SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 2003
MOBILEPRO CORP.
(Exact Name of Registrant as Specified in Charter)
Delaware 002-97869-D 87-0419571
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(State of Incorporation) (Commission File Number) (IRS Employer
Identification No.)
30 West Gude Drive, Suite 480
Rockville , MD 20850
(Address of principal executive offices) (Zip Code)
(301) 315-9040
(Registrant's telephone number)
Securities registered pursuant to section 12(b) of the Act:
TITLE OF CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
-------------- -----------------------------------------
NONE NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
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(TITLE OF CLASS)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ].
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy of information
statements incorporated by reference in Part 10-KSB or any amendment to this
Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year: $0.
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock as of a specified date within the past 60
days: As of July 11, 2003, the aggregate market price of the voting stock held
by non-affiliates was approximately $1,233,559.
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of July 11, 2003, the Company had
outstanding 72,639,420 shares of its common stock, par value $0.001.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
TABLE OF CONTENTS
ITEM NUMBER AND CAPTION PAGE
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PART I............................................................................................................4
ITEM 1. DESCRIPTION OF BUSINESS............................................................................4
BUSINESS....................................................................................................4
CORPORATE HISTORY...........................................................................................6
BUSINESS STRATEGY BEFORE THE MOBILEPRO MERGER...............................................................7
BUSINESS STRATEGY AFTER THE MOBILEPRO MERGER AND BEFORE THE NEOREACH MERGER.................................7
BUSINESS STRATEGY AFTER THE NEOREACH MERGER.................................................................8
MARKET/INDUSTRY PROJECTIONS.................................................................................9
FINANCIAL FUNDING NEEDS AND USE OF FUNDS...................................................................10
PRODUCTS AND SERVICES......................................................................................10
MARKETING AND COMPETITION..................................................................................11
RESEACH AND DEVELOPMENT....................................................................................11
INTELLECTUAL PROPERTY......................................................................................12
GOVERNMENT APPROVALS.......................................................................................12
RECENT DEVELOPMENTS........................................................................................12
ITEM 2. DESCRIPTION OF PROPERTY...........................................................................12
ITEM 3. LEGAL PROCEEDINGS.................................................................................13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...............................................13
PART II..........................................................................................................15
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS..........................................15
MARKET FOR COMMON STOCK....................................................................................15
TRANSFER AGENT.............................................................................................15
DIVIDEND POLICY............................................................................................16
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS.........................................17
RECENT SALES OF SECURITIES.................................................................................17
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.........................................22
FINANCIAL CONDITION AND CHANGES IN FINANCIAL CONDITION.....................................................22
LIQUIDITY AND CAPITAL RESOURCES............................................................................22
NEW ACCOUNTING PRONOUNCEMENTS..............................................................................23
INFLATION..................................................................................................23
PLAN OF OPERATION..........................................................................................23
EMPLOYEES..................................................................................................26
FORWARD-LOOKING INFORMATION................................................................................26
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.......................................................31
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE..............39
2
Part III.........................................................................................................39
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE
EXCHANGE ACT..................................................................................................39
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE....................................................41
ITEM 10. EXECUTIVE COMPENSATION.........................................................................42
COMPENSATION OF DIRECTORS..................................................................................43
OTHER COMPENSATION ARRANGEMENTS............................................................................43
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.................................43
PRINCIPAL STOCKHOLDERS.....................................................................................43
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................................................45
INVESTORS RIGHTS AGREEMENT.................................................................................46
NEOREACH PURCHASE AGREEMENT................................................................................47
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K...............................................................47
a) Exhibits................................................................................................47
b) Reports on Form 8-K.....................................................................................49
3
PART I
ITEM 1. DESCRIPTION OF BUSINESS
BUSINESS
The Business Background
The generation of digital wireless networks primarily in use today for cell
phone services is often referred to as the second generation services. The
services are primarily for voice services and for some limited low-speed data
transmission services. The features of the third generation wireless technology
far surpass the second generation services and include voice and data services,
access to high-speed Internet and intranet applications, such as corporate
private data networks, interactive e-mail and data exchange, full motion video
transmission e.g. video movies or video conferences - all delivered to a mobile
device such as a cellular phone, Personal Digital Assistant ("PDA") or laptop
computer, and global roaming of all the features, i.e. the services can be used
in many different countries around the world. We believe that the demand for
wireless networks supporting faster information-rich applications will increase,
pushing the wireless communications industry toward a generation of services
that are expected to result in higher productivity, greater transmission speed
and seamless access around the world.
The current second generation wireless networks are based on different
communications standards with the Global System for Mobile Communication ("GSM")
being the most widely adopted standard. That standard has also been adopted in
the United States by larger wireless networks such as AT&T Wireless and
T-Mobile. The U.S. company Qualcomm has developed an alternative standard called
Code Division Multiple Access ("CDMA"). CDMA networks exist primarily in the
United States, Korea and some countries in South America.
The various third generation wireless networks being built around the world are
based on primarily two different network standards: Wideband - Code Division
Multiple Access ("W-CDMA") that is an extension of the widely adopted GSM
standard and CDMA2000 that is an extension of the CDMA standard. The selection
of a network standard by different operators in different countries depends
largely on government policies regarding spectrum availability and licensing
conditions. As a result we expect that third generation services will be adopted
at at different rates in different regions of the world. Europe and Japan have
network operators with systems that are based on W-CDMA while operators in the
United States and Korea will deploy systems that are based on both third
generation standards. Wireless operators in Europe, Japan and Korea have
recently started to roll out third generation services, while operators in the
United States are expected to begin to roll out true nation-wide third
generation services in late 2003 or 2004.
A wireless network consists of three major elements; first, the user equipment,
i.e. the handheld device that could be a cell phone, also called a handset, PDA
or a wireless laptop computer; second, the radio access network, i.e. all the
base stations with transmit and receive equipment and transmit towers to provide
network coverage; and the core network, that includes the telephone and data
switches for connection of the calls, the computer systems to control the
operation of the network, and the billing and support of the customers using the
networks.
To provide a complete third generation network across a typical geographical
area, three types of base stations are normally deployed: those that provide a
signal over a very large area, such as a whole city, those that provide a signal
over a medium size area, such as one community in a city, and those that provide
a signal over a small area, such as in one office building in the community.
The Company
Mobilepro is a development stage company whose business focus has been directed
towards developing solutions that are expected to support the third generation
digital wireless network market through its wholly-owned subsidiary, NeoReach
Inc. NeoReach intends to design, develop and manufacture third generation modem
and data processing technologies in integrated circuits and associated prototype
or demonstration printed circuit boards for
o third generation network base stations and,
4
o third generation handsets and other user equipment.
NeoReach intends to exclusively focus its products to be used for the medium and
small area Base Stations since the market size and required quantity of these
units is expected to be much greater than for the large area Base Stations.
In addition, NeoReach also intends to develop miniature radio frequency
transceiver integrated circuits for the wireless markets, to include both the
third generation base stations and the handsets. These integrated circuits are
anticipated to be based on low-power technologies believed to be an important
feature considering the small battery in a consumer cell phone. Power is only
consumed in case the circuit actually is in operation.
NeoReach intends to initially focus its efforts on developing the technology for
the third generation network base stations in the form of prototype or
demonstration printed circuit boards. Upon the successful completion of these
boards to include various testing of functions and demonstrations, we intend to
develop semiconductor integrated circuits with the technology embedded. In some
cases, we also intend to sell the prototype or demonstration printed circuit
board to potential customers.
Handsets - each third generation compatible handset manufactured requires a
modem as one of its components in order to communicate with the various base
stations in the wireless network. NeoReach intends to develop and provide the
modem solution as a semiconductor integrated circuit installed on a printed
circuit board inside of the handset. NeoReach also intends to develop and
provide the complete radio frequency transceiver as a semiconductor integrated
circuit.
Our state-of-the-art modem solutions are anticipated to support the third
generation wireless communications systems as defined by the worldwide W-CDMA
standard and, in a later development stage, the GSM standard. The W-CDMA
specifications standard has been defined such that the base station modem will
properly communicate with the corresponding handset modems.
The NeoReach modem solutions are intended to be developed to provide key
competitive advantages in the market place:
1) The base station modem is expected to be designed using two different types
of transmission systems as defined by the W-CDMA standards. We believe that this
is ideal for transmitting both voice and data.
2) NeoReach intends to offer a dense multi-channel modem with up to 64 user
channels expanding in later versions to up to as many as 256 user channels. This
may allow operators to service more customers with the same base station. The
number of user channels is primarily determined by how complex the semiconductor
integrated circuit is. We intend to use commercially available integrated
circuits which have a technology that we believe currently allows up to 64 user
channels while we believe that the next generation of the commercially available
integrated circuits that are anticipated to be made available in year 2004 are
expected to provide adequate increased capacity. These commercially available
integrated circuits may be used for many different applications, one being our
anticipated use for the base station modem.
3) We believe that our modem theoretically may offer a coverage capacity as a
theoretical target of three miles vs. the typical 0.6 miles, thereby enabling
operators to service larger areas using medium and small area Base Stations
instead of installing a more expensive large area Base Station. The theoretical
coverage capacity is determined by a design choice for the modem that includes
receiving and processing signals from handsets that are up to three miles away
from the base station. This distance is determined by the maximum time it takes
the signal to travel that distance. We believe that through our research and
development activities and through theoretical modeling that our design may
achieve the theoretical target capacity. This theoretical target has also been
reviewed together with W-CDMA wireless experts from other companies.
4) Flexible Architecture that we believe may enable easy upgrades and
modifications, thereby lengthening product life.
NeoReach has signed a Memorandum of Understanding with RF Microelectronics
Laboratory of Information and Communications University of South Korea for the
co-development of Radio Frequency integrated circuits. We have
5
also discussed the development jointly with RF Microelectronics Laboratory of a
ZigBee RF CMOS chip as a complement or alternative initial RF CMOS chip. This
memorandum of understanding is non-binding on either party and additional
agreements are necessary before the parties may collaborate together.
NeoReach intends to use third-party manufacturing for its products. Because of
this approach, the Company does not expect to make any significant purchase of
plants or equipment. The Company has initiated some preliminary discussions with
contract manufacturers for product development, prototyping and production
agreements for its planned integrated circuit and modems systems. None of these
agreements have been finalized as of this date and no assurances can be given
that any agreements will be forthcoming.
NeoReach has been granted five patents and has one patent applications pending
for its W-CDMA smart antenna processing approaches. Smart antennae technology
combines multiple antenna elements with signal processing to optimize its
radiation and/or reception pattern automatically in response to the signal
environment. We intend to pursue other patents to protect our intellectual
property rights in various modem design and implementation areas.
In addition to the development of advanced radio frequency and modem solutions
for the wireless market, we also intend, as appropriate, to leverage our
expertise into delivering wireless applications and systems solutions for the
global enterprise markets to include wireless local area networks and the resale
of existing wireless software applications. We also intend, as appropriate, to
provide specialized radio frequency design services for turnkey wireless systems
and wireless telemetry systems. This may include the acquisition of technologies
or operations to offer us an entry into these areas of wireless applications,
systems solutions or services.
The Company is located at Mobilepro Corp., 30 West Gude Drive, Suite 480,
Rockville, Maryland 20850.
CORPORATE HISTORY
Mobilepro is a development stage company and currently trades on the Bulletin
Board under the stock symbol "MOBL". The following is a brief history of the
Company.
Mobilepro was incorporated on July 14, 2000 and was focused on the integration
and marketing of complete mobile information solutions that were intended to
satisfy the needs of mobile professionals.
The company with which Mobilepro merged in June of 2001 was first organized in
June 1988 as Bud Corp. Bud Corp. changed its name to Tecon, Inc. in July 1992,
then to Buyit.com, Inc. in May 1999 and finally to CraftClick.com, Inc. on
January 4, 2000. CraftClick's business strategy and focus was intended to become
the premier destination for buyers and sellers of arts and crafts products and
supplies through the use of Internet websites. Due to the lack of adequate
funding and the lack of generating enough Internet traffic to achieve
profitability, CraftClick began to cease business operations in October 2000.
CraftClick subsequently disposed of substantially all of its assets in February
2001 when secured creditors foreclosed on outstanding loans made to CraftClick.
In April 2001, CraftClick reorganized pursuant to a Plan of Merger wherein its
domicile was changed from Utah to Delaware, and the common stock was subject to
a reverse split on the basis of 1 new share for every 100 shares outstanding. On
June 6, 2001, CraftClick and Mobilepro entered into an Agreement and Plan of
Merger dated June 1, 2001 ("CraftClick Merger Agreement"). Under the CraftClick
Merger Agreement, Mobilepro merged with and into CraftClick, with CraftClick
being the surviving corporation. On July 9, 2001, the name of the surviving
corporation was changed to Mobilepro Corp.
On November 19, 2001, Mobilepro implemented a 200 for 1 reverse stock split of
its Common Stock. There were no fractional shares issued. Concurrent with the
reverse stock split, Mobilepro issued 3,000,000 new shares of Common Stock to
Dungavel, Inc., pursuant to an Investor Rights Agreement, which the Company
entered into with Dungavel on June 1, 2001 as part of the merger with
CraftClick.
6
On February 19, 2002, the Company entered into a Stock Purchase Agreement with
Mr. Daniel Lozinsky and Dungavel, Inc., and another Stock Purchase Agreement
with Mr. Daniel Lozinsky, Ms. Joann Smith and Mr. Scott Smith. Dungavel, Inc.,
Ms. Joann Smith and Mr. Scott Smith were all significant stockholders of the
Company at the time. Pursuant to these two stock purchase agreements, Mr.
Lozinsky acquired an aggregate of 2,057,733 shares of Mobilepro Common Stock,
representing approximately 64.7% of the Company's voting securities at that
time. On February 28, 2002, Mr. Scott Smith resigned as the President, CEO and
Chairman of the Company, and Mr. Lozinsky became the President and CEO of the
Company. On May 10, 2002, Mr. Arne Dunhem became the Company's President, CEO
and Chairman and Mr. Lozinsky became our Senior Vice President.
On March 21, 2002, Mobilepro entered into an Agreement and Plan of Merger with
NeoReach, Inc., a private Delaware company, pursuant to which a newly-formed,
wholly-owned subsidiary of Mobilepro merged into NeoReach in a tax-free
transaction. NeoReach is a development stage company designing state of the art
modem solutions to support third generation (third generation) wireless
communications systems. The merger was consummated on April 23, 2002. As a
result of the merger, NeoReach is now a wholly-owned subsidiary of Mobilepro. On
April 23, 2002, the Company issued 12,352,129 shares of its common stock in a
one-for-one tax-free stock exchange to the holders of NeoReach's common stock
pursuant to the Agreement. This was a cash-less transaction and there were no
payments or finder's fees involved. The Board of Directors determined the
consideration to be a fair compensation to the NeoReach shareholders. The
issuance of the shares were valued at a fair value of $ 6,546,628, based on the
last trading price of $0.53 and assuming there was actual active trading of our
stock at that time. The valuation of NeoReach in the merger agreement was based
on several factors, as described in the table below, including that over
thirty-three man-years of development efforts had been accumulated for achieving
the prototype third generation modem boards for the base station applications,
that a management team and engineering team were in place, that office and
laboratory facilities were in place, that six patents had been filed or were
already approved, and that contacts and relationships had already been
established with potential customers both in the United States and Korea. The
value of intangible assets and goodwill, such as contacts, relationships and
potential customers, has not been included in the table below since it is
difficult to estimate a real value, although it could be very significant, on
these items. The transaction was concluded following arms-length negotiations.
The Company believes the issuance of the stock to be exempt from registration
under Section 4(2) of the Securities Act. The related parties from both the
Company and NeoReach were Messrs. Daniel Lozinsky, Arne Dunhem, Scott Smith and
Ken Min. Mr. Daniel Lozinsky who was a controlling stockholder of Mobilepro also
owned approximately 32.5% of NeoReach.
Approximate valuation of Neoreach, Inc.
Item Approx. Value
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Personnel, engineering man effort, 33 man-years $4.5 M
Patents, Awarded, Allowed, Pending, 6 each $1.8 M
Tangible Assets $0.2 M
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Total Valuation (Excluding Intangible Assets and Goodwill) $6.5 M
BUSINESS STRATEGY BEFORE THE MOBILEPRO MERGER
CraftClick was formed to be the premier arts and crafts destination on the
Internet. We intended to build an online arts and crafts community that offered
amateur and professional craftspeople worldwide a wealth of arts and crafts
related content. We acquired 16 online arts and crafts related web sites. We
shipped our products through a fulfillment center located in the Midwestern
United States. Orders placed with us were transmitted electronically to our
fulfillment center using EDI protocol. Our fulfillment center then shipped the
order directly to the end customer.
While our sales increased substantially for the year ended March 31, 2001 as
compared to the year ended March 31, 2000, we did not have adequate capital
funding in order to continue as a going-concern in this business segment. As
such, we discontinued the arts and crafts business in October 2000. As
previously mentioned, there was a change of control and business strategy in
June 2001.
BUSINESS STRATEGY AFTER THE MOBILEPRO MERGER AND BEFORE THE NEOREACH MERGER
7
Mobilepro was formed to position ourselves as a provider of wireless business
solutions for the mobile business professional workforce. We intended to develop
complete mobile information solutions that include products and services such as
wireless handheld devices and Web based enterprise applications. As a solutions
provider, we intended to bundle the service and the hardware device into a
single offering. None of the products or services were fully developed and were
not available for sales. The strategy was for the Company to develop the overall
designs of both the hardware and the software of the devices but to outsource
the actual manufacturing and the detailed software development to existing
device providers. We intended to distribute the devices with the bundled
software through various distribution channels including direct sales and
alliance partners with co-marketing and referrals. The Web based services were
to be developed jointly with strategic development partners and maintained and
operated jointly with ISP and Web-hosting partners. The applications that drove
the demand for this strategy was the ever increasing use of E-mail for business
correspondence and the need for mobile professionals at all levels of an
organization to access corporate data and applications from outside their
offices.
We had no sales for the year ended March 31, 2002, and we did not have adequate
capital funding in order to continue as a going-concern in this business
segment. As such, we discontinued the wireless business solutions provider
business in March of 2002. As previously mentioned, there was a change of
control and business strategy in March 2002.
BUSINESS STRATEGY AFTER THE NEOREACH MERGER
We are a development stage company and therefore, the following business
strategy contains forward-looking information and we can give no assurances that
we will be able to accomplish these goals, generate sufficient revenues to be
profitable, obtain adequate capital funding or continue as a going concern. Our
independent auditors have issued a going-concern opinion for the year ended
March 31, 2003, March 31, 2002 and March 31, 2001 (See "Financial Statements and
Supplementary Data").
Upon successful completion of the NeoReach/Mobilepro merger, the business
strategy, direction and focus of the former NeoReach became the dominant
operating focus of the new Mobilepro. The former business model and marketplace
offering of Mobilepro ceased entirely. After the merger, Mobilepro has been
notified by the Patent and Trademark Office that five of the six patent
applications that had been filed by NeoReach had been approved and that the
review process was still underway for the remaining one patent application.
In addition to being granted the approval on five patents related to smart
antenna processing, the Company continued to make progress on design of the
various technical features for the base station modem. In April of 2002, the
Company began working with leading scientists at the RF Microelectronics Lab at
Korea's Information and Communications University in South Korea, to test some
modem and radio frequency integrated circuit development advancements. The first
phase of the simulation testing focused principally on the Company's proprietary
third generation radio frequency technology.
As result of the design effort to date, we believe that a preliminary version of
the base station modem will be ready for field evaluation during the last
quarter of 2003 with a multi-channel modem semi-conductor integrated circuit
chip to be commercially available by the end of 2004. The chip is anticipated to
be designed and developed by the Company, but we will expect the chip to be
manufactured by a third party offshore it. Once this development milestone is
reached, the Company believes that it can have the completed design for the
handset modem chip commercially available by the mid of 2005.
The long-term product vision is founded on product line extensions that leverage
the current technology and expertise in third generation. We intend to add new
products to the development schedule if market success with the modem solutions
is demonstrated and based on the market timing and future competitive landscape.
Mobilepro believes it can be successful in the third generation wireless modem
market for two key reasons: 1) capitalizing on an early-to-market advantage with
advanced capabilities; and, 2) maintaining narrowly focused product and market
strategy on its two core solutions. We believe that all the other vendors must
rationalize third generation development, sales and marketing resources among a
larger product line and among an installed base of customers utilizing other
products for which upgrades are expected and required.
8
We also anticipate to review opportunities arising for strategic partnerships or
possible acquisitions to increase our product and service offerings. Given the
increased demand for wireless remote monitoring of industrial machinery,
corporate computer networks, and various facilities at widely dispersed global
locations in combination with the data processing of all gathered information,
the Company intends to explore possible opportunities in this arena. We intend
to consider licensing or teaming arrangements for the Company's technology
working with other industry players in addition to potential acquisition
opportunities. No funds have been allocated for these new initiatives.
NeoReach has signed a memorandum of understanding with RF Microelectronics
Laboratory of the Information and Communications University of the Republic of
Korea to cooperate in research, particularly in radio frequency integrated
circuit development for the third generation W-CDMA standard. This specific
integrated circuit, chipset, which is expected to support the W-CDMA standard,
is also a required component in the consumer handsets and base stations managed
by the mobile operators to support third generation wireless services. We have
also discussed the development jointly with RF Microelectronics Laboratory of a
ZigBee RF CMOS chip as a complement or alternative initial RF CMOS chip. This
co-development initiative has the potential to expand the NeoReach product suite
beyond the Company's modem solutions currently in development and testing. This
memorandum of understanding is non-binding on either party and additional
agreements are necessary before the parties may collaborate together.
MARKET/INDUSTRY PROJECTIONS
Market Outlook for Third Generation Services
The current generation of digital wireless networks primarily in use today is
referred to as second generation, or second generation services. Demand for
faster networks supporting information-rich applications are on the horizon,
pushing the industry toward the third generation of services delivering higher
productivity, greater transmission speed and seamless access around the world.
Marketplace players with different motivations are all driving the push toward
third generation services. Manufacturers are motivated by the lure of new
revenue streams from new third generation equipment. Wireless operators
worldwide are motivated to capture first to market advantage and to relieve
their frequency spectrum shortage. Regulators are motivated to gain new license
revenue from operators. And finally, consumers and businesses are motivated by
the ability to combine wireless mobility with content and multi-media messaging.
Markets in which both wireless and Internet penetration is high are well
positioned for third generation services. Selection of network standards and
government policies regarding spectrum availability and licensing will drive
adoption at different rates in different regions of the world.
Europe and Japan centralize on a single network operator standard, W-CDMA, and
wireless operators there have recently begun to roll out third generation
services on a schedule that builds throughout 2002-2005. The U. S. will deploy
two standards - CDMA and W-CDMA, and full rollout is projected by industry
analysts to begin in late 2003, although some limited operation started late
2002.
Market Size and Opportunity
The Company believes that the worldwide number of deployed base stations will
more than double in the five-year period between 2001 and 2005. During that
time, slightly more than 286,000 new base stations are expected to be placed
into service each year, yielding annualized revenue of $56 billion, according to
research reports published by Cahners In-Stat Group. Further, China is projected
to represent the largest market and growth opportunity for new base station
deployment.
In terms of revenue potential, Cahners estimates the 2001 revenues from
semiconductors for the base station applications at approximately $6.5 billion
to grow to nearly $10 billion by 2005.
9
On-time market availability of third generation-enabled handsets is critical to
the roll-out of the services. Morgan Stanley, in published research reports,
estimates that in 2002 alone, approximately 3.7 million handsets will be needed
to support demand. This increases to nearly 75 million units in 2006. Going
forward, handset replacement volume is expected to continually expand due to
customer exposure to more choices in new phone features, prices and services.
