PROSPECTUS
MOBILEPRO CORP.
30,483,212 SHARES OF COMMON STOCK
This prospectus relates to the sale of up to 30,483,212 shares of our
common stock by certain persons who are, or will become, stockholders of
Mobilepro. All of the shares of common stock are being offered for sale by the
selling stockholders at prices established on the Over-the-Counter Bulletin
Board during the term of this offering. These prices will fluctuate based on the
demand for the shares of common stock.
The selling stockholders consist of:
o Cornell Capital Partners, L.P., who intends to sell up to an
aggregate amount of 26,868,655 shares of common stock, which
includes 22,103,949 pursuant to an Equity Line of Credit, 4,000,000
shares underlying convertible debentures and 764,706 shares issued
as a commitment fee pursuant to the Equity Line of Credit.
o Westrock Advisors, Inc., an unaffiliated registered broker-dealer
retained by Mobilepro in connection with the Equity Line of Credit,
intends to sell 19,608 shares recorded as a placement agent fee.
o Other selling stockholders, which intend to sell up to 3,594,949
shares of common stock.
Cornell Capital is an "underwriter" within the meaning of the Securities
Act of 1933 in connection with the sale of common stock under the Equity Line of
Credit Agreement. Cornell Capital will pay Mobilepro 91% of the market price of
our common stock. The 9% discount on the purchase of the common stock to be
received by Cornell Capital will be an underwriting discount. In addition,
Cornell Capital Partners, L.P. is entitled to retain 3% of the proceeds raised
by us under the Equity Line of Credit.
Our common stock is quoted on the Over-the-Counter Bulletin Board under
the symbol "MOBL."
THESE SECURITIES ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK.
PLEASE REFER TO "RISK FACTORS" BEGINNING ON PAGE 5.
With the exception of Cornell Capital, which is an "underwriter" within
the meaning of the Securities Act of 1933 in connection with the sale of common
stock under the Equity Line of Credit Agreement, no underwriter or any other
person has been engaged to facilitate the sale of shares of common stock in this
offering. This offering, including the shares of common stock to be issued
pursuant to the conversion of the convertible debentures and the shares of
common stock issued to the selling shareholders other than Cornell Capital, will
terminate twenty-four months after the effective date of the accompanying
Registration Statement. None of the proceeds from the sale of stock by the
selling stockholders will be placed in escrow, trust or any similar account.
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS
HAVE NOT APPROVED OR DISAPPROVED OF THESE SECURITIES, OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is February 14, 2003.
TABLE OF CONTENTS
PROSPECTUS SUMMARY...........................................................1
THE OFFERING.................................................................2
SUMMARY FINANCIAL INFORMATION................................................3
RISK FACTORS.................................................................5
FORWARD-LOOKING STATEMENTS..................................................10
SELLING STOCKHOLDERS........................................................11
DILUTION....................................................................13
CAPITALIZATION..............................................................14
EQUITY LINE OF CREDIT.......................................................15
PLAN OF DISTRIBUTION........................................................17
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION...................19
DESCRIPTION OF BUSINESS.....................................................25
MANAGEMENT..................................................................34
DESCRIPTION OF PROPERTY.....................................................39
LITIGATION PROCEEDINGS......................................................39
PRINCIPAL SHAREHOLDERS......................................................40
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..............................42
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY AND OTHER SHAREHOLDER MATTERS......................................44
DESCRIPTION OF SECURITIES...................................................45
EXPERTS.....................................................................46
LEGAL MATTERS...............................................................46
AVAILABLE INFORMATION.......................................................46
FINANCIAL STATEMENTS.......................................................F-1
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We intend to distribute to our shareholders annual reports containing
audited financial statements. Our audited financial statements for the fiscal
year March 31, 2002, were contained in our Annual Report on Form 10-KSB.
PROSPECTUS SUMMARY
OUR COMPANY
Mobilepro is a development stage company whose business focus has been
recently redirected towards solutions supporting a new generation, or third
generation ("third generation"), wireless market, through NeoReach, Inc.,
Mobilepro's wholly-owned subsidiary.
NeoReach is a development stage company designing state-of-the-art modem
solutions to support third generation wireless communications systems, currently
per the worldwide wideband - code division multiple access, "W-CDMA," standard.
Third generation technology features integrated voice and data, access to
high-speed Internet and intranet applications, interactive e-mail, data
exchange, global roaming and full motion video transmission--all delivered to a
mobile device such as a cellular phone, personal data assistant, "PDA," or
laptop. NeoReach is designing advanced modems that are intended to support these
services and that may be utilized in base stations supporting the wireless
networks that offer these services and in customer handsets and other wireless
devices utilized in connection with such wireless networks. We believe that the
demand for faster networks supporting information-rich applications is rising,
pushing the wireless communications industry toward a third generation of
services that are expected to result in higher productivity, greater
transmission speed and seamless access around the world.
Selection of network standards and government policies regarding
spectrum availability and licensing will drive adoption of third generation
services at different rates in different regions of the world. Europe and Japan
have centralized systems that are based on a single network operator standard,
W-CDMA, while operators in the United States have begun to deploy systems that
are based on two different third generation standards, CDMA2000 and W-CDMA.
Wireless operators in Europe and Japan have recently begun to roll out third
generation services and are expected to continue to roll out third generation
services through 2005, while operators in the United States are expected to
begin to roll out third generation services in late 2002 or 2003.
NeoReach is designing advanced modem solutions for base stations and
handsets utilized in connection with the delivery of third generation services.
NeoReach's base station solution will target smaller systems called medium area
and small area base stations, while NeoReach's handset modem solution will
target handsets, personal data assistants and laptop plug-in cards. These
solutions will be based on proprietary technology developed by NeoReach. If
NeoReach's modem solutions are commercially successful, we expect to leverage
our third generation technology to extend our product line to include
miniaturized base stations for use in high-density areas.
ABOUT US
Our principal office is located at 3204 Tower Oaks Boulevard, Suite 350,
Rockville, Maryland 20852, telephone number (301) 230-9125. As of February 1,
2003 we will have a new principal office located at 30 West Gude Drive, Suite
480, Rockville, Maryland 20850.
1
THE OFFERING
This offering relates to the sale of common stock by certain persons who
are, or will become, our stockholders. The selling stockholders consist of:
o Cornell Capital Partners, which intends to sell up to an aggregate
amount of 26,868,655 shares of common stock.
o Westrock Advisors, Inc., an unaffiliated registered broker-dealer
retained by the Company in connection with the Equity Line of
Credit, intends to sell 19,608 shares recorded as a placement agent
fee.
o Other selling stockholders, which intend to sell up to 3,594,949
shares of common stock.
Pursuant to the Equity Line of Credit, we may, at our discretion,
periodically issue and sell to Cornell Capital shares of common stock for a
total purchase price of $10.0 million. Cornell Capital will purchase the shares
of our common stock for a 9% discount to the prevailing market price of our
common stock. In addition, Cornell Capital is entitled to retain 3% of the
proceeds raised by us under the Equity Line of Credit. Cornell Capital intends
to sell any shares purchased under the Equity Line of Credit at the then
prevailing market price. This prospectus relates to the shares of our common
stock to be issued under the Equity Line of Credit, as well as shares of common
stock issued as a commitment fee pursuant to the Equity Line of Credit, shares
of common stock to be acquired pursuant to the conversion of convertible
debentures previously purchased from our company, and shares of common stock
previously issued pursuant to certain consulting agreements and shares issued to
Westrock Advisors, Inc., an unaffiliated registered broker-dealer, as a
placement agent fee in connection with the Equity Line of Credit.
Brokers or dealers effecting transactions in the shares being registered
in this offering should confirm that the shares are registered under applicable
state law or that an exemption from registration is available.
COMMON STOCK OFFERED 30,483,212 shares by selling
stockholders (the number of shares
being registered in this offering will
represent approximately 61% of the
total number of shares of common stock
outstanding upon their issuance).
OFFERING PRICE Market price.
COMMON STOCK OUTSTANDING BEFORE
THE OFFERING(1) 19,516,788 shares.
USE OF PROCEEDS We will not receive any proceeds of the
shares offered by the selling
stockholders. Any proceeds we receive
from the sale of our common stock under
the Equity Line of Credit will be used
for general corporate purposes.
RISK FACTORS The securities offered hereby involve a
high degree of risk and immediate
substantial dilution. See "Risk
Factors" and "Dilution."
OVER-THE-COUNTER BULLETIN BOARD
SYMBOL MOBL
--------
1 This table excludes outstanding options and preferred stock, which, if
exercised or converted into shares of common stock, would result in
Mobilepro issuing an additional 2,403,480 shares of common stock.
2
SUMMARY FINANCIAL INFORMATION
The following information was taken from Mobilepro's financial
statements for the six-month periods ended September 30, 2002 (unaudited) and
September 30, 2001 (unaudited) and the years ended March 31, 2002 (audited) and
March 31, 2001 (audited) appearing elsewhere in this filing. This information
should be read in conjunction with such financial statements and the notes
thereto. In management's opinion all adjustment (consisting of normal recurring
items) considered necessary for a fair presentation have been included.
FOR THE FOR THE
SIX MONTHS SIX MONTHS FOR THE FOR THE
ENDED ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, MARCH 31, MARCH 31,
2002 2001 2002 2001
(UNAUDITED) (UNAUDITED) (AUDITED) (AUDITED)
------------- ------------- ----------- -----------
STATEMENT OF OPERATION DATA:
Revenues $ $ 299,994 $ -- $ --
Cost Of Sales -- -- -- --
------------- ------------- ------------ -----------
Gross Profit -- -- -- --
Total Operating Expenses 1,998,764 993,079 3,147,119 1,009,193
------------- ------------- ------------ -----------
Loss Before Other Income (1,998,764) (693,085) (3,147,119) (1,009,193)
Other Income (Expenses)
Interest Income -- 1,334 56 --
Forgiveness of Debt -- -- 276,738 --
Other Expense (48,434) -- (27,608) --
Interest Expense -- -- (469) --
------------- ------------- ------------ -----------
Total Other Income (Expenses) (48,434) 1,334 248,717 --
------------- ------------- ------------ -----------
Net Loss Before Provision For Income
Taxes (2,047,198) (691,751) (2,898,402) (1,009,193)
Provision For Income Taxes -- -- -- --
------------- ------------- ------------ -----------
Net Loss Applicable To Common Shares $ (2,047,198) $ (691,751) $(2,898,402) $(1,009,193)
============= ============= ============ ============
Net Loss Per Basic And Diluted Shares $(0.12920) $(0.14330) $(0.44000) $(0.11000)
============= ============= ============ ============
Weighted Average Shares Outstanding 15,844,642 4,827,421 6,462,746 8,750,000*
============= ============= ============ ============
----------
* After reorganization.
3
SEPTEMBER 30, MARCH 31, MARCH 31,
2002 2002 2001
(UNAUDITED) (AUDITED) (AUDITED)
------------- ----------- -----------
BALANCE SHEET DATA:
Current Assets
Cash and Cash Equivalents $ 1,778 $ 154 $ 27
Prepaid Expenses 57,500 -- --
------------- ------------ ------------
Total Current Assets 59,278 154 27
Fixed Assets, net of depreciation 46,821 -- --
Total Assets $ 106,099 154 27
============= ============ ============
Liabilities
Due To Officer $ 307,263 44,262
Short-Term Debt 187,000 75,000
Accounts Payable And Accrued Expenses 1,007,469 187,663
------------- ------------ ------------
Total Current Liabilities 1,501,732 306,925 35,820
------------- ------------ ------------
Long-Term Debt 350,000 -- --
Total Liabilities 1,851,732 -- --
Stockholders' Deficit
Preferred Stock 35 35 140
Common Stock 19,517 4,176 48,805
Additional Paid-In Capital 4,189,608 3,596,613 8,394,742
Deficit Accumulated During Development
Stage (5,954,793) (3,907,595) (8,479,480)
------------- ------------ ------------
Total Stockholders' Deficit (1,745,633) (306,771) (35,793)
------------- ------------ ------------
Total Liabilities And Stockholders'
Deficit $ 106,099 $ 154 $ 27
============= ============ ============
4
RISK FACTORS
WE ARE SUBJECT TO VARIOUS RISKS WHICH MAY MATERIALLY HARM OUR BUSINESS,
FINANCIAL CONDITION AND RESULTS OF OPERATIONS. YOU SHOULD CAREFULLY CONSIDER THE
RISKS AND UNCERTAINTIES DESCRIBED BELOW AND THE OTHER INFORMATION IN THIS FILING
BEFORE DECIDING TO PURCHASE OUR COMMON STOCK. IF ANY OF THESE RISKS OR
UNCERTAINTIES ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL CONDITION OR OPERATING
RESULTS COULD BE MATERIALLY HARMED. IN THAT CASE, THE TRADING PRICE OF OUR
COMMON STOCK COULD DECLINE AND YOU COULD LOSE ALL OR PART OF YOUR INVESTMENT.
RISKS RELATED TO OUR BUSINESS
We Have Historically Lost Money And Losses May Continue In The Future, Which
Means That We May Not Be Able To Continue Operations Unless We Obtain Additional
Funding
We have historically lost money. In the six months ended September 30,
2002, we sustained net losses of $2.0 million. In the year ended March 31, 2002
and year ended March 31, 2001, we sustained net losses of $2.9 million and $1.0
million, respectively. Future losses are likely to occur. Accordingly, we may
experience significant liquidity and cash flow problems if we are not able to
raise additional capital as needed and on acceptable terms. No assurances can be
given that we will be successful in reaching or maintaining profitable
operations.
We had a major shift in our business strategy in June 2001. It was not
until June 2001 that we focused on the integration and marketing of complete
mobile information solutions that satisfy the needs of mobile professionals. We
acquired NeoReach, another development stage company, in April 2002. We only
very recently redirected 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.
WE WILL NEED TO RAISE ADDITIONAL CAPITAL TO CONTINUE OUR OPERATIONS OR WE MAY BE
UNABLE TO FUND OUR OPERATIONS, PROMOTE OUR PRODUCTS OR DEVELOP OUR TECHNOLOGY
Our operations have relied almost entirely on external financing to fund
our operations. Such financing has historically come from a combination of
borrowings from and sale of common stock to third parties and funds provided by
certain officers and directors. Over the next two years we anticipate that, in
addition to the $10 million available to us under the Equity Line of Credit, we
will need to raise additional capital to fund our anticipated operating expenses
and future expansion. We anticipate that these additional funds will be in the
range of $10 million to $15 million, depending on the anticipated expansion of
our business operations. Among other things, external financing will be required
to cover our operating costs. We cannot assure you that financing whether from
external sources or related parties will be available if needed or on favorable
terms. The sale of our common stock to raise capital may cause dilution to our
existing shareholders. If additional financing is not available when required or
is not available on acceptable terms, we may be unable to fund our operations
and expansion, successfully promote our brand name or products, develop or
enhance our technology, take advantage of business opportunities or respond to
competitive market pressures, any of which could make it more difficult for us
to continue operations. Any reduction in our operations may result in a lower
stock price.
A significant portion of our revenue is expected to be derived from
substantial long-term projects which require significant up-front expense to us.
We are dependent on external financing to fund our operations and cover our
projects up-front costs. There can be no assurance that revenues will be
realized until the projects are completed or certain significant milestones are
met. Our failure, or any failure by a third-party with which we may contract, to
perform services or deliver products on a timely basis could result in a
substantial loss to us.
In addition, difficulty in completing a project could have a material
adverse effect on our reputation, business and results of operations. In certain
instances, we may be dependent on the efforts of third parties to adequately
complete our portion of a project and, even if our products and processes
perform as required, a project may still fail due to other components of the
project supplied by third parties. Any such project failure could cause us to
reduce or cease operations.
