SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 KSB
Amendment No. 1
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 2002
MOBILEPRO CORP.
(Exact Name of Registrant as Specified in Charter)
Delaware 002-97869-D 87-0419571
(State of Incorporation) (Commission File Number) (IRS Employer
Identification No.)
3204 Tower Oaks Blvd., Suite 350
Rockville, MD 20852
(Address of principal executive offices) (Zip Code)
(301) 230-9125
(Registrant's telephone number)
Securities registered pursuant to section 12(b) of the Act:
TITLE OF CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
NONE NONE
---- ----
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK
------------
(TITLE OF CLASS)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes X
No .
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy of information
statements incorporated by reference in Part 10-KSB or any amendment to this
Form 10-KSB. { }
State issuer's revenues for its most recent fiscal year: $0.
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock as of a specified date within the past 60
days: As of October 2, 2002, the aggregate market price of the voting stock held
by non-affiliates was approximately $1,104,592.
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of October 2, 2002, the Company
had outstanding 19,516,788 shares of its common stock, par value $0.001.
Transitional Small Business Disclosure Format (Check one): Yes No X
TABLE OF CONTENTS
ITEM NUMBER AND CAPTION PAGE
PART I.............................................................................................................................4
ITEM 1. DESCRIPTION OF BUSINESS..........................................................................................4
BUSINESS....................................................................................................................4
CORPORATE HISTORY...........................................................................................................6
BUSINESS STRATEGY BEFORE THE MOBILEPRO MERGER...............................................................................7
BUSINESS STRATEGY AFTER THE MOBILEPRO MERGER AND BEFORE THE NEOREACH MERGER.................................................7
BUSINESS STRATEGY AFTER THE NEOREACH MERGER.................................................................................8
MARKET/INDUSTRY PROJECTIONS.................................................................................................9
FINANCIAL FUNDING NEEDS AND USE OF FUNDS...................................................................................10
PRODUCTS AND SERVICES......................................................................................................10
MARKETING AND COMPETITION..................................................................................................11
RESEACH AND DEVELOPMENT....................................................................................................11
INTELLECTUAL PROPERTY......................................................................................................11
GOVERNMENT APPROVALS.......................................................................................................12
RECENT DEVELOPMENTS........................................................................................................12
ITEM 2. DESCRIPTION OF PROPERTY.........................................................................................13
ITEM 3. LEGAL PROCEEDINGS...............................................................................................13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............................................................13
PART II...........................................................................................................................14
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS........................................................14
MARKET FOR COMMON STOCK....................................................................................................14
TRANSFER AGENT.............................................................................................................14
DIVIDEND POLICY............................................................................................................15
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS.........................................................16
RECENT SALES OF SECURITIES.................................................................................................16
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.......................................................19
FINANCIAL CONDITION AND CHANGES IN FINANCIAL CONDITION.....................................................................20
LIQUIDITY AND CAPITAL RESOURCES............................................................................................20
NEW ACCOUNTING PRONOUNCEMENTS..............................................................................................20
INFLATION..................................................................................................................20
PLAN OF OPERATION..........................................................................................................21
EMPLOYEES..................................................................................................................22
FORWARD-LOOKING INFORMATION................................................................................................22
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.....................................................................26
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE............................39
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PART III..........................................................................................................................39
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A)
OF THE EXCHANGE ACT...39
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE....................................................................41
ITEM 10. EXECUTIVE COMPENSATION.......................................................................................42
COMPENSATION OF DIRECTORS..................................................................................................42
OTHER COMPENSATION ARRANGEMENTS............................................................................................43
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...............................................43
PRINCIPAL STOCKHOLDERS.....................................................................................................43
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...............................................................45
INVESTORS RIGHTS AGREEMENT.................................................................................................45
NEOREACH PURCHASE AGREEMENT................................................................................................47
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.............................................................................47
a) Exhibits................................................................................................................47
b) Reports on Form 8-K.....................................................................................................48
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
BUSINESS
Mobilepro is a development stage company whose business focus has been recently
redirected towards solutions supporting the third generation ("3G") wireless
market, through NeoReach, Inc., Mobilepro's wholly-owned subsidiary.
NeoReach is a development stage company developing 3G-semiconductors in three
product families:
- Modem and baseband technology and semiconductor chips for 3G
network base stations (also called Node B)
- Modem and baseband technology and semiconductor chips for 3G
handsets and other user equipment
- Radio Frequency CMOS (RF-CMOS, Radio Frequency Complementary
Metal Oxide Semiconductor) chipsets for the wireless markets,
to include both handsets and base stations.
NeoReach is focusing its initial efforts on developing the technology for the
base stations.
Handsets - each 3G compatible handset manufactured requires a modem as one of
its components in order to communicate with the various base stations in the
wireless network.
To provide a complete 3G network infrastructure across a typical geographical
area, three types of base stations (also called Node B) are required for
deployment:
- MACRO CELLS - Provide a signal over a very large geographical
area where signal volume is low and may cover a range of 20 -
30 miles to include an entire city, town or community or low
populated areas outside of cities.
- MICRO CELLS - Provide a signal over a medium size area and may
cover a range of 1 - 5 miles to include a part of a city,
community or business area where call volume is higher than
areas covered by a Macro Cell.
- PICO CELLS - Provide a signal over a very small area and may
cover a range of 300 yards - 0.5 mile to provide coverage for
high volume call areas such as shopping malls, train and bus
stations, airports, office buildings and dense city centers
where call volume could be extremely high.