FINANCIAL FUNDING NEEDS AND USE OF FUNDS
The Company believes it needs additional financing and may use a private
placement offering or debt financing to raise such additional funds, to be used
for the following:
1) Investment in laboratory facilities including test and
simulation equipment;
2) Acquisition or licensing of certain intellectual property
related to the development of modems and communications
semiconductor and component technology;
3) Pay-down certain debt, such as a convertible debenture from
Cornell Capital at an amount of $130,000 plus accrued
interest. We also intend to pay-down debt owed to Mr. Daniel
Lozinsky, a Director, and Mr. Arne Dunhem, an officer and
Director, during 2003. The total amount that we intend to pay
to Mr. Lozinsky and Mr. Dunhem during 2003 is approximately
$30,000 out of total outstanding amount of $277,617; and
4) General working capital purposes.
PRODUCTS AND SERVICES
We intend to develop products for the third generation markets, currently per
the worldwide W-CDMA standard. Our product line is initially intended to
comprise of small area base station modem and handset modem integrated circuits.
These products with features considered by us are not currently available in the
market. We believe that our products may be among the first to market and is
expected to offer special value to the manufacturer customers and the
marketplace in general. We currently have a prototype available of a modem for
the medium area base station.
The product line extension is expected to include radio frequency integrated
circuit chip set. This integrated circuit is a highly complex and miniaturized
chip of a size less than 1/4 inch by 1/4 inch that is a complete radio and
transmitter system. The chip is specialized for the 1.9 GHz/2.1 GHz frequency
bands used in Europe and Asia for the new third generation W-CDMA networks and
may be used in both small area base stations and in third generation handsets.
Future similar versions of the radio frequency integrated circuit chip may be
developed for the similar third generation frequency bands used in the USA and
Canada and may also be developed for Wireless-LAN applications, although
operating in the 5 GHz frequency band. We intend to co-develop the product
jointly together with the RF Microelectronics Laboratory of the Information and
Communications University of South Korea based on a memorandum of understanding
between our organizations. We have also discussed the development jointly with
RF Microelectronics Laboratory of a ZigBee RF CMOS chip as a complement or
alternative initial RF CMOS chip. This memorandum of understanding is
non-binding on either party and additional agreements are necessary before the
parties may collaborate together.
In addition to the development of advanced radio frequency and modem solutions
for the wireless market, we also intend, as appropriate, to leverage our
expertise into delivering wireless applications and systems solutions for the
global enterprise markets to include wireless local area networks and the resale
of existing wireless software applications. We also intend, as appropriate, to
provide specialized radio frequency design services for turnkey wireless systems
and wireless telemetry systems. This may include the acquisition of technologies
or operations to offer us an entry into these areas of wireless applications,
systems solutions or services. On June 20, 2003, the Company announced in a
press release that it entered into a Memorandum of Understanding with GBH
telecom, LLC, a development stage company headquartered in Arlington, Virginia,
under which it intends to acquire GBH telecom, LLC in a proposed tax-free
exchange of stock.
10
There are no assurances that our products, once developed, will be accepted or
marketable to our intended customers.
MARKETING AND COMPETITION
MARKETING
The Company intends to sell products and services through direct and indirect
sales channels. The Company intends to have a direct sales force in North
America, Europe and Asia. The sales organization will have directors in each of
these areas of the world. The technical support team is expected to support the
direct sales team. Target customers include manufacturers of base stations and
other infrastructure equipment.
In addition to a direct sales channel, the Company intends to sells product
through OEM agreements with other manufacturers. OEM means Original Equipment
Manufacturer. Any OEM relationships may enable the Company's products to be
embedded into the base stations. The business development team is expected to be
responsible for initiating the relationships with the OEM partners and the sales
team supports them on an ongoing basis.
The Company cannot assure you that its marketing efforts will be successful.
COMPETITION
The markets for our products are intensely competitive and subject to rapid
technological advancement. We anticipate to identify and capture future market
opportunities to offset the price erosion that characterizes our industry. Our
method of competition is expected to offer products that may compete on
performance, quality, reliability, price, adherence to industry standards,
software and hardware compatibility, marketing and distribution capability,
brand recognition and availability. We may not be able to develop new products
at competitive pricing and performance levels. Even if we are able to do so, we
may not complete a new product and introduce it to market in a timely manner.
Our customers may substitute use of our products in their next generation
equipment with those of current or future competitors.
In each area of the modem, digital and radio frequency integrated circuit market
in which we participate, we face competition from different companies. With
respect to wireless modem technology and licensing of intellectual property,
Qualcomm holds a dominant market position. Qualcomm is the leading provider of
wireless modem technology, marketing a wide variety of products worldwide.
Qualcomm products have all been designed for the CDMA standard and only recently
has the company announced it will now also build to the W-CDMA standard. Other
companies that we potentially would be competing with developing modems for the
base stations in addition to the handsets include bigger companies such as
Nokia, Ericsson, Siemens, Motorola and Samsung. Several smaller companies around
the world specialize in various niche technologies addressing the wireless
market to include the modems for the handsets. These include PrairieComm and
InterDigital in the U.S., Yozan in Japan, Sierra Wireless in Canada and Xircom
in Germany. Over the next few years, we expect additional competitors, some of
which may also have greater financial and other resources, to enter the market
with new products. In addition, we are aware of venture-backed companies that
focus on specific portions of our range of products. These companies,
individually or collectively, could represent future competition for many design
wins and subsequent product sales.
RESEARCH AND DEVELOPMENT
Our product development efforts are expected to be focused on defining the
functionality of the product and developing services for it. We believe the
innovation and design of our product will play an important role in our success.
We intend to identify and respond to the needs of our customers by introducing
new designs with an emphasis on innovations in the functionality, simplicity and
ease of use of our products and services.
None of the cost of research and development activities were borne directly by
customers. As of July 11, 2003, we had one individual engaged in research and
development activities.
11
INTELLECTUAL PROPERTY
As of July 11, 2003, we had filed a total of six patent applications which were
pending with the U.S. Patent and Trademark Office (PTO) in the area of "Smart
Antenna" technology. As of July 11, 2003 we have been granted approval of five
patents and one patent application is still pending approval. The five approved
patents are as follows:
1. "Smart Antenna with Adaptive Convergence Parameter" with PTO
Patent Number 6,369,757, issued April 9, 2002
2. "A Smart Antenna With No Phase Calibration For CDMA Reverse
Link" with PTO Patent Number 6,434,375, issued August 13, 2002
3. "PN Code Acquisition With Adaptive Antenna Array and Adaptive
Threshold for DS-CDMA Wireless Communication" with PTO Patent
Number 6,404,803, issued June 11, 2002
4. "New Cellular Architecture for Code Division Multiple Access
SMOA Antenna Array Systems" with PTO Patent Number 6,459,895,
issued October 1, 2002
5. "Direction of Arrival Angel Tracking Algorithm For Smart
Antennas" with PTO Patent Number 6,483,459, issue date
November 19, 2002
"Improvement of PN Code Chip Time Tracking with Smart Antenna", a patent
application filed on February 6, 2002 with Docket #3228-007-64 and serial number
10/066,762 is pending - awaiting first Office Action from Patent Office.
On August 30, 2002 as part of a settlement agreement with Mr. Scott Smith, the
inventor and former president of Mobilepro, we assigned the ownership from the
Company to Mr. Smith two other patent applications pending which were referred
to as "Wireless Communication System and Method of Providing Wireless
Communication Service" with specific descriptions to include "Device and Method
for Changing the Orientation and Configuration of a Display of an Electronic
Device" and "Electronic Device Having Multiple Service Functionality". Both of
these pending patent applications relate to the business of the Company before
the merger with NeoReach and we do not intend to pursue the business related to
these patents.
GOVERNMENT APPROVALS
We do not believe that there is a need for any specific government approval for
any of our modem solutions since these do not include any radio transmitter and
do not radiate any radio frequency signals. Our radio frequency integrated
circuit product will be sold to OEM customers who will integrate the product
into their own products that may be required to adhere to certain Federal
Communications Commission section requirements because it does in fact contain a
radio transmitter. We believe that the OEM customers will obtain any required
licensing as applicable in any particular country.
RECENT DEVELOPMENTS
On June 20, 2003, the Company announced in a press release that it entered into
a Memorandum of Understanding with GBH telecom, LLC, a development stage company
headquartered in Arlington, Virginia, under which it intends to acquire GBH
telecom, LLC in a proposed tax-free exchange of stock. The projected closing
date for the transaction was announced to be July 3, 2003. Under the terms of
the MOU, upon completion of the proposed transaction, GBH shareholders will own
the majority of the Company's issued and outstanding common stock and have
voting control of the Company. A copy of this press release was filed as an
exhibit to an 8-K filing on June 20, 2003.
ITEM 2. DESCRIPTION OF PROPERTY
Our offices are located at 30 West Gude Drive, Suite 480, Rockville, Maryland
20850. The office consists of approximately 3,500 square feet of office space,
that on June 1, 2003 expanded to approximately 7,000 square feet, are sub-leased
from Amisys, LLC with a monthly rental rate of $4,500 increasing to $9,100 upon
the expansion on
12
June 1, 2003. We believe that this facility is adequate to meet our needs in the
near future. In the event our business expands, we believe we will have an
ability to expand within the same facility.
As of March 31, 2003, we employ three persons and six consultants. If the
business grows as we plan, we anticipate that we will need additional persons to
fill administrative, sales and technical positions.
ITEM 3. LEGAL PROCEEDINGS
As of March 31, 2003, we were party to four legal proceedings. Mr. Tatcha
Chulajata, a former employee of Mobilepro filed a formal complaint against the
Company on October 29, 2002 with the State of Maryland, Department of Labor,
Licensing and Regulation for a claim for unpaid wages. The employee claims a
total of $49,866.67 for unpaid wages from August 2001 through October 2002. Mr.
Chulajata was employed by NeoReach, Inc. on July 15, 2000 as Senior Engineer and
he resigned in October 2002. Due to financial difficulties encountered by the
Company in 2001 and 2002, Mr. Chulajata received a reduced salary. The Company
is currently negotiating a settlement with the employee with respect to the
claim.
Mobilepro and NeoReach, Inc. were on December 31, 2002 served with three
complaints in the United States District Court for the District of Maryland in
three separate actions seeking relief for failure to pay wages and breach of
contract. The three plaintiffs are in the three separate actions seeking relief
of approximately $59,334.67, $65,383.34 and $60,750.00 respectively. The three
plaintiffs are former employees named Mr. Man Hyuk Park, Mr. Sang Humn Lee and
Mr. Yang Hoon Jung and all were employed as Senior or Principal Engineer since
September 2001, June 2000 and August 2001, respectively. Due to financial
difficulties encountered by Mobilepro in 2001 and 2002, the three individuals
received reduced salaries. The Company is currently finalizing a negotiated
settlement with the employees with respect to the claim.
Mr. Scott R. Smith, a former executive of NeoReach, Inc. filed a formal
complaint against the Company on January 10, 2003 with the State of Illinois,
Department of Labor for a claim for unpaid wages. The former executive claimed a
total of $97,335 for unpaid wages from February 2002 through August 2002. The
complaint was subsequently dismissed by the State of Illinois, Department of
Labor in April 2003. Mr. Smith was employed by NeoReach, Inc. on February 19,
2002 as Executive Vice President and his employment agreement expired on August
18, 2002. Due to financial difficulties encountered by Mobilepro in 2002, Mr.
Smith's salary was deferred as part of an agreement between Mr. Smith and
Mobilepro. A settlement agreement was mutually signed and executed on August 30,
2002. Due to the Company's inability to pay full amounts per the settlement
agreement, negotiations have been ongoing for an adjusted payment plan. As of
July 11, 2003 no final revised settlement agreement has been reached.
Virginia University of Technology, Sponsored Programs, claims from the Company
approximately $80,000 for unpaid research and development work performed by the
University for NeoReach during the years 2000 and 2001. The Company is currently
negotiating a settlement with the University with respect to the claim.
Dungavel, Inc. claims from the Company as a result of the February 19, 2002
Stock Purchase Agreement between Mr. Daniel Lozinsky and Dungavel, Inc., a total
of $37,500. The Company intends to negotiate a settlement with Dungavel with
respect to the claim.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Board of Directors announced that the close of business on
November 1, 2001 was the record date for the determination of stockholders
entitled to notice about the proposal authorizing the reverse stock split of the
outstanding common stock, par value $.001 par value, of the Company at the rate
of one new share for each 200 issued and outstanding shares of common stock and
the subsequent restoration of the authorized capital of the Company to
50,000,000 shares of common stock, $.001 par value, 5,000,000 shares of
preferred stock, $.001 par value and 35,425 shares of Series A Convertible
Preferred Stock, $.001 par value ("Recapitalization") and the approval of the
Mobilepro 2001 Equity Performance Plan ("Equity Performance Plan").
13
On October 31, 2001, the Board of Directors approved the Recapitalization and
the Equity Performance Plan and authorized the Company's officers to obtain
written consents from the holders of the outstanding voting securities of the
Company to approve the Recapitalization and the Equity Performance Plan.
On November 1, 2001, stockholders owning of record an aggregate of 9,605,393
shares of the Company's common stock, representing approximately 53.7% of the
outstanding voting securities of the Company, executed and delivered to the
Company a written consent authorizing and approving the Recapitalization and
approving the Plan. Under Section 228 of the Delaware General Corporation Law,
and the certificate of incorporation and by-laws of the Company, any action
required or permitted to be taken at an annual or special meeting of
stockholders of a Delaware corporation may be taken without a meeting, without
prior notice and without a vote, is signed by the holders of outstanding stock
entitled to vote thereon having not less than the minimum number of votes that
would be necessary to authorize or take such action at a meeting at which all
shares entitled to vote thereon were present and voted. Prompt notice of the
consent to the Recapitalization and approval of the Equity Performance Plan must
be given, and was given on or about November 2, 2001, to those stockholders who
have not consented in writing to the action and who, if the action had been
taken at a meeting, would otherwise have been entitled to notice of the meeting.
The purpose of the Mobilepro Corp. 2001 Equity Performance Plan ("Equity
Performance Plan") is to enable the Company to offer to its employees, officers,
directors and consultants whose past, present and/or potential contributions to
the Company and its Subsidiaries have been, are or will be important to the
success of the Company, an opportunity to acquire a proprietary interest in the
Company. The various types of long-term incentive awards that may be provided
under the Equity Performance Plan will enable the Company to respond to changes
in compensation practices, tax laws, accounting regulations and the size and
diversity of its businesses.
In effecting the Recapitalization, a majority of the Stockholders, in their
written consent authorizing and approving the Recapitalization, and the Board of
Directors of the Company approved the following Certificate of Amendment of the
Certificate of Incorporation of Mobilepro Corp.:
FIRST: The name of the Corporation is Mobilepro Corp.
SECOND: The Certificate of Incorporation of the Corporation is hereby amended by
deleting the first paragraph of Article FOURTH in its entirety and by
substituting the following two new paragraphs at the beginning of Article FOURTH
in lieu thereof:
"FOURTH: That as of the effective date of this Certificate of
Amendment of the Certificate of Incorporation of the Corporation
("Amendment") each 200 shares of the Corporation's common stock that
is issued and outstanding shall be changed, without any further
action, into one fully paid and non-assessable share of the
Corporations common stock, fractional shares to be rounded up.
As of the effective date of this Amendment, after the reverse stock
split set forth above, the total number of shares of capital stock of
all classes which the Corporation shall have authority to issue
55,035,425 shares, of which 50,000,000 shares shall be common stock,
par value $.001 per share ("Common Stock"), 5,035,425 shares shall be
preferred stock, par value $.001 per share ("Preferred Stock") and
35,425 shares shall be the Series A Convertible Preferred Stock, par
value $.001 per share. ("Series A Convertible Preferred Stock")."
THIRD: The foregoing Amendment of Certificate of Incorporation was duly approved
by the Corporation's Board of Directors in accordance with the provisions of
Section 242 of the General Corporation Law of the State of Delaware and
thereafter was duly adopted by the consent of the holders of a majority of the
outstanding voting stock of the Corporation in accordance with the provisions of
Sections 228 and 242 of the General Corporation Law of the State of Delaware.
On March 12, 2003, the Board of Directors approved and recommended that the
Stockholders adopt an amendment to the Corporation's certificate of
incorporation to increase to 600,000,000 the authorized shares of Corporation
common stock and adopted Amendment No. 1 to the Mobilepro 2001 Equity
Performance Plan in order to increase
14
the number of shares of Common Stock available for issuance thereunder from
1,000,000 shares to 6,000,000 shares, conditioned upon the approval of the
Stockholders and authorized the Company's officers to obtain written consents
from the holders of the outstanding voting securities of the Company to approve
the recommended actions.
On March 12, 2003, stockholders owning of record an aggregate of 10,389,791
shares of the Company's common stock, representing approximately 52.5% of the
outstanding voting securities of the Company, executed and delivered to the
Company a written consent in lieu of a special meeting authorizing and approving
the 2001 Equity Performance Plan Amendment, which provides, generally, that the
number of shares of Common Stock authorized for issuance pursuant to awards
granted under the Plan, as recommended by the Board of Directors of the
Corporation, is increased from 1,000,000 shares to 6,000,000 shares, in the
aggregate, and that the Certificate of Amendment to Certificate of Incorporation
as recommended by the Board of Directors of the Corporation as follows:
FIRST: The name of the Corporation is Mobilepro Corp.
-----
SECOND: The Certificate of Incorporation of the Corporation is hereby amended by
striking the second paragraph of Article FOURTH in its entirety and by
substituting the following new paragraph in lieu thereof as the second paragraph
of Article FOURTH:
"The total number of shares of capital stock of all classes
which the Corporation shall have authority to issue is
605,035,425 shares, of which 600,000,000 shares shall be
common stock, par value $.001 per share ("Common Stock"),
5,035,425 shares shall be preferred stock, par value $.001 per
share ("Preferred Stock") and 35,425 shares shall be the
Series A Convertible Preferred Stock, par value $.001 per
share ("Series A Convertible Preferred Stock")."
THIRD: The amendment of the Corporation's Certificate of Incorporation herein
certified has been duly adopted in accordance with the provisions of Sections
228 and 242 of the General Corporation Law of the State of Delaware.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET FOR COMMON STOCK
Our Common Stock is traded in the over-the-counter market and quoted on OTC EBB
under the symbol "MOBL" and quoted in the pink sheets published by the National
Quotations Bureau. From time to time, a very small number of securities
broker-dealers published only intermittent quotations for the Common Stock, and
there was no continuous, consistent trading market. The trading volume in the
Common Stock has been and is extremely limited. During the above period, the
limited nature of the trading market created the potential for significant
changes in the trading price for the Common Stock as a result of relatively
minor changes in the supply and demand for Common Stock and perhaps without
regard to our business activities. Because of the lack of specific transaction
information and our belief that quotations during the period were particularly
sensitive to actual or anticipated volume of supply and demand, we do not
believe that such quotations during this period are reliable indicators of a
trading market for the Common Stock.
As of July 11, 2003, there were approximately 780 holders of record of our
Common Stock, which does not take into account those shareholders whose
certificates are held in the name of broker-dealers or other nominees.
TRANSFER AGENT
The transfer agent for our Common Stock is Interwest Transfer Co., 1981 East
Murray-Holladay Rd., P. O. Box 17136, Salt Lake City, Utah 84117.
15
Subject to the above limitations, we believe that during the six fiscal quarters
preceding the date of this filing, the high and low share prices for the Common
Stock during each quarter are as set forth in the table below. The quotations
reflect inter-dealer share prices, without retail mark-up, mark-down, or
commission and may not represent actual transactions. The share prices were
obtained from OTC Bulletin Board NASDAQ Trading & Market Services. These high
and low share prices do reflect the effects both of the 1 for 100 share reverse
stock split, which occurred on May 8, 2001 and of the 1 for 200 share reverse
stock split, which occurred on November 6, 2001.
--------------------------------------------- ------------- ------------------
QUARTER ENDED HIGH LOW
--------------------------------------------- ------------- ------------------
March 31, 2003 0.12 0.009
December 31, 2002 0.30 0.08
September 30, 2002 0.51 0.14
June 30, 2002 1.43 0.42
--------------------------------------------- ------------- ------------------
March 31, 2002 4.00 1.05
December 31, 2001 4.00 0.19
September 30, 2001 3.95 0.06
June 30, 2001 2.00 0.15
--------------------------------------------- ------------- ------------------
March 31, 2001 0.19 0.02
December 31, 2000 0.53 0.03
September 30, 2000 2.00 0.38
June 30, 2000 3.88 0.88
--------------------------------------------- ------------- ------------------
March 31, 2000 2.88 1.50
December 31, 1999 3.75 1.25
--------------------------------------------- ------------- ------------------
The ability of an individual shareholder to trade their shares in a particular
state may be subject to various rules and regulations of that state. A number of
states require that an issuer's securities be registered in their state or
appropriately exempted from registration before the securities are permitted to
trade in that state. Our shares are subject to the provisions of Section 15 (g)
and Rule 15g-9 of the Securities and Exchange Act of 1934, as amended (the
"Exchange Act"), commonly referred to as the "penny stock" rule. Section 15 (g)
sets forth certain requirements for transactions in penny stocks and Rule
15g-9(d)(1) incorporates the definition of penny stock as that used in Rule
3a51-1 of the Exchange Act.
The Commission generally defines penny stock to be any equity security that has
a market price less than $5.00 per share, subject to certain exceptions. Rule
3a51-1 provides that any equity security is considered to be a penny stock
unless that security is: registered and traded on a national securities exchange
meeting specified criteria set by the Commission; authorized for quotation on
the NASDAQ Stock Market; issued by a registered investment company; excluded
from the definition on the basis of price (at least $5.00 per share) or the
issuer's net tangible assets; or exempted from the definition by the Commission.
Since our shares are a penny stock, trading in the shares will be subject to
additional sales practice requirements on broker-dealers who sell penny stocks
to persons other than established customers and accredited investors, generally
persons with assets in excess of $1,000,000 or annual income exceeding $200,000,
or $300,000 together with their spouse.
For transactions covered by these rules, broker-dealers must make a special
suitability determination for the purchase of such securities and must have
received the purchaser's written consent to the transaction prior to the
purchase. Additionally, for any transaction involving a penny stock, unless
exempt, the rules require the delivery, prior to the first transaction, of a
risk disclosure document relating to the penny stock market. A broker-dealer
also must disclose the commissions payable to both the broker-dealer and the
registered representative, and current quotations for the securities. Finally,
monthly statements must be sent disclosing recent price information for the
penny stocks held in the account and information on the limited market in penny
stocks. Consequently, these rules may restrict the ability of broker-dealers to
trade and/or maintain a market in our Common Stock and may affect the ability of
shareholders to sell their shares.
DIVIDEND POLICY
16
Subject to the provisions of the Certificate of Incorporation, the Board of
Directors may, out of funds legally available therefore at any regular or
special meeting, declare dividends upon the capital stock of the corporation as
and when they deem expedient. Before declaring any dividend there may be set
apart out of any funds of the corporation available for dividends, such sum or
sums as the Board of Directors from time to time in their discretion deem proper
for working capital or as a reserve fund to meet contingencies or for equalizing
dividends or for such other purposes as the Board of Directors shall deem
conducive to the interests of the corporation.
We have not paid any dividends to date. We can make no assurance that our
proposed operations will result in sufficient revenues to enable profitable
operations or to generate positive cash flow. For the foreseeable future, we
anticipate that we will use any funds available to finance the growth of our
operations and that we will not pay cash dividends to stockholders.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
Equity Compensation Plan Information
(As of 3/31/03)
Equity Compensation Plan Categories Number of securities to Weighted average Number of securities
be issued upon exercise exercise price of remaining available
of outstanding options, outstanding options, for future issuance
warrants and rights warrants and rights
------------------------------------ ------------------------- -------------------------- ----------------------
Approved by security holders
- 2001 Equity Performance Plan 671,038 $0.03 3,348,962
Not approved by security holders
- None 0 0 0
==================================== ========================= ========================== ======================
Total 0 $0.00 3,348,962
A total of 1,000,000 of the securities underlying the 2001 Equity Performance
Plan were registered on the Company's Form S-8 Registration Statement as filed
with the Securities and Exchange Commission on December 4, 2001 (File No.
333-74492).
RECENT SALES OF SECURITIES
COMMON STOCK
We have issued the following shares of our common stock from March 31, 2000
through December 9, 2002. On May 11, 2001, we implemented a 1 share for 100
shares reverse stock split of our common stock. On November 19, 2001, we
implemented a 1 share for 200 shares reverse stock split of our common stock.