5
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, 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.
OUR COMMON STOCK IS DEEMED TO BE "PENNY STOCK," WHICH MAY MAKE IT MORE DIFFICULT
FOR INVESTORS TO RESELL THEIR SHARES DUE TO SUITABILITY REQUIREMENTS
Our common stock is deemed to be "penny stock" as that term is defined
in Rule 3a51-1 promulgated under the Securities Exchange Act of 1934. Penny
stocks are stock:
o With a price of less than $5.00 per share;
o That are not traded on a "recognized" national exchange;
o Whose prices are not quoted on the Nasdaq automated quotation
system (Nasdaq listed stock must still have a price of not less
than $5.00 per share); or
o In issuers with net tangible assets less than $2.0 million (if the
issuer has been in continuous operation for at least three years)
or $5.0 million (if in continuous operation for less than three
years), or with average revenues of less than $6.0 million for the
last three years.
Broker/dealers dealing in penny stocks are required to provide potential
investors with a document disclosing the risks of penny stocks. Moreover,
broker/dealers are required to determine whether an investment in a penny stock
is a suitable investment for a prospective investor. These requirements may
reduce the potential market for our common stock by reducing the number of
potential investors. This may make it more difficult for investors in our common
stock to sell shares to third parties or to otherwise dispose of them. This
could cause our stock price to decline.
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 Chief Executive Officer in
February 2002 after he acquired 64.8% of our voting securities. After the
acquisition of NeoReach in April 2002, Mr. Arne Dunhem, replaced Mr. Lozinsky as
our President and Chief Executive Officer 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 divert management time and
resources, which would adversely affect our operations. 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.
WE ARE A DEVELOPMENT STAGE COMPANY AND HAVE A LIMITED OPERATING HISTORY UPON
WHICH YOU CAN BASE YOUR INVESTMENT DECISION
We had a major shift in our business strategy in June 2001. It was not
until June 2001 that we focused on the integration and marketing of complete
mobile information solutions that satisfy the needs of mobile professionals. We
acquired NeoReach, another development stage company, in April 2002. We only
very recently redirected 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.
6
IF WE ARE NOT ABLE TO COMPETE EFFECTIVELY IN THE HIGHLY COMPETITIVE WIRELESS
COMMUNICATIONS INDUSTRY, WE MAY BE FORCED TO REDUCE OR CEASE OPERATIONS
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.
Our failure to successfully develop our technology, products and
distribution channels 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 reduce our ability to obtain profitable
operations and could even cause us to reduce or cease operations.
MANAGEMENT OF THE COMPANY CONTROLS 66.6% OF OUR COMMON STOCK ON A FULLY DILUTED
BASIS AND SUCH CONCENTRATION OF OWNERSHIP MAY HAVE THE EFFECT OF DELAYING OR
PREVENTING A CHANGE OF CONTROL OF OUR COMPANY
As a result, these management stockholders will have significant
influence in matters requiring stockholder approval, including the election and
removal of directors, the approval of significant corporate transactions, such
as any merger, consolidation or sale of all or substantially all of the
Company's assets, and the control of the management and affairs of the Company.
Accordingly, such concentration of ownership may have the effect of delaying,
deferring or preventing a change in control of our Company, impeding a merger,
consolidation, takeover or other business combination involving the Company or
discouraging a potential acquirer from attempting to obtain control of the
Company.
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
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.
7
We own several Internet domain names, including www.mobilepro.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.
OTHER PARTIES MAY ASSERT THAT OUR TECHNOLOGY INFRINGES ON THEIR INTELLECTUAL
PROPERTY RIGHTS, WHICH COULD DIVERT MANAGEMENT TIME AND RESOURCES AND POSSIBLY
FORCE OUR COMPANY TO REDESIGN OUR TECHNOLOGY
Technology-based industries, such as ours, are characterized by an
increasing number of patents and frequent litigation based on allegations of
patent infringement. From time to time, third parties may assert patent,
copyright and other intellectual property rights to technologies that are
important to us. While there currently are no outstanding infringement claims
pending by or against us, we cannot assure you that third parties will not
assert infringement claims against us in the future, that assertions by such
parties will not result in costly litigation, or that they will not prevail in
any such litigation. In addition, we cannot assure you that we will be able to
license any valid and infringed patents from third parties on commercially
reasonable terms or, alternatively, be able to redesign products on a
cost-effective basis to avoid infringement. Any infringement claim or other
litigation against or by us could have a material adverse effect on us and could
cause us to reduce or cease operations.
IF WE ARE UNABLE TO SUCCESSFULLY DEVELOP THE TECHNOLOGY NECESSARY FOR OUR
PRODUCTS AND PROCESSES, WE WILL NOT BE ABLE TO BRING OUR PRODUCTS TO MARKET AND
MAY BE FORCED TO REDUCE OR CEASE OPERATIONS
Our ability to commercialize our products is dependent on the
advancement of our existing technology. In order to obtain and maintain market
share we will continually be required to make advances in technology. We cannot
assure you that our research and development efforts will result in the
development of such technology on a timely basis or at all. Any failures in such
research and development efforts could result in significant delays in product
development and cause us to reduce or cease operations. We cannot assure you
that we will not encounter unanticipated technological obstacles which either
delay or prevent us from completing the development of our products and
processes.
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.
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
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 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
8
and accounting systems in order to support our desired growth. We cannot be sure
that we will manage our growth effectively, and our failure to do so could cause
us to reduce or cease operations.
RISKS RELATED TO THIS OFFERING
EXISTING SHAREHOLDERS WILL EXPERIENCE SIGNIFICANT DILUTION FROM OUR SALE OF
SHARES UNDER THE EQUITY LINE OF CREDIT AND THE SALE OF CONVERTIBLE DEBENTURES
The sale of shares pursuant to the conversion of debentures and pursuant
to the Equity Line of Credit will have a dilutive impact on our stockholders. As
a result, our net income per share could decrease in future periods, and the
market price of our common stock could decline. In addition, the lower our stock
price is the more shares of common stock we will have to issue under the Equity
Line of Credit to draw down the full amount. If our stock price is lower, then
our existing stockholders would experience greater dilution. For example, if we
assume that we will issue 98,116,170 shares of common stock (provided that we
amend our Articles of Incorporation to increase our authorized common stock)
under the Equity Line of Credit at an assumed offering price of $0.1019
(approximately 91% of our lowest closing bid price for the five trading days
before January 17, 2003) and fully utilized the $10.0 million available under
the Equity Line of Credit, then new shareholders would experience dilution of
$0.035 per share.
THE INVESTOR UNDER THE LINE OF CREDIT WILL PAY LESS THAN THE THEN-PREVAILING
MARKET PRICE OF OUR COMMON STOCK
The common stock to be issued under the Equity Line of Credit will be
issued at a 9% discount to the lowest closing bid price on the Over-the-Counter
Bulletin Board or other principal market on which our common stock is traded for
the five consecutive trading days after the notice date. These discounted sales
could cause the price of our common stock to decline.
THE SELLING STOCKHOLDERS INTEND TO SELL THEIR SHARES OF COMMON STOCK IN THE
MARKET, WHICH SALES MAY CAUSE OUR STOCK PRICE TO DECLINE
The selling stockholders intend to sell in the public market the shares
of common stock being registered in this offering. That means that up to
30,483,212 shares of common stock, the number of shares being registered in this
offering, may be sold. The number of shares being registered in this offering
represents approximately 61% of the total number of shares of common stock
outstanding upon their issuance. Such sales may cause our stock price to
decline.
THE SIGNIFICANT DOWNWARD PRESSURE ON THE PRICE OF OUR STOCK CAUSED BY THE SALE
OF MATERIAL AMOUNTS OF COMMON STOCK UNDER THE ACCOMPANYING REGISTRATION
STATEMENT COULD ENCOURAGE SHORT SALES BY THIRD PARTIES, WHICH COULD CONTRIBUTE
TO THE FURTHER DECLINE OF OUR STOCK PRICE
The significant downward pressure on our stock price caused by the sale
of stock registered in this offering could encourage short sales by third
parties. Such short sales could place further downward pressure on our stock
price.
OUR COMMON STOCK HAS BEEN RELATIVELY THINLY TRADED AND WE CANNOT PREDICT THE
EXTENT TO WHICH A TRADING MARKET WILL DEVELOP
Before this offering, our common stock has traded on the
Over-the-Counter Bulletin Board. Our common stock is thinly traded compared to
larger more widely known companies in our industry. Thinly traded common stock
can be more volatile than common stock trading in an active public market. We
cannot predict the extent to which an active public market for the common stock
will develop or be sustained after this offering.
WE MAY NOT BE ABLE TO DRAW DOWN UNDER THE EQUITY LINE OF CREDIT IF THE INVESTOR
HOLDS MORE THAN 9.9% OF OUR COMMON STOCK
In the event Cornell Capital holds more than 9.9% of the
then-outstanding common stock of our company, we will be unable to draw down on
the Equity Line of Credit. Currently, Cornell Capital has beneficial ownership
of more than 20% of our common stock and we would be unable to draw down on the
Equity Line of Credit unless Cornell Capital's beneficial ownership is below
10%. If we are unable to draw down on the Equity Line of Credit, are unable to
obtain additional external funding or generate revenue from the sale of our
products, we could be forced to curtail or cease our operations.
9
FORWARD-LOOKING STATEMENTS
Information included or incorporated by reference in this prospectus may
contain forward-looking statements. This information may involve known and
unknown risks, uncertainties and other factors which may cause our actual
results, performance or achievements to be materially different from the future
results, performance or achievements expressed or implied by any forward-looking
statements. Forward-looking statements, which involve assumptions and describe
our future plans, strategies and expectations, are generally identifiable by use
of the words "may," "should," "expect," "anticipate," "estimate," "believe,"
"intend" or "project" or the negative of these words or other variations on
these words or comparable terminology.
This prospectus contains forward-looking statements, including
statements regarding, among other things, (a) our projected sales and
profitability, (b) our growth strategies, (c) anticipated trends in our
industry, (d) our future financing plans and (e) our anticipated needs for
working capital. These statements may be found under "Management's Discussion
and Analysis or Plan of Operations" and "Business," as well as in this
prospectus generally. Actual events or results may differ materially from those
discussed in forward-looking statements as a result of various factors,
including, without limitation, the risks outlined under "Risk Factors" and
matters described in this prospectus generally. In light of these risks and
uncertainties, there can be no assurance that the forward-looking statements
contained in this prospectus will in fact occur.
10
SELLING STOCKHOLDERS
The following table presents information regarding the selling
stockholders. Pursuant to the Equity Line of Credit, Cornell Capital has agreed
to purchase up to $10.0 million of our common stock. Other than Westrock
Advisors, Inc., none of the stockholders are broker-dealers or affiliates of
broker-dealers and none of the selling stockholders have held a position or
office, or had any other material relationship, with us, except as follows:
o Cornell Capital is the investor under the Equity Line of Credit and
the holder of $250,000 of convertible debentures. All investment
decisions of Cornell Capital Partners are made by its general
partner, Yorkville Advisors, LLC. Mark Angelo, the managing member
of Yorkville Advisors, LLC, makes the investment decisions on
behalf of Yorkville Advisors.
o Westrock Advisors, Inc., an unaffiliated registered broker-dealer,
is the placement agent retained by the Company in connection with
the Equity Line of Credit. Greg Martino, President of Westrock
Advisors, Inc., makes the investment decisions on behalf of
Westrock Advisors. Westrock Advisors, Inc. received shares of our
common stock in the ordinary course of business and to our
knowledge, at the time Westrock Advisors, Inc. received its shares
to be resold in this Prospectus, it had no agreements or
understandings, directly or indirectly, with any person to
distribute the shares.
o Arne Dunhem is our Chief Executive Officer and Chairman of the
Board of Directors.
o Daniel Lozinsky is our former Chief Executive Officer and is
currently a Director.
o Kyung (Ken) Min is a Senior Vice President of NeoReach, Inc., our
wholly-owned subsidiary.
o Parag Sheth is a Senior Vice President of NeoReach, Inc., our
wholly-owned subsidiary.
The table follows:
PERCENTAGE OF PERCENTAGE OF
OUTSTANDING SHARES TO BE OUTSTANDING
SHARES SHARES ACQUIRED SHARES
BENEFICIALLY BENEFICIALLY UNDER THE SHARES TO BE BENEFICIALLY
OWNED BEFORE OWNED BEFORE EQUITY LINE SOLD IN THE OWNED AFTER
SELLING STOCKHOLDER OFFERING(1) OFFERING(2) OF CREDIT OFFERING(3) OFFERING
------------------------- -------------- -------------- ------------- -------------- ---------------
Cornell Capital
Partners, L.P. 4,764,706(4) 20.26% 22,103,949 26,868,655 0.0%
Westrock Advisors, Inc. 19,608 * 0 19,608 0.0%
Daniel Lozinsky 6,928,694 35.5% 0 410,000 33.4%
Kyung (Ken) Min 2,833,152 14.5% 0 200,000 13.5%
Arne Dunhem 2,811,763(5) 14.3% 0 200,000 13.2%
INFe, Inc. (6) 659,853 3.4% 0 659,853 0.0%
Dr. Kim Hyo Hwan 566,669 2.9% 0 170,000 2.0%
Joann Smith 500,000 2.6% 0 500,000 0.0%
Choe Ik Joon 299,000 1.5% 0 150,000 *
Won, Jong Il 250,000 1.3% 0 75,000 *
Parag Sheth 250,000 1.3% 0 250,000 0.0%
Dr. Dae H. Bang 240,000 1.2% 0 240,000 0.0%
Jason Noh 83,334 * 0 25,000 *
Palm USA(7) 150,000 * 0 45,000 *
Choe Ik Hyun 90,000 * 0 27,000 *
Kyung C. Min 25,002 * 0 7,501 *
Englewood Equities(8) 151,500 * 0 45,450 *
Sang Y. Park 45,000 * 0 45,000 0.0%
Sung J. Rhee 83,334 * 0 25,000 *
Kun Sang Yi 83,334 * 0 83,334 0.0%
Dr. Kevin Sohn 81,667 * 0 24,500 *
Jin Soo Han 41,667 * 0 41,667 0.0%
Sang Joon Kwak 25,002 * 0 7,501 *
Byung Il Min 25,002 * 0 7,501 *
Jihyun Janet Lee-Lim 41,667 * 0 12,500 *
Jeeny Uh (Harry Uh) 12,918 * 0 3,875 0.0%
Phd. Ahn Kyu H. 33,336 * 0 10,001 *
Frederick J. Canzonetta 18,336 * 0 5,501 *
11
PERCENTAGE OF PERCENTAGE OF
OUTSTANDING SHARES TO BE OUTSTANDING
SHARES SHARES ACQUIRED SHARES
BENEFICIALLY BENEFICIALLY UNDER THE SHARES TO BE BENEFICIALLY
OWNED BEFORE OWNED BEFORE EQUITY LINE SOLD IN THE OWNED AFTER
SELLING STOCKHOLDER OFFERING(1) OFFERING(2) OF CREDIT OFFERING(3) OFFERING
------------------------- -------------- -------------- ------------- -------------- ---------------
Dr. Charles H. Chung 63,336 * 0 19,001 *
Dr. Eugene Ko / Hye Ryun
Ko 46,668 * 0 14,000 *
Wallenstein & Wagner,
Ltd. (9) 20,764 * 0 20,764 0.0%
Douglas J. Tucker 30,000 * 0 30,000 0.0%
Thomas Richfield 150,000 * 0 150,000 0.0%
Francene Goodman 60,764 * 0 60,000 *
Triple Crown Consulting(10) 30,000 * 0 30,000 0.0%
--------------
* Less than 1%.
