit 10.1 of the Current Report on Form 8-K filed on February
7, 2006.
(5) Incorporated
by reference to Exhibit 14 of the Annual Report on Form 10-KSB filed on April
14, 2005.