The issuances below have not been adjusted for these reverse stock splits, but
rather disclosed as issued.
On April 16, 1999, we had subscriptions to issue 257,666 shares of our common
stock for consideration of $386,499 at the time of the merger with Tecon (See
"CORPORATE HISTORY"). These subscriptions were reduced to 245,997 and were
exercised upon the consummation of the merger with Tecon. Tecon also issued
1,621,621 shares of common stock of Tecon for additional subscriptions in
consideration of $600,000, cash. Additional subscriptions were received and
215,702 common shares were issued for $315,515. Simultaneously, we issued 10,333
common shares for business equipment valued at $15,500. The Company believes the
issuance of the stock to be exempt from registration under Section 4(2) of the
Securities Act.
At various dates during the year ended March 31, 2000, we issued 1,812,829
shares of common stock to various consultants and professionals for services
rendered. The total value of the shares has been recorded at $1,000,000. The
Company believes the issuance of the stock to be exempt from registration under
Section 4(2) of the Securities Act.
17
From April through June 2000, we issued 430,000 shares of common stock for
additional website business valued at $.75 per share or $322,500 and a total of
38,000 shares of preferred stock was issued under a Private Placement
Memorandum. We believe the issuance of the stock to be exempt from registration
under Section 4(2) of the Securities Act.
In August 2000, we granted 1,903,574 common stock options valued at $475,000 for
a Note Receivable for the same amount. The options were granted pursuant to the
"2000 Stock Option Plan". As of March 31, 2001, we had granted a total of
2,562,250 additional options pursuant to the "2000 Stock Option Plan", not
including the initial 1,903,574 common stock options. We believe that the
Company for these options received no proceeds since they were never exercised.
These options were granted to employees and consultants and were vesting over a
period of up to 4 years with an exercise price of $1.00. Since these options
were granted, 1,186,000 were cancelled and 850,125 expired due to termination of
employee relationships, i.e. only 526,125 remained as options as of March 31,
2001. We believe that none of the remaining options were ever exerciced and that
all these remaining granted options expired effectively as part of the merger
between Mobilepro and CraftClick.com on June 6, 2001.
On June 7, 2000 we exchanged 500,000 shares of our stock for 450,706 shares of
Popmail.com in a transaction valued at $500,000. We subsequently sold this
investment to meet our financial obligations. The shares were "Restricted" under
rule 144, i.e. the investor received shares of common stock that could not be
resold with twelve months from the date the investor received them. On September
15, 2000, the Popmail.com stock was sold to an individual related party for
$74,650, in a private sale to an accredited/sophisticated investor. A loss of
$425,350 was realized during the period. Approximately $225,353 of the loss was
due to market value decline during the holding period. We believe the issuance
of the stock to be exempt from registration under Section 4(2) of the Securities
Act.
On March 12, 2001, we issued 4,040,000 shares of common stock for services out
of which 1,180,000 shares to Sandip Seth, 1,180,000 to Maninder Singh, both
being officers of the Company, 1,180,000 shares to Sanjay Sabnani, 350,000
shares to Cora Castillion and 150,000 shares to Amber Luke valued at a total of
$1,284,923. We believe that Sabnani, Castillion and Luke were not affiliated
with the Company. We believe the issuance of the stock to be exempt from
registration under Section 4(2) of the Securities Act.
On December 1, 2000, we issued 25,000,000 shares of common stock at $.004 per
share and 1,000 shares of Class C preferred stock at $10 per share to creditors
as settlement of $110,000 worth of debt. We believe the issuance of the stock to
be exempt from registration under Section 4(2) of the Securities Act.
On March 16, 2001, Dungavel, Inc., a Bahamian company, contracted to purchase
the above referenced 25,000,000 shares of our common stock and 1,000 shares of
our Class C Preferred Stock from the former creditors (Metropolitan Capital
Partners LLC), in a private sale to an accredited/sophisticated investor. At the
time of the sale, we believe that there was no affiliation between Dungavel,
Inc. and Metropolitan Capital Partners, LLC. The transfer of 25,000,000 shares
of common stock and 1,000 shares of preferred stock by Metropolitan Capital
Partners LLC to Dungavel Inc. was made under Rule 144, i.e. the investor
received shares of common stock that could not be resold with twelve months from
the date the investor received them. In the acquisition agreement, Dungavel
represented that it was a sophisticated, accredited investor and was acquiring
restricted securities. The only entity from which Dungavel acquired shares of
CraftClick on March 16, 2001 was Metropolitan Capital Partners LLC, which name
is stated above. The shares continued to be restricted in the hands of Dungavel,
Inc. and therefore the certificate beared the same legend as the original
certificates. The Class C Preferred Stock is convertible at any time prior to
December 31, 2001, into 11.5% of the then issued and outstanding common stock of
CraftClick.com, Inc., computed on a fully diluted basis. Together the common
stock and the Class C Preferred Stock acquired by Dungavel, Inc. represents
greater than 50% of the voting control of CraftClick.com, Inc., on an as
converted basis. The sale was consummated as of March 27, 2001. We believe the
issuance of the stock to be exempt from registration under Section 4(2) of the
Securities Act.
On April 24, 2001, the 1,000 Class C Preferred shares were converted to
6,877,678 shares of common stock. The Company believes the issuance of the stock
to be exempt from registration under Section 4(2) of the Securities Act.
On June 6, 2001, CraftClick.Com, Inc. a Delaware corporation, and Mobilepro
Corp., a Delaware corporation, entered into an Agreement and Plan of Merger
dated as of June 1, 2001. Under the Merger Agreement Mobilepro merged with and
into CraftClick, with CraftClick being the surviving corporation. The
consideration for the shares of
18
common stock issued by CraftClick to the shareholders of Mobilepro was all the
outstanding shares of Mobilepro. The merger of Mobilepro into CraftClick was
structured as a share-for-share exchange. The exchange ratio was negotiated
without reference to the market price of the CraftClick common stock because it
was difficult to value the merger participants and the market of a thinly traded
security on the OTC Bulletin Board. The Company issued a total of 8,750,000
shares of its common stock in connection with the Merger. Based on the last
trading price of $0.16, the fair value of the Company's stock issued was
$1,400,000. Of these shares issued, the Company issued to Ms. Joann M. Smith an
aggregate of 8,227,663 shares of common stock representing approximately 55% of
our 14,907,196 issued and outstanding shares of common stock. In addition we
also issued as part of the merger, a total of 522,337 shares of its common stock
at value $83,574, to Wallenstein & Wagner, 152,730 shares at value $24,437,
Laser Modeling, Inc. 152,730 shares at value $24,437, Francine B. Goodman,
152,730 shares at value $24,437, Denise Patterson, 38,183 shares at value
$6,109, and Inform Product Development, Inc., 25,964 shares at value $4,154. We
believe that all these parties were non-affiliated with the Company at the
issuance. We believe the issuance of the stock to be exempt from registration
under Section 4(2) of the Securities Act.
Effective June 6, 2001, in connection with the Merger, we issued 3,000,000
shares in a conversion of debt and accrued interest to Dungavel, Inc. a Bahamian
company. We believe that the controlling person of Dungavel was Robert Landau,
who we believe also had a controlling interest in Mobilepro. The debt had a
recorded value of $50,000. The issuance of shares were valued at $480,000, the
fair value of the Company's stock at that time. In September 2000, Dungavel Inc.
was issued a $50,000 convertible note by Mobilepro. At the time of the merger of
Mobilepro into CraftClick, Dungavel negotiated with Mobilepro the conversion of
the note into 3,000,000 shares of the post-merger company. Dungavel was the
controlling shareholder of CraftClick at the time of this negotiation. The value
of CraftClick and Mobilepro at the time of the merger is difficult to determine
and the negotiations for the shares to be issued to acquire Mobilepro was made
without reference to the then market price. We believe the issuance of the stock
to be exempt from registration under Section 4(2) of the Securities Act.
In May 2001, we registered 6,500,000 shares of our common stock for future
issuance under the "2001 Performance Equity Plan". Effective June 6, 2001, we
issued a total of 2,600,000 shares, based on the last trading price of $0.16,
with the total fair value of $416,000 to the following parties: 250,000 shares
to Dungavel Inc. for services performed in connection with the Mobilepro merger
and reorganization and re-incorporation and using the last trading price, the
fair value of the consideration was $40,000, 250,000 shares at value $40,000 to
Mr. Scott R. Smith, our Chief Executive Officer for employment services,
1,475,000 shares at value $236,000 to ZDG Investments for consulting services
regarding the Mobilepro merger and reorganization and re-incorporation, 50,000
shares at value $8,000 each to Mr. Howard Geisler, Mr. Mitchell Geisler and Ms.
Cindy Roach for services as officers and directors, 25,000 shares at value
$4,000 to Weil Consulting Corp. for merger consultations and 450,000 shares at
value $72,000 to Henning Capital Ltd. for merger consultations.
On August 1, 2001, we issued 330,000 shares of its common stock pursuant to the
exercise of a special warrant that was issued as a part of the reverse merger
agreement with CraftClick.com, Inc. The conversion price of this warrant was
$330 or $0.001 per share, the par value of the common stock. The issuance of
shares was valued at $577,500, the fair value of the Company's stock at that
time. We believe the issuance of the stock to be exempt from registration under
Section 4(2) of the Securities Act.
On September 6, 2001, we issued a total of 1,500,000 shares of its common stock
under the 2001 Performance Equity Plan to Camilla Holdings for services
rendered. These services were valued at $0.165 per share or a total of $247,500.
On October 26, 2001, we issued 25,000 shares of its common stock to David Lake,
4,000 shares, James Sacks, 3,000 shares, Donna Villegas, 1,000 shares, Jon Lake,
1,000 shares, Mark Daugherty, 1,000 shares, Ashok Mirpuri, 5,000 shares, Sanjay
Sabnani 10,000 shares. We believe they were all non-affiliated with the Company
at the time of issuance. In connection with the reorganization/redomestication
of CraftClick from a Utah corporation to a Delaware corporation, the 25,000
shares were issued as settlement shares in connection with the change in the
terms of the preferred stock. The issuance of shares was valued at a total of
$1,250, the fair value of our stock at that time. We believe the value of the
settlements were commensurate with the value of the stock issued. We believe the
issuance of the stock to be exempt from registration under Section 4(2) of the
Securities Act.
19
On November 19, 2001, we had a 1 for 200 reverse stock split which effectively
reduced their issued and outstanding shares 16,677,711. Additionally, on that
date we issued 3,000,000 shares of our common stock to Dungavel, Inc. for
services in conjunction with an Investors Rights Agreement between CraftClick
and Dungavel, Inc. We valued that issuance at a value of $240,000, the fair
value of our stock at that time. We believe the issuance of the stock to be
exempt from registration under Section 4(2) of the Securities Act.
On December 4, 2001, we registered 1,000,000 shares of our common stock for
future issuance under the "2001 Equity Performance Plan". On February 15, 2002,
we issued a total of 20,000 shares of our common stock to the following parties:
10,000 shares to Sandy Seth and 10,000 shares to Maninder Singh. The shares were
issued for consulting services regarding items such as assisting our company in
its understanding of historical events. The issuance of all of the 20,000 shares
were valued at $21,000, the fair value of our stock at that time. We believe the
issuance of the stock to be exempt from registration under Section 4(2) of the
Securities Act.
On February 15, 2002, we entered into an agreement to issue 86,000 shares of our
common stock to John Madigan, 30,000 shares, Douglas Tucker, 30,000 shares,
Wallenstein & Wagner, 20,000 shares, Natalie Boitehouk, 2,000 shares, Gregory
Bochniak, 2,000 shares, and Stephen Jouzapaitis, 2,000 shares for services
rendered. We believe they were all non-affiliated with the Company at the time
of issuance. The shares issued on February 15, 2002 were authorized to be issued
on February 19, 2002 by instruction letter of that date. Per the agreement, the
shares were subsequently issued on March 22, 2002. The issuance of the shares
were valued at $90,300, the fair value of our stock at that time. We believe the
value of the services provided were commensurate with the value of the stock
issued. We believe the issuance of the stock to be exempt from registration
under Section 4(2) of the Securities Act.
On February 19, 2002, we issued 25,000 shares of our common stock to Scott R.
Smith. The 25,000 shares were issued to Scott Smith in exchange for his
surrender of his rights to past wages and other benefits under his employment
agreement of June 2001 and cancellation of that employment agreement as an
executive and officer of our Company. The shares were valued at $26,250, the
fair value of our stock at that time. We believe the issuance of the stock to be
exempt from registration under Section 4(2) of the Securities Act.
On March 18, 2002, we issued a total of 960,000 shares of our common stock under
the "2001 Equity Performance Plan" to the following parties: 255,000 to Mr.
Daniel Lozinsky, our Chief Executive Officer for employment services and
services as a director, 355,000 to Mr. Arne Dunhem for services as an officer
and director, 25,000 to Mr. Scott Smith for services as an officer and director,
and 325,000 to Jesus Gomez Romero for engineering consulting services for
advanced software related projects. These shares were issued at $0.55 per share
based on a Board Resolution fixing the Fair Market Value of the securities
pursuant to the 2001 Equity Performance Plan on and as of March 6, 2002.
On April 23, 2002, we issued 12,352,129 shares of our common stock to the
holders of NeoReach's common stock pursuant to an Agreement and Plan of Merger,
dated March 21, 2002. A newly formed, wholly-owned subsidiary of Mobilepro
merged into NeoReach, in a tax-free one-for-one share exchange transaction. The
merger was consummated on April 23, 2002. As a result of the merger, NeoReach is
now a wholly-owned subsidiary of Mobilepro. The issuance of the shares were
valued at a fair value of $ 6,546,628, based on the last trading price of $0.53
and assuming there was actual active trading of our stock at that time. The
valuation of Neoreach in the merger agreement was based on several factors,
including that over twenty-five man-years of development efforts had been
accumulated for achieving the prototype third generation modem boards for the
base station applications, that a management team and an engineering team were
in place, that office and laboratory facilities were in place, that six patents
had been filed or were already approved, and that contacts and relationships had
already been established with potential customers both in the United States and
Korea. The transaction was concluded following arms-length negotiations. We
believe the issuance of the stock to be exempt from registration under Section
4(2) of the Securities Act.
On May 31, 2002, We issued a total of 690,000 shares of its common stock to the
following parties: 450,000 shares to INFe, Inc., 150,000 shares to Thomas
Richfield, 60,000 shares to Francene Goodman, and 30,000 shares to Triple Crown
Consulting. These shares were issued for consulting services regarding the
Mobilepro-NeoReach merger. The issuance of the shares were valued at $ 317,400,
the fair value of our stock at that time. We believe the value of the
20
services provided were commensurate with the value of the stock issued. We
believe the issuance of the stock to be exempt from registration under Section
4(2) of the Securities Act.
On May 31, 2002, Mobilepro issued a convertible debenture to Cornell Capital in
the original principal amount of $250,000. The convertible debenture is
convertible into shares of our common stock as a price equal to either 120% of
the closing bid price of our common stock as of May 31, 2002, or 80% of the
average of the four lowest closing bid prices of our common stock for the five
trading days immediately preceding the conversion date. If such conversion had
taken place on May 31, 2002, then the holder of the convertible debenture would
have received 452,899 shares of our common stock. If, at the time of conversion,
the Common Stock is listed on the NASD Bulletin Board System, Nasdaq SmallCap
Market, or American Stock Exchange, the conversion price will be 120% of the
closing bid price. The convertible debenture accrues interest at a rate of 4%
per year and is convertible at the holder's option. Holders of the Debentures
have certain registration rights with respect to the resale of shares of Common
Stock received upon any conversion of the Debentures. The convertible debenture
has a term of five years. At Mobilepro's option, the convertible debenture may
be paid in cash or converted into shares of our common stock on the fifth
anniversary unless converted earlier by the holder. As of July 11, 2003 the
Holder has converted a total of $120,000 of the original principal amount.
On June 10, 2002, we issued a total of 784,314 shares of its common stock to the
following parties: 764,706 to Cornell Capital Partners, LP and 19,708 to
Westrock Advisors, Inc. These shares were issued pursuant to an equity line of
credit arrangement with Cornell Capital Partners, dated May 31, 2002. The
issuance of the shares were valued at $517,647, the fair value of our stock at
that time. We believe the issuance of the stock to be exempt from registration
under Section 4(2) of the Securities Act.
On July 18, 2002, we issued a total of 305,000 shares of our common stock to
various parties. 160,000 shares of our restricted common stock were issued to
Daniel Lozinsky, a director of the Corporation, in a private sale for an
aggregate cash consideration of $39,000 based on a Board Resolution as of July
17, 2002. In addition, we also issued 20,000 shares of common stock under the
2001 Equity Performance Plan and 100,000 restricted common stock as compensation
to Mark Johnson for various Merger and Acquisition related services and
associated back office services in accordance with a Consulting Agreement dated
July 17, 2002. We also issued 25,000 shares of restricted common stock as
compensation to M. Johnson & Associates, Inc. for certain services in accordance
with an Investor Relations Agreement dated July 17, 2002. The issuance of the
shares was valued at $65,250, the fair value of our stock at that time. We
believe the value of the services provided were commensurate with the value of
the stock issued. We believe the issuance of the stock to be exempt from
registration under Section 4(2) of the Securities Act.
On July 26, 2002, we issued a total of 500,000 shares of our restricted common
stock to Capital Research Group, Inc. for certain investor relations consulting
services in accordance with a Consulting Services Agreement dated July 25, 2002.
The issuance of the shares was valued at $220,000, the fair value of our stock
at that time. We believe the issuance of the stock to be exempt from
registration under Section 4(2) of the Securities Act.
On September 4, 2002, we issued a total of 709,853 of our common stock to
various parties. 100,000 shares were issued to Hee Han Bang, a non-affiliated
and accredited/sophisticated investor in a private sale for an aggregate cash
consideration of $25,000. These shares were issued at $0.25 per share based on a
Board Resolution fixing the value of the securities on and as of August 09,
2002. 150,000 shares of our common stock were issued to Daniel Lozinsky, a
director of the Corporation, in a private sale for an aggregate cash
consideration of $15,000. These shares were issued based on a Board Resolution
as of August 20, 2002. We issued a total of 209,853 shares of our common stock
to shares to INFe, Inc. based on a Board Resolution as of August 19, 2002. These
shares were issued for consulting services in connection with the Mobilepro
NeoReach merger and a Reverse Merger Engagement Agreement dated January 11, 2002
between NeoReach, Inc. and INFe, Inc. The issuance of the shares was valued at
$62,956, the fair value of our stock at that time. We also granted a total of
250,000 shares of our restricted common stock to Parag Sheth, an executive of
the Corporation. Parag Sheth was granted 150,000 shares of our restricted common
stock for forgiving a total of $15,000.00 in salary corresponding to a price of
$0.10 per share and he was also granted 100,000 shares of our restricted common
stock as an inducement for providing services for the Corporation. These shares
were issued based on a Board Resolution as of August 20, 2002 and the issuance
of the shares was valued at $25,000. We believe the value of the services
provided were commensurate with the value of the stock issued. We believe the
issuance of the stock to be exempt from registration under Section 4(2) of the
Securities Act.
21
On February 6, 2003, we entered into an equity line of credit arrangement with
Cornell Capital Partners, LP. The Equity Line of Credit provides that Cornell
Capital will purchase up to $10 million of common stock over a two-year period,
with the timing and amount of such purchases, if any, at our discretion. Any
shares of common stock sold under the Equity Line of Credit will be priced at a
9% discount to the lowest closing bid price of the common stock during the
five-day period following the Company's notification to Cornell that it is
drawing down on the Equity Line. We are not permitted to draw down more than
$450,000 in any 30-day calendar period. In addition, there are certain other
conditions applicable to the Company's ability to draw down on the Equity Line
including the filing and effectiveness of a registration statement registering
the resale of all shares of common stock that may be issued to Cornell under the
Equity Line and the Company's adherence with certain covenants. At the time of
each draw down, the Company is obligated to pay Cornell a fee equal to three
percent of amount of each draw down. As of July 11, 2003, Mobilepro has received
advances under the Equity Line of Credit in the total amount of $435,000.
Except as otherwise noted, the securities described in this Item were issued
pursuant to the exemption from registration provided by Section 4(2) of the
Securities Act of 1933. Each such issuance was made pursuant to individual
contracts which are discrete from one another and are made only with persons who
were sophisticated in such transactions and who had knowledge of and access to
sufficient information about Mobilepro to make an informed investment decision.
Among this information was the fact that the securities were restricted
securities.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The financial information set forth in the following discussion should be read
in conjunction with, and qualified in its entirety by, the financial statements
of the Company included elsewhere herein. These financial statements reflect
only the financial information of our prior business operations as a wireless
business solutions provider and are not reflective of our new business strategy
(See "BUSINESS").
FINANCIAL CONDITION AND CHANGES IN FINANCIAL CONDITION
OVERALL OPERATING RESULTS
We had no revenue for the years ended March 31, 2003 and 2002. However, our
general and administrative expenses were $2,479,166 for the current year and
$3,147,119 for the prior year, which resulted in substantial operating losses
for each year. Operating losses were $2,479,166 and $3,147,119 for the years
ended March 31, 2003 and 2002, respectively. The Company had other income,
including income from the forgiveness of debt of $0 and $248,717 for the years
ended March 31, 2003 and 2002, respectively. The areas where we expended the
most funds for each year were for payroll, professional fees, consulting fees,
and marketing expenses. Because of these large losses and the fact that we did
not have adequate capital in order to continue to operate, we were pursuing
alternative business opportunities in 2002 and 2003. See "BUSINESS" for our
change in control and our future business strategy.
Our net losses after taxes and other income/expenses were $9,771,389 for March
31, 2003 and $2,898,402 for March 31, 2002.
OPERATING LOSSES
We have accumulated approximately $3,671,000- of net operating loss
carryforwards as of March 31, 2003, that may be offset against future taxable
income. There will be limitations on the amount of net operating loss
carryforwards that can be used due to the change in the control of the
management of the Company. No tax benefit has been reported in the financial
statements, because we believe there is a 50% or greater chance the
carryforwards will expire unused. Accordingly, the potential tax benefits of the
loss carryforwards is offset by a valuation allowance of the same amount.
LIQUIDITY AND CAPITAL RESOURCES
22
We do not currently have any revenues, liquidity or capital resources as we move
forward into our new business venture (See "BUSINESS") and our independent
auditors have issued a going-concern opinion. We will need additional financing
in order to implement our business plan and continue as a going concern. Besides
the Equity Line of Credit from Cornell Capital Partners, LLP, we do not
currently have a source for any additional financing and we cannot give any
assurances that we will be able to secure any financing.
NEW ACCOUNTING PRONOUNCEMENTS
We have adopted FASB Statement 128. It is not expected that we will be impacted
by other recently issued standards. FASB Statement 128 presents new standards
for computing and presenting earnings per share (EPS). The Statement is
effective for financial statements for both interim and annual periods ending
after December 15, 1997.
FASB Statement 131 presents news standards for disclosures about segment
reporting. We do not believe that this accounting standard applies to us as all
of our operations are integrated for financial reporting and decision-making
purposes.
INFLATION
Our results of operations have not been affected by inflation and we do not
expect inflation to have a significant effect on its operations in the future.
PLAN OF OPERATION
In September 2002 we shipped our prototype base station modem (version 1.0) to a
prospective customer who planned to use it for test and demonstration purposes.
No payment was received from the shipment since it was for demonstration
purposes only. This prototype version of the modem is currently available in
printed circuit board format and we intend to make it available to other
potential customers. Continued product development is intended to evolve the
base station modems from the boards to application specific integrated circuits.
The integrated circuits are custom products that are designed for only one
customer and can be sold only to that one customer; we are that customer and we
intend in turn to resell to our customers for their particular applications. The
printed circuit board version of the base station modem is approximately 24
inches long by 16 inches wide and is built using discrete electronic components
such as integrated circuits, transistors, capacitors and resistors. We intend to
miniaturize most of the modem functions on this board to two individual
semiconductor chips, or integrated circuits, each of the approximate size of one
by one inch. One of the chips is commercially available for purchase and is
expected to be programmed with our proprietary software that is part of our
technology while the other chip is expected to be customized and manufactured
for our specific applications.