(1) The shares represented in this column represent outstanding shares of
common stock, as well as shares of common stock that may be obtained
upon conversion or exercise of outstanding options, warrants and
convertible debentures within 60 days of January 27, 2003.
(2) Percentage of outstanding shares is based on 19,516,788 shares of common
stock outstanding as of January 27, 2003, together with shares deemed
beneficially owned by each such shareholder. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission and generally includes voting or investment power with
respect to securities. Shares of common stock that may be obtained
within 60 days of January 27, 2003 are deemed to be beneficially owned
by the person holding such securities that are convertible or
exchangeable into shares of common stock for the purpose of computing
the percentage of ownership of such person, but are not treated as
outstanding for the purpose of computing the percentage ownership of any
other person.
(3) Mobilepro cannot predict the actual number of shares of common stock
that will be issued pursuant to the Equity Line of Credit or upon the
conversion of the debentures, in part, because the purchase price of the
shares under the Equity Line of Credit and the conversion price of the
shares under the debentures will fluctuate based on prevailing market
conditions and Mobilepro has not determined the total amount of advances
under the Equity Line of Credit that it intends to draw. Therefore, the
number of shares of common stock registered in connection with the
Equity Line of Credit and upon the conversion of debentures is based on
Mobilepro's good-faith estimate of the maximum number of shares that
Mobilepro will issue with respect thereto based upon current market
prices of the company's common stock. The number of shares of common
stock available under the Equity Line of Credit may be increased by any
unused shares of common stock not used upon the conversion of debentures
and the number of shares of common stock available pursuant to the
conversion of debentures may be increased by any unused shares of common
stock available under the Equity Line of Credit.
(4) Includes 2,000,000 shares of common stock that may be acquired within 60
days of January 27, 2003 pursuant to the conversion of convertible
debentures and 764,706 shares of common stock that Cornell Capital
received as a commitment fee pursuant to an Equity Line of Credit
Agreement, dated May 31, 2002.
(5) Includes options to purchase 210,519 shares of common stock owned by Mr.
Dunhem.
(6) Mr. Thomas Richfield makes the investment decisions on behalf of INFe,
Inc.
(7) Mr. Jin Soo Han makes the investment decisions on behalf of Palm USA.
(8) Mr. Won Jong II makes the investment decisions on behalf of Englewood
Equities.
(9) Mr. Michael Lake makes the investment decisions on behalf of Wallenstein
& Wagner, Ltd.
(10) Mr. Benjamin Kaplan makes the investment decisions on behalf of Triple
Crown Consulting.
12
DILUTION
Since this offering is being made solely by the selling stockholders and
none of the proceeds will be paid to us, our net tangible book value will be
unaffected by this offering. Our net tangible book value, however, will be
impacted by the common stock to be issued under the Equity Line of Credit.
Our net tangible book value as of September 30, 2002 was ($1,745,633) or
($0.09) per share of common stock. Net tangible book value is determined by
dividing our tangible book value (total tangible assets less total liabilities)
by the number of outstanding shares of our common stock.
For example, if we assume that we had issued 98,116,170 shares of common
stock under the Equity Line of Credit at an assumed offering price of $0.1019
per share, less commitment fees of $300,000 and $85,000 of other offering
expenses, our net tangible book value as of September 30, 2002 would have been
$7,869,367 or $0.0669 per share. This represents an immediate increase in net
tangible book value to existing shareholders of $0.1569 per share and an
immediate dilution to new shareholders of $0.0350 per share, or 34.4%. The
following table illustrates the per share dilution:
Assumed public offering price per share $0.1019
Net tangible book value per share before this offering ($0.0900)
Increase attributable to new investors $0.1569
-----------
Net tangible book value per share after this offering 0.0669
----------
Dilution per share to new shareholders $0.0350
==========
The offering price of our common stock under the Equity Line of Credit
is based on 91% of the lowest closing bid price on the Over-the-Counter Bulletin
Board or other principal market on which our common stock is traded for the five
consecutive trading days after the notice date. In order to give prospective
investors an idea of the dilution per share they may experience, we have
prepared the following table showing the dilution per share at various assumed
offering prices. Mobilepro is registering 26,103,949 shares of common stock
under the Equity Line of Credit and the convertible debentures. Accordingly,
Mobilepro would need to amend its Articles of Incorporation to increase our
authorized common stock and register additional shares of common stock in order
to fully utilize the $10.0 million available under the Equity Line of Credit at
certain of the prices set forth below.
ASSUMED NO. OF SHARES DILUTION PER SHARE
OFFERING PRICE TO BE ISSUED TO NEW INVESTORS
-------------------- ----------------- ------------------------
$1.000 10,000,000 $0.733
$0.750 13,333,333 0.510
$0.500 20,000,000 0.300
$0.400 25,000,000 0.223
$0.250 40,000,000 0.118
$0.100 100,000,000 0.034
$0.073 136,986,301 $0.023
13
CAPITALIZATION
The following table sets forth the total capitalization of Mobilepro as
of September 30, 2002.
SEPTEMBER 30,
2002
Total liabilities $ 1,851,732
Stockholders' deficit:
Preferred stock, $0.001 par value,
5,000,000 shares authorized and
35,425 shares issued and outstanding 35
Common stock, $0.001 par value;
50,000,000 shares authorized and
19,516,788 issued and outstanding 19,517
Additional paid-in capital 4,189,608
Deficit accumulated during the
development stage (5,954,793)
-------------
Total stockholders' deficit (1,745,633)
-------------
Total liabilities and
stockholders' deficit $ 106,099
=============
14
EQUITY LINE OF CREDIT
SUMMARY. On February 6, 2003, we entered into an Equity Line of Credit
with Cornell Capital Partners, L.P. Pursuant to the Equity Line of Credit, we
may, at our discretion, periodically sell to Cornell Capital shares of common
stock for a total purchase price of up to $10.0 million. For each share of
common stock purchased under the Equity Line of Credit, Cornell Capital will pay
91% of the lowest closing bid price on the Over-the-Counter Bulletin Board or
other principal market on which our common stock is traded for the five
consecutive trading days after the notice date. Cornell Capital is a private
limited partnership whose business operations are conducted through its general
partner, Yorkville Advisors, LLC. Further, Cornell Capital Partners, L.P. will
retain 3% of each advance under the Equity Line of Credit. We previously issued
764,706 shares of our common stock to Cornell Capital as a commitment fee
pursuant to a prior Equity Line of Credit Agreement, dated May 31, 2002 that was
subsequently terminated. The effectiveness of the sale of the shares under the
Equity Line of Credit is conditioned upon us registering the shares of common
stock with the Securities and Exchange Commission. The costs associated with
this registration will be borne by us. In addition, we have engaged Westrock
Advisors, Inc., an unaffiliated registered broker-dealer, to act as our
exclusive placement agent in connection with the Equity Line of Credit and we
have issued 19,608 shares of our common stock to Westrock Advisors, Inc.
pursuant to such arrangement.
EQUITY LINE OF CREDIT EXPLAINED. Pursuant to the Equity Line of Credit,
we may periodically sell shares of common stock to Cornell Capital to raise
capital to fund our working capital needs. The periodic sale of shares is known
as an advance. We may request an advance every 5 trading days. A closing will be
held 7 trading days after such written notice at which time we will deliver
shares of common stock and Cornell Capital will pay the advance amount.
We may request advances under the Equity Line of Credit once the
underlying shares are registered with the Securities and Exchange Commission.
Thereafter, we may continue to request advances until Cornell Capital has
advanced $10.0 million or twenty-four months after the effective date of the
accompanying Registration Statement, whichever occurs first. We are limited to a
maximum of $450,000 in any 30-day period. In no event will the number of shares
issuable to Cornell Capital pursuant to an advance exceed 9.9% of the
then-outstanding common stock of our company. We are entitled to receive
advances under the Equity Line of Credit provided that: (i) the accompanying
registration statement has previously become effective and remain effective on
the date of delivery by us of an advance notice; (ii) we have obtained all
permits and qualifications required by any applicable state law with respect to
the offer and sale of shares of our common stock under the Equity Line of
Credit; (iii) no fundamental changes to the information set forth in
accompanying registration statement exist which would require us to file a
post-effective amendment to the accompanying registration statement; and (iv)
the trading of our common stock is not suspended by the Securities and Exchange
Commission or the principal trading exchange or market for our common stock.
We cannot predict the actual number of shares of common stock that will
be issued pursuant to the Equity Line of Credit, in part, because the purchase
price of the shares will fluctuate based on prevailing market conditions and we
have not determined the total amount of advances we intend to draw. Nonetheless,
we can estimate the number of shares of our common stock that will be issued
using certain assumptions. Assuming we drew down the entire $10.0 million
available under the Equity Line of Credit in a single advance (which is not
permitted under the terms of the Equity Line of Credit) and the purchase price
was equal to $0.073 per share, then we would issue 136,986,301 shares of our
common stock to Cornell Capital. These shares would represent approximately
87.5% of our outstanding common stock upon issuance. Mobilepro is registering
33,235,294 shares of common stock for the sale under the Equity Line of Credit
and the conversion of debentures. As of January 27, 2003, Mobilepro has
50,000,000 shares of common stock authorized under our Articles of Incorporation
and 19,516,788 shares of common stock issued and outstanding. Accordingly,
Mobilepro would need to amend its Articles of Incorporation to increase our
authorized common stock and register additional shares of common stock in order
to fully utilize the $10.0 million available under the Equity Line of Credit at
certain of the prices set forth below. We anticipate amending our Articles of
Incorporation in the next few months in order to increase our authorized common
stock to accommodate all of the shares under the Equity Line of Credit being
registered in the accompanying registration statement.
You should be aware that there is an inverse relationship between our
stock price and the number of shares to be issued under the Equity Line of
Credit. That is, as our stock price declines, we would be required to issue a
greater number of shares under the Equity Line of Credit for a given advance.
This inverse relationship is demonstrated by the following table, which shows
the number of shares to be issued under the Equity Line of Credit at a recent
price of $0.10 per share and discounts to the recent price. This table does not
15
take into account any shares of our common stock that would be issued upon
conversion of options, warrants, promissory notes and debentures.
Market Price $0.1000 $0.0750 $0.0500 $0.0250
Purchase Price: $0.0910 $0.0683 $0.0455 $0.0228
No. of Shares(1): 109,890,110 146,412,884 219,780,220 439,560,440
Total Outstanding(2): 129,406,898 165,929,672 239,297,008 459,077,228
Percent Outstanding(3): 84.9% 88.2% 91.8% 95.8%
----------
(1) Represents the number of shares of common stock to be issued to Cornell
Capital at the prices set forth in the table.
(2) Represents the total number of shares of common stock outstanding after
the issuance of the shares to Cornell Capital.
(3) Represents the shares of common stock to be issued as a percentage of
the total number shares outstanding.
The proceeds used under the Equity Line of Credit will be used for
general corporate purposes, for an expansion of the product offering and for
development of sales and marketing channels. We cannot predict the total amount
of proceeds to be raised in this transaction, in part, because we have not
determined the total amount of the advances we intend to draw. However, we
expect to incur expenses of approximately $85,000 consisting primarily of
professional fees incurred in connection with this registration.
In connection with the Equity Line of Credit, we previously issued
764,706 shares of our common stock to Cornell Capital as a commitment fee and
Cornell Capital is entitled to retain 3% of each advance under the Equity Line
of Credit. In addition, we have issued 19,608 shares of our common stock to
Westrock Advisors, Inc., an unaffiliated broker-dealer, as a placement agent fee
in connection with the Equity Line of Credit.
16
PLAN OF DISTRIBUTION
The selling stockholders have advised us that the sale or distribution
of our common stock owned by the selling stockholders may be effected directly
to purchasers by the selling stockholders or by pledgees, donees, transferees or
other successors in interest, as principals or through one or more underwriters,
brokers, dealers or agents from time to time in one or more transactions (which
may involve crosses or block transactions) (i) on the over-the-counter market or
in any other market on which the price of our shares of common stock are quoted
or (ii) in transactions otherwise than on the over-the-counter market or in any
other market on which the price of our shares of common stock are quoted. Any of
such transactions may be effected at market prices prevailing at the time of
sale, at prices related to such prevailing market prices, at varying prices
determined at the time of sale or at negotiated or fixed prices, in each case as
determined by the selling stockholders or by agreement between the selling
stockholders and underwriters, brokers, dealers or agents, or purchasers. If the
selling stockholders effect such transactions by selling their shares of our
common stock to or through underwriters, brokers, dealers or agents, such
underwriters, brokers, dealers or agents may receive compensation in the form of
discounts, concessions or commissions from the selling stockholders or
commissions from purchasers of common stock for whom they may act as agent
(which discounts, concessions or commissions as to particular underwriters,
brokers, dealers or agents may be in excess of those customary in the types of
transactions involved). The selling stockholders and any brokers, dealers or
agents that participate in the distribution of the common stock may be deemed to
be underwriters, and any profit on the sale of common stock by them and any
discounts, concessions or commissions received by any such underwriters,
brokers, dealers or agents may be deemed to be underwriting discounts and
commissions under the Securities Act.
If any shares of common stock being registered for resale in the
accompanying registration statement are transferred from the named selling
stockholders listed in this Prospectus and such transferees wish to rely on this
Prospectus to resell these shares, then a post-effective amendment to the
accompanying registration statement would need to be filed with the Securities
and Exchange Commission naming these individuals as selling shareholders and
providing the information required by Item 507 of Regulation S-B.
Cornell Capital is an "underwriter" within the meaning of the Securities
Act of 1933 in connection with the sale of common stock under the Equity Line of
Credit agreement. Cornell Capital will pay us 91% of the lowest closing bid
price on the Over-the-Counter Bulletin Board or other principal trading market
on which our common stock is traded for the 5 days immediately following the
notice date. The 9% discount on the purchase of the common stock to be received
by Cornell Capital will be an underwriting discount. In addition, Cornell
Capital will retain 3% of the gross proceeds raised in the Equity Line of
Credit, which constitutes underwriter compensation. In connection with the
Equity Line of Credit, we previously issued 764,706 shares of our common stock
to Cornell Capital as a commitment fee, which constitutes underwriter
compensation. We have issued 19,608 shares of our common stock to Westrock
Advisors, Inc., an unaffiliated registered broker-dealer, as a placement agent
fee in connection with the Equity Line of Credit.
The Equity Line of Credit agreement contains a restriction that in the
event Cornell Capital has beneficial ownership of more than 9.9% of our
outstanding common stock, we are unable to draw down on the Equity Line of
Credit. Currently, Cornell Capital has beneficial ownership of more than 20% of
our common stock and is subject to Section 16(b) of the Securities Exchange Act
of 1934. We cannot currently draw down on the Equity Line fo Credit unless
Cornell Capital's beneficial ownership is below 10%.
Cornell Capital has been in business less than three years. Cornell
Capital is a private equity fund whose principal business function is to provide
equity and debt financing to publicly traded companies through such vehicles,
which include, but are not limited to, equity lines of credit and convertible
debentures. Cornell Capital does not have any material relationships with the
promoters of Mobilepro.
Under the securities laws of certain states, the shares of common stock
may be sold in such states only through registered or licensed brokers or
dealers. In addition, in certain states the shares of common stock may not be
sold unless the shares have been registered or qualified for sale in such state
or an exemption from registration or qualification is available and is complied
with.