NeoReach will be exclusively focused on solutions for the Micro- and Pico-Cell
Base Stations since the market size and required quantity of these units is
expected to be much greater than for the Macro-cells.
Our state-of-the-art modem solutions support the 3G wireless communications
systems as defined by the worldwide W-CDMA standard and, in a later development
stage, the GSM (Global System for Mobile Communication) standard. The W-CDMA
specifications standard has been defined by the official Third Generation
Partnership Project (3GPP) such that the base station modem will properly
communicate with the corresponding handset modems over the so-called
air-interface.
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The NeoReach modem solution has been developed to align directly with the
factors driving the market:
1) NETWORK CONVERGENCE - EASILY TRANSMIT VOICE AND DATA - The Node B modem will
be designed using both Frequency Division Duplex (FDD) and Time Division Duplex
(TDD). We believe that these two technologies that are part of the 3GPP
specifications are ideal for transmitting both voice and data.
2) COMPETITIVE COST ADVANTAGES - REDUCE OPERATING COSTS THROUGH HIGH BASE
STATION MODEM CAPACITY - NeoReach will offer a dense multi-channel modem with up
to 256 channels. Operators may service more customers with the same base
station.
3) PRODUCT PERFORMANCE - MAXIMIZE PERFORMANCE THROUGH SMART ANTENNA PROCESSING -
NeoReach will enhance Pico Base Station capacity by supporting built-in
directional antennae and external omni-directional antennae. We believe that
this may result in supporting more users per sector and lower error rates.
4) WIDER COVERAGE AREA - SERVICE LARGER AREAS AT LOWER COSTS - NeoReach will
offer modems with greater coverage capacity (3 miles vs. the typical 0.6 miles)
thereby enabling operators to service larger areas using Micro and Pico Base
Stations instead of installing a more expensive Macro Base Station.
5) TECHNOLOGY COMPATIBILITY - GREATER ROI - Flexible Architecture that we
believe will enable easy upgrades and modifications, thereby lengthening product
life.
A handset, or also called cell phone or User Equipment, typically consists of
six elements; the case, the display, the key buttons, a Microprocessor Control
Unit (MCU), the modem and base band processing unit, and finally the radio
frequency transceiver unit. NeoReach will develop and provide the modem solution
including the baseband processing. This is a semiconductor chip 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 chip,
the RF-CMOS chip.
The RF-CMOS chip is a highly complex and integrated complete receiver and
transmitter system, also called a transceiver, for a handset or other user
devices such as PDA's and laptops and for the smaller Pico-Cell base stations.
The various handsets in existence today has a radio frequency transceiver built
with many individual components such as integrated circuits, transistors,
capacitors, resistors, and coils. Most of these various components with be
integrated into the single RF-CMOS chip of a size approximately -1/4 inch by
-1/4 inch. The RF-CMOS chip is initially intended for the W-CDMA and GSM
standards.
3G technology features integrate 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, 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. These modems will be based on proprietary technology already developed
by NeoReach. We will continue to develop distinguishing design features that
will include a multi-channel base station support and multi-mode handset
compatibility with W-CDMA and GSM network standards.
The current generation of digital wireless networks primarily in use today is
referred to as second generation, or 2G services. 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.
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Selection of network standards and government policies regarding spectrum
availability and licensing will drive adoption of 3G 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
3G standards, CDMA2000 and W-CDMA. Wireless operators in Europe and Japan have
recently begun to roll out 3G services and are expected to continue to roll out
3G services through 2005, while operators in the United States are expected to
begin to roll out true 3G services in late 2003 or 2004.
We believe that the worldwide number of deployed base stations, a transmission
and reception station for cellular traffic, also referred to as a cell site, may
double in the five-year period between 2001 and 2005. Cahners In-Stat Group
estimates in its report for the year 2000 that, during that period,
approximately 286,000 new base stations will be placed into service each year,
yielding annualized revenue of $56 billion, and that revenue from semiconductors
for base station applications will grow from approximately $6.5 billion to
nearly $10 billion. Cahners also indicates in its report that China represents
the largest market and growth opportunity for new base station deployment.
On-time market availability of 3G-enabled handsets is critical to the roll-out
of 3G services. Morgan Stanley estimates in its report dated March 26, 2002 that
approximately 3.7 million handsets will be needed to support the 3G demand in
2002 and that the number of handsets needed to support the 3G demand will grow
to nearly 75 million by 2006.
NeoReach has filed six patent applications for its W-CDMA smart antenna
processing approaches. Smart antennae technology combines multiple antenna
elements with signal processing capabilities to optimize its radiation and/or
reception pattern automatically in response to the signal environment. In one
application, the processing may double the capacity, i.e. the number of
simultaneous user channels at a time, of the base station. The technology may
also improve and make the communication more stable with less interference or
interruption of the communication with the handset from the base station. We
intend to pursue other patents to protect its intellectual property rights in
various modem design and implementation areas. NeoReach initiated product
research and design in 2000 and entered into a co-development contract with a
Korean electronics corporation during 2001, which provided NeoReach with
important technical experience, know-how, and expertise in the area of W-CDMA
core-technology to satisfy the W-CDMA specifications.
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 developing modems include Nokia,
Ericsson, Siemens, Motorola and Samsung. A large number of 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.