2. The Company intends to continue its research & development activities within
the three main projects as defined below:
1. Base Station Modem Integrated Circuit
2. Handset Modem Integrated Circuit
3. Radio Frequency Integrated Circuit
We intend to develop each project over several development phases that normally
include project definition, system engineering, prototype manufacturing,
integrated circuit manufacturing, testing, also called beta testing, and general
availability. The project definition phase reviews existing technology standards
and market research to include other possible comparable products already in the
market place and will typically lead to a design definition and finally a
project definition with draft requirements definitions. The project definition
typically has duration of 2 - 3 months with work efforts from both business
development people and engineers. The system design phase normally involves
significant engineering effort that may have duration of 3 - 6 months to include
preparation of actual detailed specifications, drawings and schematics, certain
software development and initial computer modeling or simulation of the
functions of the circuits. The prototype manufacturing normally involves during
2 - 3 months the preparation and manufacturing of physical hardware such as a
prototype printed circuit board. The manufacturing of this board
23
requires the procurement of electronic components to demonstrate the overall
functions of the project. Software development will normally continue throughout
this phase. The phase with the prototype testing would typically last 3 - 4
months and will pass the prototype printed circuit board through a number of
detailed tests to include functional tests and interface tests, i.e. tests to
verify that the functions of the prototype printed circuit board will work as
expected versus other equipment or units that it is designed to work with. The
actual integrated circuit manufacturing that typically lasts 2 - 4 months may
not start until there is a high level of confidence that the designed prototype
printed circuit board works and operates as expected. The manufacturing and
production of an integrated circuit is typically a time consuming and expensive
process and it is critical that only an absolute minimum design mistakes have
been made. The manufacturing may initially produce only a few samples of the
integrated circuits for demonstration and testing. The following testing lasting
typically 2 - 3 months, also called beta testing, is the first activity when a
real integrated circuit has been made available for rigorous testing in a
laboratory environment. Engineers for their possible changes and improvements to
the design may typically review any problems discovered during the testing.
Finally, general availability of the developed circuit is expected to be
declared when all testing have been found satisfactory and the high volume
production of the circuit has been initiated. The total process varies in time
depending on the complexity of the project but may typically last 12 - 18
months.
The man effort required for the different development phases we have defined
vary but is expected to consist primarily of engineers of different skills to
include typically system design, circuit design, electrical and mechanical
design, software design and programming, and integrated circuit design and
development. At the peak of development, we estimate an anticipated need of
approximately 38 engineers supported by various G&A personnel.
Product development plans include defining specifications for the next version
of the base station board subsequently leading to base station modem integrated
circuits. We believe that the timelines below demonstrate the current product
delivery schedule for the three projects, and the estimated costs associated
with achieving the milestones. This schedule could change depending on
challenges faced in engineering and development.
--------------------------- --------------- ------------ ---------------- ------------- ------------- --------------- --------------
Project System Prototype Prototype IC Beta Testing General
Definition Design Manufacturing Testing Manufacturin Availability
--------------------------- --------------- ------------ ---------------- ------------- ------------- --------------- --------------
Base Station V1.0 Modem 2000 2001 1Q2002 3Q2002 N/A N/A 2Q2003
Board
--------------------------- --------------- ------------ ---------------- ------------- ------------- --------------- --------------
Base Station Modem 2Q2003 3Q2003 4Q2003 1Q2004 1Q2004 2Q2004 3Q2004
Integrated Circuit
--------------------------- --------------- ------------ ---------------- ------------- ------------- --------------- --------------
Handset Modem Integrated 3Q2003 4Q2003 2Q2004 3Q2004 4Q2004 4Q2004 4Q2004
Circuit
--------------------------- --------------- ------------ ---------------- ------------- ------------- --------------- --------------
Radio Frequency 2Q2003 3Q2003 4Q2003 4Q2003 1Q2004 1Q2004 2Q2004
Integrated Circuit
--------------------------- --------------- ------------ ---------------- ------------- ------------- --------------- --------------
The table below provides the estimated project development costs for the three
different main projects.
-------------------------------------- -------------------------- ------------------------- --------------------------
Estimated Project Development Costs Dec 2002 - June 2003 July - Dec 2003 Total for Period
-------------------------------------- -------------------------- ------------------------- --------------------------
Base Station Modem Board and $2,100,000 $2,300,000 $4,400,000
Integrated Circuit
-------------------------------------- -------------------------- ------------------------- --------------------------
Handset Modem Integrated Circuit $700,000 $1,800,000 $2,500,000
-------------------------------------- -------------------------- ------------------------- --------------------------
Radio Frequency Integrated Circuit $800,000 $1,100,000 $1,900,000
-------------------------------------- -------------------------- ------------------------- --------------------------
Total Estimated Development Costs $3,600,000 $5,200,000 $8,800,000
-------------------------------------- -------------------------- ------------------------- --------------------------
24
The estimated financing/liquidity needs for the period of December 2002 through
June 2003 is approximately $3,600,000 and for the period July - December 2003 is
approximately $5,200,000, i.e. the aggregate for the period December 2002
through December 2003 is estimated to be approximately $8,800,000. We believe
that some revenues will be received during year 2003 from the sale of our
products and supporting services and this revenue may reduce the
financing/liquidity needs. The sources of additional funding to support the
development are primarily three; the equity line of credit from Cornell capital,
the raising of private funds through private placement memoranda, and from
credits or equity contributions from strategic partners. We intend to constantly
seek alternative funding sources to supplement these three primary sources.
Since the equity line of credit with Cornell capital spans over 24 months we may
not be able to raise more than a maximum of $5,400,000 over the first 12 months
from Cornell Capital. For full project funding, this means that a minimum of
approximately $3,300,000 may need to be funded included funds from revenues
during the year and through private placement arrangements, from credit or
equity contributions from strategic partners or through other alternative
sources. Should it become apparent that we cannot raise the funds as anticipated
then we intend to re-evaluate the priorities between the developments of the
three main projects. We anticipate to attempt to reduce the development costs by
outsourcing some of the development activities to engineering firms overseas and
by acquiring licenses to developed technology that we may integrate with our own
developed technology.
We anticipate that the next generation (version 2.0) of our base station modem
board is anticipated to incorporate up to 256 channels - up from the currently
offered 4 channels. The significance of this is that the more channels a modem
board has the fewer number of individual modem boards may be required for a
particular base station. This means that the base station equipment can be much
smaller in size, consume less power and be less expensive to manufacture and
install. It also means that a new type of miniaturized base stations can be
developed to incorporate the small area base station. In addition to the base
station modem, we intend to develop radio frequency integrated circuit chipsets
for the wireless markets. These chipsets may be designed to support the GSM and
the W-CDMA markets. Product development cycle of these chipsets is typically 12
to 14 months. We intend to outsource the manufacturing of the chipsets to a
third party, essentially categorizing MobilePro as a Fab-less developer of
semiconductors. A Fab-less semiconductor developer typically outsources its
manufacturing entirely and limits its activities to testing the manufactured
chips. Our current plans assume the development of this generation of the base
station board to start mid-2003 with commercial products available mid-2004.
The estimated financing/liquidity need for the period of January 2004 through
December 2004 is approximately $10,200,000. We believe that significant revenues
may be generated during the year 2004 from the sale of our products and this
revenue may reduce our financing/liquidity needs. The sources of additional
funding to support the development are primarily three; the equity line of
credit from Cornell capital, the raising of private funds through private
placement memoranda, and from credits or equity contributions from strategic
partners. We intend to constantly seek alternative funding sources to supplement
these three primary sources. Since the equity line of credit with Cornell
capital is a commitment of $10,000,000 over 24 months we may not be able to
raise more than a maximum of $4,600,000 over the months 13 - 24 from Cornell
Capital in addition to funds raised during year 2003. Should the Company decide
to draw down maximum available amount from Cornell capital during the year 2004,
then this means for full project funding, that an additional minimum of
approximately $5,600,000 may need to be funded including funds from revenues
during the year and through private placement arrangements, from credit or
equity contributions from strategic partners or through other alternative
sources. Should, like for the plan of operation during year 2003, it become
apparent that the revenues may be inadequate or that we cannot raise the funds
as anticipated, we intend to re-evaluate the priorities between the developments
of the three main projects. We intend to continue to attempt to reduce
development costs by outsourcing some of the development activities to
engineering firms overseas and by acquiring licenses to developed technology
that we may integrate with our own.
The sales cycle for our products is about 6 to 9 months. Currently MobilePro
intends to offer our prototype modem board to potential prospects. MobilePro's
primary markets are Europe and Asia with North America being the secondary
market. We intend to build a sales team in these regions to support its
customers. In addition to investing in a direct sales force, we intend to
continue to develop business relationships with potential partners who can serve
25
as an indirect sales channel for our products. We anticipate that our marketing
and sales team will gradually grow from one person in January 2003 to
approximately seven persons by year-end 2003 and approximately nine persons by
year-end 2004. The estimated cost during the year 2003 for the marketing and
sales team is approximately $650,000 and during the year 2004 approximately
$1,200,000. The growth of the marketing and sales team is expected to primarily
be during the year 2003. In addition to these estimated personnel expenses we
also have expenses for sales collateral, documentation, and various marketing
and sales campaigns. The funding for the marketing and sales activities was
included in the estimates for the overall plan of operation described above and
no separate funding is sought for marketing and sales activities.
Typical price points for the version 1.0 of the board begin at $10,000.
As a result of the Plan, we expect a significant increase in the number of
employees by mid/third quarter 2003 to possibly over 50 employees. The increase
in number of employees consist primarily of engineers with an anticipated need
of approximately 38 engineers and a total of approximately 12 G&A personnel
including marketing and sales personnel by year-end 2003/early 2004. The funding
for the increase in employees is included in the overall plan of operation and
funding for year 2003.
The overall plan of operation and funding for year 2003 includes proceeds
received from the Equity Line of Credit, a private placement offering or debt
financing, which the Company intends to use for the following general purposes:
1) Complete the initial phases of the design and development of advanced modems
for both the base station and handset markets:
a. Invest in laboratory facilities including test and simulation
equipment with anticipated costs as described above.
b. Acquire or license certain intellectual property related to the
development of modems and communications semiconductor and component
technology.
2) Develop plans for third party manufacturing to support the business goals of
the Company with anticipated costs as described above.
3) Expand the product offerings of the Company to include radio frequency
integrated circuit development with anticipated costs as described above.
4) Develop direct and indirect sales and marketing channels for the Company's
products and services:
a. Develop business partnerships that embrace the Company as their
modem supplier for their advanced cellular handsets and user equipment.
b. Develop plans for extending our solution offerings for use in
additional global markets such as Asia and Europe.
5) Pay-down certain debt, such as a convertible debenture from Cornell Capital
in the amount of $250,000 plus accrued interest. We also intend to pay-down part
of debt owed to Mr. Daniel Lozinsky, a Director, and Mr. Arne Dunhem, an officer
and Director, during 2003. The total amount that we plan to pay to Mr. Lozinsky
and Mr. Dunhem during 2003 is approximately $60,000 out of a total outstanding
amount of $277,617.
6) General working capital purposes.
7) In addition to the development of advanced radio frequency and modem
solutions for the wireless market, we also intend, as appropriate, to leverage
our expertise into delivering wireless applications and systems solutions for
the global enterprise markets to include wireless local area networks and the
resale of existing wireless software applications. We also intend, as
appropriate, to provide specialized radio frequency design services for turnkey
wireless systems and wireless telemetry systems. This may include the
acquisition of technologies or operations to offer us an entry into these areas
of wireless applications, systems solutions or services.
EMPLOYEES
We, as of March 31, 2003, employ three persons and six consultants. If the
business grows as we plan, we anticipate that we will need additional persons to
fill administrative, sales and technical positions.
FORWARD-LOOKING INFORMATION
From time to time, we or our representatives have made or may make
forward-looking statements, orally or in writing. Such forward-looking
statements may be included in, but not limited to, press releases, oral
statements made
26
with the approval of an authorized executive officer or in various filings made
by us with the Securities and Exchange Commission. Words or phrases "will likely
result", "are expected to", "will continue", "is anticipated", "estimate",
"project or projected", or similar expressions are intended to identify
"forward-looking statements". Such statements are qualified in their entirety by
reference to and are accompanied by the above discussion of certain important
factors that could cause actual results to differ materially from such
forward-looking statements.
We are currently unaware of any trends or conditions other than those previously
mentioned in this management's discussion and analysis that could have a
material adverse effect on the Company's consolidated financial position, future
results of operations, or liquidity. However, investors should also be aware of
factors that could have a negative impact on the Company's prospects and the
consistency of progress in the areas of revenue generation, liquidity, and
generation of capital resources. These include: (i) variations in revenue, (ii)
possible inability to attract investors for its equity securities or otherwise
raise adequate funds from any source should the Company seek to do so, (iii)
increased governmental regulation, (iv) increased competition, (v) unfavorable
outcomes to litigation involving the Company or to which the Company may become
a party in the future and, (vi) a very competitive and rapidly changing
operating environment. Other factors that might cause such a difference include,
but are not limited to, those discussed below:
RISK FACTORS
We may not be successful in integrating the business and technology of NeoReach
with that of the Company, Which Could Adversely Affect The Quality Of Our
Operations, Products And Processes. We acquired NeoReach, Inc. effective April
23, 2002. We may not be successful in integrating the business and technology of
NeoReach with the business and operations of the Company. Our failure to
integrate successfully could materially adversely affect our operating results,
financial condition and the trading price of our stock. Also, our integration
efforts may divert our management time and resources from necessary aspects of
our business and operations.
We May Not Be Successful In Integrating The Management Team Of NeoReach With
That Of Our Company, Which Could Adversely Affect The Leadership Of Our Company,
Divert Management Time And Adversely Affect The Business And Results Of
Operations.
Mr. Daniel Lozinsky became our President and CEO in February 2002 after he
acquired 64.8% of our voting securities. After the acquisition of NeoReach, Mr.
Arne Dunhem, on May 10, 2002 replaced Mr. Lozinsky as our President and CEO and
Mr. Lozinsky became our Senior Vice President. Our success depends to a
significant extent on the leadership and vision of Messrs. Dunhem and Lozinsky.
Prior to the merger, Messrs. Lozinsky and Dunhem had no experience working
together. Failure to successfully integrate the management teams of the two
companies could adversely affect the business and results of operations of the
Company. Our future success also depends on our ability to identify, attract,
hire, retain and motivate other well-qualified managerial, technical, sales and
marketing personnel. There can be no assurance that these professionals will be
available in the market or that we will be able to meet their compensation
requirements.
There is Substantial Doubt About our Ability to Continue as a Going Concern Due
to Recurring Losses and Working Capital Shortages, Which Means That We May Not
Be Able To Continue Operations Unless We Obtain Additional Funding.
The report of our independent accountants on our March 31, 2003 financial
statements, as noted in Note 10 , March 31, 2002 financial statements, as noted
in Note 4 and our March 31, 2001 financial statements, as noted in Note 2
included an explanatory paragraph indicating that there is substantial doubt
about our ability to continue as a going concern due to our lack of any
revenue-generating activities and substantial operating losses. As a result of
our acquisition of NeoReach effective in April 2002, we have continued to incur
substantial debt obligations. We anticipate that we will incur net losses for
the immediate future. We expect our operating expenses to increase
significantly, and, as a result, we will need to generate increased monthly
revenue if we are to continue as a going concern. To the extent that revenue
does not grow at anticipated rates, we do not obtain additional funding, or that
increases in our operating expenses precede or are not subsequently followed by
commensurate increases in revenue, or that we are unable to adjust operating
expense levels accordingly, we may not have the ability to continue on as a
going concern. Our financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
27
We are at development stage and have a limited operating history upon which you
can base your investment decision.
The Company had a major shift in its business strategy in June 2001. It was not
until June 2001 that the Company focused on the integration and marketing of
complete mobile information solutions that satisfy the needs of mobile
professionals. The Company acquired NeoReach, another development stage company,
in April 2002. We directed in 2002 our focus towards solutions supporting the
third generation wireless market. We have a limited operating history upon which
to evaluate our business plan and prospects. If we are unable to obtain
additional external funding or generate revenue from the sales of our products,
we could be forced to curtail or cease our operations.
Our business revenue generation model is unproven and could fail.
Our revenue model is new and evolving, and we cannot be certain that it will be
successful. Our ability to generate revenue depends, among other things, on our
ability to leverage NeoReach's technology in the third generation wireless
communications market. The potential profitability of this business model is
unproven. Accordingly, we cannot assure you that our business model will be
successful or that we can sustain revenue growth or achieve or sustain
profitability.
We Face Intense Competition From Companies That Have Many Advantages Compared To
Our Company.
We currently face significant competition in the telecommunications industry,
and expect that this competition will continue, particularly with respect to the
market within the telecommunications industry for wireless modem technology. Our
competitors include Qualcomm, Nokia, Ericsson, Siemens, Motorola, Samsung and
PrairieComm among others. Many of these competitors have advantages, including:
o existing rights to competing and emerging technologies;
o longer operating histories and presence in key markets;
o greater name recognition; and
o greater financial, sales and marketing, manufacturing,
distribution, technical and other resources.
As a result of these factors, these companies may be more successful than we are
in the telecommunications industry and the wireless modem technology market.
If we are not able to compete effectively in the highly competitive wireless
communications industry, our future growth and operating results will suffer.
Our ability to compete effectively with our competitors depends on the following
factors, among others:
o the performance of our modem technology in a manner that meets
customer expectations;
o the success of our efforts to develop effective channels of
distribution for our products;
o our ability to price our products that are of a quality and at
a price point that is competitive with similar or comparable
products offered by our competitors;
o general conditions in the wireless communications industry;
o the success of our efforts to develop, improve and
satisfactorily address any issues relating to our modem
technology; and
o the timely delivery and successful implementation of new
technologies deployed in connection with any third generation
services offered by the national and international wireless
communications service providers.
We May Not Be Able To Effectively Protect Our Intellectual Property Rights, The
Foundation Of Our Business, Which Could Harm Our Business By Making It Easier
For Our Competitors To Duplicate Our Services.
We regard certain aspects of our products, processes, services and technology as
proprietary. We have taken steps to protect them with patents, copyrights,
trademarks, restrictions on disclosure and other methods. Despite these
precautions, we cannot be certain that third parties will not infringe or
misappropriate our proprietary rights or that third parties will not
independently develop similar products, services and technology. Any
infringement, misappropriation or independent development could cause us to
cease operations.
We have filed patent applications with respect to our wireless modern
technology, but these may not be issued to us, and if issued, may not protect
our intellectual property from competition which could seek to design around or
28
invalidate these patents. Our failure to adequately protect our proprietary
rights in our products, services and technology could harm our business by
making it easier for our competitors to duplicate our services.
We own several Internet domain names, including www.mobileprocorp.com and
www.neoreach.com. The regulation of domain names in the United States and in
foreign countries may change. Regulatory bodies could establish additional
top-level domains or modify the requirements for holding domain names, any or
all of which may dilute the strength of our name. We may not acquire or maintain
our domain name or additional common names in all of the countries in which our
marketplace may be accessed, or for any or all of the top-level domains that may
be introduced. The relationship between regulations governing domain names and
laws protecting proprietary rights is unclear. Therefore, we may not be able to
prevent third parties from acquiring domain names that infringe or otherwise
decrease the value of our trademarks and other proprietary rights.
We may have to resort to litigation to enforce our intellectual property rights,
protect our trade secrets, determine the validity and scope of the proprietary
rights of others, or defend ourselves from claims of infringement, invalidity or
unenforceability. Litigation may be expensive and divert resources even if we
win. This could adversely affect our business, financial condition and operating
results such that it could cause us to reduce or cease operations.
Consolidations in the wireless communications industry could adversely affect
our business to include a reduction or elimination of our proportionate share of
the emerging market.
The wireless communications industry has experienced consolidation of
participants, and this trend may continue. If wireless carriers consolidate with
companies that utilize technologies that are similar to or compete with our
wireless modem technology, our proportionate share of the emerging market for
wireless modem technologies may be reduced or eliminated. This reduction or
elimination of our market share could cause us to reduce or cease operations.
We May Not Be Able To Keep Up With Rapid Technological Changes, Which Could
Render Our Products And Processes Obsolete.
The wireless communications industry is characterized by rapid technological
change, changes in customer requirements and preferences, frequent introduction
of products and services embodying new technologies and the emergence of new
industry standards and practices that could render our existing technology and
systems obsolete. Our future success will depend on our ability to enhance and
improve the responsiveness, functionality, accessibility and features of our
products. We expect that our marketplace will require extensive technological
upgrades and enhancements to accommodate many of the new products and services
that we anticipate will be added to our marketplace. We cannot assure you that
we will be able to expand and upgrade our technology and systems, or
successfully integrate new technologies or systems we develop in the future, to
accommodate such increases in a timely manner.
Shareholders may have difficulty selling their shares in the secondary market
given the nature of the Bulletin Board and rules relating to low-price stocks,
or the "Penny Stock" rules.
The Common Stock is quoted on the Bulletin Board. Shares traded on this system
are often characterized by low trading volumes and volatile prices. As a result,
investors may find it more difficult to dispose of or to obtain accurate
quotations of the Common Stock. In addition, quotations on the Bulletin Board
depend on the willingness of broker-dealers to make a market for the stock.
There can be no assurance that the Common Stock will continue to be quoted on
the Bulletin Board or that there will continue to be a market for such stock.
Further, the SEC has adopted regulations which define a "penny stock" to be any
equity security that has a market price of less than $5.00 per share, subject to
certain exceptions. The Common Stock presently is a "penny stock" and,
accordingly, is subject to rules that impose additional sales practice
requirements on broker/dealers who sell such securities to persons other than
established customers and accredited investors. There can be no assurance that
the Common Stock will trade for $5.00 or more per share, or if so, when.
Consequently, the "penny stock" rules may restrict the ability of broker/dealers
to sell the Common Stock and may affect the ability of the purchasers of any
future offering by the Company to sell the Common Stock in a secondary market.
We May Not Effectively Manage The Growth Necessary To Execute Our Business Plan,
Which Could Adversely Effect The Quality Of Our Operations And Our Costs
29
In order to achieve the critical mass of business activity necessary to
successfully execute our business plan, we must significantly increase the
number of strategic partners and customers that use our technology. This growth
will place significant strain on our personnel, systems and resources. We cannot
be sure that we will manage our growth effectively, and our failure to do so
could cause us to cease operations. We also expect that we will continue to hire
employees, including technical, management-level employees, and sales staff for
the foreseeable future. This growth will require us to improve management,
technical, information and accounting systems, controls and procedures. We may
not be able to maintain the quality of our operations, control our costs,
continue complying with all applicable regulations and expand our internal
management, technical information and accounting systems in order to support our
desired growth.
30
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MOBILEPRO CORP AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 2003 AND 2002
MOBILEPRO CORP AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 2003 AND 2002
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE(S)
-------
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants 1
Balance Sheets as of March 31, 2003 and 2002 2-3
Statements of Operations for the years ended March 31, 2003
and 2002 with Cumulative Totals Since Inception 4
Statements of Changes in Stockholders' Equity (Deficit) for the Periods
April 1, 2000 to March 31, 2003 including the former Company
Craftclick.com and the reverse acquisition that
Occurred as of June 1, 2001 5-7
Statements of Cash Flows for the years ended March 31, 2003
and 2002 with Cumulative Totals Since Inception 8-9
Notes to Consolidated Financial Statements 10-27
BAGELL, JOSEPHS & COMPANY, L.L.C.