Our common stock is deemed to be "penny stock" as that term is defined
in Rule 3a51-1 promulgated under the Securities Exchange Act of 1934. Penny
stocks are stock: (i) with a price of less than $5.00 per share; (ii) that are
not traded on a "recognized" national exchange; (iii) whose prices are not
quoted on the Nasdaq automated quotation system (Nasdaq listed stock must still
have a price of not less than $5.00 per share); or (iv) in issuers with net
tangible assets less than $2.0 million (if the issuer has been in continuous
operation for at least three years) or $5.0 million (if in continuous operation
for less than three years), or with average revenues of less than $6.0 million
for the last three years.
Broker/dealers dealing in penny stocks are required to provide potential
investors with a document disclosing the risks of penny stocks. Moreover,
broker/dealers are required to determine whether an investment in a penny stock
is a suitable investment for a prospective investor. These requirements may
reduce the potential market for our common stock by reducing the number of
potential investors. This may make it more difficult for investors in our common
stock to sell shares to third parties or to otherwise dispose of them. This
could cause our stock price to decline.
17
We will pay all the expenses incident to the registration, offering and
sale of the shares of common stock to the public hereunder other than
commissions, fees and discounts of underwriters, brokers, dealers and agents. We
have agreed to indemnify the selling stockholders and their controlling persons
against certain liabilities, including liabilities under the Securities Act. We
estimate that the expenses of the offering to be borne by us will be
approximately $85,000 as well as 3.0% of the gross proceeds received under the
Equity Line of Credit that will be retained by Cornell Capital. We intend to pay
these expenses from the proceeds we anticipate receiving under the Equity Line
of Credit. We will not receive any proceeds from the sale of any of the shares
of common stock by the selling stockholders. We will, however, receive proceeds
from the sale of common stock under the Equity Line of Credit.
The selling stockholders should be aware that the anti-manipulation
provisions of Regulation M under the Exchange Act will apply to purchases and
sales of shares of common stock by the selling stockholders, and that there are
restrictions on market-making activities by persons engaged in the distribution
of the shares. Under Regulation M, the selling shareholders or their agents may
not bid for, purchase, or attempt to induce any person to bid for or purchase,
shares of our common stock of Mobilepro while such selling shareholders are
distributing shares covered by this prospectus. Accordingly, except as noted
below, the selling shareholders are not permitted to cover short sales by
purchasing shares while the distribution is taking place. Cornell Capital can
cover any short positions only with shares received from us under the Equity
Line of Credit. The selling stockholders are advised that if a particular offer
of common stock is to be made on terms constituting a material change from the
information set forth above with respect to the Plan of Distribution, then to
the extent required, a post-effective amendment to the accompanying registration
statement must be filed with the Securities and Exchange Commission.
18
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
THE FOLLOWING INFORMATION SHOULD BE READ IN CONJUNCTION WITH THE
CONSOLIDATED FINANCIAL STATEMENTS OF MOBILEPRO AND THE NOTES THERETO APPEARING
ELSEWHERE IN THIS FILING. STATEMENTS IN THIS MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATION AND ELSEWHERE IN THIS PROSPECTUS THAT ARE NOT
STATEMENTS OF HISTORICAL OR CURRENT FACT CONSTITUTE "FORWARD-LOOKING
STATEMENTS."
OVERALL OPERATING RESULTS
We had no revenues for the six months ended September 30, 2002. Our
operating expenses for the six months ended September 30, 2002 were
approximately $1,998,764 compared with $993,079 for the six months ended
September 30, 2001. Our primary expense was incurred for professional fees and
compensation expenses of $1,870,172 compared with $685,114 for the six months
ended September 30, 2001. Of this amount, $1,208,253 of common stock in lieu of
cash was issued for the six months ended September 30, 2002 in connection with
consulting fees and expenses for services rendered as a part of the reverse
triangular merger with NeoReach, Inc., entering into the Equity Line of Credit
with Cornell Capital Partners, L.P. and for research, marketing and advertising
services. This could be compared with $639,660 for the six months ended
September 30, 2001. These consulting fees and expenses are not anticipated to be
recurring. Approximately $600,000 in expenses was for the six months ended
September 30, 2002 for on-going payroll, professional fees, consulting fees,
marketing expenses and other operational expenses for the six month period.
We incurred for the six month period approximately $80,000 for legal
fees rendered in connection with the registration of our common stock with the
Securities and Exchange Commission, our public reporting compliance filings, and
general legal for general corporate matters. The remaining expenses included
general administrative expenses of operating a development stage business.
We had no sales from our wireless business solutions provider operations
for the years ended March 31, 2002 and 2001. However, our general and
administrative expenses were $3,147,119 for the year ended March 31, 2002 and
$1,009,193 for the year ended March 31, 2001, which resulted in substantial
operating losses for each respective year. Operating losses were $3,147,119 and
$1,009,193 for the years ended March 31, 2002 and 2001, respectively. We had
other income, including income from the forgiveness of debt of $248,717 and $0
for the years ended March 31, 2002 and 2001, respectively. The areas where we
expended the most funds for the years ended March 31, 2002 and 2001,
respectively, were for payroll, professional fees, consulting fees, and
marketing expenses. Due to our large operating losses and the fact that we did
not have adequate capital to continue to operate, we pursued alternative
business opportunities in the first quarter of 2002.
OPERATING LOSSES
Our net operating loss for the six months ended September 30, 2002 was
approximately $2,047,198 compared with $691,751 for the six months ended
September 30, 2001. These losses were incurred primarily as a result of the
aforementioned incurred expenses.
We have accumulated deficits of approximately $5,954,793 as of September
30, 2002. 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.
19
Our net losses after taxes and other income/expenses were $2,898,402 for
the year ended March 31, 2002 and $1,009,193 for the year ended March 31, 2001.
We have accumulated deficits of approximately $3,907,595 as of March 31,
2002. 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 Mobilepro. 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
As of September 30, 2002, we had a total Stockholders' Deficit of
approximately $1,745,633 and do not currently have any revenues, liquidity or
capital resources as we move forward with our business plan. Our independent
auditors have issued an audit opinion as of March 31, 2002 that raises
substantial doubt as to our ability to continue as a going concern. We will need
additional financing in order to implement our business plan and continue
business. Other than the Equity Line of Credit (as described below), we do not
have a source for any additional financing and we cannot give any assurances
that we will be able to secure any financing. The traditional markets for
raising capital have become extremely more difficult in the last year largely
due to a depressed economy, large well-known business failures and the events of
September 11, 2001.
On May 31, 2002, we entered into a Securities Purchase Agreement with
Cornell Capital Partners, L.P. Cornell Capital purchased $250,000 of our
convertible debentures. The Securities Purchase Agreement contemplates the sale
of up to an additional $250,000 of debentures. The debentures mature in two
years and bear interest at 4% annually. At our option, the entire principal
amount and all accrued interest can be either (a) paid to Cornell Capital at
maturity or (b) converted to shares of our common stock. Cornell Capital, at its
option, is entitled to voluntarily convert the debentures unto shares of our
common stock. The conversion price per share is equal to either an amount equal
to one hundred twenty percent of the closing bid price of the our common stock
on May 31, 2002 or eighty percent of the average of the four day lowest closing
bid prices of the our common stock for the five trading days immediately
proceeding conversion day. The proceeds from the sale of these debentures were
used for working capital to support continued operations and marketing.
On February 6, 2003, we entered into an Equity Line of Credit Agreement
with Cornell Capital. Cornell Capital, subject to certain terms and conditions,
will purchase up to $450,000 of Mobilepro's common stock each thirty days
thereafter during the term of the agreement or an aggregate of $10.0 million.
The term of the agreement is twenty-four months, subject to termination at the
sole discretion of Mobilepro and subject to certain events. The purchase price
of the shares of common stock will be equal to a price based upon the future
market price of our common stock with a fixed 9% discount to the then-current
market price. For each share of common stock purchased under the Equity Line of
Credit, Cornell Capital will pay 91% of the lowest closing bid price on the
Over-the-Counter Bulletin Board or other principal market on which our common
stock is traded for the five consecutive trading days after the notice date. The
effectiveness of the sale of the shares under the Equity Line of Credit is
conditioned upon us registering the shares of common stock with the Securities
and Exchange Commission. There can be no assurance of the amount of proceeds we
will receive, if any, under the Equity Line of Credit Agreement with Cornell
Capital.
On May 31, 2002, we originally received a financing commitment of
$10,000,000 when we first entered into an Equity Line of Credit Agreement with
Cornell Capital and have since that time been waiting for the required Form SB-2
Registration Statement to become effective. The funding for the operation of
Mobilepro was during the end of 2002 based to a large extent on the approval and
effectiveness of this financing commitment. During the waiting time for
approval, we have raised smaller amounts of private equity and smaller amounts
of loans. The cash raised has not been adequate to execute the plan of operation
for the year 2002 and we have, as a consequence, scaled back development
activities including deferring salary compensation and accepting the loss of
some senior engineering personnel. We have been successful in recruiting other
very senior highly experienced members of the management team and other key
personnel, but we have not been able to engage the personnel on a full-time
basis. Due to the delay in funding, we have also deferred payment of certain
operating expenses including certain bills for professional services.
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.
20
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
This plan of operation does not reflect the financial information of our
prior business operations as a wireless business solutions provider business and
are reflective of our new business strategy.
1. 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 will
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 will in turn 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 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.
21
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
anticipated product delivery schedule for the three projects, and the estimated
project costs associated with achieving the milestones. This schedule could
change depending on challenges faced in engineering and development.
PROJECT SYSTEM PROTOTYPE PROTOTYPE IC GENERAL
DEFINITION DESIGN MANUFACTURING TESTING MANUFACTURING BETA TESTING AVAILABILITY
------------------------ ------------ --------- --------------- ----------- --------------- -------------- --------------
Base Station V1.0 Modem
Board 2000 2001 1Q2002 3Q2002 N/A N/A 1Q2003
Base Station Modem
Integrated Circuit 1Q2003 2Q2003 3Q2003 4Q2003 4Q2003 1Q2004 2Q2004
Handset Modem
Integrated Circuit 2Q2003 3Q2003 1Q2004 2Q2004 3Q2004 3Q2004 4Q2004
Radio Frequency
Integrated Circuit 1Q2003 2Q2003 3Q2003 3Q2003 4Q2003 4Q2003 1Q2004
The table below provides the estimated project development costs for the three different 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 $800,000 $1,100,000 $1,900,000
Circuit
Total Estimated Development $3,600,000 $5,200,000 $8,800,000
Costs
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 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 it become apparent that we cannot raise the funds as
anticipated, we intend to re-evaluate the priorities between the developments of
the three main projects. We will 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.
3. We anticipate the next generation (version 2.0) of our base station
modem board may 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 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 us 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
22
chips. Our current plans anticipate 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 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
will 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 will 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.
4. The sales cycle for our products is about 6 to 9 months. Currently we
intend to offer our prototype modem board to potential prospects. Our 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 our customers. In
addition to investing in a direct sales force, we intend to continue to try to
develop business relationships with potential partners who can serve 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.
5. Typical price points for the version 1.0 of the board begin at
$10,000.
6. As a result of the Plan, we expect a significant increase in the
number of employees by mid 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. 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 potential private placement
offering or potential debt financing, which we anticipate to be used 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 with anticipated costs as
described under sections 1 through 3 above:
a. Invest in laboratory facilities including test and simulation
equipment.
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 our business
goals with anticipated costs included in the costs as described under sections 1
through 3 above.
3) Expand our product offerings to include radio frequency integrated
circuit development with anticipated costs as described under sections 1 through
3 above.
4) Develop direct and indirect sales and marketing channels for our
products and services with anticipated costs as described under section 4 above:
23
a. Develop business partnerships that embrace Mobilepro 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 $100,000 out of
a total outstanding amount of $277,617.
6) General working capital purposes.
RESEARCH AND DEVELOPMENT ACTIVITY
Every new product in the high tech industry requires some resources
dedicated to research and development. Being a development stage company,
Mobilepro's products are no different. Creating new products such as the radio
frequency integrated circuit require us to dedicate some percentage of our
efforts to research and development activities. We have announced a memorandum
of understanding with RF Microelectronics Laboratory of International
Communications University of South Korea. In conjunction with this university,
we expect to perform research and development for the radio frequency integrated
circuit market. We believe that this joint effort may reduce the time necessary
to produce a commercial product. This memorandum of understanding is non-binding
on either party and additional agreements are necessary before the parties may
collaborate together. As described in the memorandum of understanding, the
parties intend to seek opportunities to cooperate in research, particularly in
radio frequency integrated circuit development for a radio frequency transceiver
of the third generation W-CDMA standard. The details of specific research
proposals will be determined by the mutual agreement of the parties. The form of
cooperation may vary with the goal of each project. The parties agree that, in
the event of research collaboration leading to patent rights, copyrights and
other intellectual property rights, a further agreement must be entered into
each case. Both parties acknowledge that they do not acquire any right in or any
intellectual property rights, including, without limitation, copyright,
trademark, trade secret, know-how of the other party. The memorandum of
understanding does not bind any responsibility on any party in implementation of
the objective and shall remain in force for a period of five years from the date
of the last signature, with the understanding that it may be terminated by
either party giving twelve months prior notice to the other party in writing.
We have worked on the development of the technology for the Base Station
modems and we intend to focus on evolving this technology for efficiencies.
We intend to acquire or license additional intellectual property from
other sources, as opportunities develop to complement our own developed
technology. We have not yet engaged negotiations to acquire such technology
neither identified the entity controlling the technology.
We have also announced a strategic technology alliance with Prime
Circuits, Inc. of Maryland, a semiconductor development company. As part of the
alliance, we believe that we will gain access to technical knowledge, personnel
and low power semiconductor technology. This solution is intended to target the
consumer handsets and network transmission base stations to support third
generation communications. As of November 20, 2002, no material terms of an
agreement have yet been developed. There is no affiliation between Prime
Circuits and our Company, its officers, directors and/or affiliates. The
completion of an agreement is pending a joint review of mutual additional
business opportunities and the current nature of the relationship is still under
discussion.
24
DESCRIPTION OF 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 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
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
recently redirected 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,
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.
25
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 solution is anticipated 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 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 2003, are
expected to provide adequate increased capability. These commercially available
integrated circuits can 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 the radio frequency integrated circuit.
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 application
pending for its W-CDMA smart antenna processing approaches. Smart antennae
technology combines multiple antenna elements with signal processing to optimize
26
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.
The Company is located at 3204 Tower Oaks Blvd., Suite 350, Rockville,
Maryland 20852. As of February 1, 2003 we will be located at 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 Mobilepro.
Mobilepro was incorporated on July 14, 2000 and was focused on the
integration and marketing of complete mobile information solutions that 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 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. 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
Mobilepro entered into with Dungavel on June 1, 2001 as part of the merger with
CraftClick.
On February 19, 2002, Mobilepro 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 Mobilepro 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 Mobilepro's voting securities
at that time. On February 28, 2002, Mr. Scott Smith resigned as the President,
CEO and Chairman of Mobilepro, and Mr. Lozinsky became the President and CEO of
Mobilepro. On May 10, 2002, Mr. Arne Dunhem became Mobilepro'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 excluding intangible assets
and goodwill, 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
27
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. (Excluding Intangible Assets and
Goodwill)
APPROX.
ITEM VALUE
--------------------------------------------------- ---------
Personnel, engineering man effort, 33 man-years. $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
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
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 sale. The strategy was for Mobilepro
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.
The audited financial statements included elsewhere in this filing
contain only the operations of the wireless business solutions provider business
and are not reflective of the new business strategy adopted by the new majority
owners.
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, 2002 and March 31, 2001.
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
28
has been notified by the Patent and Trademark Office that five of the six patent
applications that had been filed by NeoReach related to smart antenna processing
had been approved and that the review process was still underway for the one
remaining 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
first quarter of 2003 with a multi-channel modem semi-conductor integrated
circuit chip to be commercially available by the beginning of 2004. The chip is
anticipated to be designed and developed by the Company, but we expect the chip
to be manufactured by a third party offshore company. 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 end of 2004.