CORPORATE HISTORY
Mobilepro is a development stage company and currently trades on the Bulletin
Board under the stock symbol "MOBL". The following is a brief history of the
Company.
Mobilepro was incorporated on July 14, 2000 and was focused on the integration
and marketing of complete mobile information solutions that 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
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destination for buyers and sellers of arts and crafts products and supplies
through the use of Internet websites. Due to the lack of adequate funding and
the lack of generating enough Internet traffic to achieve profitability,
CraftClick began to cease business operations in October 2000. CraftClick
subsequently disposed of substantially all of its assets in February 2001 when
secured creditors foreclosed on outstanding loans made to CraftClick.
In April 2001, CraftClick reorganized pursuant to a Plan of Merger wherein its
domicile was changed from Utah to Delaware, and the common stock was subject to
a reverse split on the basis of 1 new share for every 100 shares outstanding. On
June 6, 2001, CraftClick and Mobilepro entered into an Agreement and Plan of
Merger dated June 1, 2001 ("CraftClick Merger Agreement"). Under the CraftClick
Merger Agreement, Mobilepro merged with and into CraftClick, with CraftClick
being the surviving corporation. On July 9, 2001, the name of the surviving
corporation was changed to Mobilepro Corp.
On November 19, 2001, Mobilepro implemented a 200 for 1 reverse stock split of
its Common Stock. There were no fractional shares issued. Concurrent with the
reverse stock split, Mobilepro issued 3,000,000 new shares of Common Stock to
Dungavel, Inc., pursuant to an Investor Rights Agreement, which the Company
entered into with Dungavel on June 1, 2001 as part of the merger with
CraftClick.
On February 19, 2002, the Company entered into a Stock Purchase Agreement with
Mr. Daniel Lozinsky and Dungavel, Inc., and another Stock Purchase Agreement
with Mr. Daniel Lozinsky, Ms. Joann Smith and Mr. Scott Smith. Dungavel, Inc.,
Ms. Joann Smith and Mr. Scott Smith were all significant stockholders of the
Company at the time. Pursuant to these two stock purchase agreements, Mr.
Lozinsky acquired an aggregate of 2,057,733 shares of Mobilepro Common Stock,
representing approximately 64.7% of the Company's voting securities at that
time. On February 28, 2002, Mr. Scott Smith resigned as the President, CEO and
Chairman of the Company, and Mr. Lozinsky became the President and CEO of the
Company. On May 10, 2002, Mr. Arne Dunhem became the Company's President, CEO
and Chairman and Mr. Lozinsky became our Senior Vice President.
On March 21, 2002, the Company entered into an Agreement and Plan of Merger with
NeoReach, pursuant to which a newly-formed, wholly-owned subsidiary of the
Company merged into NeoReach in a tax-free transaction. The merger was
consummated on April 23, 2002. As a result of the merger, NeoReach is now a
wholly-owned subsidiary of the Company.
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 sales. The strategy was for the Company to develop the overall
designs of both the hardware and the software of the devices but to outsource
the actual manufacturing and the detailed software development to existing
device providers. We intended to distribute the devices with the bundled
software through various distribution channels including direct sales and
alliance partners with co-marketing and referrals. The Web based services were
to be developed jointly with strategic development partners and maintained and
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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 (See "Financial Statements and Supplementary
Data").
Mobilepro is attempting to develop advanced modem solutions for both the base
stations (also called Node-B) and the handsets to capitalize on the approaching
3G wave. The base station solution targets smaller systems called Micro- and
Pico Cell base stations. The handset modem solution also targets PDA's and
laptop plug-in cards. They are based on Mobilepro's own, proprietary technology.
Distinguishing design features include a multi-channel base station support and
multi-mode handset compatibility with W-CDMA and GSM network standards.
Mobilepro has solved core modem development issues with its architecture without
having to license and pay expensive, ongoing royalties to other vendors. The
core modem technology development is the interpretation and implementation of
the international W-CDMA standards specifications defined by the Third
Generation Partnership Project (3GPP) such that the base station modem will
properly communicate with the corresponding handset modem over the so called
air-interface. The issues range from identifying ways to enable multi-channel
support to solving smart antenna processing problems. This accomplishment is
attributed to the depth and breadth of experience of the Company in cellular and
wireless communications technologies, network operation and system development,
ASIC and handset design and manufacturing, and 3G network standards. ASIC means
an Application Specific Integrated Circuit.
The modem features that have already been developed for the base station
(Node-B) modem include:
- Node-B Rake Receiver (4 Channels), functions include Finger Correlator,
Channel Estimator & Compensator, Frequency Estimator & Compensator, SIR
Measurement, Tracking Loop, Rake Combiner
- Node-B Symbol Level Processing (Transmitter and Receiver)
- Node-B Preamble and Traffic Searchers
- Node-B Transmitter (4 Channels)
- Completed Functional Tests
- Voice and Image demonstration platforms
Additional features being developed are:
- Node-B Rake Receiver (with up to 256 Channels)
- Node-B Transmitter (with up to 256 Channels)
- Node-B Physical Layer Procedure
- Node-B Physical Layer Measurements
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Mobilepro has filed six patent applications for its W-CDMA smart antenna
processing approaches and will pursue other patents to protect its intellectual
property rights in various chief modem design and implementation areas.