Certified Public Accountants
High Ridge Commons
Suites 400-403
200 Haddonfield Berlin Road
Gibbsboro, New Jersey 08026
(856) 346-2828 Fax (856) 346-2882
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
Board of Directors
Mobilepro Corp and Subsidiary
Rockville, Maryland
We have audited the accompanying consolidated balance sheets of Mobilepro Corp
and Subsidiary (formerly Craftclick.Com, Inc.) (A Development Stage Company)
(the "Company") as of March 31, 2003 and 2002 and the related consolidated
statements of operations, changes in stockholders' equity (deficit), and cash
flows for the years then ended, with cumulative totals since the Company's
inception, for the statements of operations, changes in stockholders' equity
(deficit) and cash flows. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We have conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
The accompanying consolidated financial statements for the years ended March 31,
2003 and 2002 have been prepared assuming that the Company will continue as a
going concern. As discussed in Note 10 to the consolidated financial statements,
the Company has sustained operating losses and capital deficits that raise
substantial doubt about its ability to continue as a going concern. Management's
operating and financing plans in regard to these matters are also discussed in
Note 10. The consolidated financial statements do not include any adjustments
that might result from the outcome of these uncertainties.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Mobilepro Corp and
Subsidiary (A Development Stage Company) as of March 31, 2003 and 2002 and the
results of its operations, changes in stockholders' equity (deficit) and their
cash flows for the years then ended and the cumulative totals since the
Company's inception in conformity with accounting principles generally accepted
in the United States of America.
BAGELL, JOSEPHS & COMPANY, L.L.C.
BAGELL, JOSEPHS & COMPANY, L.L.C.
Certified Public Accountants
Gibbbsboro, New Jersey
July 10, 2003
MEMBER OF: AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
NEW JERSEY SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS
PENNSYLVANIA INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
NEW YORK STATE SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS
-1-
MOBILEPRO CORP AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2003 AND 2002
ASSETS
2003 2002
------- -------
CURRENT ASSETS
Cash $ 6,715 $ 154
Other current assets 9,518 --
------- -------
Total current assets 16,233 154
FIXED ASSETS, Net 36,469 --
------- -------
TOTAL ASSETS $52,702 $ 154
======= =======
The accompanying notes are an integral part of these
consolidated financial statements.
-2-
MOBILEPRO CORP AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS (CONTINUED)
MARCH 31, 2003 AND 2002
LIABILITIES AND STOCKHOLDERS' DEFICIT
2003 2002
------------ ------------
CURRENT LIABILITIES
Current portion of officer advances $ 30,000 $ 44,262
Current portion of note payable - Maryland Department
of Revenue and Economic Development 4,500 --
Notes payable - sellers 75,000 75,000
Notes payable - other 100,000 --
Convertible debentures 215,000 --
Equity line of credit 160,000 --
Accounts payable and accrued expenses 1,234,880 187,663
------------ ------------
TOTAL CURRENT LIABILITIES 1,819,380 306,925
------------ ------------
LONG-TERM LIABILITIES
Officer advances - net of current portion 247,617 --
Note payable - Maryland Department of Business and
Economic Development - net of current portion 95,500 --
------------ ------------
TOTAL LONG-TERM LIABILITIES 343,117 --
------------ ------------
TOTAL LIABILITIES 2,162,497 306,925
------------ ------------
STOCKHOLDERS' DEFICIT
Preferred stock, $.001 par value, authorized
5,035,425 shares, and 35,425 shares
issued and outstanding 35 35
Common stock, $.001 par value, authorized 600,000,000 and 50,000,000
shares, and 30,175,122 and 4,175,492 shares issued and outstanding 30,175 4,176
Additional paid-in capital 11,538,979 3,596,613
Deficit accumulated during development stage (13,678,984) (3,907,595)
------------ ------------
TOTAL STOCKHOLDERS' DEFICIT (2,109,795) (306,771)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 52,702 $ 154
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
-3-
MOBILEPRO CORP AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 2003 AND 2002
(WITH CUMULATIVE TOTALS SINCE INCEPTION)
Cumulative
Totals Since
2003 2002 Inception
------------ ------------ -------------
REVENUES $ -- $ -- $ --
COST OF SALES -- -- --
------------ ------------ ------------
GROSS PROFIT -- -- --
OPERATING EXPENSES
Professional fees and compensation expenses 2,250,229 2,627,800 4,878,029
Advertising and marketing expenses 26,034 -- 26,034
Research and development 8,495 -- 8,495
General and administrative expenses 80,426 519,318 1,608,938
Office rent and expenses 86,068 -- 86,068
Travel and meals expenses 12,562 -- 12,562
Depreciation 15,352 -- 15,352
------------ ------------ ------------
TOTAL OPERATING EXPENSES 2,479,166 3,147,118 6,635,478
------------ ------------ ------------
LOSS BEFORE OTHER INCOME (EXPENSES) (2,479,166) (3,147,118) (6,635,478)
OTHER INCOME (EXPENSES)
Interest income -- 56 56
Forgiveness of debt -- 276,738 276,738
Other expense -- (27,608) (27,608)
Interest expense (48,698) (469) (49,167)
Impairment of goodwill (7,190,374) -- (7,190,374)
Amortization of discount of stock conversion (53,151) -- (53,151)
------------ ------------ ------------
TOTAL OTHER INCOME (EXPENSES) (7,292,223) 248,717 (7,043,506)
------------ ------------ ------------
NET LOSS BEFORE PROVISION
FOR INCOME TAXES (9,771,389) (2,898,401) (13,678,984)
Provision for income taxes -- -- --
------------ ------------ ------------
NET LOSS APPLICABLE TO COMMON SHARES $ (9,771,389) $ (2,898,401) $(13,678,984)
============ ============ ============
NET LOSS PER BASIC AND DILUTED SHARES $ (0.45) $ (0.45) $ (0.63)
============ ============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 21,802,658 6,462,746 21,802,658
============ ============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
-4-
MOBILEPRO CORP AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS IN CHANGES OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIODS APRIL 1, 2000 TO MARCH 31, 2003
THE FORMER COMPANY CRAFTCLICK.COM, INC. AND THE REVERSE ACQUISITION
THAT OCCURRED AS OF JUNE 1, 2001
COMMON STOCK PREFERRED STOCK
CRAFTCLICK.COM, INC. ACTIVITY: SHARES AMOUNT SHARES AMOUNT
---------- ---------- ------------ ------------
BALANCE - MARCH 31, 2000 16,931,444 16,931 101,000 101
Issued preferred shares under PPM
April-June, 2000 38,000 38 379,962 --
Issued common and preferred shares for
debt, December 31, 2000 25,000,000 25,000 1,000 1
Issued common shares for assets/acquired
companies 430,000 430 -- --
Options granted for Note Receivable 1,903,574 1,904 -- --
Issued stock for investment 500,000 500 -- --
Issued stock for services 4,040,000 4,040 -- --
Net loss for year ended March 31, 2001 -- -- -- --
---------- ---------- ----------- -----------
BALANCE - MARCH 31, 2001 48,805,018 48,805 140,000 140
Stock issued in conversion of preferred
stock into common stock 6,877,678 6,878 (104,622) (105)
Consolidation of shares due to corporate
change in domicile (55,125,493) (55,125) -- --
Issuance of common stock as part of
Craftclick acquisition of Mobilepro 8,750,000 8,750 -- --
Net loss Craftclick for April 1, 2001 to
May 31, 2001 -- -- -- --
ADDITIONAL NET
PAID-IN ACCUMULATED STOCKHOLDERS'
CRAFTCLICK.COM, INC. ACTIVITY: CAPITAL DEFICIT DEFICIT
---------- ----------- -----------
BALANCE - MARCH 31, 2000 5,354,232 (2,848,780) 2,522,484
Issued preferred shares under PPM
April-June, 2000 380,000
Issued common and preferred shares for
debt, December 31, 2000 84,999 -- 110,000
Issued common shares for assets/acquired
companies 322,070 -- 322,500
Options granted for Note Receivable 473,096 -- 475,000
Issued stock for investment 499,500 -- 500,000
Issued stock for services 1,280,883 -- 1,284,923
Net loss for year ended March 31, 2001 -- (5,630,700) (5,630,700)
---------- ----------- -----------
BALANCE - MARCH 31, 2001 8,394,742 (8,479,480) (35,793)
Stock issued in conversion of preferred
stock into common stock (6,773) -- --
Consolidation of shares due to corporate
change in domicile 55,125 -- --
Issuance of common stock as part of
Craftclick acquisition of Mobilepro (8,750) -- --
Net loss Craftclick for April 1, 2001 to
May 31, 2001 -- (377) (377)
The accompanying notes are an integral part of these
consolidated financial statements.
-5-
MOBILEPRO CORP AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS IN CHANGES OF STOCKHOLDERS'
EQUITY (DEFICIT) (CONTINUED)
FOR THE PERIODS APRIL 1, 2000 TO MARCH 31, 2003
THE FORMER COMPANY CRAFTCLICK.COM, INC. AND THE REVERSE ACQUISITION THAT
OCCURRED AS OF JUNE 1, 2001
COMMON STOCK PREFERRED STOCK
SHARES AMOUNT SHARES AMOUNT
------------- -------------- -------------- --------------
MOBILEPRO CORP ACTIVITY:
Recapitalization due to merger - Craftclick - - - -
Recapitalization due to merger - Mobilepro - - 47 -
Issuance of shares to cover convertible debt 3,000,000 3,000 - -
Issuance of common stock for services
and salaries 2,600,000 2,600 - -
Issuance of common stock for services 1,500,000 1,500 - -
Issuance of common stock for warrants 330,000 330 - -
Issuance of common stock for services 25,000 25 - -
Reverse stock split (16,677,711) (16,678) - -
Issuance of common stock for services 3,000,000 3,000 - -
Issuance of common stock for services 106,000 106 - -
Conversion of debt for issuance of common
shares 25,000 25 - -
Issuance of common stock for services 960,000 960 - -
Net loss for the year - - - -
------------- -------------- -------------- --------------
BALANCE MARCH 31, 2002 4,175,492 $ 4,176 35,425 $ 35
============= ============== ============== ==============
ADDITIONAL NET
PAID-IN ACCUMULATED STOCKHOLDERS'
CAPITAL DEFICIT DEFICIT
------------- -------------- --------------
MOBILEPRO CORP ACTIVITY:
Recapitalization due to merger - Craftclick (8,479,857) 8,479,857 -
Recapitalization due to merger - Mobilepro 1,009,194 (1,009,194) -
Issuance of shares to cover convertible debt 477,000 - 480,000
Issuance of common stock for services
and salaries 413,400 - 416,000
Issuance of common stock for services 246,000 - 247,500
Issuance of common stock for warrants 577,170 - 577,500
Issuance of common stock for services 1,225 - 1,250
Reverse stock split 16,678 - -
Issuance of common stock for services 237,000 - 240,000
Issuance of common stock for services 111,194 - 111,300
Conversion of debt for issuance of common
shares 26,225 - 26,250
Issuance of common stock for services 527,040 - 528,000
Net loss for the year - (2,898,401) (2,898,401)
------------- -------------- --------------
BALANCE MARCH 31, 2002 $ 3,596,613 $ (3,907,595) $ (306,771)
============= ============== ==============
The accompanying notes are an integral part of these
consolidated financial statements.
-6-
MOBILEPRO CORP AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS IN CHANGES IN STOCKHOLDERS'
EQUITY (DEFICIT) (CONTINUED)
FOR THE PERIODS APRIL 1, 2000 TO MARCH 31, 2003
THE FORMER COMPANY CRAFTCLICK.COM, INC. AND THE REVERSE
ACQUISITION THAT OCCURRED AS OF JUNE 1, 2001
COMMON STOCK PREFERRED STOCK
SHARES AMOUNT SHARES AMOUNT
------------- ------------ ---------- -------------
BALANCE - MARCH 31, 2002 4,175,492 $ 4,176 35,425 $ 35
Shares issued in merger with NeoReach acquisition 12,352,129 12,352 - -
Shares issued for consulting 690,000 690 - -
Shares issued for equity line conversion 784,314 784 - -
Shares issued for cash 160,000 160 - -
Shares issued for consulting 145,000 145 - -
Shares issued for consulting 500,000 500 - -
Shares issued for cash 100,000 100 - -
Shares issued for cash 150,000 150 - -
Shares issued for consulting 209,853 210 - -
Shares issued for salary 150,000 150 - -
Shares issued for services 100,000 100 - -
Shares issued in escrow agreement 10,000,000 10,000 - -
Shares issued for services 658,334 658 - -
Shares exchanged from escrow to pay debt - - - -
Net loss for the year ended March 31, 2003 - - - -
------------- ------------ ---------- -------------
BALANCE MARCH 31, 2003 30,175,122 $ 30,175 35,425 $ 35
============= ============ ========== =============
ADDITIONAL NET
PAID-IN ACCUMULATED STOCKHOLDERS'
CAPITAL DEFICIT DEFICIT
------------- -------------- --------------
BALANCE - MARCH 31, 2002 $ 3,596,613 $ (3,907,595) $ (306,771)
Shares issued in merger with NeoReach acquisition 6,534,276 - 6,546,628
Shares issued for consulting 316,710 - 317,400
Shares issued for equity line conversion 516,863 - 517,647
Shares issued for cash 38,840 - 39,000
Shares issued for consulting 65,105 - 65,250
Shares issued for consulting 219,500 - 220,000
Shares issued for cash 24,900 - 25,000
Shares issued for cash 14,850 - 15,000
Shares issued for consulting 62,746 - 62,956
Shares issued for salary 14,850 - 15,000
Shares issued for services 24,900 - 25,000
Shares issued in escrow agreement (10,000) - -
Shares issued for services 25,675 - 26,333
Shares exchanged from escrow to pay debt 93,151 - 93,151
Net loss for the year ended March 31, 2003 - (9,771,389) (9,771,389)
------------- -------------- --------------
BALANCE MARCH 31, 2003 $ 11,538,979 $ (13,678,984) $ (2,109,795)
============= ============== ==============
The accompanying notes are an integral part of these
consolidated financial statements.
-7-
MOBILEPRO CORP AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 2003 AND 2002
(WITH CUMULATIVE TOTALS SINCE INCEPTION)
CUMULATIVE
TOTALS SINCE
2003 2002 INCEPTION
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (9,771,389) $ (2,898,401) $(13,678,984)
------------ ------------ ------------
Adjustments to reconcile net loss to net cash
(used in) operating activities:
Forgiveness of debt -- (276,738) (276,738)
Depreciation 15,352 -- 15,352
Impairment of goodwill 7,190,374 -- 7,190,374
Amortization of interest on conversion of debt 53,151 -- 53,151
Issued common stock for services, compensation and
conversion of debt 1,249,586 2,627,800 4,471,245
Changes in Assets and Liabilities
Decrease in other current assets 13,194 -- 13,194
Increase in accounts payable and accrued expenses 428,938 158,434 952,674
------------ ------------ ------------
Total adjustments 8,950,595 2,509,496 12,419,252
------------ ------------ ------------
Net cash used in operating activities (820,794) (388,905) (1,259,732)
------------ ------------ ------------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
Proceeds from common stock issuances 79,000 -- 79,100
Net proceeds from convertible debentures and equity line of credit 415,000 -- 415,000
Proceeds from borrowings, net -- 344,730 394,730
Change in officer advances net 233,355 44,262 277,617
Net proceeds from issuance of notes payable 100,000 -- 100,000
------------ ------------ ------------
Net cash provided by financing activities 827,355 388,992 1,266,447
------------ ------------ ------------
The accompanying notes are an integral part of these
consolidated financial statements.
-8-
MOBILEPRO CORP
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEAR ENDED MARCH 31, 2002 AND PERIOD
JULY 14, 2000 (INCEPTION) THROUGH MARCH 31, 2001
(WITH CUMULATIVE TOTALS SINCE INCEPTION)
CUMULATIVE
TOTALS SINCE
2003 2002 INCEPTION
---------- ----------- ------------
NET INCREASE IN CASH 6,561 87 6,715
CASH BALANCE - BEGINNING OF PERIOD 154 67 --
---------- ----------- -----------
CASH BALANCE - END OF PERIOD $ 6,715 $ 154 $ 6,715
========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF NON CASH
ACTIVITIES:
Issuance of common stock for:
Services, compensation and conversion of debt $1,249,586 $ 2,627,800 $ 4,471,245
========== =========== ===========
Impairment of goodwill $7,190,374 $ -- $ 7,190,374
========== =========== ===========
Amortization of interest on conversion of debt $ 53,151 $ -- $ 53,151
========== =========== ===========
Conversion of equity line of credit to stock $ 40,000 $ -- $ 40,000
========== =========== ===========
Acquisition of NeoReach, Inc.
Fixed assets $ 51,821 $ -- $ 51,821
Other current assets 22,712 -- 22,712
Note payable - Maryland Department of Business and
Economic Development (100,000) -- (100,000)
Accounts payable (618,279) -- (618,279)
Goodwill 7,190,374 -- 7,190,374
---------- ----------- -----------
Fair value of common stock and additional paid-in
capital issued for NeoReach, Inc. $6,546,628 $ -- $ 6,546,628
========== =========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
-9-
MOBILEPRO CORP AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003 AND 2002
NOTE 1- ORGANIZATION
Mobilepro Corp formerly Craftclick.com, Inc. was incorporated
under the laws of the State of California in January 1999, as
BuyIt.com, Inc. ("BuyIt"). From inception through March 31,
1999, the Company engaged in preliminary activities related to
the set up of an Internet auction business. On April 16, 1999,
the Company entered into an Agreement and Plan of
Reorganization ("Plan") with Tecon, Inc. ("Tecon"), a Utah
Corporation, wherein all of the outstanding shares and
subscriptions of BuyIt were exchanged for 8,500,000 shares
(for the outstanding shares of common stock of Tecon) and
245,997 shares (for the outstanding subscriptions) of common
stock of Tecon. At the conclusion of all the transactions
contemplated in the Plan, BuyIt shareholders and subscribers
owned 8,745,997 shares of total outstanding shares of
12,179,249, or 71.9%, The survivor in the aforementioned
combination was Tecon. However, the name of the surviving
company was changed to BuyIt.com, Inc., simultaneously with
the Plan. The combination of these two entities had been
accounted for as a purchase. The Company changed its name to
Craftclick.com, Inc., on January 4, 2000, as a result of
changing its business strategy and focus-which was to become
the premier destination for buyers and sellers of arts and
crafts products and supplies through the use of Internet
websites. However, the Company disposed of substantially all
assets in February of 2001 when secured creditors foreclosed
on loans to the Company.
In April 2001, Craftclick.com, Inc. reorganized pursuant to a
Plan of Merger wherein its domicile was changed from Utah to
Delaware, and the common stock was reverse split on the basis
of 1 new share for every 100 shares outstanding.
On June 6, 2001, Craftclick.com, Inc. merged with Mobilepro
Corp a Delaware corporation as of June 1, 2001. Under the
merger agreement, Mobilepro Corp merged into Craftclick.com,
Inc. with Craftclick being the surviving corporation and the
Certificate of Incorporation and By Laws of Craftclick being
the constituent documents of the surviving corporation.
In July 2001, the Company changed its name to Mobilepro Corp.
On March 21, 2002 Mobilepro entered into an Agreement and Plan
of Merger with NeoReach, Inc. , a private Delaware company,
pursuant to which a newly-formed wholly-owned subsidiary of
Mobilepro merged into NeoReach in a tax-free transaction.
NeoReach is a development stage company designing state of the
art modem solutions to support third generation (3G) wireless
communication systems. The merger was consummated on April 23,
2002. As a result of the merger, NeoReach is now a
wholly-owned subsidiary of Mobilepro. On April 23, 2002, the
company issued 12,352,129 shares of its common stock in a
one-for-one tax-free stock exchange to the holders of
NeoReach's common stock pursuant to the Agreement. This was a
cash-less transaction and there were no payments or finder's
fees involved. The Board of Directors determined the
consideration to be a fair compensation to the NeoReach
shareholders. The issuance of the shares were valued at a fair
value of $6,546,628, based on the last trading price of $0.53
and assuming there was actual active trading of the stock at
that time.
-10-
MOBILEPRO CORP AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2003 AND 2002
NOTE 1- ORGANIZATION (CONTINUED)
On March 12, 2003, the Company amended its Articles of
Incorporation, and pursuant to a board resolution, increased
the authorized level of common stock from 50,000,000 to
600,000,000. In addition, the Company increased the shares
authorized under its 2001 Equity performance Plan from
1,000,000 to 6,000,000.
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiary. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
DEVELOPMENT STAGE COMPANY
Mobilepro Corp and its subsidiary are development stage
companies. The Company since April 23, 2002 devotes
substantially all of its efforts to researching and developing
technology for the third generation wireless waves. Before the
acquisition of NeoReach, Inc., Mobilepro Corp focused on the
integration and marketing of complete mobile information
solutions to the business market through strategic partnership
with established firms already delivering information
technology consulting, wireless service and vertical market
application products and services.
USE OF ESTIMATES
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
of America requires management to make estimates and
assumptions that affect the reported amounts of 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.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments and
other short-term investments with an initial maturity of
three months or less to be cash or cash equivalents.
The Company maintains cash and cash equivalents at several
financial institutions which are insured by the Federal
Deposit Insurance Corporation up to $100,000.
-11-
MOBILEPRO CORP AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2003 AND 2002
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
The Company was a development stage company and had no
revenues during the period reported. For the period going
forward, the Management has adopted a new revenue policy as
defined below.
The Company will recognize revenue both from sales of products
and from service contracts. Revenue from product sales that
contain embedded software will be recognized in accordance
with the provisions of the American Institute of Certified
Public Accountants Statement of Position 97-2, "Software
Revenue Recognition."
Revenue from product sales will be recognized based on the
type of sale transactions as follows:
Shipments to Credit-Worthy Customers with No Portion of the
Collection Dependent on Any Future Event: Revenues will be
recorded at the time of shipment.
Shipments to a Customer without Established Credit: These
transactions are primarily shipments to customers who are in
the process of obtaining financing and to whom the Company has
granted extended payment terms. Revenues will be deferred (not
recognized) and no receivable will be recorded until a
significant portion of the sales price is received in cash.
Shipments where a portion of the Revenue is Dependent Upon
Some Future Event: These consist primarily of transactions
involving value-added resellers ("VAR") to an end user. Under
these agreements, revenues will be deferred and no receivable
will be recorded until a significant portion of the sales
price is received in cash. On certain transactions, a portion
of the payment is contingent upon installation or customer
acceptance.
Upon non-acceptance, the Customer may have a right to return
the product. The Company will not recognize revenue on these
transactions until these contingencies have lapsed.
Certain of the Company's product sales are sold with
maintenance/service contracts. The Company will allocate
revenues to such maintenance/service contracts based on
vendor-specific objective evidence of fair value as determined
by the Company's renewal rates. Revenue from
maintenance/service contracts will be deferred and recognized
ratably over the period covered by the contract.
-12-
MOBILEPRO CORP AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2003 AND 2002
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
Effective July 14, 2000, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 109 (the
Statement), Accounting for Income Taxes. The Statement
requires an asset and liability approach for financial
accounting and reporting for income taxes, and the recognition
of deferred tax assets and liabilities for the temporary
differences between the financial reporting bases and tax
bases of the Company's assets and liabilities at enacted tax
rates expected to be in effect when such amounts are realized
or settled. The cumulative effect of this change in accounting
for income taxes as of March 31, 2003 is $0 due to the
valuation allowance established as described in Note 15.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the consolidated balance
sheet for cash and cash equivalents, and accounts payable
approximate fair value because of the immediate or short-term
maturity of these financial instruments.
ADVERTISING COSTS
The Company expenses the costs associated with advertising as
incurred. Advertising and promotional expenses were
approximately $26,034 and $-0- for the years ended March 31,
2003 and 2002, respectively.
FURNITURE AND EQUIPMENT
Furniture and equipment are stated at cost. Depreciation is
computed using the straight-line method over the estimated
useful lives of the assets.
When assets are retired or otherwise disposed of, the costs
and related accumulated depreciation are removed from the
accounts, and any resulting gain or loss is recognized in
income for the period. The cost of maintenance and repairs is
charged to income as incurred; significant renewals and
betterments are capitalized. Deduction is made for retirements
resulting from renewals or betterments.
There was $15,352 and $-0- charged to operations for
depreciation expense for the years ended March 31, 2003 and
2002, respectively. The Company acquired $51,821 of net fixed
assets from NeoReach, Inc. in its acquisition of its
subsidiary.