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.
We also anticipate to review opportunities arising for strategic
partnerships or possible acquisitions to increase our product and service
offering. 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. 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.
We have also announced a strategic technology alliance with Prime
Circuits, Inc. of Maryland, a semiconductor development company. As part of the
alliance, we believe that we will gain access to technical knowledge, personnel
and low power semiconductor technology. This solution is intended to target the
consumer handsets and network transmission base stations to support third
generation communications. As of November 20, 2002, no material terms of an
agreement have yet been developed. There is no affiliation between Prime
Circuits and our Company, its officers, directors and/or affiliates. The
completion of an agreement is pending a joint review of mutual additional
business opportunities and the current nature of the relationship is still under
discussion.
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
29
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 may
start in 2002.
MARKET SIZE AND OPPORTUNITY
We believe 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.
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
We believe we need additional financing and may use a private placement
offering or debt financing in addition to the Equity Line of Credit to raise
such additional funds, intended 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, including, but not limited to, a convertible
debenture from Cornell Capital at an amount of $250,000 plus accrued interest.
We also intend to pay-down debt owed to Mr. Daniel Lozinsky, a Director of
Mobilepro and Mr. Arne Dunhem, President, Chief Executive Officer and a Director
of Mobilepro. The total amount that we plan to pay to Mr. Lozinsky and Mr.
Dunhem during 2003 is approximately $100,000 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.
30
The product line extensions will 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 smaller 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 Information and
Communications University of South Korea based on a memorandum of understanding
between our organizations. This memorandum of understanding is non-binding on
either party and additional agreements are necessary before the parties may
collaborate together.
MARKETING AND COMPETITION
MARKETING
Mobilepro intends to sell products and services through direct and
indirect sales channels. We intend to have a direct sales force in North
America, Europe and Asia. We intend that 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, we intend to sell products
through OEM agreements with other manufacturers. OEM means Original Equipment
Manufacturer. Any OEM relationships may enable our 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.
COMPETITION
The markets for our products are intensely competitive and subject to
rapid technological advancement. We must identify and capture future market
opportunities to offset the price erosion that characterizes our industry. Our
method of competition is expected to be 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.
We estimate that the amount of time spent during the last two years on
research and development activities uniquely for our product and services was
approximately $2,715 and $446,359 for the fiscal years ended March 31, 2002 and
2001, respectively. None of the cost of such activities were borne directly by
31
customers. As of August 15, 2002, we had seven individual people engaged in
research and development activities.
INTELLECTUAL PROPERTY
As of January 23, 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 January 23, 2003 we have been granted
approval of five patents and one 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.
In addition, we also have 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. We do not intend to pursue
business related to these patents and we will assign the patents to Mr. Scott
Smith, the inventor and former president of Mobilepro.
GOVERNMENTAL 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 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.
On May 31, 2002, we entered into a Securities Purchase Agreement with
certain investors pursuant to which we issued and sold $250,000 of convertible
debentures. The Securities Purchase Agreement contemplates the sale of up to an
additional $250,000 of debentures. The debentures accrue interest at the rate of
four percent per year. The debentures must be repaid two years following their
32
issuance or, at our election, converted into shares of common stock. In
addition, at any time, the holders of the debentures may elect to convert their
debt into common stock. The conversion price per share is equal to either an
amount equal to one hundred twenty percent of the closing bid price of the our
common stock as of May 31, 2002 or eighty percent of the average of the four day
lowest closing bid prices of the our common stock for the five trading days
immediately preceding date of conversion. The debentures also provide us with
certain redemption rights which, if exercised, will require us to issue common
stock warrants to the debenture holders. The shares of common stock to be issued
upon any conversion of the debentures are being registered in this offering.
EMPLOYEES
As of November 20, 2002, we employ 7 full-time employees. We have no
collective bargaining agreements with our employees. 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.
The Company 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 Engineers sinceThe Company is negotiating settlements with the
employees with respect to the claims.
33
MANAGEMENT
Our present directors and executive officers are as follows:
TERM
NAME AGE POSITION EXPIRES
------------------ ----- ------------------------------------- --------
President, Chief Executive Officer
Arne Dunhem 52 and Chairman 2003
Daniel Lozinsky 41 Senior Vice-President and Director 2003
Senior Vice-President of NeoReach,
Kyung (Ken) Min 46 Inc. 2003
Senior Vice-President of NeoReach,
Parag Sheth 35 Inc. 2003
The following is a brief description of the background of our directors
and executive officers.
BACKGROUND INFORMATION
ARNE DUNHEM. Mr. Arne Dunhem was appointed a Director and Treasurer of
Mobilepro in February 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
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. From November 1998, to June 2001, Mr. Dunhem was the Chairman
and CEO of Erbia, Inc. a long-distance communications company. Mr. Dunhem
directed this company from its start-up phase through the sale of the operation
to another company. From January 1998 to October 1998, Mr. Dunhem was a
strategic business consultant. From 1993 until September 1997, Mr. Dunhem was
the Chairman of Tele8 Kontakt AB, a Swedish nationwide start-up wireless
operator. Also from 1993 to December 1997, Mr. Dunhem was the Chairman of
Nordiska Tele8 AB of Sweden, a long-distance and local telephone service
company. Mr. Dunhem directed this company from its start-up phase through full
operation and eventually the sale of the companies. From September 1989 to April
1990, Mr. Dunhem was 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 through June
1989, Mr. Dunhem was with INTELSAT, Washington, D.C., an international satellite
communications organization, where he served in capacities from staff engineer
to program manager and had responsibilities for building-up some of the world's
largest command, control and monitoring networks. Mr. Dunhem 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.
DANIEL LOZINSKY. Mr. Daniel Lozinsky, Senior Vice-President and Director
of Mobilepro, was appointed a Director of Mobilepro in February 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 2001 working 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 1996 and 1999, when the company grew from 4
million to 21 million users. He was working for AOL's MIS (BISY) department
between April 1995 and June 1996. Prior to that Mr. Lozinsky was employed as a
senior software engineer at Eastman Kodak Corporation in Rochester NY between
September 1989 and April 1995. 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 August 1987 and
September 1988, 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 August 1985 and May
34
1987, 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, January 1989. He also holds BS/CS from Polytechnic
Institute of NY, January 1984.
KYUNG (KEN) MIN. Kyung (Ken) Min, Senior Vice President, New
Technologies of NeoReach, Inc. is a seasoned professional with twenty years of
experience in the cellular and digital communications industries. Mr. Min has
specialized in the areas of business development, marketing, systems integration
and engineering. Mr. Min 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 with Motorola
from May 1981 to June 1992, Mr. Min served as Senior Product Manager of the
Cellular Business Marketing and Sales unit developing wireless devices,
including base stations, and forming strategic alliances to ensure on-time and
on-budget product market entry. Mr. 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. From January 1996 to
June 1998, Mr. Min directed the PCS unit at Hyundai Electronics where he managed
two-hundred engineers and technical marketing staff. Mr. Min represented Samsung
and Hyundai in the CDMA Development Group steering committee from 1994-1998. Mr.
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, Mr. Min now serves in a capacity where he can most effectively
capitalize on his experience in engineering and business development. Mr. 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.
PARAG SHETH. 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.
35
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table sets forth the annual
and long-term compensation for services in all capacities for the fiscal years
ended March 31, 2002, 2001 and 2000, paid to our most highly compensated
executive officers.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM COMPENSATION
----------------------------- ------------------------------------------
AWARDS
------
RESTRICTED SECURITIES
STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS AWARD(S) OPTIONS COMPENSATION(1)
------------------------------- ------ ---------- ------- ------------ ------------ -----------------
Daniel Lozinsky 2002 $0 -- -- -- $140,250
Former Chief Executive Officer 2001 $0 -- -- -- --
and
Chairman 2000 $0 -- -- -- --
Arne Dunhem 2002 $0 -- -- -- $195,250
Chief Executive Officer and 2001 $0 -- -- -- --
Chairman 2000 $0 -- -- -- --
Scott R. Smith 2002 $53,652 -- -- -- $80,000
Former Chief Executive Officer 2001 $218,750(2) -- -- -- --
and
Former Director 2000 $0 -- -- -- --
Kyung (Ken) Min 2002 $0 -- -- -- --
Sr. Vice President of
NeoReach, Inc. 2001 $0 -- -- -- --
2000 $0 -- -- -- --
Parag Sheth 2002 $0 -- -- -- --
Sr. Vice President of
NeoReach, Inc. 2001 $0 -- -- -- --
2000 $0 -- -- -- --
----------
(1) All of the amounts in this column were paid in the form of stock. The
amounts listed represent the fair market value of the stock on the date
of grant.
(2) The compensation for the period ended March 31, 2001 was earned while
Mr. Smith was an employee of Mobilepro Corp, a private company, prior to
its reverse merger dated June 6, 2001. This amount was accrued and Mr.
Smith took no cash payments for salary while at Mobilepro Corp, a
private company. In February 2002 in connection with the Stock Purchase
Agreement among Mr. Daniel Lozinsky and Dungavel, Inc., and in
connection with the Stock Purchase Agreement among 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 Mobilepro'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 March
31, 2002, Mobilepro does not owe Mr. Smith any accrued salary amount.
36
The following table sets forth certain information concerning the number
and value of securities underlying exercisable and unexercisable stock options
as of the fiscal year ended March 31, 2002 by our executive officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL
YEAR-END OPTION VALUES
NUMBER OF SECURITIES
NUMBER OF UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED ON VALUE MARCH 31, 2002(1) MARCH 31, 2002(1)
NAME EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
------------------- ------------- ---------- ---------------------------- ---------------------------
None Exercisable -- Exercisable --
Unexercisable -- Unexercisable --
----------
(1) The value of unexercised in-the-money options at fiscal year end is
calculated using the last sale price of $1.05 per share as of March 31,
2002, the last trading day of fiscal year 2001 as reported on the
Over-the-Counter Bulletin Board.
COMPENSATION OF DIRECTORS
We have no standard arrangement pursuant to which our Directors are
compensated for services provided as a Director.
EMPLOYMENT AGREEMENTS
There are no existing employment agreements between Mobilepro and any
employees. However, there are employment agreements between the subsidiary
NeoReach, Inc. and Arne Dunhem, Kyung (Ken) Min and Parag Sheth. The employment
agreement between the subsidiary NeoReach, Inc. and Scott R. Smith terminated on
August 18, 2002.
Mr. Howard Geisler was employed by Mobilepro as the Secretary and
Director of the Company between June 6, 2001 and September 30, 2001 when he
resigned from the Board of Directors and as the Company Secretary to pursue
other business interests. We believe that at the time there were no
disagreements between Mr. Geisler and the Company. The resignation was disclosed
in the 10-QSB for the quarterly period ended September 30, 2001. By omission by
a previous management team, a Form 8-K was not filed providing the disclosure of
the resignation.
Effective January 4, 2002, NeoReach, Inc. entered into an Employment
Agreement with Arne Dunhem. Pursuant to the Employment Agreement, Mr. Dunhem
serves as President and Chief Executive Officer of NeoReach. The initial term of
the Employment Agreement is from January 4, 2002 until April 4, 2003 and will
automatically renew for a one year term unless NeoReach or Mr. Dunhem delivers
written notice to the other party prior to March 29, 2003. Thereafter the
Employment Agreement will automatically renew for successive one year terms
unless NeoReach or Mr. Dunhem provide the other party with written notice 30
days prior to the expiration of the applicable term. Mr. Dunhem's Employment
Agreement provides for base cash compensation of $180,000 per year. In addition,
NeoReach and Mr. Dunhem (through the Board of Directors) will mutually agree
upon performance milestones and an associated bonus structure that will, upon
satisfaction of such performance milestones, enable Mr. Dunhem to earn a minimum
additional amount per year of $20,000. In addition, NeoReach granted Mr. Dunhem
an option to acquire such number of shares of NeoReach's common stock, par value
$0.01 per share, as is equal to 10% of NeoReach's outstanding shares of common
stock on the effective date of Mr. Dunhem's Employment Agreement (after giving
effect to the issuance by NeoReach of shares of common stock pursuant to that
certain Term Sheet dated January 2, 2002 by and between NeoReach and Daniel
Lozinsky). Seventy percent of the shares of common stock granted to Mr. Dunhem
pursuant to the Employment Agreement vested immediately on the date of grant,
15% of the shares of common stock granted Mr. Dunhem vested on April 5, 2002 and
the remaining shares of common stock granted to Mr. Dunhem will vest on January
5, 2003. The option was granted pursuant to the terms and conditions of the
NeoReach's 2000 Stock Incentive Plan and the form of option grant agreement used
in connection therewith. The exercise price of the option is equal to the fair
market value of the NeoReach's common stock on the date of grant. As a result of
the merger between NeoReach and Mobilepro these options upon exercising will be
issued as Mobilepro shares of common stock at the same quantity and exercise
price instead of NeoReach shares.
Effective January 4, 2002, NeoReach entered into an Employment Agreement
with Kyung Min. Pursuant to the Employment Agreement, Mr. Min serves as Senior
Vice President, New Technologies of NeoReach. The initial term of the Employment
Agreement is for one year and will automatically renew for successive one year
terms unless NeoReach or Mr. Min delivers written notice to the other party with
37
30 days written notice prior to the expiration of the applicable term. Mr. Min's
Employment Agreement provides for base cash compensation of $150,000 per year.
In addition, NeoReach and Mr. Min (through the Board of Directors) will mutually
agree upon performance milestones and an associated bonus structure that will,
upon satisfaction of such performance milestones, enable Mr. Min to earn a
minimum additional amount per year of $20,000. In addition, NeoReach agreed to
grant Mr. Min an option to purchase a number of shares of NeoReach's common
stock to be determined by the Board of Directors at a later date. Mr. Min's
Employment Agreement provides that the option will be granted pursuant to the
terms and conditions of the NeoReach 2000 Stock Incentive Plan and the form of
option grant agreement used in connection therewith. As of November 20, 2002,
the Board of Directors had not yet granted Mr. Min any options. Any options upon
granting will be granted as Mobilepro shares of common stock under the
appropriate Mobilepro plan.
Effective July 1, 2002, NeoReach entered into an Employment Agreement
with Parag Sheth. Pursuant to the Employment Agreement, Mr. Sheth serves as
Senior Vice President of Marketing and Business Development. The Employment
Agreement does not specify the term. Mr. Sheth is an at-will employee of
NeoReach. Mr. Sheth's Employment Agreement provides for base cash compensation
of $180,000 per year. Mr. Sheth is eligible for a discretionary cash bonus in an
amount equal to 50% of Mr. Sheth's then-current salary, provided that NeoReach
meets or exceeds certain milestones established in NeoReach's management bonus
plan prepared each year and Mr. Sheth must be an employee of NeoReach through
the end of applicable bonus year.
Effective November 13, 2002 Mr. Ken Min resigned from the Board of
Directors of NeoReach and as an officer of NeoReach. His position has currently
not been filled.
2001 EQUITY PERFORMANCE PLAN
On November 1, 2001, the Board of Directors approved the Mobilepro Corp.
2001 Equity Performance Plan under which employees, officers, directors and
consultants are eligible to receive grants of stock options. Mobilepro has
reserved a total of 1,000,000 shares of common stock under the 2001 Equity
Performance Plan. It is presently administered by Mobilepro's Board of
Directors. Subject to the provisions of the 2001 Equity Performance Plan, the
Board of Directors has full and final authority to select the individuals to
whom options will be granted, to grant the options and to determine the terms
and conditions and the number of shares issued pursuant thereto.