Product research and design was initiated in 2000. A co-development contract
with a customer during 2001 provided important, co-development technical
resources and expertise during the critical design phase. We believe that the
four-channel version of the base station modem will be available for evaluation
during the fourth quarter 2002 with commercial ASIC multi-channel modems mid/end
2003. ASIC means an Application Specific Integrated Circuit, i.e. a
semiconductor chip that will be designed and developed by the Company but will
be manufactured under an out-source agreement with a plant most likely in
Taiwan. This is also called Fab-less manufacturing of a semiconductor chip. The
handset ASIC modem is planned for mid/end 2003 market availability.
The long-term product vision is founded on product line extensions that leverage
the current technology and expertise in 3G. 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 3G 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 3G 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.
The RF-CMOS chip is a highly complex and integrated complete receiver and
transmitter system, also called a transceiver, for a handset or other user
devices such as PDA's and laptops and for the smaller Pico-Cell base stations.
The various handsets in existence today has a radio frequency transceiver built
with many individual components such as integrated circuits, transistors,
capacitors, resistors, and coils. Most of these various components with be
integrated into the single RF-CMOS chip of a size approximately 1/4 inch by
1/4 inch. The RF-CMOS chip is initially intended for the W-CDMA and GSM
standards.
NeoReach has signed an MOU with RF Microelectronics Laboratory, part of the
Information and Communications University (ICU) of the Republic of Korea to
cooperate in research, particularly in RF-CMOS ASICs development for RF
transceiver of the 3G W-CDMA standard. This specific ASIC, chipset, which will
support the W-CDMA standard, is also a required component in the consumer
handsets and base stations managed by the mobile operators to support 3G
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.
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 2G services. Demand for faster networks
supporting information-rich applications are on the horizon, pushing the
industry toward the third generation of services delivering higher productivity,
greater transmission speed and seamless access around the world.
Marketplace players with different motivations are all driving the push toward
3G services. Manufacturers are motivated by the lure of new revenue streams from
new 3G 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 3G 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 3G services on a
schedule that builds throughout 2002-2005. The U. S. will deploy two
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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
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 will 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 3G-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 will continually expand due to customer exposure to
more choices in new phone features, prices and services. It is generally assumed
in the industry that the expected lifetime of the handsets is expected to be
reduced from from 18 months to 12 months, further driving new demand. This is a
result of the customers loosing, dropping or otherwise damaging their handsets
causing them to buy or otherwise acquire a new one.
FINANCIAL FUNDING NEEDS AND USE OF FUNDS
The Company will need additional financing and may use a private placement
offering or debt financing to raise such additional funds, to be used for the
following:
1) Investment in laboratory facilities including test and simulation
equipment;
2) Acquisition or licensing of certain intellectual property related to
the development of modems and communications semiconductor and
component technology;
3) Pay-down certain debt, such as a convertible debenture from Cornell
Capital. We intend to pay-off debt owed to Mr. Daniel Lozinsky, a
Director, and Mr. Arne Dunhem, an officer and Director, during 2003;
and
4) General working capital purposes.
We have initiated a private placement offerings as of this filing but we cannot
give any assurances that we will be successful in raising any capital.
PRODUCTS AND SERVICES
After the merger with Neoreach, the Company will develop products for the 3G
markets. Its product line will initially comprise of pico base station modems
and handset modems ASICs. These products are not currently available in the
market. The Company believes that its products will be first to market and will
offer unique value to the manufacturers and the marketplace in general. The
Company currently has prototypes available of modems for the micro cell base
station.
The product line extensions will include RF CMOS chip set (Radio Frequency
CMOS). The RF CMOS is a highly complex and miniaturized ASIC chip of a size less
than -1/4 inch by -1/4 inch that is a complete radio and transmitter system. The
ASIC chip is specialized for the 1.9 GHz/2.1 GHz frequency bands used in Europe
and Asia for the new 3G W-CDMA networks and may be used in both smaller
pico-cell base stations and in 3G handsets. Future similar versions of the RF
CMOS chip may be developed for the similar 3G 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 at the Information and
Communications University (ICU) in the Republic of Korea.
There are no assurances that our products, once developed, will be accepted or
marketable to our intended customers.
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MARKETING AND COMPETITION
MARKETING
The Company intends to sell products and services through direct and indirect
sales channels. The Company intends to have a direct sales force in North
America, Europe and Asia. The sales organization will have directors in each of
these areas of the world. The technical support team will support the direct
sales team. Target customers include manufacturers of base stations and other
infrastructure equipment.
In addition to a direct sales channel, the Company intends to sells product
through OEM agreements with other manufacturers. OEM means Original Equipment
Manufacturer. Any OEM relationships will enable the Company's products to be
embedded into the base stations. The business development team will be
responsible for initiating the relationships with the OEM partners and the sales
team supports them on an ongoing basis.
The Company cannot assure you that its marketing efforts will be successful.
COMPETITION
The markets for our products are intensely competitive and subject to rapid
technological advancement. We must identify and capture future market
opportunities to offset the price erosion that characterizes our industry. 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.
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 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.
RESEACH AND DEVELOPMENT
Our product development efforts are 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
customers. We have no individual people engaged in research and development
activities.
INTELLECTUAL PROPERTY
As of June 30, 2002, 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. On April 29, 2002, we announced that two of our six
previously filed patents have been allowed which means that they have been or
are being issued.
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One allowed and awaiting issue notification patent application is "Smart Antenna
with Adaptive Convergence Parameter" with PTO Docket #3228-003-64, involves
intellectual property that can enhance the performance of conventional smart
antenna processing technology if used for 3G wireless communications.