-13-
MOBILEPRO CORP AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2003 AND 2002
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
RECLASSIFICATIONS
Certain amounts in the March 31, 2002 financial statements
were reclassified to conform to the March 31, 2003
presentation.
Earnings (Loss) Per Share of Common Stock
Historical net income (loss) per common share is computed
using the weighted average number of common shares
outstanding. Diluted earnings per share (EPS) includes
additional dilution from common stock equivalents, such as
stock issuable pursuant to the exercise of stock options and
warrants. Common stock equivalents were not included in the
computation of diluted earnings per share when the Company
reported a loss because to do so would be antidilutive for
periods presented.
The following is a reconciliation of the computation for basic
and diluted EPS:
MARCH 31, MARCH 31,
2003 2002
---------------- -----------------
Net loss $(9,771,389) $(2,898,401)
Weighted-average common shares
Outstanding (Basic) 21,802,658 6,462,746
Weighted-average common stock
Equivalents
Stock options - -
Warrants - -
Weighted-average common shares
Outstanding (Diluted) 21,802,658 6,462,746
Options and warrants outstanding to purchase stock were not
included in the computation of diluted EPS for March 31, 2003
and 2002 because inclusion would have been antidilutive.
-14-
MOBILEPRO CORP AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2003 AND 2002
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued
SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities". SFAS No. 133 requires companies to
recognize all derivative contracts as either assets or
liabilities in the balance sheet and to measure them at fair
value. If certain conditions are met, a derivative may be
specifically designated as a hedge, the objective of which is
to match the timing of the gain or loss recognition on the
hedging derivative with the recognition of (i) the changes in
fair value of the hedged asset or liability that are
attributable to the hedged risk or (ii) the earnings effect of
the hedged forecasted transaction. For a derivative not
designated as a hedging instrument, the gain or loss is
recognized in income in the period of change. On June 30,
1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities-Deferral of the Effective
Date of FASB Statement No. 133". SFAS No. 133 as amended by
SFAS No. 137 and 138 is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000.
Historically, the Company has not entered into derivatives
contracts to hedge existing risks or for speculative purposes.
Accordingly, the Company does not expect adoption of the new
standard to have a material effect on the consolidated
financial statements.
In December 1999, the Securities and Exchange Commission
issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue
Recognition in Financial Statements." SAB 101 provides
guidance for revenue recognition under certain circumstances,
and is effective during the first quarter of fiscal year 2001.
SAB 101 is not expected to have a material effect on the
consolidated results of operations, financial position and
cash flows.
On March 16, 2000, the Emerging Issues Task Force issued EITF
99-19 "Recording Revenue as a Principal versus Net as an
Agent" which addresses the issue of how and when revenues
should be recognized on a Gross of Net method as the title
implies. The emerging Issues Task Force has not reach a
consensus but sites SEC Staff Accounting Bulletin 101. EITF
99-19 does not affect the consolidated financial statements.
On July 20, 2000, the Emerging Issues Task Force issued EITF
00-14 "Accounting for Certain Sales Incentives" which
established accounting and reporting requirements for sales
incentives such as discounts, coupons, rebates and free
products or services. Generally, reductions in or refunds of a
selling price should be classified as a reduction in revenue.
For SEC registrants, the implementation date is the beginning
of the fourth quarter after the registrant's fiscal year end
December 15, 1999. EITF 00-14 does not affect the consolidated
financial statements.
-15-
MOBILEPRO CORP AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2003 AND 2002
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the FASB issued Statement No. 142 "Goodwill and
Other Intangible Assets". This statement addresses financial
accounting and reporting for acquired goodwill and other
intangible assets and supersedes APB Opinion No. 17,
Intangible Assets. It addresses how intangible assets that are
acquired individually or with a group of other assets (but not
those acquired in a business combination) should be accounted
for in financial statements upon their acquisition. This
Statement also addresses how goodwill and other intangible
assets should be accounted for after they have been initially
recognized in the financial statements. This statement was
utilized in preparing the consolidated financial statements
for March 31, 2003.
NOTE 3- NOTE PAYABLE - MARYLAND DEPARTMENT OF BUSINESS & ECONOMIC
DEVELOPMENT
The Company entered into an agreement with the Maryland
Department of Business and Economic Development ("DBED") in
the amount of $100,000, which represents DBED's investment in
the Challenge Investment Program ("CIP Agreement") dated March
29, 2001. The term of the CIP Agreement extends through June
30, 2011. Beginning April 30, 2002 and continuing annually
thereafter until April 30, 2011, the Company shall make a
payment (the "Equity Financing Payment") which shall be equal
to 1% of the Company's Aggregate Equity Financing Amount for
the year immediately preceding the April 30th payment date
greater than $500,000, not to exceed $300,000. The Aggregate
Equity Financing Amount shall mean the total amount of capital
raised by the Company through the sale, transfer, or exchange
of its stock, options, warrants or any security convertible
into its stock, options, or warrants during the calendar year
immediately preceding the April 30th payment date. There have
been no payments made on this note. The outstanding balance at
March 31, 2003 is $100,000.
Current portion $ 4,500
Long-term portion 95,500
----------
$ 100,000
==========
-16-
MOBILEPRO CORP AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2003 AND 2002
NOTE 4- CONVERTIBLE DEBENTURES
The Company on May 31, 2002, entered into a Securities
Purchase Agreement with certain investors pursuant to which
the Company issued and sold $250,000 of convertible
debentures. The debentures accrue interest at the rate of four
percent (4%) per year and are convertible at the holders
option. Holders of the debentures have certain registration
rights with respect to the resale of common stock received
upon conversion of the debentures. The term of the debentures
are five years. As of March 31, 2003 there were $215,000
outstanding. Interest accrued approximated $8,333 at March 31,
2003.
NOTE 5- EQUITY LINE OF CREDIT
On May 31, 2002, the Company entered into an equity line of
credit arrangement with Cornell Capital Partners, L.P. that
was terminated on October 16, 2002 and re-entered on the same
day October 16, 2002. This agreement was in turn terminated on
February 6, 2003 and re-entered the same day February 6, 2003.
The equity line provides generally, that Cornell will purchase
up to $10 million of common stock over a two-year period, with
the time and amount of such purchases, if any, at the
Company's discretion. Cornell Capital will purchase the shares
at a 9% discount to the prevailing market price of the common
stock.
There are certain conditions applicable to the Company's
ability to draw down on the equity line including the filing
and effectiveness of a registration statement registering the
resale of all shares of common stock that may be issued to
Cornell under the equity line and the Company's adherence with
certain covenants. The registration statement became effective
approximately May 9, 2003.
In the event Cornell Capital holds more than 9.9% of the
then-outstanding common stock of the Company, the Company will
be unable to draw down on the Equity Line of Credit.
Currently, Cornell Capital has beneficial ownership of 9.9% of
the Company's common stock and therefore would be unable to
draw down on the Equity Line of Credit unless Cornell
Capital's beneficial ownership is below 10%. If the Company is
unable to draw down on the Equity Line of Credit, are unable
to obtain additional external funding or generate revenue from
the sale of its products, the Company could be forced to
curtail or cease operations.
The Company drew $200,000 on the Equity Line on February 26,
2003. This note was payable in eighty-two (82) calendar days.
The Company agreed to escrow ten (10) requests for advances
under the Agreement in amount not less than $20,000. At March
31, 2003 there was $160,000 outstanding on the note. If the
note is not paid in full when due then interest would accrue
at 24% per annum. The Company, as part of the Equity Line of
Credit, advanced 10,000,000 shares of its common stock to the
escrow agent Butler Gonzalez, LLP.
-17-
MOBILEPRO CORP AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2003 AND 2002
NOTE 5- EQUITY LINE OF CREDIT
The Company on May 9, 2003, entered into a second Equity Line
of Credit, for $200,000 with Cornell Capital Partners, L.P.
with the same terms as the February 26, 2003 Equity Line of
Credit.
NOTE 6- LONG-TERM DEBT - SELLERS
In February, 2002, as part of the Company's President's
private purchase of stock, the Company entered into two (2)
promissory notes of $37,500 each ($75,000 total) with the
seller and a related entity to the seller. These notes were
due September 1, 2002 at an annual rate of interest on the
notes of 5%. Since the Company failed to pay the notes on the
due date, interest will be charged at 15%. There were no
payments made and this note is in default. Interest expense
for March 31, 2003 and 2002 were $9,927 and $469,
respectively.
NOTE 7- OFFICERS ADVANCES/ CONVERTIBLE DEBENTURES - OFFICERS
The amounts represent advances to and from officers of the
Company. These advances through March 31, 2003 were
interest-free and anticipated to be repaid in the next year.
The advances were necessary to cover working capital
deficiencies. The balances at March 31, 2003 and 2002 were
$277,617 and $44,262, respectively.
Pursuant to these advances, on May 16, 2003, the Company
entered into two (2) separate 4% convertible debentures with
two officers who advanced the Company the $277,617. The
debentures are due May 15, 2005. The terms of the convertible
debentures are that the Company will accrue interest at 4% per
annum retroactive to the date of the advances, and that
accrued interest plus the principal advanced shall be either
(a) paid to the holder on the second year anniversary (May 15,
2005) or (b) converted from time to time until payment in full
in accordance with the conversion terms as stipulated in the
debenture, except for $30,000 of which is due and payable on
or before September 1, 2003.
NOTE 8- STOCKHOLDERS DEFICIT
The beginning balances reflected as of March 31, 2000 through
June 1, 2001 are those of the former company (registrant)
Craftclick.com, Inc. On June 6, 2001 Craftclick.com, Inc. and
Mobilepro Corp merged under a reverse merger as of June 1,
2001. Upon that merger the stockholders' equity of Mobilepro
Corp (a former private company) under a recapitalization,
became that equity of the public entity. Upon the
recapitalization, 8,750,000 shares were issued to the former
Craftclick.com, Inc.'s stockholders.
Additionally, from June 1, 2001 to March 31, 2002, the Company
issued 8,216,000 shares for services valued at fair market
value. There were 3,025,000 shares issued for conversion of
debt. Finally, 330,000 shares were issued because of a special
warrant.
-18-
MOBILEPRO CORP AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2003 AND 2002
NOTE 8- STOCKHOLDERS DEFICIT (CONTINUED)
On March 12, 2003, the Company amended its Articles of
Incorporation, and pursuant to a board resolution, increased
the authorized level of common stock from 50,000,000 to
600,000,000. In addition, the Company increased the shares
authorized under its 2001 Equity performance Plan from
1,000,000 to 6,000,000.
The following details the stock transactions after the
recapitalization through March 31, 2002.
COMMON STOCK
On June 1, 2001, the Company issued 3,000,000 shares in a
conversion of debt. The issuance of shares were valued at
$480,000 (16 cents per share), the fair value of the Company's
stock at that time.
On June 1, 2001, the Company issued 2,600,000 shares for
services and compensation at a value of $416,000 (16 cents per
share), the fair value of the Company's stock at that time.
On August 1, 2001, the Company issued 330,000 shares that were
the result of the exercising of warrants. The value of
$577,500 ($1.75 per share) was the fair value of the Company's
stock at that time.
On September 6, 2001, the Company issued 1,500,000 shares for
services at a value of $247,500 (16.5 cents per share), the
fair value of the Company's stock at that time.
On October 26, 2001, the Company issued 25,000 shares for
services at a value of $1,250 (5 cents per share), the fair
value of the Company's stock at that time.
On November 19, 2001, the Company had a 1 for 200 reverse
stock split which effectively reduced their issued and
outstanding shares 16,677,711. Additionally, on that date the
Company issued 3,000,000 shares for services in conjunction
with an Investors Rights Agreement at a value of $240,000 (8
cents per share), the fair value of the Company's stock at
that time.
On February 15, 2002, the Company issued 106,000 shares for
services at a value of $111,300 ($1.05 per share), the fair
value of the Company's stock at that time.
On February 19, 2002, the Company issued 25,000 shares in
conversion of a note payable at a value of $26,250 ($1.05 per
share), the fair value of the Company's stock at that time.
On March 18, 2002, the Company issued 960,000 shares for
services. These shares were issued at 55 cents per share
($528,000) based on a Board Resolution on March 6, 2002.
-19-
MOBILEPRO CORP AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2003 AND 2002
NOTE 8- STOCKHOLDERS DEFICIT (CONTINUED)
The following details the stock transactions for the period
April 1, 2002 through March 31, 2003.
COMMON STOCK
On April 23, 2002, we issued 12,352,129 shares of our common
stock to the holders of NeoReach's common stock pursuant to an
Agreement and Plan of Merger, dated March 31, 2002. A newly
formed, wholly-owned subsidiary of Mobilepro merged into
NeoReach, in a tax-free one-for-one share exchange
transaction. The merger was consummated on April 23, 2002. As
a result of the merger, NeoReach is now a wholly-owned
subsidiary of Mobilepro. The issuance of the shares were
valued at a fair value of $6,546,628, based on the last
trading price of $0.53 and assuming there was actual active
trading of our stock at that time. The Company believes the
issuance of the stock to be exempt from registration under
Section 4(2) of the Securities Act.
On May 31, 2002, the Company issued a total of 690,000 shares
of its common stock to the following parties: 450,000 shares
to INFe, Inc., 150,000 shares to Thomas Richfield, 60,000
shares to Francine Goodman, and 30,000 shares to Triple Crown
Consulting. These shares were issued for consulting services
regarding the Mobilepro-NeoReach merger. The issuance of the
shares were valued at $317,400, the fair value of our stock at
that time. The Company believes the value of the services
provided were commensurate with the value of the stock issued.
The Company believes the issuance of the stock to be exempt
from registration under Section 4(2) of the Securities Act.
On June 10, 2002, the Company issued a total of 784,314 shares
of the common stock to the following parties: 764,706 to
Cornell Capital Partners, LP and 19,708 to Westrock Advisors,
Inc. These shares were issued pursuant to an equity line of
credit arrangement with Cornell Capital Partners, dated May
31, 2002. The issuance of the shares were valued at $517,647,
the fair value of our stock at that time. The Company believes
the issuance of the stock to be exempt from registration under
Section 4(2) of the Securities Act.
-20-
MOBILEPRO CORP AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2003 AND 2002
NOTE 8- STOCKHOLDERS DEFICIT(CONTINUED)
COMMON STOCK (CONTINUED)
On July 18, 2002, the Company issued a total of 305,000 shares
of our common stock to various parties. 160,000 shares of the
restricted common stock was issued to Daniel Lozinsky, a
director of the Company, in a private sale for an aggregate
cash consideration of $39,000 based on a Board Resolution as
of July 17, 2002. In addition, the Company also issued 20,000
shares of common stock under the 2001 Equity Performance Plan
and 100,000 restricted common stock as compensation to Mark
Johnson for various merger and acquisition related services
and associated back office services in accordance with a
Consulting Agreement dated July 17, 2002. The Company also
issued 25,000 shares of restricted common stock as
compensation to M. Johnson & Associates, Inc. for certain
services in accordance with an Investor Relations Agreement
dated July 17, 2002. The issuance of the shares was valued at
$65,250, the fair value of the stock at that time. The Company
believes the value of the services provided were commensurate
with the value of the stock issued. The Company believes the
issuance of the stock to be exempt from registration under
Section 4(2) of the Securities Act.
On July 26, 2002, the Company issued a total of 500,000 shares
of its restricted common stock to Capital Research Group, Inc.
for certain investor relations consulting services in
accordance with a Consulting Group Agreement dated July 25,
2002. The issuance of the shares was valued at $220,000, the
fair value of the stock at that time. The Company believes the
issuance of the stock to be exempt from registration under
Section 4(2) of the Securities Act.
On September 4, 2002, the Company issued a total of 709,853
shares of its common stock to various parties. 100,000 shares
were issued to Hee Han Bang, a non-affiliated and
accredited/sophisticated investor in a private sale for an
aggregate cash consideration of $25,000. These shares were
issued at $0.25 per share based on a Board of Resolution
fixing the value of the securities on and as of August 9,
2002. 150,000 shares of the common stock were issued to Daniel
Lozinsky, a director of the Corporation, in a private sale for
an aggregate cash consideration of $15,000. These shares were
issued based on a Board Resolution as of August 19, 2002. The
Company issued a total of 209,853 shares of its common stock
to shares of INFe, Inc. based on a Board Resolution as of
August 19, 2002. These shares were issued for consulting
services in connection with the Mobilepro-NeoReach merger and
a Reverse Merger Engagement
-21-
MOBILEPRO CORP AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2003 AND 2002
NOTE 8- STOCKHOLDERS DEFICIT(CONTINUED)
COMMON STOCK (CONTINUED)
Agreement dated January 11, 2002 between NeoReach, Inc. and
INFe, Inc. The issuance of the shares was valued at $62,956,
the fair value of the stock at that time. The Company also
granted a total of 250,000 shares of our restricted common
stock to Parag Sheth, an executive of the Corporation. Parag
Sheth was granted 150,000 shares of the Company's restricted
common stock for forgiving a total of $15,000 in salary
corresponding to a price of $0.10 per share and he was also
granted 100,000 shares of the Company's restricted common
stock as an inducement for providing services for the
Corporation. These shares were issued based on a Board
Resolution as of August 20, 2002 and the issuance of the
shares was valued at $25,000. The Company believes the value
of the services provided were commensurate with the value of
the stock issued. The Company believes the issuance of the
stock to be exempt from registration under Section 4(2) of the
Securities Act.
On March 4, 2003 the Company issued 658,334 shares to Cornell
Capital for a fee for filing the SB2 registration statement
late. The fair value of the services was $26,333.
On March 5, 2003, the Company issued 10,000,000 shares of its
common stock to the escrow agent for use in raising money on
the Equity Line of Credit.
On March 17th and 25th the Company exchanged 2,739,726 shares
respectively and converted $40,000 of debt in total and
recognized $53,151 of amortization of beneficial interest.
PREFERRED STOCK
There was no change in preferred stock during the year ended
March 31, 2003, and only a slight increase in the number of
shares (47) due to the recapitalization of the Company for the
year ended March 31, 2002.
NOTE 9- PATENTS
As of January 23, 2003, the Company has filed a total of six
patent applications which were pending with the U.S. Patent
and Trademark Office (PTO) in the area of "Smart Antenna"
technology. As of January 23, 2003, the Company has been
granted approval of five patents and one patent application is
still pending approval. The five approved patents are as
follows:
1. "Smart Antenna with Adaptive Convergence Parameter"
with PTO Patent Number 6,369,757, issued April 9, 2002;
2. "A Smart Antenna With No Phase Calibration for CDMA
Reverse Link" with PTO Patent Number 6,434,375 issued
August 13, 2002;
-22-
MOBILEPRO CORP AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2003 AND 2002
NOTE 9- PATENTS (CONTINUED)
3. "PN Code Acquisition with Adaptive Antenna Array and
Adaptive Threshold for DS-CDMA Wireless Communication"
with PTO Patent Number 6,404,803, issued June 11, 2002;
4. "New Cellular Architecture for Code Division Multiple
Access SMOA Antenna Array Systems" with PTO Patent
Number 6,459,895, issued October 1, 2002; and
5. "Direction of Arrival Angel Tracking Algorithm for
Smart Antennas" with PTO Patent Number 6,483,459,
issued date November 19, 2002.
"Improvement of PN Code Chip Time Tracking with Smart
Antenna", a patent application filed on February 6, 2002 with
Docket #3228-007-64 and serial number 10/066,762 is pending -
awaiting first Office Action from Patent Office.
In addition, the Company also has two other patent
applications pending which are referred to as "Wireless
Communication System and Method of Providing Wireless
Communication Service" with specific descriptions to include
"Device and Method for Changing the Orientation and
Configuration of a Display of an Electronic Device" and
"Electronic Device Having Multiple Service Functionality".
Both of these pending patent applications relate to the
business of the Company before the merger with NeoReach. The
Company does not intend to pursue business related to these
patents and intends to assign the patents to the inventor and
former president of Mobilepro.
NOTE 10- GOING CONCERN
As shown in the accompanying consolidated financial statements
the Company has sustained net operating losses for the years
ended March 31, 2003 and 2002. There is no guarantee that the
Company will be able to raise enough capital or generate
revenues to sustain its operations.
Management has received a commitment from Cornell Capital
Partners, L.P. to provide the Company with up to $10 million
in financing under certain conditions and has received funding
in the past fiscal year from Cornell Capital Partners, L.P.
With this funding, the Company's market value decreased
tremendously causing its stock price to drop below $0.01.
Even with continued funding by Cornell Capital Partners, L.P.,
the Company still does not have any operating revenues,
therefore this raises substantial doubt as to the Company's
ability to continue as a going concern. Management is
searching for a viable operating entity to consider as a
merger partner in an effort to produce positive operations and
cash flows.
-23-
MOBILEPRO CORP AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2003 AND 2002
NOTE 11- COMMITMENTS
In April 2002, NeoReach, Inc. established a technology
alliance with Prime Circuits, Inc. Prime Circuits is a
privately-held semiconductor developer based in Greenbelt, MD
that specializes in ultra small, ultra low power analog,
digital and hybrid chipsets. Prime Circuits' technology is
currently in use in a number of NASA applications at Goddard
Space Flight Center.
As part of the alliance, NeoReach will gain access to
technical knowledge, personnel and low power semiconductor
technology that NeoReach believes will greatly expand its
digital modem suite. This solution targets the consumer
handsets and network transmission base stations to support 3G
communications.
On May 10, 2002 the Company announced that Arne Dunhem was
appointed the Chairman, President and CEO of Mobilepro Corp.
Mr. Dunhem has over 28 years of experience in the growth of
high technology companies, especially in the
telecommunications field.
On November 8, 2002, the Company entered into a sublease
agreement with Amisys, L.L.C. The term of the lease was
effective December 1, 2002 and terminates December 31, 2006. A
security deposit of $9,518 was required at execution of the
lease and has been made.
Minimum annual rental payments for the next five years are as
follows:
March 31,
---------
2004 $105,700
2005 $120,364
2006 $125,188
2007 $130,196
2008 $ 44,540
NOTE 12- IMPAIRMENT OF GOODWILL
As part of the Company's acquisition of its subsidiary
NeoReach, Inc., the Company recognized $7,190,374 in goodwill
which represented the excess of the fair value of the stock
paid for the net assets received in accordance with FASB No.
142. Management has considered this goodwill to be completely
impaired and is reflected in the consolidated statements of
operations for the year ended March 31, 2003 as such.
-24-
MOBILEPRO CORP AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2003 AND 2002
NOTE 13- LITIGATION/ LEGAL PROCEEDINGS
As of March 31, 2003, the Company was party to four legal
proceedings. Mr. Tatcha Chulajata, a former employee of
Mobilepro filed a formal complaint against the Company on
October 29, 2002 with the State of Maryland, Department of
Labor, Licensing and Regulation for a claim for unpaid wages.
The employee claims a total of $49,866.67 for unpaid wages
from August 2001 through October 2002. Mr. Chulajata was
employed by NeoReach, Inc. on July 15, 2000 as Senior Engineer
and he resigned in October 2002. Due to financial difficulties
encountered by the Company in 2001 and 2002, Mr. Chulajata
received a reduced salary. The Company is currently
negotiating a settlement with the employee with respect to the
claim. This amount is included in accrued wages at March 31,
2003.
Mobilepro and NeoReach, Inc. were on December 31, 2002 served
with three complaints in the United States District Court for
the District of Maryland in three separate actions seeking
relief for failure to pay wages and breach of contract. The
three plaintiffs are in the three separate actions seeking
relief of approximately $59,334.67, $65,383.34 and $60,750.00,
respectively. The three plaintiffs are former employees named
Mr. Man Hyuk Park, Mr. Sang Humn Lee and Mr. Yang Hoon Jung
and all were employed as Senior or Principal Engineer since
September 2001, June 2000 and August 2001, respectively. Due
to financial difficulties encountered by Mobilepro in 2001 and
2002, the three individuals received reduced salaries.
Mobilepro is currently negotiating settlements with the three
former employees with respect to the claims. The Company has
included these amounts in accrued wages at March 31, 2003.