INDEMNIFICATION
As permitted by the provisions of the General Corporation Law of the
State of Delaware, Mobilepro has the power to indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that the person is or was a director,
officer, employee or agent of the corporation if such officer or director acted
in good faith and in a manner reasonably believed to be in or not opposed to the
best interest of Mobilepro. Any such person may be indemnified against expenses,
including attorneys' fees, judgments, fines and settlements to the extent they
have been on the merits or otherwise in defense of any action, suit or
proceeding. Further, Mobilepro does not maintain liability insurance on behalf
of its officers, directors, employees and agents. Insofar as indemnification for
liabilities arising under the Securities Act of 1933 (the "Act") may be
permitted to directors, officers and controlling persons of the small business
issuer pursuant to the foregoing provisions, or otherwise, the small business
issuer has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable.
38
DESCRIPTION OF PROPERTY
Our offices are located at 3204 Tower Oaks Boulevard, Suite 350,
Rockville, Maryland 20852. The offices consisting of approximately 5,680 square
feet of office space are sub-leased from PrimeWire, Inc. with a monthly rental
rate of $11,356. The current sub-lease agreement terminated on September 30,
2002 and we initiated a re-negotiation with the landlord directly. We signed and
executed a month-by-month lease agreement with the landlord directly on
September 26, 2002. We have also initiated discussions with other potential new
office locations at lower monthly rental rate. We have a preliminary agreement
for lease of office space at 30 West Gude Drive, Suite 480, Rockville, Maryland
20850. The new offices consisting of approximately 3,500 square feet of office
space, that can expanded to approximately 7,000 square feet alternatively to as
much as approximately 13,000 square feet, will be sub-leased from Amisys, LLC
with a monthly rental rate of $4,500. The lease agreement has not yet been
mutually signed and executed. We believe that this new facility should be
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.
LITIGATION PROCEEDINGS
Mr. Tatcha Chulajata, a former employee of NeoReach, Inc. 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 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 of NeoReach, Inc., Mr. Mann Hyuk Park, Mr. Sang
Humn Lee and Mr. Yang Hoon Jung, were employed as Senior or Principal Engineers
since September 2001, June 2000 and August 2001, respectively. Due to financial
difficulties encountered by the Company in 2001 and 2002, the three individuals
received reduced salaries. The Company is currently negotiating settlements with
the employees with respect to the claims.
39
PRINCIPAL SHAREHOLDERS
BENEFICIAL OWNERS
COMMON STOCK. As of January 27, 2003, other than (i) the persons
identified in the following table and (ii) the directors and executive officers
identified in the table under "Directors and Executive Officers" section below,
no person owned beneficially more than five percent (5%) of our common stock.
SHARES
BENEFICIALLY PERCENT
NAME AND ADDRESS TITLE OF CLASS OWNED OF CLASS(1)
------------------------------ --------------- ------------ ------------
Cornell Capital Partners, LP Common Stock 4,764,706(2) 20.26%
101 Hudson Street, Suite 3606
Jersey City, New Jersey 07302
----------
(1) Applicable percentage of common stock is based on 19,516,788 shares
outstanding, plus any securities convertible or exchangeable into shares
of common stock for the purpose of computing the percentage of ownership
of such person only as of January 27, 2003.
(2) Includes 2,000,000 shares of common stock that may be acquired within 60
days of January 27, 2003 pursuant to the conversion of convertible
debentures and 764,706 shares of common stock that Cornell Capital
received as a commitment fee pursuant to an Equity Line of Credit
Agreement, dated February 6, 2003.
40
DIRECTORS AND EXECUTIVE OFFICERS
The following table shows the amount of our capital stock beneficially
owned by our directors, the executive officers named in the Summary Compensation
Table above and by all directors and executive officers as a group as of January
27, 2003. Unless otherwise indicated, beneficial ownership is direct and the
person indicated has sole voting and investment power. As of January 27, 2003,
we had 19,516,788 shares of common stock outstanding.
SHARES
TITLE OF BENEFICIALLY PERCENT
NAME AND ADDRESS CLASS OWNED OF CLASS(1)
------------------------------------- -------- -------------- -------------
Daniel Lozinsky Common 6,928,694 35.5%
3204 Tower Oaks Boulevard, Suite 350
Rockville, MD 20852
Arne Dunhem Common 2,811,763(2) 14.3%
3204 Tower Oaks Boulevard, Suite 350
Rockville, MD 20852
Ken Min Common 2,833,156 14.5%
3204 Tower Oaks Boulevard, Suite 350
Rockville, MD 20852
Parag Sheth Common 250,000 *
3204 Tower Oaks Boulevard, Suite 350
Rockville, MD 20852
Officers and Directors as a Group Common 12,823,613(3) 65.0%
(4 Persons)
3204 Tower Oaks Boulevard, Suite 350
Rockville, MD 20852
----------
* Less than 1%.
(1) Applicable percentage of ownership is based on 19,516,788 shares of
common stock outstanding as of January 27, 2003, together with
applicable options for each shareholder. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission and generally includes voting or investment power with
respect to securities. Shares of common stock subject to options that
are currently exercisable or exercisable within 60 days of January 27,
2003 are deemed to be beneficially owned by the person holding such
options for the purpose of computing the percentage of ownership of such
person, but are not treated as outstanding for the purpose of computing
the percentage ownership of any other person.
(2) Includes options to purchase 210,519 shares of common stock at an
exercise price of $0.057 per share.
(3) Includes options to purchase 210,519 shares of common stock owned by Mr.
Dunhem.
41
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the period ended March 31, 2000, Mr. Peter Yollin, the Chairman,
CEO and a shareholder of our company, received advances of $13,000. These
secured advances were eliminated as part of winding up the website business.
Mr. Howard Geisler, the former secretary and director of our company
during the period January 2001 through May 2001, provided our office space on a
gratis basis.
We 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, an investor
and creditor of our company 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 our common stock. Also in connection with the merger, ZDG Investments
Ltd., a Toronto investment company, was issued 1,475,000 shares of our common
stock. The stock was given for services rendered with regard to the merger. We
believe 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 our 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.
On May 31, 2002, Mobilepro issued to Cornell Capital a convertible
debenture 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. The
convertible debenture accrues interest at a rate of 4% per year and is
convertible at the holder's option. 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 January 20, 2003, the principal balance
of these convertible debentures remains at $250,000 plus an interest of
approximately $6,670. As of January 20, 2003 the Company has made no repayment
of the convertible debt from Cornell Capital.
In July 2002, we issued a total of 160,000 shares of our common stock
for the forgiveness of $39,000 of advances from Mr. Daniel Lozinsky, a Director
Mobilepro.
42
Two directors and officers of Mobilepro, as reflected in the June 30,
2002 financial statements, 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 $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 January 20, 2003, the principal balance of these loans remains at
$277,617 plus an interest of approximately $10,400. As of January 20, 2003, the
Company has made no repayments on these loans.
We believe that each of the above referenced transactions was made on
terms no less favorable to us than could have been obtained from an unaffiliated
third party. Furthermore, any future transactions or loans between us and our
officers, directors, principal stockholders or affiliates, and any forgiveness
of such loans, will be on terms no less favorable to us than could be obtained
from an unaffiliated third party, and will be approved by a majority of our
directors.
43
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY AND OTHER SHAREHOLDER MATTERS
Our common stock is quoted on the Over-the-Counter Bulletin Board under
the symbol "MOBL."
The following table sets forth the range of high and low bid quotations
from the Over-the-Counter Bulletin Board and the "Pink Sheets" for each calendar
quarter for our common stock for 1999, 2000, 2001 and 2002. The high and low
share prices do reflect the effects of the 1-for-100 share reverse stock split,
which occurred on May 8, 2001, and the 1-for-200 share reverse stock split,
which occurred on November 6, 2001.
BID PRICE PER SHARE
--------------------------
HIGH LOW
------------ ------------
July 23, 1999 - September 1999 $3.500 $0.500
October 1999 - December 1999 $3.000 $1.437
January 2000 - March 2000 $2.656 $1.500
April 2000 - June 2000 $3.500 $0.875
July 2000 - September 2000 $1.812 $0.375
October 2000 - December 2000 $0.406 $0.055
January 2001 - March 2001 $0.150 $0.012
April 2001 - June 2001(1) $1.600 $0.006
July 2001 - September 2001 $3.500 $0.060
October 2001 - December 2001(2) $4.000 $0.032
January 2002 - March, 2002 $4.000 $0.550
April 2002 - June 2002 $1.750 $0.250
July 2002 - September 2002 $0.450 $0.140
October 2002 - December 2002 $0.180 $0.070
----------
(1) Prices after May 9, 2001 reflect a 1 for 100 reverse stock split.
(2) Prices after November 19, 2001 reflect a 1 for 200 reverse stock split.
The above prices were obtained from the Over-the-Counter Bulletin and
the "Pink Sheets." The quotations represent inter-dealer prices, without retail
mark-up, markdown or commission, and may not necessarily represent actual
transactions.
As of January 27, 2003, we believe there were approximately 531 holders
of record of our common stock.
We have not paid dividends in the past on any class of stock and we do
not anticipate paying dividends in the foreseeable future.
44
DESCRIPTION OF SECURITIES
COMMON STOCK
Mobilepro's Articles of Incorporation authorize the issuance of
50,000,000 shares of common stock, with a par value of $0.001 per share, of
which 19,516,788 shares are issued and outstanding as of January 27, 2003.
Mobilepro anticipates amending our Articles of Incorporation in the next few
months in order to increase our authorized common stock.
Holders of shares of common stock are entitled to one vote for each
share on all matters to be voted on by the shareholders. Holders of common stock
have no cumulative voting rights.
Mobilepro does not currently anticipate paying any dividends on its
common stock. In the event of a liquidation, dissolution or winding up of
Mobilepro, the holders of shares of common stock are entitled to share pro-rata
all assets remaining after payment in full of all liabilities, subject however,
to any rights of the shareholders of preferred shares issued and outstanding at
the time of such liquidation, dissolution or winding up of Mobilepro (see
preferred stock below). Holders of common stock have no preemptive rights to
purchase Mobilepro's common stock. There are no conversion rights or redemption
or sinking fund provisions with respect to the common stock.
PREFERRED STOCK
Mobilepro's Articles of Incorporation authorize the issuance of
5,000,000 shares of preferred stock, with a par value of $0.001 per share, of
which 35,425 shares are issued and outstanding as of January 27, 2003. Each
share of Series A Preferred Stock is convertible, without additional
consideration, into one two-hundredth of a share of common stock. The holders of
the Series A Preferred Stock and the holders of our common stock vote together
as a single class on all matters presented for the vote of our stockholders.
Each holder of Series A Preferred Stock may cast a number of votes equal to the
number of shares of common stock issuable upon conversion of his Series A
Preferred Stock. The preferred stock may be issued in various series and shall
have preference as to dividends and to liquidation of the Corporation. The Board
of Directors of Mobilepro shall establish the specific rights, preferences,
voting privileges and restrictions of such preferred stock, or any series
thereof. Holders of preferred stock have no cumulative voting rights.
OPTIONS
As of January 27, 2003, we had 2,403,480 outstanding options with
exercise prices ranging from $0.057 to $1.00.
DEBENTURES
In addition, on May 31, 2002, Mobilepro issued a convertible debenture
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. The convertible debenture
accrues interest at a rate of 4% per year and is convertible at the holder's
option. 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.
TRANSFER AGENT AND REGISTRAR. Interwest Transfer Company is the transfer
agent and registrar for our common stock. Its address is 1981 East
Murray-Holladay Road, P. O. Box 17136, Salt Lake City, Utah 84121.
45
EXPERTS
The financial statements as of March 31, 2002 and 2001 and for each of
the two years in the period ended March 31, 2002 included in this Prospectus
have been included in reliance on the report (which contains an explanatory
paragraph relating to Mobilepro's ability to continue as a going concern as
described in Note 4 to the 2002 financial statements and Note 2 to the 2001
financial statements) of Bagell, Josephs & Company, L.L.C., independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
LEGAL MATTERS
Kirkpatrick & Lockhart LLP, Miami, Florida, will pass upon the validity
of the shares of our common stock.
AVAILABLE INFORMATION
For further information with respect to us and the securities offered
hereby, reference is made to the Registration Statement, including the exhibits
thereto. Statements herein concerning the contents of any contract or other
document are not necessarily complete, and in each instance reference is made to
such contract or other statement filed with the Securities and Exchange
Commission or included as an exhibit, or otherwise, each such statement, being
qualified by and subject to such reference in all respects.
Reports, registration statements, proxy and information statements, and
other information filed by us with the Securities and Exchange Commission can be
inspected and copied at the public reference room maintained by the Securities
and Exchange Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549. Copies of these materials may be obtained at prescribed
rates from the Public Reference Section of the Securities and Exchange
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. The
Securities and Exchange Commission maintains a site on the World Wide Web
(http://www.sec.gov) that contains reports, registration statements, proxy and
information statements and other information. You may obtain information on the
Public Reference Room by calling the Securities and Exchange Commission at
1-800-SEC-0330.
46
MOBILEPRO CORP.
FINANCIAL STATEMENTS
INDEX
Condensed Consolidated Balance Sheets as of September 30, 2002 F-3
(unaudited) and March 31, 2002 (audited)
Condensed Consolidated Statements of Operations for the Six F-5
Months and Three Months Ended September 30, 2002 and 2001
(unaudited) - with Cumulative Totals Since Inception
Condensed Consolidated Statements of Cash Flows for the Six F-6
Months Ended September 30, 2002 and 2001 (unaudited) - with
Cumulative Totals Since Inception
Notes to Unaudited Condensed Consolidated Financial Statements F-8
Report of Independent Certified Public Accountants F-20
Balance Sheet as of March 31, 2002 F-22
Statements of Operations for the Year Ended March 31, 2002 F-24
and for the Period July 14, 2000 (Inception) through March 31,
2001 - with Cumulative Totals Since Inception
Statements of Changes in Stockholders' Deficit for the F-25
Years Ended March 31, 2002 and 2001 including the former
company Craftclick.com and the reverse acquisition that
occurred as of June 1, 2001
Statements of Cash Flows for the Year Ended March 31, 2002 F-27
and the Period July 14, 2000 (Inception) through March 31,
2001 - with Cumulative Totals Since Inception
Notes to Financial Statements F-29
F-1
MOBILEPRO CORP. AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM)
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002 AND 2001
F-2
MOBILEPRO CORP. AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
SEPTEMBER 30, MARCH 31,
2002 2002
(UNAUDITED) (AUDITED)
----------------- --------------
CURRENT ASSETS
Cash and cash equivalents $ 1,778 $ 154
Prepaid expenses 57,500 -
----------------- --------------
Total Current Assets 59,278 154
Fixed assets, net of depreciation 46,821 -
----------------- --------------
TOTAL ASSETS $ 106,099 $ 154
================= ==============
The accompanying notes are an integral part of the condensed
consolidated financial statements.
F-3
MOBILEPRO CORP. AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS'S DEFICIT
SEPTEMBER 30, MARCH 31,
2002 2002
(UNAUDITED) (AUDITED)
------------- -------------
LIABILITIES
Current Liabilities:
Due to officer $ 307,263 $ 44,262
Short-term debt 187,000 75,000
Accounts payable and accrued expenses 1,007,469 187,663
------------- -------------
Total Current Liabilities 1,501,732 306,925
------------- -------------
LONG-TERM DEBT 350,000 -
------------- -------------
TOTAL LIABILITIES 1,851,732 306,925
STOCKHOLDERS' DEFICIT
Preferred stock, $.001 par value, authorized
5,000,000 shares, and 35,425 shares
issued and outstanding at September 30, 2002
and March 31, 2002, respectively 35 35
Common stock, $.001 par value, authorized
50,000,000 shares at September 30, 2002
and March 31, 2002 and 19,516,788 and
4,175,492 shares issued and outstanding,
respectively 19,517 4,176
Additional paid-in capital 4,189,608 3,596,613
Deficit accumulated during development stage (5,954,793) (3,907,595)
------------- -------------
Total Stockholders' Equity (1,745,633) (306,771)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 106,099 $ 154
============= =============
The accompanying notes are an integral part of the condensed
consolidated financial statements.