A second allowed and issued patent application is "A Smart Antenna With No Phase
Calibration For CDMA Reverse Link" with PTO Docket #3228-004-64, delivers
automatic, low-cost improvements to the smart antenna processing technology.
A third allowed and issued patent application is "PN Code Acquisition With
Adaptive Antenna Array and Adaptive Threshold for DS-CDMA Wireless
Communication" with PTO Docket #3228-002-64, would provide an improvement to the
quality of the communications channel.
The remaining three patent applications, currently still under review at the
PTO, involve innovations that deliver increased capacity in 3G wireless
networks, expansion of the coverage areas, and that maintain high quality of the
communication channels. The patent applications include "New Cellular
Architecture" with PTO Docket # 3228-001-64, "Direction of Arrival Angel
Tracking Algorithm For Smart Antennas" with PTO Docket #3228-005-64, and
"Improvement of PN Code Chip Time Tracking with Smart Antenna" with PTO Docket
#3228-007-64.
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.
GOVERNMENT APPROVALS
We do not believe that there is a need for any specific government approval for
any of our modem solutions since these do not include any radio transmitter and
do not radiate any radio frequency signals. Our RF CMOS 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.
RECENT DEVELOPMENTS
On May 31, 2002, the Company entered into an equity line of credit arrangement
(the "Equity Line") with Cornell Capital Partners, LP ("Cornell"). The Equity
Line provides, generally, that Cornell 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 the Company's discretion. Any shares of Common Stock sold under the
Equity Line 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. The Company is 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.
In addition, on May 31, 2002, the Company entered into a Securities Purchase
Agreement with certain investors pursuant to which the Company issued and sold
$250,000 of convertible debentures (the "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 issuance or, at the
Company's 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. If, at the time of conversion, the Common Stock is listed on the NASD
Bulletin Board System, Nasdaq SmallCap Market, or American Stock Exchange, the
conversion price will be 120% of the closing bid price. If, at the time of
conversion, the Common Stock is not listed on any of the foregoing markets, the
conversion price will be 80% of the closing bid price of the
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Common Stock as furnished by the National Association of Securities Dealers,
Inc. The Debentures also provide the Company with certain redemption rights
which, if exercised, will require the Company to issue Common Stock warrants to
the Debenture holders. 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.
ITEM 2. DESCRIPTION OF PROPERTY
Our offices are located at 3204 Tower Oaks Blvd., Suite 350, Rockville , MD
20852. We believe that this facility is adequate to meet our needs in the near
future. In the event our business expands, we believe we will have to find new
offices.
We currently employ one person. Subsequent to the period of this report and
effective with the merger with Neoreach, the Company will employ nine people. If
the business grows as we plan, we anticipate that we will need additional
persons to fill administrative, sales and technical positions.
ITEM 3. LEGAL PROCEEDINGS
We are not a party to any material legal proceedings, and no material legal
proceedings have been threatened by or, to the best of our knowledge, against
us.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Board of Directors announced that the close of business on
November 1, 2001 was the record date for the determination of stockholders
entitled to notice about the proposal authorizing the reverse stock split of the
outstanding common stock, par value $.001 par value, of the Company at the rate
of one new share for each 200 issued and outstanding shares of common stock and
the subsequent restoration of the authorized capital of the Company to
50,000,000 shares of common stock, $.001 par value, 5,000,000 shares of
preferred stock, $.001 par value and 35,425 shares of Series A Convertible
Preferred Stock, $.001 par value ("Recapitalization") and the approval of the
Mobilepro 2001 Equity Performance Plan ("Equity Performance Plan").
On October 31, 2001, the Board of Directors approved the Recapitalization and
the Equity Performance Plan and authorized the Company's officers to obtain
written consents from the holders of the outstanding voting securities of the
Company to approve the Recapitalization and the Equity Performance Plan.
On November 1, 2001, stockholders owning of record an aggregate of 9,605,393
shares of the Company's common stock, representing approximately 53.7% of the
outstanding voting securities of the Company, executed and delivered to the
Company a written consent authorizing and approving the Recapitalization and
approving the Plan. Under Section 228 of the Delaware General Corporation Law,
and the certificate of incorporation and by-laws of the Company, any action
required or permitted to be taken at an annual or special meeting of
stockholders of a Delaware corporation may be taken without a meeting, without
prior notice and without a vote, is signed by the holders of outstanding stock
entitled to vote thereon having not less than the minimum number of votes that
would be necessary to authorize or take such action at a meeting at which all
shares entitled to vote thereon were present and voted. Prompt notice of the
consent to the Recapitalization and approval of the Equity Performance Plan must
be given, and was given on or about November 2, 2001, to those stockholders who
have not consented in writing to the action and who, if the action had been
taken at a meeting, would otherwise have been entitled to notice of the meeting.
The purpose of the Mobilepro Corp. 2001 Equity Performance Plan ("Equity
Performance Plan") is to enable the Company to offer to its employees, officers,
directors and consultants whose past, present and/or potential contributions to
the Company and its Subsidiaries have been, are or will be important to the
success of the Company, an opportunity to acquire a proprietary interest in the
Company. The various types of long-term incentive awards that may be provided
under the Equity Performance Plan will enable the Company to respond to changes
in compensation practices, tax laws, accounting regulations and the size and
diversity of its businesses.