Mr. Scott R. Smith, a former executive of NeoReach, Inc. filed
a formal complaint against the Company on January 10, 2003
with the State of Illinois, Department of Labor for a claim
for unpaid wages. The former executive claimed a total of
$97,335 for unpaid wages from February 2002 through August
2002. The complaint was subsequently dismissed by the State of
Illinois, Department of Labor in April 2003.Mr. Smith was
employed by NeoReach, Inc. on February 19, 2002 as Executive
Vice President and his employment agreement expired on August
18, 2002. Due to financial difficulties encountered by
Mobilepro in 2002, Mr. Smith's salary was deferred as part of
an agreement between Mr. Smith and Mobilepro. A settlement
agreement was mutually signed and executed on August 30, 2002.
Due to the Company's inability to pay full amounts per the
settlement agreement, negotiations have been ongoing for an
adjusted payment plan. As of the date of this report, no
revised settlement agreement has been reached. The Company has
recorded the full liability on its books at March 31, 2003.
Virginia University of Technology, Sponsored Programs, claims
from the Company approximately $80,000 for unpaid research and
development work performed by the University for NeoReach
during the years 2001 and 2000. The Company is currently
negotiating a settlement with the University with respect to
the claim. This amount is currently reflected in accounts
payable for the Company at March 31, 2003.
-25-
MOBILEPRO CORP AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2003 AND 2002
NOTE 13- LITIGATION/ LEGAL PROCEEDINGS (CONTINUED)
Dungavel, Inc. claims from the Company as a result of the
February 19, 2002 Stock Purchase Agreement between Mr.
Daniel Lozinsky and Dungavel, Inc. a total of $37,500. The
Company intends to negotiate a settlement with Dungavel with
respect to this claim. This amount is currently accounted
for in the notes payable outstanding at March 31, 2003.
NOTE 14- SUBSEQUENT EVENTS
The Company on May 9, 2003, entered into a second Equity Line
of Credit, for $200,000 with Cornell Capital Partners, L.P.
with the same terms as the February 26, 2003 Equity Line of
Credit.
On May 16, 2003, the Company entered into two (2) separate 4%
convertible debentures with two officers who advanced the
Company the $277,617. The debentures are due May 15, 2005. The
terms of the convertible debentures are that the Company will
accrue interest at 4% per annum retroactive to the date of the
advances, and that accrued interest plus the principal
advanced shall be either (a) paid to the holder on the second
year anniversary (May 15, 2005) or (b) converted from time to
time until payment in full in accordance with the conversion
terms as stipulated in the debenture, except for $30,000 of
which is due and payable on or before September 1, 2003.
The Company has executed a Memorandum of Understanding (MOU)
under which it intends to acquire GBH Telecom, LLC (GBH) in a
tax-free stock swap transaction. The Company anticipates to
close the transaction in its second fiscal quarter.
GBH is a development stage company that operates a web-based
enterprise web-portal offering prepaid, subscription-based
U.S. domestic and International voice and data services.
Under the terms of the MOU, upon completion of the proposed
transaction, GBH shareholders are anticipated to secure a
majority control position within the Company.
-26-
MOBILEPRO CORP AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2003 AND 2002
NOTE 15- PROVISION FOR INCOME TAXES
The Company did not provide for income taxes in the years
ended March 31, 2003 and 2002. Additionally, the Company
established a valuation allowance equal to the full amount of
the deferred tax assets due to the uncertainty of the
utilization of the operating losses in future periods.
At March 31, 2003 and 2002, the deferred tax assets consists
of the following:
2003 2002
----------------- ------------------
Deferred taxes due to net operating loss
carryforwards $ 3,671,000 $ 1,563,018
Less: Valuation allowance (3,671,000) (1,563,018)
----------------- ------------------
Net deferred tax asset $ - $ -
================= ==================
-27-
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Effective June 6, 2002, the Board of Directors of Mobilepro Corp. (the
"Company") dismissed its independent auditors, Mantyla, McReynolds & Associates
("Mantyla"), and engaged the services of Bagell, Josephs & Company, L.L.C.
("Bagell"), as its new independent auditors. Bagell audited the Company's
financial statements for the fiscal year ended March 31, 2002 and will audit the
Company's financial statements for the fiscal year ended March 31, 2003.
During the two fiscal years of the Company ended March 31, 2001, and the
subsequent interim period through June 6, 2002, there were no disagreements
between the Company and Mantyla on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to Mantyla's satisfaction, would have caused
Mantyla to make reference to the subject matter of the disagreements in
connection with its reports; and there were no reportable events described under
Item 304(a)(1)(v) of Regulation S-K.
The audit reports of Mantyla on the Company's financial statements as of and for
the fiscal years ended March 31, 2000 and 2001 did not contain any adverse
opinion or disclaimer of opinion, nor were they qualified or modified as to
uncertainty, audit scope or accounting principles, other than a fourth
explanatory paragraph describing going concern contingencies.
During the two most recent fiscal years of the Company ended March 31, 2001, and
the subsequent interim period through June 6, 2002, the Company did not consult
with Bagell regarding any of the matters or events set forth in Item
304(a)(2)(i) and (ii) of Regulation S-K.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
Certain information about the directors and executive officers of the Company as
of March 31, 2003 is included below.
----------------------- ---------- ------------------------------------- ------------------- -------------------
Name Age Position Director or Term Expires
Officer Since
----------------------- ---------- ------------------------------------- ------------------- -------------------
Arne Dunhem 53 Treasurer and Director February 19, 2002 2003
----------------------- ---------- ------------------------------------- ------------------- -------------------
Daniel Lozinsky 42 President and CEO and Chairman February 28, 2002 2003
----------------------- ---------- ------------------------------------- ------------------- -------------------
Kyung (Ken) Min (Note 47 Senior Vice-President of NeoReach, February, 2000 2003 (Note 1)
1) Inc.
----------------------- ---------- ------------------------------------- ------------------- -------------------
Parag Sheth 35 Senior Vice-President of NeoReach, July, 2002 2003 (Note 2)
(Note 2) Inc.
----------------------- ---------- ------------------------------------- ------------------- -------------------
Note 1. Mr. Min, on November 13, 2002, resigned from the Board of Directors of
Neoreach, Inc and from the Company on November 13, 2002. His position has
currently not been filled on the Board.
Note 2. Mr. Sheth, on June 19, 2002, resigned from the Company. His position has
currently not been filled.
The following describes the business background and the experience of each of
the directors and executive officers of the Company:
39
Mr. Daniel Lozinsky, was appointed a Director of the Company on February 19,
2002 and was the Company's President and CEO and Chairman between February 28,
2002 and May 10, 2002. Daniel Lozinsky has 17 years of management and software
development experience with small and large multinational corporations. Mr.
Lozinsky was between October 2001 and February 2002 working as a strategic
financial and management advisor. Mr. Lozinsky was between March 2001 and
October 2001 President and CEO of VCmed Inc. a scientific medical start-up
company that was attempting to bring to the market Cancer Research technology
developed at MIT and Harvard, which allowed for early detection not otherwise
available. Mr. Lozinsky was between February 1999 and February 2001working as a
business advisor to include public relations firms for international business.
Prior to that Mr. Lozinsky was between April 1995 and January 1999 senior
software engineer of AOL, Host Systems internet department, that allowed to meet
AOL's growing Internet demands during the highest AOL's growth period between 96
and 99, when the company grew from 4 million to 21 million users. He was working
for AOL's MIS (BISY) department between 4/95 - 6/96. Prior to that Mr. Lozinsky
was employed as a senior software engineer at Eastman Kodak Corporation in
Rochester NY between 9/89 - 4/95. He was an internal software consultant to
multiple Kodak's lines of business. Mr. Lozinsky worked on Kodak PhotoCD system
that is widely available now and allows scanning film into digital format and
printing to paper or CD. He specifically worked for CD writer devices and
testing firmware software components that he developed for the system. During
those years he worked for Kodak's Mass Memory Division that manufactured and
sold optical drives and jukeboxes to commercial companies and government
offices. Working as a designer and developer of software and, occasionally as a
support engineer, he participated in winning for Kodak and delivering large
government contracts to include ADMAPS to US NAVY Printing and Publishing.
During that project Mr. Lozinsky worked both in Rochester and at the Navy
Technology Pilot Lab at Port Hueneme, Ca. Prior to that, between 8/87 - 9/88,
Mr. Lozinsky worked as a programmer analyst for PaineWebber Strategic Technology
Department, on the PaineWebber Backup System to the Maine Network at the
Weehaken Center in NJ. Prior to that, during 8/85 - 5/87, Mr. Lozinsky worked as
a programmer and systems analyst for Merrill Lynch, Real Time Pricing Group that
delivers NYSE financial data to different departments of Merrill Lynch. Mr.
Lozinsky holds MS/CS from Stevens Institute of Technology in Hoboken NJ, 1/89.
He also holds BS/CS from Polytechnic Institute of NY, 1/84.
Mr. Arne Dunhem was appointed a Director and Treasurer of the Company in
February 2002 and was appointed the Chairman, President and CEO of Mobilepro on
May 10, 2002. Mr. Dunhem has over twenty-eight years general management and
engineering experience with large complex multinational corporations, large
international organizations as well as early stage technology companies. He has
been instrumental in arranging more than $300 million in investor and vendor
financing commitments and is knowledgeable in all aspects of business,
management, information systems, network operations and engineering. Between
July 2001 and January 2002 Mr. Dunhem was working as a strategic business
consultant and was in January 2002 hired by Neoreach, Inc. as its President &
CEO. Mr. Dunhem was between November 1998 and June 2001 the Chairman & CEO of
erbia, Inc. a long-distance communications company where he took the company
from its start-up phase through the sale of the operation to another company. He
was working between January 1998 and October 1998 as a strategic business
consultant. Prior to this he was between 1993 and September 1997 the Chairman of
Tele8 Kontakt AB, a Swedish nationwide start-up wireless operator and also
between 1993 and December 1997 the Chairman of Nordiska Tele8 AB of Sweden, a
long distance and local telephone service company. Here again, he took the
company from its start-up phase through full operation and eventually the sale
of the companies. Mr. Dunhem was between September 1989 and April 1990 the
Executive Vice President, Engineering & Operations of Comvik Skyport AB, a
Swedish telecommunications company providing satellite and data communications
services. During the period September 1978 and June 1989 Mr. Dunhem was with
INTELSAT, Washington, D.C., an international satellite communications
organization in a capacity growing from staff engineer to program manager where
he had responsibilities for building-up some of the world's largest command,
control and monitoring networks. He has also been with the Saab-Scania
corporation and the Swedish Telecom. Mr. Dunhem earned his M.Sc. in 1974 in
space telecommunications from Chalmers University of Technology, Sweden and has
lived in the Washington, D. C. area since 1978.
Mr. Kyung (Ken) Min, Consultant, Founder and former Senior Vice President, New
Technologies of NeoReach, Inc. is a seasoned professional with twenty years of
experience in the cellular and digital communications industries, Ken has
specialized in the areas of business development, marketing, systems integration
and engineering. Ken has had extensive experience in designing and marketing
emerging technologies including GSM, CDMA, PCS, W-CDMA, small area base
stations, and satellite communications. During his eleven years between May 1981
and June 1992 with Motorola, the Senior Product Manager of the Cellular Business
Marketing and Sales unit developed wireless
40
devices, including base stations, and formed strategic alliances to ensure
product market entry on-time and within budget. Min spent more than three years
between July 1992 and December 1995 as the General Manager for
Telecommunications R&D at Samsung Electronics, heading the development of IS-95
CDMA, followed between January 1996 and June 1998 by a successful directorship
of the PCS unit at Hyundai Electronics where Min managed two hundred engineers
and technical marketing staff. Min represented Samsung and Hyundai in the CDMA
Development Group (CDG) steering committee from 1994-1998. Min served between
October 1998 and February 2000 with Hughes Network Systems as the Technical
Director for mobile satellite projects with responsibilities for project
management and system integration. As the founder in February 2000 of NeoReach,
Min served in a capacity where he could most effectively capitalize on his
experience in engineering and business development. Min earned his Master of
Engineering at the Institution of Illinois Technology and holds a bachelor's
degree in Computer Science from the University of Illinois.
Mr. Parag Sheth, Senior Vice President, Marketing and Business Development,
joins the Company with a background of more than fourteen years as a leading
person in the marketing and business development field. After his experience
between July 1996 and March 1998 as the Director of Sales at Data Labs (later
acquired by Lucent Technologies), Mr. Sheth served between March 1998 and June
2000 as the VP of Marketing at Siemens Information and Communications Networks
where he coordinated a global marketing campaign for their broadband products,
introducing a solutions sales approach, refocusing technical sales and customer
support, and increasing sales by an impressive 400% in six months. In the same
position between July 2000 and December 2000 with Woodwind Communications, a
Voice over Broadband (VoB) product manufacturer, Mr. Sheth contributed to the
firm's acquisition by VINA technologies by creating a unique product brand in a
saturated market while positioning the company with partners. He also devised
and implemented a successful public relations campaign to generate widespread
media coverage and secure analyst validation. While between January 2001 and
June 2002 working at Vibrant Solutions in Corporate Communications and Product
Marketing, Mr. Sheth led the marketing teams in achieving measurable returns for
the company that included four awards nominations and the "Hot Start-up 2002
Award" from Telecommunications Magazine. NeoReach welcomes Mr. Sheth's expertise
in spearheading the creation and implementation of company strategy and vision,
product launch, and the development of internal and external communications
programs. Mr. Sheth has a BSEE from the State University of New York, Buffalo
and an AAS degree from Rockland Community College. Mr. Sheth resigned from the
Company on June 19, 2003.
Our Board of Directors, as of March 31, 2003, consisted of Messrs. Lozinsky and
Dunhem listed above.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than 10% of the
Company's common stock, to file with the Securities and Exchange Commission
("SEC") the initial reports of ownership and reports of changes in ownership of
the common stock. Officers, directors and greater than 10% stockholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file. The Company has received Form 4, Statement of Changes of
Beneficial Ownership of Securities from Messrs. Daniel Lozinsky (one group of
transactions) and Arne Dunhem (one group of transactions); each of whom had
failed to file such form on a timely basis.
41
ITEM 10. EXECUTIVE COMPENSATION
The following table reflects compensation paid to our mostly highly compensated
executive officers and directors for the year ended March 31, 2003.
Long Term Compensation
----------------------------------
Awards
------------------------
Annual Compensation Restricted Securities Payouts
---------------------------------------- -----------
For Fiscal Stock Underlying LTIP All Other
Year Ended Salary Bonus Other Awards Options Payouts Compensation
Name And Principal Position March 31, ($) ($) ($) ($) SARS (#) ($) ($) (1)
--------------------------------------------------------------------------------------------------------------------
2003 $ 0 $ 0 $ 0 $ 0 0 0 $ 0
Daniel Lozinsky 2002 $ 0 $ 0 $ 0 $ 0 0 0 $ 140,250
Director 2001 $ 0 $ 0 $ 0 $ 0 0 0 $ 0
2000 $ 0 $ 0 $ 0 $ 0 0 0 $ 0
--------------------------------------------------------------------------------------------------------------------
2003 $45,000 $ 0 $ 0 $ 0 0 0 $ 0
Arne Dunhem 2002 $ 0 $ 0 $ 0 $ 0 0 0 $ 195,250
CEO/Chairman, Director 2001 $ 0 $ 0 $ 0 $ 0 0 0 $ 0
2000 $ 0 $ 0 $ 0 $ 0 0 0 $ 0
--------------------------------------------------------------------------------------------------------------------
2003 $12,000 $ 0 $ 0 $ 0 0 0 $ 0
Scott Smith 2002 $ 53,652 $ 0 $ 0 $ 0 0 0 $ 80,000
Former Director & former CEO 2001 (2) $ 218,750 $ 0 $ 0 $ 0 0 0 $ 0
2000 $ 0 $ 0 $ 0 $ 0 0 0 $ 0
--------------------------------------------------------------------------------------------------------------------
2003 $20,000 $ 0 $ 0 $ 0 0 0 $ 0
Ken Min (3) 2002 $ 0 $ 0 $ 0 $ 0 0 0 $ 0
Former Executive Officer 2001 $ 0 $ 0 $ 0 $ 0 0 0 $ 0
(NeoReach) 2000 $ 0 $ 0 $ 0 $ 0 0 0 $ 0
--------------------------------------------------------------------------------------------------------------------
Notes:
(1) All of the amounts listed in this column paid to directors and
officers in the form of stock. The amounts listed are the fair
market value of the stock on the date of the grant.
(2) The compensation for the period ended 3/31/2001 was earned
while Mr. Smith was an employee of MobilePro Corp, a private
company, prior to its reverse merger dated June 6, 2002. This
amount was accrued and Mr. Smith took no cash payments for
salary while at MobilePro Corp, a private company. On February
of 2002 in connection with the Stock Purchase Agreement with
Mr. Daniel Lozinsky and Dungavel, Inc., and in connection with
another Stock Purchase Agreement with Mr. Daniel Lozinsky, Ms.
Joann Smith and Mr. Scott Smith, Mr. Smith forgave the payment
of this accrued amount. Part of the compensation Mr. Smith
received for his forgiveness of the accrued salary was 25,000
shares of the Company's common stock, valued on the date of
issuance at $26,250. This amount is included in the All Other
Compensation column of this table. As of 3/31/2003, the
Company owes Mr. Smith an accrued salary amount.
(3) Ken Min was an Executive Officer of the wholly owned
subsidiary NeoReach, Inc. upon the merger that was consummated
on April 23, 2002 until his resignation on November 13, 2003.
No other person makes over $100,000 per year.
42
COMPENSATION OF DIRECTORS
We do not currently compensate directors in cash for any services provided as a
director. Persons who are directors and employees have been additionally
compensated for their services as a director in the form of common stock of the
Company. There is no formal plan in place for compensation of persons who are
directors who are not employees of the Company, but it is expected that in the
future we will create a formal remuneration and reimbursement plan.
OTHER COMPENSATION ARRANGEMENTS
On December 4, 2001, we registered 1,000,000 shares of our common stock in an
S-8 filing with the Securities and Exchange Commission as part of the 2001
Equity Performance Plan. In March 2002, we issued 355,000 shares of the
Company's common stock to Mr. Arne Dunhem, 255,000 shares of the Company's
common stock to Mr. Daniel Lozinsky, and 25,000 shares of the Company's common
stock to Mr. Scott Smith for compensation as officers and directors. In June
2001, we issued 250,000 to Mr. Scott Smith and 50,000 to Mr. Howard Geisler, Mr.
Mitchell Geisler, and Ms. Cindy Roach for compensation as officers and directors
(See "RECENT SALES OF SECURITIES").
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of July 11, 2003, the name and shareholdings,
including options to acquire our Common Stock, of each person who owns of
record, or was known by the us to own beneficially, 5% or more of the shares of
the Common Stock currently issued and outstanding; the name and shareholdings,
including options to acquire the Common Stock, of each director; and the
shareholdings of all executive officers and directors as a group. The address of
each of the individuals listed below is the address of the Company.
==============================================================================================================
Beneficial
Ownership (1)
==============================================================================================================
Series A
Common Stock Preferred Percent of
Name and Address Common Stock Options (2) Stock (3) Total (4) Ownership (5)
==============================================================================================================
Daniel Lozinsky (6)
C/o 30 West Gude Drive #480
Rockville, MD 20850 6,928,694 5,555,556 - 12,484,250 15.97%
==============================================================================================================
Arne Dunhem (7)
C/o 30 West Gude Drive #480
Rockville, MD 20850 2,601,244 3,412,491 - 6,013,735 7.91%
==============================================================================================================
Ken Min (8)
11101 Lamplighter Lane
Rockville, MD 20854 2,833,156 - - 2,833,156 3.90%
==============================================================================================================
Cornell Capital Partners (10)
101 Hudson Street, Ste 3606
Jersey City, NJ 07302 5,716,737 - - 5,716,737 7.87%
==============================================================================================================
All Others (11) 54,559,589 8,969,109 35,378 63,528,875 77.85%
==============================================================================================================
All executive officers and
directors as a group (2
persons) (12) 9,529,938 8,968,047 - 18,497,985 22.67%
==============================================================================================================
Total 72,639,420 17,937,156 35,378 90,576,753 100.00%
==============================================================================================================
43
(1) Unless otherwise indicated, the Company believes that all persons named
in the table have sole voting and investment power with respect to all
shares of Common Stock beneficially owned by them. A person is
considered to be the beneficial owner of securities that can be
acquired by that person within 60 days of July 11, 2003 upon the
exercise of warrants or option or the conversion of convertible
securities.
(2) Options to purchase shares of Common Stock that are presently or will
become exercisable within 60 days.
(3) Each share of Series A Preferred Stock is convertible without
additional consideration into one two-hundredth of a share of Common
Stock, subject to adjustment for stock splits, stock dividends and
other recapitalizations and reorganizations. As of July 11, 2003, the
35,378 shares of Series A preferred stock is currently convertible into
177 shares of Common Stock, subject to the issuance of additional
fractional shares for rounding purposes. The holders of the Series A
Preferred Stock and Common Stock vote together as a single class on all
matters presented for the vote of the Company's stockholders. Each
preferred stockholder may cast a number of votes equal to the number of
shares of Common Stock issuable upon conversion of his or her preferred
stock.
(4) Assumes that the beneficial owners' shares of Series A Preferred Stock
have been converted into Common Stock, and warrants to purchase shares
of Common Stock have been exercised.
(5) Each beneficial owner's percent ownership is determined by assuming
that options or warrants that are held by that person (but not those
held by any other person) and which are exercisable within 60 days have
been exercised and that shares of Series A Preferred Stock that are
held by that person (but not those held by any other person) have been
converted into Common Stock.
(6) Includes shares owned by Mr. Daniel Lozinsky. Mr. Lozinsky is currently
a Director of the Company and under the Common Stocks Options column
the assumtion of Mr. Lozinsky exercizing as of July 11, 2003 his
convertible debenture with the Company. His address is c/o MobilePro
Corp. 30 West Gude Drive, Suite 480, Rockville, MD 20850.
(7) Includes, owned by Mr. Arne Dunhem, the following: 2,601,244 shares,
421,038 options vested and excercisable within 60 days and under the
Common Stocks Options column the assumtion of Mr. Lozinsky exercizing
as of July 11, 2003 his convertible debenture with the Company. These
421,038 options were granted under an Employment Agreement between
Neoreach and Mr. Arne Dunhem dated January 4, 2002 and were converted
to Mobilepro options upon the merger between Neoreach and Mobilepro.
Mr. Dunhem is currently the President, Chaiman and CEO and Director of
the Company. His address is c/o MobilePro Corp. 30 West Gude Drive,
Suite 480, Rockville, MD 20850.
(8) Includes 2,833,152 shares owned by Mr. Ken Min. Mr. Min is a former
executive officer of the Company. His address is 11101 Lamplighter
Lane, Potomac, MD 20854.
(10) Cornell Capital Partners, LLP is a New Jersey-based domestic investment
fund. They use a variety of funding techniques, including both
convertible instruments and equity lines of credit (also known as
Private Investments in Public Equities or PIPEs) in making direct
investments in small- to-midsized publicly traded companies in emerging
markets. Mark A. Angelo is its President. Their address is 101 Hudson
St. Suite 3606, Jersey City, NJ 07302. All investment decisions of
Cornell Capital Partners are made by its general partner, Yorkville
Advisors, LLC. Mark A. Angelo, the managing member of Yorkville
Advisors, LLC, makes the investment decisions as a control person on
behalf of Yorkville Advisors.
(11) As of July 11, 2002, the common stock options column in this row
includes 1) options to employees convertible into 2,302,443 shares of
the Company's common stock, and 2) options to convert a $130,000 note
payable into the Company's common shares based on a price of 120% of
the closing bid price as
44
quoted on the Nasdaq Bulletin Board System. As of July 11, 2003, the
note can be converted into 6,666,666 shares of the company's common
stock.
(12) As of July 11, 2003, executive officers and directors include Daniel
Lozinsky and Arne Dunhem.