F-4
MOBILEPRO CORP. AND SUBSIDIARY
(FORMERLY CRAFCLICK.COM INC.)
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(WITH CUMULATIVE TOTALS SINCE INCEPTION)
SIX MONTHS ENDED THREE MONTHS ENDED CUMULATIVE
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, TOTALS SINCE
2002 2001 2002 2001 Inception
---- ---- ---- ---- ---------
OPERATING REVENUES
Revenue $ - $ 299,994 $ - $ - $ -
COST OF SALES - - - - -
------------- ----------- ------------ ----------- --------------
GROSS PROFIT - 299,994 - - -
------------- ----------- ------------ ----------- --------------
OPERATING EXPENSES
Professional fees and compensation expenses 1,870,172 685,114 691,213 270,059 1,870,172
Advertising and marketing expenses 2,430 1,346 745 1,038 2,430
Research and development costs 4,996 104,737 500 41,898 4,996
General and administrative expenses 36,679 47,641 10,527 36,075 4,192,991
Office rent and expenses 64,015 98,176 25,578 61,610 64,015
Travel and meals expenses 12,472 50,065 4,763 16,351 12,472
Depreciation and amortization 8,000 6,000 4,000 2,187 8,000
------------- ----------- ------------ ----------- --------------
Total Operating Expenses 1,998,764 993,079 737,326 429,218 6,155,076
------------- ----------- ------------ ----------- --------------
NET LOSS BEFORE OTHER INCOME (EXPENSE) (1,998,764) (693,085) (737,326) (429,218) (6,155,076)
OTHER INCOME (EXPENSE)
Forgiveness of debt - - - - 276,738
Interest expense - - - - (469)
Other expense (48,434) - 1,784 - (76,042)
Interest income - 1,334 - - 56
------------- ----------- ------------ ----------- --------------
Total Other Income (Expense) (48,434) 1,334 1,794 - 200,283
------------- ----------- ------------ ----------- --------------
NET LOSS BEFORE PROVISION FOR INCOME TAXES (2,047,198) (691,751) (735,532) (429,218) (5,954,793)
Provision for Income Taxes - - - - -
------------- ----------- ------------ ----------- --------------
NET LOSS APPLICABLE TO COMMON SHARES $ (2,047,198) $ (691,751) $ (735,532) $ (429,218) $ (5,954,793)
============= =========== ============ =========== ==============
NET LOSS PER BASIC AND DIULUTED SHARES $ (0.12920) $ (0.14330) $ (0.03916) $ (0.08891)
============= =========== ============ ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 15,844,642 4,827,421 18,784,163 4,827,421
============= =========== ============ ===========
The accompanying notes are an integral part of the condensed consolidated financial statements.
F-5
MOBILEPRO CORP. AND SUBSIDIARY
(FORMERLY CRAFCLICK.COM INC.)
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(WITH CUMULATIVE TOTALS SINCE INCEPTION)
CUMULATIVE
TOTALS SINCE
2002 2001 INCEPTION
-------------- ------------- -------------
CASH FLOW FROM OPERATING ACTIVITIES
Net loss $ (2,047,198) $ (814,080) $ (5,954,793)
-------------- ------------- -------------
Adjustments to reconcile net loss to net cash
used in operating activities:
Forgiveness of debt - - (276,738)
Depreciation 8,000 - 8,000
Common stock issued for services 1,208,253 639,660 4,429,912
Changes in assets and liabilities
(Increase) in accounts receivable - - -
(Increase) in inventory - - -
(Increase) in prepaid expenses and other assets (57,500) (1,900) (57,500)
Increase in accounts payable and
and accrued expenses 265,068 74,530 788,804
-------------- ------------- -------------
Total adjustments 1,423,821 712,290 4,892,478
-------------- ------------- -------------
Net cash (used in) operating activities (623,377) (101,790) (1,062,315)
-------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in amounts due to related parties 263,001 - 263,001
Acquisition of fixed assets - (299) -
-------------- ------------- -------------
Net cash provided by (used in) investing activities 263,001 (299) 263,001
-------------- ------------- -------------
The accompanying notes are an integral part of the condensed consolidated financial statements.
F-6
MOBILEPRO CORP AND SUBSIDIARY
(FORMERLY CRAFCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(WITH CUMULATIVE TOTALS SINCE INCEPTION)
CUMULATIVE
TOTALS SINCE
2002 2001 INCEPTION
-------------- ------------- -------------
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from common stock issuance $ - $ - $ 100
Proceeds from borrowings, net - - 394,730
Change in officer loan, net - - 44,262
Net proceeds from issuance of notes payable 362,000 114,516 362,000
-------------- ------------- -------------
Net cash provided by financing activities 362,000 114,516 801,092
-------------- ------------- -------------
NET INCREASE IN
CASH AND CASH EQUIVALENTS 1,624 12,427 1,778
CASH AND CASH EQUIVALENTS -
BEGINNING OF PERIOD 154 66 154
-------------- ------------- -------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 1,778 $ 12,493 $ 1,932
============== ============= =============
SUPPLEMENTAL DISCLOSURE OF NONCASH
ACTIVITIES
Issuance of common stock for:
Services $ 1,208,253 $ 639,660 $ 4,429,912
============== ============= =============
The accompanying notes are an integral part of the condensed consolidated financial statements.
F-7
MOBILEPRO CORP. AND SUBSIDIARY
(FORMERLY CRAFCLICK.COM)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002 AND 2001
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
--------------------------------------
The condensed consolidated unaudited interim financial statements
included herein have been prepared, without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. The
condensed consolidated financial statements and notes are presented
as permitted on Form 10-QSB and do not contain information included
in the Company's annual financial statements and notes. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles
generally accepted in the United States of America have been
condensed or omitted pursuant to such rules and regulations,
although the Company believes that the disclosures are adequate to
make the information presented not misleading. It is suggest that
these condensed consolidated financial statements be read in
conjunction with the March 31, 2002 audited financial statements and
the accompanying notes thereto. While management believes the
procedures followed in preparing these condensed consolidated
financial statements are reasonable, the accuracy of the amounts are
in some respects dependent upon the facts that will exist, and
procedures that will be accomplished by the Company later in the
year.
These condensed consolidated unaudited financial statements reflect
all adjustments, including normal recurring adjustments which, in
the opinion of management, are necessary to present fairly the
consolidated operations and cash flows for the periods presented.
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.
F-8
MOBILEPRO CORP AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2002 AND 2001
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
---------------------------------------------------
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, NeoReach, Inc., a Delaware Company, and Mobilepro
Corp entered into the above Agreement and Plan of Merger. NeoReach,
Inc. is a development stage company designing state of the art modem
solutions to support third generation (3G) wireless communications
systems. On April 23, 2002 the Company consummated the purchase of
its wholly-owned subsidiary NeoReach, Inc. Mobilepro Corp exchanged
12,352,129 shares of its common stock for this purchase.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Principles of Consolidation
---------------------------
The condensed 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 is a development stage company. 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.
F-9
MOBILEPRO CORP AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2002 AND 2001
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
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
disclosures 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.
Revenue Recognition
-------------------
Revenue is recognized when earned. For products which the Company
sells, revenue is recognized when products are shipped. Customer
payments for sales are charged to pre-approved/authorized credit
cards. Thus, the sale is not recorded and product not shipped unless
collection is determined to be certain. The Company records accounts
receivable for the sale proceeds during the period of time between
shipping and when cash is posted in the bank.
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 equivalents.
The Company maintains cash and cash equivalent balances at several
financial institutions which are insured by the Federal Deposit
Insurance Corporation up to $100,000.
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 September 30, 2002 is $0 due to the valuation
allowance established as described in Note 3.
F-10
MOBILEPRO CORP AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2002 AND 2001
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
Fair Value of Financial Instruments
-----------------------------------
The carrying amounts reported in the balance sheets 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
$2,430 and $1,346 for the six months ended September 30, 2002 and
2001, 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. Furniture and equipment consist of the following at
September 30, 2002:
Office Furniture and Computer Equipment 3 to 5 Years
There was $ 8,000 and $ -0- charged to operations for depreciation
expense for the six months ended September 30, 2002 and 2001,
respectively.
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.
F-11
MOBILEPRO CORP AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2002 AND 2001
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
Earnings (Loss) Per Share of Common Stock (Continued)
-----------------------------------------------------
The following is a reconciliation of the computation for basic and
diluted EPS:
SEPTEMBER 30, SEPTEMBER 30,
2002 2001
------------- -------------
Net loss $ (2,079,198) $ (691,751)
Weighted-average common shares
outstanding
Basic 15,844,642 4,827,421
Weighted-average common stock
equivalents:
Stock options - -
Warrants - -
Weighted-average common shares
(Diluted) 15,844,642 4,827,421
============= ============
Options and warrants outstanding to purchase stock were not included
in the computation of diluted EPS because inclusion would have been
antidilutive.
Reclassifications
-----------------
Certain amounts for the six months ended September 30, 2001 have
been reclassified to conform with the presentation of the September
30, 2002 amounts. The reclassifications have no effect on net income
for the six months ended September 30, 2001.
F-12
MOBILEPRO CORP AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2002 AND 2001
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 the 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 is effective for all fiscal quarters
of fiscal years beginning after June 15, 2000. In June 2000, the
FASB issued SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities". 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, we
do 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 or Net method as the title implies. The emerging Issues Task
Force has not reached a consensus but sites SEC Staff Accounting
Bulletin 101. EITF 99-19 does not affect the consolidated financial
statements.
F-13
MOBILEPRO CORP AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2002 AND 2001
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
On July 20, 2000, the Emerging Issues Task Force issued EITF 00-14
"Accounting For Certain Sales Incentives" which establishes
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.
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
does not affect the consolidated financial statements.
NOTE 3 - GOING CONCERN
-------------
As shown in the accompanying condensed consolidated financial
statements the Company has sustained substantial net operating
losses for the year ended March 31, 2002 and the period September
30, 2002 and periods prior. 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.
Additionally, the Company is anticipating that the above financing
commitment will be sufficient enough to implement NeoReach, Inc. its
subsidiary's Plan.
F-14
MOBILEPRO CORP AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2002 AND 2001
NOTE 4 - STOCKHOLDERS DEFICIT (CONTINUED)
--------------------------------
The following details the stock transactions for the period April 1,
2002 through September 30, 2002.
Common Stock
------------
On May 31, 2002, the Company issued 690,000 shares for banking
consulting fees at a value of $317,400 ($.46 per share) the
Company's fair value of the stock at that time.
On April 23, 2002, the Company issued 12,352,129 shares in the
exchange with its newly owned subsidiary Neoreach, Inc. at par value
$.001.
On June 10, 2002, the Company issued 784,314 shares of common stock
for consulting services valued at $517,647 ($.66 per share).
On July 18, 2002, the Company issued 145,000 shares of common stock
for consulting services valued at $65,250 ($.45 per share). The
Company also issued 160,000 shares of common stock for $39,000
($.246 per share - discounted).
On July 26, 2002, the Company issued 500,000 shares of common stock
for consulting services valued at $220,000 ($.44 per share).
On August 28, 2002, the Company issued 100,000 shares of common
stock for consulting services for $32,000 ($.32 per share).
On September 9, 2002, the Company entered into an agreement for
consulting services and issued 209,853 shares of common stock for
$62,950 ($.30 per share). Additionally, the Company issued 250,000
shares of common stock for compensation at $.10 per share, a fair
value of $25,000. The Company also issued 250,000 shares of common
stock for $40,000 ($.16 per share - discounted).
NOTE 5 - PATENTS
-------
NeoReach, Inc. in April 2002 received notice that two of the six
filed patent applications relating to its technology innovations
have been allowed by the U.S. Patent and Trademark Office and the
review process for the remaining applications were still under way.
F-15
MOBILEPRO CORP AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2002 AND 2001
NOTE 5 - PATENTS (CONTINUED)
-------------------
The first patent involves intellectual property that can enhance the
performance of conventional smart antenna processing technology if
used for 3G wireless communications. Using the Neoreach proprietary
approach, wireless network operators will be able to provide 3G
networks in which subscribers will experience less interference and
more stable connections as they move around while using their
handsets or personal digital assistants (PDA's).
The second patent delivers automatic low-cost improvements to the
smart antenna processing technology. Using this NeoReach invention,
3G network operators will be able to automatically eliminate
potential distortions throughout their full network without having
to conduct individual, time-consuming phase calibration of each
separate communication channel.
NOTE 6 - COMMITTMENTS
------------
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 May 31, 2002, the Company entered into an equity line of credit
arrangement with Cornell Capital Partners, L.P. 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.
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.
F-16
MOBILEPRO CORP AND SUBSIDIARY
(FORMERLY CRAFTCLICK.COM)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001 (UNAUDITED)
NOTE 6 - COMMITMENTS (CONTINUED)
-----------------------
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. 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.
F-17
MOBILEPRO CORP
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
YEAR ENDED MARCH 31, 2002 AND
PERIOD JULY 14, 2000 (INCEPTION)
THROUGH MARCH 31, 2001
F-18
MOBILEPRO CORP
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
YEAR ENDED MARCH 31, 2002 AND
PERIOD JULY 14, 2000 (INCEPTION) THROUGH MARCH 31, 2001
INDEX TO FINANCIAL STATEMENTS
PAGES
-----
AUDITED FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants F-20
Balance Sheet as of March 31, 2002 F-22
Statements of Operations for the year ended March 31, 2002 F-24
and for the period July 14, 2000 (Inception)
through March 31, 2001 with Cumulative Totals Since Inception
Statements of Changes in Stockholders' (Deficit) for the F-25
years ended March 31, 2002 and 2001 including the former
company Craftclick.com, Inc. and the reverse acquisition that
occurred as of June 1, 2001
Statements of Cash Flows for the year ended March 31, 2002 F-27
and the period July 14, 2000 (Inception) through March 31, 2001
with Cumulative Totals Since Inception
Notes to Financial Statements F-29
F-19
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
Board of Directors
Mobilepro Corp
Rockville, Maryland
We have audited the accompanying balance sheet of Mobilepro Corp. (formerly
Craftclick.Com, Inc.) (A Development Stage Company) (the "Company") as of March
31, 2002 and the related statements of operations, changes in stockholders'
(deficit), and cash flows for the year then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We have conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
The accompanying financial statements for the year ended March 31, 2002 has been
prepared assuming that the Company will continue as a going concern. As
discussed in Note 4 to the financial statements, the Company has raised certain
issues that lead to substantial doubt about its ability to continue as a going
concern. The Company does not have any revenue generating activities and has
substantial operating deficits. Management's plans in regard to these matters
are also described in Note 4. The financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Mobilepro Corp (A Development
Stage Company) as of March 31, 2002 and the results of its operations and their
cash flows for the year then ended in conformity with accounting principles
generally accepted in the United States of America.
The statement of operations, changes in stockholders' (deficit) and cash flows
for the period July 14, 2000 (Inception) through March 31, 2001 were audited by
Mantyla McReynolds and Associates. Mantyla McReynolds and Associates issued an
unqualified opinion on those financial statements dated July 20, 2001.