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In effecting the Recapitalization, a majority of the Stockholders, in their
written consent authorizing and approving the Recapitalization, and the Board of
Directors of the Company approved the following Certificate of Amendment of the
Certificate of Incorporation of Mobilepro Corp.:
FIRST: The name of the Corporation is Mobilepro Corp.
SECOND: The Certificate of Incorporation of the Corporation is hereby amended by
deleting the first paragraph of Article FOURTH in its entirety and by
substituting the following two new paragraphs at the beginning of Article FOURTH
in lieu thereof:
"FOURTH: That as of the effective date of this Certificate of Amendment
of the Certificate of Incorporation of the Corporation ("Amendment")
each 200 shares of the Corporation's common stock that is issued and
outstanding shall be changed, without any further action, into one fully
paid and non-assessable share of the Corporations common stock,
fractional shares to be rounded up.
As of the effective date of this Amendment, after the reverse stock
split set forth above, the total number of shares of capital stock of
all classes which the Corporation shall have authority to issue
55,035,425 shares, of which 50,000,000 shares shall be common stock, par
value $.001 per share ("Common Stock"), 5,000,000 shares shall be
preferred stock, par value $.001 per share ("Preferred Stock") and
35,425 shares shall be the Series A Convertible Preferred Stock, par
value $.001 per share. ("Series A Convertible Preferred Stock")."
THIRD: The foregoing Amendment of Certificate of Incorporation was duly approved
by the Corporation's Board of Directors in accordance with the provisions of
Section 242 of the General Corporation Law of the State of Delaware and
thereafter was duly adopted by the consent of the holders of a majority of the
outstanding voting stock of the Corporation in accordance with the provisions of
Sections 228 and 242 of the General Corporation Law of the State of Delaware.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET FOR COMMON STOCK
Our Common Stock is traded in the over-the-counter market and quoted on OTC EBB
under the symbol "MOBL" and quoted in the pink sheets published by the National
Quotations Bureau. From time to time, a very small number of securities
broker-dealers published only intermittent quotations for the Common Stock, and
there was no continuous, consistent trading market. The trading volume in the
Common Stock has been and is extremely limited. During the above period, the
limited nature of the trading market created the potential for significant
changes in the trading price for the Common Stock as a result of relatively
minor changes in the supply and demand for Common Stock and perhaps without
regard to our business activities. Because of the lack of specific transaction
information and our belief that quotations during the period were particularly
sensitive to actual or anticipated volume of supply and demand, we do not
believe that such quotations during this period are reliable indicators of a
trading market for the Common Stock.
As of July 11, 2002, there were approximately 531 holders of record of our
Common Stock, which does not take into account those shareholders whose
certificates are held in the name of broker-dealers or other nominees.
TRANSFER AGENT
The transfer agent for our Common Stock is Interwest Transfer Co., 1981 East
Murray-Holladay Rd., P. O. Box 17136, Salt Lake City, Utah 84117.
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Subject to the above limitations, we believe that during the six fiscal quarters
preceding the date of this filing, the high and low share prices for the Common
Stock during each quarter are as set forth in the table below. The quotations
reflect inter-dealer share prices, without retail mark-up, mark-down, or
commission and may not represent actual transactions. The share prices were
obtained from OTC Bulletin Board NASDAQ Trading & Market Services. These high
and low share prices do reflect the effects both of the 1 for 100 share reverse
stock split, which occurred on May 8, 2001 and of the 1 for 200 share reverse
stock split, which occurred on November 6, 2001.
QUARTER ENDED HIGH LOW
------------- ---- ---
March 31, 2002 4.00 1.05
December 31, 2001 38.00 4.00
September 30, 2001 790.00 12.00
June 30, 2001 400.00 30.00
March 31, 2001 3,750.00 312.50
December 31, 2000 10,625.00 625.00
September 30, 2000 40,000.00 7,500.00
June 30, 2000 77,500.00 17,500.00
March 31, 2000 57,500.00 30,000.00
December 31, 1999 75,000.00 25,000.00
The ability of an individual shareholder to trade their shares in a particular
state may be subject to various rules and regulations of that state. A number of
states require that an issuer's securities be registered in their state or
appropriately exempted from registration before the securities are permitted to
trade in that state. Our shares are subject to the provisions of Section 15 (g)
and Rule 15g-9 of the Securities and Exchange Act of 1934, as amended (the
"Exchange Act"), commonly referred to as the "penny stock" rule. Section 15 (g)
sets forth certain requirements for transactions in penny stocks and Rule
15g-9(d)(1) incorporates the definition of penny stock as that used in Rule
3a51-1 of the Exchange Act.
The Commission generally defines penny stock to be any equity security that has
a market price less than $5.00 per share, subject to certain exceptions. Rule
3a51-1 provides that any equity security is considered to be a penny stock
unless that security is: registered and traded on a national securities exchange
meeting specified criteria set by the Commission; authorized for quotation on
the NASDAQ Stock Market; issued by a registered investment company; excluded
from the definition on the basis of price (at least $5.00 per share) or the
issuer's net tangible assets; or exempted from the definition by the Commission.
Since our shares are a penny stock, trading in the shares will be subject to
additional sales practice requirements on broker-dealers who sell penny stocks
to persons other than established customers and accredited investors, generally
persons with assets in excess of $1,000,000 or annual income exceeding $200,000,
or $300,000 together with their spouse.