There are currently 2,723,480 outstanding options to purchase shares of our
stock, of which 2,512,962 are currently vested and excercisable within 60 days.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the period ended March 31, 2000, Mr. Peter Yollin, a shareholder and
officer, the Chairman & CEO of the Company, received advances of $13,000. These
secured advances were eliminated as part of winding up the website business.
Mr. Howard Geisler, a former secretary and director of the Company, during the
period January 2001 through May 2001 provided our office space on a gratis
basis.
The Company sold its investment of 450,706 shares of Popmail.com to meet its
financial obligations in the quarter ended September 30, 2000. The shares were
"Restricted" under Rule 144. The stock was sold to Stephen C.Wolfe, being an
investor and creditor, a related party at the time of the sale, for $74,650. The
loss of $425,350 was charged to the Income Statement during the period ended
September 30, 2000. $225,353 of the loss was due to market value decline during
the holding period. The market value of the stock at the date of sale was
$366,156.
In connection with the merger effective June 1, 2001, between MobilePro and
Craftclick, a significant shareholder, Dungavel, Inc. was issued 250,000 shares
of the Company's common stock. Also in connection with the merger, ZDG
Investments Ltd., a Toronto investment company, was issued 1,475,000 shares of
the Company's common stock. The stock was given for services rendered with
regard to the merger. The Company believes that Rob Landau is the control person
of Dungavel, Inc. Mr. Landau is also the president of ZDG Investments Ltd. The
fair market value of the shares given to Dungavel and ZDG were expensed in the
amounts of $40,000 and $236,000, respectively.
Also in connection with the merger effective June 1, 2001, between MobilePro and
Craftclick, a significant shareholder, Dungavel, Inc. converted a $50,000 note
payable plus accrued interest into 3,000,000 shares of common stock of the
Company. The note payable was originally issued by MobilePro prior to the merger
into the public entity. The fair market value of the issued stock was $480,000.
The difference between the face value of the note and its accrued interest was
expensed in the period.
In February of 2002, Mr. Daniel Lozinsky, the President of the Company loaned
the Company a net amount of $44,262 to pay certain creditors at 5% interest due
on demand. The officer has waived interest until April 2002.
On August 30, 2002 the Company signed and executed a mutual settlement agreement
with Scott Smith, a former executive and director of the Company. The agreement
calls for payments of a total of $69,682.74 as follows: $15,000.00 by September
15, 2002 or upon a subsequent bridge loan from Cornell Capital, whichever is
earliest; $17,182.74 by October 15, 2002 or when a certain Registration
Statement becomes effective for an Equity Line of Credit with Cornell Capital or
upon Cornell Capital funding, whichever is earliest; and the Payment of
Promissory Note with confession of judgment to Joann Smith at $37,500 by
September 15, 2002 or upon a subsequent bridge loan from Cornell Capital,
whichever is earliest. In addition, the Company also agreed to issue to Scott
Smith a total of 100,000 shares of Common Stock of the Company and register
these shares under an S-8 registration. Due to significant delays with the
effectiveness of the Registration Statement and that the Company did not receive
a subsequent bridge loan and that funds received under the Cornell Capital
financing was much less than anticipated, the Company has as of yet not been
able to comply with the settlement agreement with Scott Smith. The Company
intends to continue to work out a resolution that is amicable to both Scott
Smith and the Company.
Two directors and officers of Mobilepro advanced the total amount of $277,617 to
Mobilepro. Daniel Lozinsky, a Director of Mobilepro, advanced to Mobilepro
during the period February 9, 2002 through June 20, 2002 a total of
45
$155,617 as follows: $23,262 on February 9, 2002; $25,000 on February 19, 2002;
$76,355 on April 25, 2002; $15,000 on May 16, 2002; $4,000 on June 3, 2002; and
$12,000 on June 20, 2002, with a repayment by Mobilepro on or before March 1,
2003 at an ordinary market rate, not to exceed 5.00%. Arne Dunhem, the President
and Chief Executive Officer of Mobilepro, advanced to the Company during the
period April 19, 2002 through May 6, 2002 a total of $122,000 as follows:
$46,000 on April 19, 2002; $40,000 on April 25, 2002; and $36,000 on May 6,
2002, with a repayment by the Company on or before March 1, 2003 at an ordinary
market rate, not to exceed 5.00%. As of July 11, 2003, the principal balance of
these loans remains at $277,617 plus an interest of approximately $15,000. As of
July 11, 2003, the Company has repaid $2,000 to Arne Dunhem but made no
repayment to Danel Lozinsky on these loans. On May 15, 2003 the Company issued a
$155,617 convertible debenture to Daniel Lozinsky and the Company also issued a
$122,000 convertible debenture to Arne Dunhem.
On May 15, 2003, Mobilepro issued convertible debentures to Daniel Lozinsky and
to Arne Dunhem in the original principal amount of $155,617 and $122,000
respectively. A maximum principal amount of for Daniel Lozinsky $130,000 and
Arne Dunhem $70,000 respectively is convertible into shares of our common stock
at a price equal to either 120% of the closing bid price of our common stock as
of May 15, 2003, or 120% of the average of the four lowest closing bid prices of
our common stock for the five trading days immediately preceding the conversion
date. If such conversion had taken place on July 11, 2003, then the holder of
the convertible debenture would have received 5,555,556, respectively for Daniel
Lozinsky, and 2,991,453, for Arne Dunhem, shares of our common stock. If, at the
time of conversion, the Common Stock is listed on the NASD Bulletin Board
System, Nasdaq SmallCap Market, or American Stock Exchange, the conversion price
will be 120% of the closing bid price. The convertible debentures accrue
interest at a rate of 4% per year and are convertible at the holder's option.
The convertible debentures have a term of two years. At Mobilepro's option, the
convertible debentures may be paid in cash or converted into shares of our
common stock on the second anniversary unless converted earlier by the holder.
As of July 11, 2003 the Holders had made no conversion.
INVESTORS RIGHTS AGREEMENT
On June 6, 2001, CraftClick.Com, Inc. a Delaware corporation ("CraftClick"), and
Mobilepro Corp., a Delaware corporation ("Mobilepro"), entered into an Agreement
and Plan of Merger dated as of June 1, 2001 ("Merger Agreement"). Under the
Merger Agreement Mobilepro merged with and into CraftClick, with CraftClick
being the surviving corporation and the certificate of incorporation and bylaws
of CraftClick being the constituent documents of the surviving corporation
("Merger").
In connection with the Merger, Mr. Scott R. Smith was appointed as a director of
CraftClick by the existing board of directors. After the appointment, Mr.
Mitchell Geisler and Ms. Cindy Roach, two of the then current directors of
CraftClick, Inc. resigned. Mr. Smith was appointed the President and Chief
Executive Officer and Chairman and Mr. Howard Geisler was appointed the
secretary of CraftClick.
In connection with the Merger, CraftClick issued to Ms. Joann M. Smith an
aggregate of 8,227,663 shares of common stock representing approximately 55% of
the 14,907,196 issued and outstanding shares of common stock of CraftClick
immediately after the Merger. Ms. Smith is the wife of Mr. Scott R. Smith, the
President, Chief Executive Officer and Chairman of CraftClick after the Merger.
Ms. Smith will be the single largest stockholder of CraftClick after the Merger.
To obtain the support for the Merger and the Merger Agreement from the largest
stockholder of CraftClick prior to the Merger, CraftClick entered into an
Investor Rights Agreement ("Investor Rights Agreement") with Dungavel, Inc.
simultaneously with the Merger Agreement. The Investor Rights Agreement provides
a number of rights to Dungavel, including:
- The right to have a person of its selection as a director of the
company, who currently is Mr. Howard Geisler, and a limit of three
persons as the size of the board of directors;
- Limitations on the issuances of securities of the company representing
more than 2.5% of the outstanding common stock in any transaction in a
three month period at less than the greater of the market price or
$1.00 per share for cash or for no cash consideration;
46
- Limitations on the creation of any class of securities that has the
right to elect any directors, to receive any dividends or to have the
securities registered for public resale, unless approved by Dungavel;
- Limitations on the ability of the company to merge, combine or
consolidate with another entity, repurchase any common stock of the
company, recapitalize the common stock to reduce the number of shares
outstanding, or declare a stock split or stock dividend without the
consent of Dungavel; or if no consent is given by Dungavel and the
company proceeds with the transaction, then the company must issue
3,000,000 post-transaction shares of common stock (or their equivalent)
to Dungavel; and
- The right to request information about the company in addition to
publicly disclosed information.
Although the above rights are granted to Dungavel and may be exercised within
its sole discretion, Dungavel believes that these above rights will benefit all
stockholders. The above rights last for five years after the Merger or, in some
instances, only so long as Dungavel owns at least 2.5% of the issued and
outstanding common stock or the right to acquire 2.5% of the issued and
outstanding common stock
In addition, the Investor Rights Agreement provides for registration rights for
common stock owned by Dungavel, and the right of first refusal and tag along
rights in the event Mr. Smith or his wife sell any of their shares of common
stock in a private transaction. Mr. and Ms. Smith have agreed that they will
also vote any shares of common stock, over which they have voting control, in
favor of the person Dungavel selects as its director nominee.
On November 19, 2001, the Company implemented a 200 for 1 reverse stock split,
which resulted in 84,492 shares outstanding. Concurrent with the reverse stock
split and as required pursuant to the Investor Rights Agreement, the Company
issued 3,000,000 new shares of common stock to Dungavel, Inc., an investor in
the Company.
On February 19, 2002, the Company entered into a Stock Purchase Agreement with
Mr. Daniel Lozinsky and Dungavel, Inc., and another Stock Purchase Agreement
with Mr. Daniel Lozinsky, Ms. Joann Smith and Mr. Scott Smith. Dungavel, Inc.,
Ms. Joann Smith and Mr. Scott Smith were all significant stockholders of the
Company at the time. Pursuant to these two stock purchase agreements, this
Investors Rights Agreement was terminated.
NEOREACH PURCHASE AGREEMENT
On February 19, 2002, the Company entered into a Stock Purchase Agreement with
Mr. Daniel Lozinsky and Dungavel, Inc., and another Stock Purchase Agreement
with Mr. Daniel Lozinsky, Ms. Joann Smith and Mr. Scott Smith. Dungavel, Inc.,
Ms. Joann Smith and Mr. Scott Smith were all significant stockholders of the
Company at the time. Pursuant to these two stock purchase agreements, Mr.
Lozinsky became the majority shareholder of MobilePro.
Subsequent to but in connection with the Stock Purchase Agreements, on March 21,
2002, Neoreach, Inc., a Delaware company and Mobilepro entered into an Agreement
and Plan of Merger pursuant to which a newly formed, wholly-owned subsidiary of
Mobilepro would merge into Neoreach, in a tax-free one-for-one stock exchange
transaction. The merger was consummated on April 23, 2002. Mr Daniel Lozinsky
and Mr. Arne Dunhem, both members of the Company's Board of Directors, were both
significant shareholders and members of the Board of Directors of Neoreach,
Inc., holding approximately 32.5% and 18.5% of Neoreach's common stock,
respectively.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
2.1 Articles of Merger of CraftClick.com, Inc. (a Utah
corporation) and CraftClick.com, Inc. (a Delaware corporation)
(incorporated by reference to the Company's Form S-8
Registration Statement as filed with the Securities and
Exchange Commission on May 11, 2001 (File No. 333-60726)
47
2.2 Plan of Merger of CraftClick.com, Inc. (a Utah corporation)
with and into CraftClick.com, Inc. (a Delaware corporation)
(incorporated by reference to the Company's Form S-8
Registration Statement as filed with the Securities and
Exchange Commission on May 11, 2001 (File No. 333-60726)
3.1 Certificate of Incorporation of CraftClick.com, Inc. (a
Delaware corporation) (incorporated by reference to the
Company's Form S-8 Registration Statement as filed with the
Securities and Exchange Commission on May 11, 2001 (File No.
333-60726)
3.2 By-Laws of CraftClick.com, Inc. (a Delaware corporation)
(incorporated by reference to the Company's Form S-8
Registration Statement as filed with the Securities and
Exchange Commission on May 11, 2001 (File No. 333-60726)
3.3 Certificate of Amendment of Certificate of Incorporation of
Mobilepro Corp (a Delaware corporation) (incorporated by
reference to the Company's Form S-8 Registration Statement as
filed with the Securities and Exchange Commission on December
4, 2001 (File No. 333-74492)
4.1 2001 Performance Equity Plan (incorporated by reference to the
Company's Form S-8 Registration Statement as filed with the
Securities and Exchange Commission on May 11, 2001 (File No.
333-60726)
4.2 2001 Equity Performance Plan (incorporated by reference to the
Company's Form S-8 Registration Statement as filed with the
Securities and Exchange Commission on December 4, 2001 (File
No. 333-74492)
10.1 Agreement and Plan of Merger dated as of June 1, 2001, between
CraftClick.Com, Inc. a Delaware corporation, and Mobilepro
Corp., a Delaware corporation, (incorporated by reference to
the Company's Form 8-K Current Report as filed with the
Securities and Exchange Commission on June 20, 2001 (File No.
002-97869-D)
10.2 Stock Purchase Agreement dated February 19, 2002 with Mr.
Daniel Lozinsky and Dungavel, Inc., and another Stock Purchase
Agreement dated February 19, 2002 with Mr. Daniel Lozinsky,
Ms. Joann Smith and Mr. Scott Smith. Dungavel, Inc.
(incorporated by reference to the Company's Form 8-K Current
Report as filed with the Securities and Exchange Commission on
March 6, 2002 (File No. 002-97869-D)
10.3 Agreement and Plan of Merger dated March 21, 2002, consummated
April 23, 2002, between Neoreach, Inc., a Delaware company and
Mobilepro. (incorporated by reference to the Company's Form
8-K Current Report as filed with the Securities and Exchange
Commission on April 5, 2002 (File No. 002-97869-D)
10.4 Confidentiality and Non-disclosure Agreement dated April 9,
2002 between NeoReach, Inc. a Delaware corporation and Prime
Circuits, Inc. (incorporated by reference to the Company's
Form 10KSB/A Annual Report as filed with the Securities and
Exchange Commission on October 4, 2002 (File No. 002-97869-D))
10.5 Announcement in a press release dated June 20, 2003 that the
Company it entered into a Memorandum of Understanding with GBH
telecom, LLC, a development stage company headquartered in
Arlington, Virginia, under which it intends to acquire GBH
telecom (incorporated by reference to the Company's Form 8-K
Current Report as filed with the Securities and Exchange
Commission on June 20, 2003 (File No. 002-97869-D))
23.1 Consent letter from Bagell, Josephs & Company, L.L.C. CPA,
dated July 14, 2003 (included herewith)
48
99.1 Certification by Arne Dunhem, Chief Executive Officer and
Chief Financial and Accounting Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (included herewith)
b) Reports on Form 8-K
During the fourth quarter of the fiscal year ended March 31, 2001 we filed the
following reports on Form 8-K with the Securities and Exchange Commission:
The Company filed a Current Report on Form 8-K dated February 23, 2001 with the
Securities and Exchange Commission on March 7, 2001. The Current Report was
regarding that the Company sold substantially all of its assets to a group of
California entrepreneurs (the "Group") in exchange for the forgiveness of
outstanding secured loans made by the Group to the Company totaling $546,000
plus accrued interest of $9,625 and a payment of $77,275 to substantially redeem
all of the Company's current obligations.
The Company filed a Current Report on Form 8-K dated March 27, 2001 with the
Securities and Exchange Commission on March 28, 2001. The Current Report was
regarding the change of control of the Company, contracted on March 16, 2001 and
consummated on March 27, 2001, to Dungavel, Inc., a Bahamian company, from
Metropolitan Capital Partners LLC, arising from the private sale of the
outstanding stock of the Company representing greater than 50% of the voting
control of the Company.
Subsequent to March 31, 2001 we filed the following report on Form 8-K with the
Securities and Exchange Commission:
On June 6, 2001, we reported that CraftClick.Com, Inc. a Delaware corporation
("CraftClick"), and Mobilepro Corp., a Delaware corporation ("Mobilepro"),
entered into an Agreement and Plan of Merger dated as of June 1, 2001 ("Merger
Agreement"). Under the Merger Agreement Mobilepro merged with and into
CraftClick, with CraftClick being the surviving corporation and the certificate
of incorporation and bylaws of CraftClick being the constituent documents of the
surviving corporation ("Merger").
In connection with the Merger, Mr. Scott R. Smith was appointed as a director of
CraftClick by the existing board of directors. After the appointment, Mr.
Mitchell Geisler and Ms. Cindy Roach, two of the then current directors of
CraftClick, Inc. resigned. Mr. Smith was appointed the President and Chief
Executive Officer and Chairman and Mr. Howard Geisler was appointed the
secretary of CraftClick.
In connection with the Merger, CraftClick issued to Ms. Joann M. Smith an
aggregate of 8,227,663 shares of common stock representing approximately 55% of
the 14,907,196 issued and outstanding shares of common stock of CraftClick
immediately after the Merger. Ms. Smith is the wife of Mr. Scott R. Smith, the
President, Chief Executive Officer and Chairman of CraftClick after the Merger.
Ms. Smith will be the single largest stockholder of CraftClick after the Merger.
On August 8, 2001, we filed an amended 8-K to include the pre-merger audited
financials of Mobilepro Corp.
The Company filed a Current Report on Form 8-K dated February 19, 2002 with the
Securities and Exchange Commission on March 6, 2002. The Current Report was
regarding a change of control of registrant. On February 19, 2002, the Company
entered into a Stock Purchase Agreement with Mr. Daniel Lozinsky and Dungavel,
Inc., and another Stock Purchase Agreement with Mr. Daniel Lozinsky, Ms. Joann
Smith and Mr. Scott Smith. Dungavel, Inc., Ms. Joann Smith and Mr. Scott Smith
were all significant stockholders of the Company at the time. Pursuant to these
two stock purchase agreements, Mr. Lozinsky, an accredited investor, paid
$160,000 in cash out of his own personal funds and assumed the Company's debt of
approximately $25,000 in order to acquire an aggregate of 2,057,733 shares of
our Common Stock, representing approximately 64.7% of the Company's voting
securities. On February 28, 2002, Mr. Scott Smith resigned as the President, CEO
and Chairman of the Company, and Mr. Lozinsky became the President and CEO of
the Company.
49
Subsequent to the period of this report, the Company filed a Current Report on
Form 8-K dated April 5, 2002 with the Securities and Exchange Commission on
March 21, 2002. On March 21, 2002, Mobilepro entered into an Agreement and Plan
of Merger with NeoReach, Inc., a private Delaware company, pursuant to which a
newly-formed, wholly-owned subsidiary of Mobilepro merged into NeoReach in a
tax-free transaction. NeoReach is a development stage company designing state of
the art modem solutions to support third generation wireless communications
systems. The merger was consummated on April 23, 2002. As a result of the
merger, NeoReach is now a wholly-owned subsidiary of Mobilepro. On April 23,
2002, the Company issued 12,352,129 shares of its common stock in a one-for-one
tax-free stock exchange to the holders of NeoReach's common stock pursuant to
the Agreement. This was a cash-less transaction and there were no payments or
finder's fees involved. The Board of Directors determined the consideration to
be a fair compensation to the NeoReach shareholders. The issuance of the shares
were valued at a fair value of $ 6,546,628, based on the last trading price of
$0.53 and assuming there was actual active trading of our stock at that time.
The valuation of Neoreach in the merger agreement was based on several factors,
as described in the table below , including that over thirty-three man-years of
development efforts had been accumulated for achieving the prototype third
generation modem boards for the base station applications, that a management
team and engineering team were in place, that office and laboratory facilities
were in place, that six patents had been filed or were already approved, and
that contacts and relationships had already been established with potential
customers both in the United States and Korea. The value of intangible assets
and goodwill, such as contacts, relationships and potential customers, has not
been included in the table below since it is difficult to estimate a real value,
although it could be very significant, on these items. The transaction concluded
following arms-length negotiations. The Company believes the issuance of the
stock to be exempt from registration under Section 4(2) of the Securities Act.
The related parties from both the Company and Neoreach were Messrs. Daniel
Lozinsky, Arne Dunhem, Scott Smith and Ken Min. Mr. Daniel Lozinsky who was a
controlling stockholder of Mobilepro also owned approximately 32.5% of Neoreach.
Approximate valuation of Neoreach, Inc.
Item Approx. Value
---- -------------
Personnel, engineering man effort, 33 man-years at $130,000 p.a. $4.5 M
Patents, Awarded, Allowed, Pending, 6 each $1.8 M
Tangible Assets $0.2 M
------
Total Valuation (Excluding Intangible Assets and Goodwill) $6.5 M
The Company filed a Current Report on Form 8-K dated May 10, 2002 with the
Securities and Exchange Commission on June 20, 2002. Effective June 6, 2002, the
Board of Directors of Mobilepro Corp. (the "Company") dismissed its independent
auditors, Mantyla, McReynolds LLC ("Mantyla"), and engaged the services of
Bagell, Josephs & Company, L.L.C. ("Bagell"), as its new independent auditors.
Bagell will audit the Company's financial statements for the fiscal year ended
March 31, 2002.
During the two fiscal years of the Company that ended March 31, 2002, and the
subsequent interim period through June 6, 2002, there were no disagreements
between the Company and Mantyla on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to Mantyla's satisfaction, would have caused
Mantyla to make reference to the subject matter of the disagreements in
connection with its reports; and there were no reportable events described under
Item 304(a)(1)(v) of Regulation S-K.
The audit reports of Mantyla on the Company's financial statements as of and for
the fiscal years ended March 31, 2000 and 2001 did not contain any adverse
opinion or disclaimer of opinion, nor were they qualified or modified as to
certainty, audit scope or accounting principles, other than a "going concern"
disclaimer which applied to the audit reports of Mantyla on the Company's
financial statements as of and for the fiscal years ended March 31, 2000 and
2001.
During the two most recent fiscal years of the Company ended March 31, 2001, and
the subsequent interim period through June 6, 2002, the Company did not consult
with Bagell regarding any of the matters or events set forth in Item
304(a)(2)(i) and (ii) of Regulation S-K.
50
Also included in the Current Report dated May 10, 2002, on May 13, 2002, the
Company announced in a press release that Mr. Daniel Lozinsky had resigned as
the President, Chief Executive Officer and Chairman of the Board of the Company
and that Mr. Arne Dunhem had been appointed to serve as the President, Chief
Executive Officer and Chairman of the Board of the Company, effective as of May
10, 2002. Mr. Lozinsky was also appointed to serve as a Senior Vice President of
the Company, effective as of May 10, 2002.
The Company filed an amended Current Report on Form 8-K/A dated May 10, 2002
with the Securities and Exchange Commission on June 25, 2002.
The Company filed a Current Report on Form 8-K dated June 20, 2002 with the
Securities and Exchange Commission on the Company's announcement in a press
release that it entered into a Memorandum of Understanding with GBH telecom,
LLC, a development stage company headquartered in Arlington, Virginia, under
which it intends to acquire GBH telecom, LLC in a proposed tax-free exchange of
stock. The projected closing date for the transaction was announced to be July
3, 2003. Under the terms of the MOU, upon completion of the proposed
transaction, GBH shareholders will own the majority of the Company's issued and
outstanding common stock and have voting control of the Company. A copy of this
press release was filed as an exhibit to the 8-K filing on June 20, 2003.
51
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Date: July 14, 2003 MOBILEPRO CORP.
Bys: /s/ Arne Dunhem
----------------------------------
Arne Dunhem
President and Chief Executive Officer
(Principal financial and principal accounting
officer)
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
/s/ Arne Dunhem Chief Executive Officer and Chairman
------------------------------ (Principal financial and principal
Arne Dunhem accounting officer)
/s/ Daniel Lozinsky Director
Daniel Lozinsky
52
CERTIFICATION
I, Arne Dunhem, certify that:
1. I have reviewed this annual report on Form 10-KSB of Mobilepro Corp.;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this report
(the "Evaluation Date"); and
c) presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures based on our evaluation as of the Evaluation
Date;
5. I have disclosed, based on our most recent evaluation, to the registrant's
auditors and the audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
July 14, 2003
/s/ Arne Dunhem
Arne Dunhem
Chief Executive Officer
Principal Financial and Principal Accounting Officer
53