BAGELL, JOSEPHS & COMPANY, L.L.C.
BAGELL, JOSEPHS & COMPANY, L.L.C.
Certified Public Accountants
Gibbsboro, New Jersey
July 10, 2002
F-20
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS AND SHAREHOLDERS
MOBILEPRO CORP. [A DEVELOPMENT STAGE COMPANY]
We have audited the accompanying statements of operations and cash flows of
Mobilepro Corp., [a development stage company], for the nine month period from
inception [July 14, 2000] through March 31, 2001. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Mobilepro
Corp. [a development stage company], for the period ended March 31, 2001 and
2000 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 4, certain
circumstances raise substantial doubt about the Company's ability to continue as
a going concern. Management's plans in regard to these matters are also
described in Note 4. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Mantyla McReynolds
Salt Lake City, Utah
July 20, 2001
F-21
MOBILEPRO CORP
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
MARCH 31, 2002
ASSETS
CURRENT ASSET $ 154
Cash ------------
TOTAL ASSET $ 154
============
The accompanying notes are an integral part of these financial statements.
F-22
MOBILEPRO CORP
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
MARCH 31, 2002
LIABILITIES AND STOCKHOLDERS' DEFICIT
LIABILITIES
Due to officer $ 44,626
Short-term debt 75,000
Accounts payable and accrued expenses 187,663
-------------
306,925
-------------
STOCKHOLDERS' DEFICIT
Preferred stock, $.001 par value, authorized
5,000,000 shares, and 35,425 shares
issued and outstanding 35
Common stock, $.001 par value, authorized 50,000,000
shares, and 4,175,492 shares issued and outstanding 4,176
Additional paid-in capital 3,596,613
Deficit accumulated during development stage (3,907,595)
-------------
(306,771)
-------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 154
=============
The accompanying notes are an integral part of these financial statements.
F-23
MOBILEPRO CORP
(FORMERLY CRAFCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
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
2002 2001 INCEPTION
-------------- ------------- -------------
REVENUES $ - $ - $ -
COST OF SALES - - -
-------------- ------------- -------------
GROSS PROFIT - - -
GENERAL AND ADMINISTRATIVE EXPENSES 3,147,119 1,009,193 4,156,312
LOSS BEFORE OTHER INCOME (3,147,119) (1,009,193) (4,156,312)
OTHER INCOME (EXPEMSES)
Interest income 56 - 56
Forgiveness of debt 276,738 - 276,738
Other expense (27,608) - (27,608)
Interest expense (469) - (469)
-------------- ------------- -------------
248,717 - 248,717
-------------- ------------- -------------
NET LOSS BEFORE PROVISION
FOR INCOME TAXES (2,898,402) (1,009,193) (3,907,595)
Provision for income taxes - - -
-------------- ------------- -------------
NET LOSS APPLICABLE TO COMMON SHARES $ (2,898,402) $(1,009,193) (3,907,595)
============== ============= =============
NET LOSS PER BASIC AND DILUTED SHARES $ (0.44) $ (0.11) $ (0.60)
============== ============= =============
WEIGHTED AVERAGE SHARES OUTSTANDING 6,462,746 8,750,000* 6,462,746
============== ============= =============
*After reorganization.
The accompanying notes are an integral part of these financial statements.
F-24
MOBILEPRO CORP
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS IN CHANGES OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED MARCH 31, 2002 AND 2001 INCLUDING
THE FORMER COMPANY CRAFTCLICK.COM, INC. AND THE REVERSE ACQUISITION THAT OCCURRED AS OF JUNE 1, 2001
ADDITIONAL NET
COMMON STOCK PREFERRED STOCK PAID-IN ACCUMULATED STOCKHOLDERS'
CRAFTCLICK.COM,INC. ACTIVITY: SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT DEFICIT
----------------------------- ---------- --------- ---------- --------- --------- ----------- -------------
BALANCE - MARCH 31, 2000 16,931,444 16,931 101,000 101 5,354,232 (2,848,780) 2,522,484
Issued preferred shares under PPM
April-June 2000 38,000 38 379,962 - 380,000
Issued common and preferred shares for
debt, December 31, 2000 25,000,000 25,000 1,000 1 84,999 - 110,000
Issued common shares for assets/acquired
companies 430,000 430 - - 322,070 - 322,500
Options granted for Note Receivable 1,903,574 1,904 - - 473,096 - 475,000
Issued stock for investment 500,000 500 - - 499,500 - 500,000
Issued stock for services 4,040,000 4,040 - - 1,280,883 - 1,284,923
Net loss for year ended March 31, 2001 - - - - - (5,630,700) (5,630,700)
---------- --------- ---------- --------- --------- ---------- -------------
BALANCE - MARCH 31, 2001 48,805,018 48,805 140,000 140 8,394,742 (8,479,480) (35,793)
Stock issued in conversion of preferred
stock into common stock 6,877,678 6,878 (104,622) (105) (6,773) - -
Consolidation of shares due to corporate
change in domicile (55,125,493) (55,125) - - 55,125 - -
Issuance of common stock as part of
Craftclick acquisition of Mobilepro 8,750,000 8,750 - - (8,750) - -
Net loss Craftclick for April 1, 2001 to
May 31, 2001 - - - - - (377) (377)
The accompanying notes are an integral part of these financial statements.
F-25
MOBILEPRO CORP
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS IN CHANGES OF STOCKHOLDERS' DEFICIT (CONTINUED)
FOR THE YEARS ENDED MARCH 31, 2002 AND 2001 INCLUDING
THE FORMER COMPANY CRAFTCLICK.COM, INC. AND THE REVERSE ACQUISITION THAT OCCURRED AS OF JUNE 1, 2001
ADDITIONAL NET
COMMON STOCK PREFERRED STOCK PAID-IN ACCUMULATED STOCKHOLDERS'
MOBILEPRO CORP ACTIVITY SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT DEFICIT
----------------------- ---------- --------- ---------- --------- --------- ----------- -------------
Recapitalization due to merger -
Craftclick - - - - (8,479,857) 8,479,857 -
Recapitalization due to merger -
Mobilepro - - 47 - 1,009,194 (1,009,194) -
Issuance of shares to cover
convertible debt 3,000,000 3,000 - - 477,000 - 480,000
Issuance of common stock for services
and salaries 2,600,000 2,600 - - 413,400 - 416,000
Issuance of common stock for services 1,500,000 1,500 - - 246,000 - 247,500
Issuance of common stock for warrants 330,000 330 - - 577,170 - 577,500
Issuance of common stock for services 25,000 25 - - 1,225 - 1,250
Reverse stock split (16,677,711) (16,678) - - 16,678 - -
Issuance of common stock for services 3,000,000 3,000 - - 237,000 - 240,000
Issuance of common stock for services 106,000 106 - - 111,194 - 111,300
Conversion of debt for issuance of common
shares 25,000 25 - - 26,225 - 26,250
Issuance of common stock for services 960,000 960 - - 527,040 - 528,000
Net loss for the year - - - - - (2,898,401) (2,898,401)
---------- --------- ---------- --------- ----------- ----------- -----------
BALANCE MARCH 31, 2002 4,175,492 $ 4,176 35,425 $ 35 $ 3,596,613 $(3,907,595) $ (306,771)
========== ========= ========== ========= =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
F-26
MOBILEPRO CORP
(FORMERLY CRAFCLICK.COM INC.)
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
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
2002 2001 INCEPTION
-------------- ------------- -------------
CASH FLOW FROM OPERATING ACTIVITIES
Net loss $ (2,898,402) $(1,009,193) $ (3,907,595)
-------------- ------------- -------------
Adjustments to reconcile net loss to net cash
(used in) operating activities:
Forgiveness of debt (276,738) - (276,738)
Increase in accounts payable 158,435 365,301 523,736
Issued common stock for services, compensation and
conversion of debt 2,627,800 593,859 3,221,659
-------------- ------------- -------------
Net cash used in operating activities (388,905) (50,033) (438,938)
-------------- ------------- -------------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
Issued stock for cash - 100 100
Proceeds from borrowings, net 344,730 50,000 394,730
Change in officer loan, net 44,262 - 44,262
-------------- ------------- -------------
Net cash provided by financing activities 388,992 50,100 439,092
-------------- ------------- -------------
NET INCREASE CASH 87 67 154
CASH BALANCE - BEGINNING OF YEAR (PERIOD) 67 - -
-------------- ------------- -------------
CASH BALANCE - END OF YEAR $ 154 $ 67 $ 154
============== ============= =============
The accompanying notes are an integral part of these financial statements.
F-27
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
2002 2001 INCEPTION
---------- --------- ------------
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Issued common shares for services,
compensation and conversion of debt. $ 2,627,800 $ 593,859 $ 3,221,659
=========== ========= ===========
The accompanying notes are an integral part of these financial statements.
F-28
MOBILEPRO CORP
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2002 AND 2001
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 NeoReach, Inc. a Delaware company and Mobilepro
entered into an Agreement and Plan of Merger pursuant to which
NeoReach, Inc. would become a wholly-owned subsidiary of Mobilepro.
The shares were exchanged on April 23, 2002 and the transaction was
consummated. NeoReach, Inc. Is a development stage company designing
state of the art modem solutions to support third generation (3G)
wireless communication systems.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
The financial statements of the Company have been prepared in
accordance with accounting principles generally accepted in the
United States of America. The following summarizes the significant
accounting policies:
F-29
MOBILEPRO CORP
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2002 AND 2001
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
Development Stage Company
-------------------------
Mobilepro Corp is a development stage company. 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.
Revenue Recognition
-------------------
The Company was a development stage company and had no revenues
during the period reported. For the period going forward, the
Management intends to adopt 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
sales transaction as follows:
Shipments to Credit-Worthy Customers with No portion of the
Collection Dependent on Any Future Event; revenue 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 transaction 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 prices 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 revenue 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 ratable over the period covered by the
contract.
F-30
MOBILEPRO CORP
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2002 AND 2001
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, 2002 is $0 due to the valuation
allowance established as described in Note 3.
Fair Value of Financial Instruments
-----------------------------------
The carrying amounts reported in the 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
$250,000 and $-0- for the year ended March 31, 2002 and the period
July 14, 2000 (Inception) through March 31, 2001, 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 no depreciation expense for the year ended
March 31, 2002 and the period July 14, 2000 (Inception) through
March 31, 2001.
F-31
MOBILEPRO CORP
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2002 AND 2001
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
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,
2002 2001
---------------- --------------
Net loss $(2,898,402) $(1,009,193)
Weighted average common shares
Outstanding (Basic) 6,462,746 8,750,000
Weighted average common stock
Equivalents
Stock options - -
Warrants - -
Weighted average common shares
Outstanding (Diluted) 6,462,746 8,750,000
Options and warrants outstanding to purchase stock were not included
in the computation of diluted EPS for March 31, 2002 and 2001
because inclusion would have been antidilutive.
F-32
MOBILEPRO CORP
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2002 AND 2001
NOTE 3 - PROVISION FOR INCOME TAXES
--------------------------
The Company did not provide for income taxes in the years ended
March 31, 2002 and the period July 14, 2000 (Inception) through
March 31, 2001. 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, 2002 and 2001, the deferred tax assets consists of the
following:
2002 2001
------------ -------------
Deferred taxes due to net operating
loss carryforwards $ 1,563,018 $ 403,677
Less: Valuation allowance (1,563,018) (403,677)
------------ -------------
Net deferred tax asset $ - $ -
============ =============
NOTE 4 - GOING CONCERN
-------------
As shown in the accompanying financial statements the Company has
sustained substantial net operating losses for the year ended March
31, 2002 and the period July 14, 2000 (Inception) through March 31,
2001. 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 (See Note 8).
Additionally, the Company is anticipating that the above financing
commitment will be sufficient enough to implement NeoReach, Inc. its
subsidiary's Plan.
F-33
MOBILEPRO CORP
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2002 AND 2001
NOTE 5 - 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.
The following details the stock transactions after the
recapitalization.
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.
F-34
MOBILEPRO CORP
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2002 AND 2001
NOTE 5 - STOCKHOLDERS' DEFICIT (CONTINUED)
---------------------------------
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.
NOTE 6 - LONG-TERM DEBT
--------------
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 are due September 1, 2002 at an annual
rate of interest on the notes of 5%. Should the Company fail to pay
the notes on the due date, interest will be charged at 15%. Interest
expense for 2002 was $469.
NOTE 7 - DUE TO OFFICER
--------------
The President of Mobilepro Corp loaned the Company, net $44,262 in
February 2002 to pay certain creditors at 5% interest due on demand.
The officer has waived interest until April 2002.
NOTE 8 - SUBSEQUENT EVENTS
-----------------
On April 23, 2002 the Company consummated the purchase of its
wholly-owned subsidiary NeoReach, Inc. On March 21, 2002, NeoReach,
Inc., a Delaware Company, and Mobilepro Corp entered into the above
Agreement and Plan of Merger. NeoReach, Inc. is a development stage
company designing state of the art modem solutions to support third
generation (3G) wireless communications systems. Mobilepro Corp
exchanged 12,352,129 shares of its common stock for this purchase.
NeoReach, Inc. in April 2002 received notice that two of the six
filed patent applications relating to its technology innovations
have been allowed by the U.S. Patent and Trademark Office and the
review process for the remaining applications were still under way.
F-35
MOBILEPRO CORP
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2002 AND 2001
NOTE 8 - SUBSEQUENT EVENTS (CONTINUED)
-----------------------------
The first patent involves intellectual property that can enhance the
performance of conventional smart antenna processing technology if
used for 3G wireless communications. Using the Neoreach proprietary
approach, wireless network operators will be able to provide 3G
networks in which subscribers will experience less interference and
more stable connections as they move around while using their
handsets or personal digital assistants (PDA's).
The second patent delivers automatic low-cost improvements to the
smart antenna processing technology. Using this NeoReach invention,
3G network operators will be able to automatically eliminate
potential distortions throughout their full network without having
to conduct individual, time-consuming phase calibration of each
separate communication channel.
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 May 31, 2002, the Company entered into an equity line of credit
arrangement with Cornell Capital Partners, L.P. 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.
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.
F-36
MOBILEPRO CORP
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2002 AND 2001
NOTE 8 - SUBSEQUENT EVENTS (CONTINUED)
-----------------------------
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. 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.
F-37
WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR
OTHER PERSON TO PROVIDE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS ABOUT MOBILEPRO CORP. EXCEPT THE
INFORMATION OR REPRESENTATIONS CONTAINED IN THIS
PROSPECTUS. YOU SHOULD NOT RELY ON ANY ADDITIONAL
INFORMATION OR REPRESENTATIONS IF MADE.
-----------------------
This prospectus does not constitute an offer to --------------------
sell, or a solicitation of an offer to buy any
securities: PROSPECTUS
o except the common stock offered by this --------------------
prospectus;
o in any jurisdiction in which the offer or
solicitation is not authorized; 30,483,212 SHARES
OF COMMON STOCK
o in any jurisdiction where the dealer or
other salesperson is not qualified to make
the offer or solicitation;
MOBILEPRO CORP.
o to any person to whom it is unlawful to
make the offer or solicitation; or
o to any person who is not a United States
resident or who is outside the
jurisdiction of the United States.
February 14, 2003
The delivery of this prospectus or any accompanying
sale does not imply that:
o there have been no changes in the affairs
of Mobilepro Corp. after the date of this
prospectus; or
o the information contained in this prospectus
is correct after the date of this prospectus.
-----------------------
Until May 26, 2003, all dealers effecting
transactions in the registered securities, whether
or not participating in this distribution, may be
required to deliver a prospectus. This is in
addition to the obligation of dealers to deliver a
prospectus when acting as underwriters.