For transactions covered by these rules, broker-dealers must make a special
suitability determination for the purchase of such securities and must have
received the purchaser's written consent to the transaction prior to the
purchase. Additionally, for any transaction involving a penny stock, unless
exempt, the rules require the delivery, prior to the first transaction, of a
risk disclosure document relating to the penny stock market. A broker-dealer
also must disclose the commissions payable to both the broker-dealer and the
registered representative, and current quotations for the securities. Finally,
monthly statements must be sent disclosing recent price information for the
penny stocks held in the account and information on the limited market in penny
stocks. Consequently, these rules may restrict the ability of broker-dealers to
trade and/or maintain a market in our Common Stock and may affect the ability of
shareholders to sell their shares.
DIVIDEND POLICY
Subject to the provisions of the Certificate of Incorporation, the Board of
Directors may, out of funds legally available therefore at any regular or
special meeting, declare dividends upon the capital stock of the corporation as
and when they deem expedient. Before declaring any dividend there may be set
apart out of any funds of the corporation available for dividends, such sum or
sums as the Board of Directors from time to time in their discretion
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deem proper for working capital or as a reserve fund to meet contingencies or
for equalizing dividends or for such other purposes as the Board of Directors
shall deem conducive to the interests of the corporation.
We have not paid any dividends to date. We can make no assurance that our
proposed operations will result in sufficient revenues to enable profitable
operations or to generate positive cash flow. For the foreseeable future, we
anticipate that we will use any funds available to finance the growth of our
operations and that we will not pay cash dividends to stockholders.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
Equity Compensation Plan Information
(As of 3/31/02)
Equity Compensation Number of Weighted average Number of
Plan Categories securities to be exercise price securities
issued upon of outstanding remaining
exercise of options, available for
outstanding warrants and future issuance
options, rights
warrants and
rights
Approved by security
holders
- 2001 Equity 0 $0.00 20,000
Performance Plan
Not approved by
security holders
- None 0 0 0
--- ----- ------
Total 0 $0.00 20,000
The securities underlying the 2001 Equity Performance Plan were registered on
the Company's Form S-8 Registration Statement as filed with the Securities and
Exchange Commission on December 4, 2001 (File No. 333-74492).
RECENT SALES OF SECURITIES
COMMON STOCK
We have issued the following shares of our common stock from March 31, 2000
through July 11, 2002. On May 11, 2001, we implemented a 1 share for 100 shares
reverse stock split of our common stock. On November 19, 2001, we implemented a
1 share for 200 shares reverse stock split of our common stock. The issuances
below have not been adjusted for these reverse stock splits, but rather
disclosed as issued.
On April 16, 1999, we had subscriptions to issue 257,666 shares of our common
stock for consideration of $386,499 at the time of the merger with Tecon (See
"CORPORATE HISTORY"). These subscriptions were reduced to 245,997 and were
exercised upon the consummation of the merger with Tecon. Tecon also issued
1,621,621 shares of common stock of Tecon for additional subscriptions in
consideration of $600,000, cash. Additional subscriptions were received and
215,702 common shares were issued for $315,515. Simultaneously, we issued 10,333
common shares for business equipment valued at $15,500. The Company believes the
issuance of the stock to be exempt from registration under Section 4(2) of the
Securities Act.
At various dates during the year ended March 31, 2000, we issued 1,812,829
shares of common stock to various consultants and professionals for services
rendered. The total value of the shares has been recorded at $1,000,000. The
Company believes the issuance of the stock to be exempt from registration under
Section 4(2) of the Securities Act.
From April through June 2000, we issued 430,000 shares of common stock for
additional website business valued at $.75 per share or $322,500 and a total of
38,000 shares of preferred stock was issued under a Private Placement
Memorandum. We believe the issuance of the stock to be exempt from registration
under Section 4(2) of the Securities Act.
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In August 2000, we granted 1,903,574 common stock options valued at $475,000 for
a Note Receivable for the same amount. The options were granted pursuant to the
"2000 Stock Option Plan". As of March 31, 2001, we had granted a total of
2,562,250 additional options pursuant to the "2000 Stock Option Plan" not
including the initial 1,903,574 common stock options vesting over a period of up
to 4 years with an exercise price of $1.00. Since these options were granted,
1,186,000 were cancelled and 850,125 expired due to termination of employee
relationships.
On June 7, 2000 we exchanged 500,000 shares of our stock for 450,706 shares of
Popmail.com in a transaction valued at $500,000. We subsequently sold this
investment to meet our financial obligations. The shares were "Restricted" under
S144. On September 15, 2000, the Popmail.com stock was sold to an individual
related party for $74,650, in a private sale to an accredited/sophisticated
investor. A loss of $425,350 was realized during the period. Approximately
$225,353 of the loss was due to market value decline during the holding period.
We believe the issuance of the stock to be exempt from registration under
Section 4(2) of the Securities Act.
On March 12, 2001, we issued 4,040,000 shares of common stock for services out
of which 1,180,000 shares to Sandip Seth, 1,180,000 to Maninder Singh, both
being officers of the Company, 1,180,000 shares to Sanjay Sabnani, 350,000
shares to Cora Castillion and 150,000 shares to Amber Luke valued at a total of
$1,284,923. We believe that Sabnani, Castillion and Luke were not affiliated
with the Company. We believe the issuance of the stock to be exempt from
registration under Section 4(2) of the Securities Act.
On December 1, 2000, we issued 25,000,000 shares of common stock at $.004 per
share and 1,000 shares of Class C preferred stock at $10 per share to creditors
as settlement of $110,000 worth of debt. We believe the issuance of the stock to
be exempt from registration under Section 4(2) of the Securities Act.
On March 16, 2001, Dungavel, Inc., a Bahamian company, contracted to purchase
the above referenced 25,000,000 shares of our common stock and 1,000 shares of
our Class C Preferred Stock from the former creditors (Metropolitan Capital
Partners LLC), in a private sale to an accredited/sophisticated investor. At the
time of the sale, we believe that there was no affiliation between Dungavel,
Inc. and Metropolitan Capital Partners, LLC. The transfer of 25,000,000 shares
of common stock and 1,000 shares of preferred stock by Metropolitan Capital
Partners LLC to Dungavel Inc. was not made under Rule 144. In the acquisition
agreement, Dungavel represented that it was a sophisticated, accredited investor
and was acquiring restricted securities. The only entity from which Dungavel
acquired shares of CraftClick on March 16, 2001 was Metropolitan Capital
Partners LLC, which name is stated above. The shares continued to be restricted
in the hands of Dungavel, Inc. and therefore the certificate beared the same
legend as the original certificates. The Class C Preferred Stock is convertible
at any time prior to December 31, 2001, into 11.5% of the then issued and
outstanding common stock of CraftClick.com, Inc., computed on a fully diluted
basis. Together the common stock and the Class C Preferred Stock acquired by
Dungavel, Inc. represents greater than 50% of the voting control of
CraftClick.com, Inc., on an as converted basis. The sale was consummated as of
March 27, 2001. We believe the issuance of the stock to be exempt from
registration under Section 4(2) of the Securities Act.
On April 24, 2001, the 1,000 Class C Preferred shares were converted to
6,877,678 shares of common stock. The Company believes the issuance of the stock
to be exempt from registration under Section 4(2) of the Securities Act. On June
6, 2001, CraftClick.Com, Inc. a Delaware corporation, and Mobilepro Corp., a
Delaware corporation, entered into an Agreement and Plan of Merger dated as of
June 1, 2001. Under the Merger Agreement Mobilepro merged with and into
CraftClick, with CraftClick being the surviving corporation. The consideration
for the shares of common stock issued by CraftClick to the shareholders of
Mobilepro was all the outstanding shares of Mobilepro. The merger of Mobilepro
into CraftClick was structured as a share-for-share exchange. The exchange ratio
was negotiated without reference to the market price of the CraftClick common
stock because it was difficult to value the merger participants and the market
of a thinly traded security on the OTC Bulletin Board. The Company issued a
total of 8,750,000 shares of its common stock in connection with the Merger.
Based on the last trading price of $0.16, the fair value of the Company's stock
issued was $1,400,000. Of these shares issued, the Company issued to Ms. Joann
M. Smith an aggregate of 8,227,663 shares of common stock representing
approximately 55% of our 14,907,196 issued and outstanding shares of common
stock. In addition we also issued as part of the merger, a total of 522,337
shares of its common stock at value $83,574, to Wallenstein & Wagner, 152,730
shares at value $24,437, Laser Modeling, Inc. 152,730 shares at value $24,437,
Francine B. Goodman, 152,730 shares at value $24,437,
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Denise Patterson, 38,183 shares at value $6,109, and Inform Product Development,
Inc., 25,964 shares at value $4,154. We believe that all these parties were
non-affiliated with the Company at the issuance. We believe the issuance of the
stock to be exempt from registration under Section 4(2) of the Securities Act.
Effective June 6, 2001, in connection with the Merger, we issued 3,000,000
shares in a conversion of debt and accrued interest to Dungavel, Inc. a Bahamian
company. We believe that the controlling person of Dungavel was Robert Landau,
who we believe also had a controlling interest in Mobilepro. The debt had a
recorded value of $50,000. The issuance of shares were valued at $480,000, the
fair value of the Company's stock at that time. In September 2000, Dungavel Inc.
was issued a $50,000 convertible note by Mobilepro. At the time of the merger of
Mobilepro into CraftClick, Dungavel negotiated with Mobilepro the conversion of
the note into 3,000,000 shares of the post-merger company. Dungavel was the
controlling shareholder of CraftClick at the time of this negotiation. The value
of CraftClick and Mobilepro at the time of the merger is difficult to determine
and the negotiations for the shares to be issued to acquire Mobilepro was made
without reference to the then market price. We believe the issuance of the stock
to be exempt from registration under Section 4(2) of the Securities Act.
In May 2001, we registered 6,500,000 shares of our common stock for future
issuance under the "2001 Performance Equity Plan". Effective June 6, 2001, we
issued a total of 2,600,000 shares, based on the last trading price of $0.16,
with the total fair value of $416,000 to the following parties: 250,000 shares
to Dungavel Inc. for services performed in connection with the Mobilepro merger
and reorganization and re-incorporation and using the last trading price, the
fair value of the consideration was $40,000, 250,000 shares at value $40,000 to
Mr. Scott R. Smith, our Chief Executive Officer for employment services,
1,475,000 shares at value $236,000 to ZDG Investments for consulting services
regarding the Mobilepro merger and reorganization and re-incorporation, 50,000
shares at value $8,000 each to Mr. Howard Geisler, Mr. Mitchell Geisler and Ms.
Cindy Roach for services as officers and directors, 25,000 shares at value
$4,000 to Weil Consulting Corp. for merger consultations and 450,000 shares at
value $72,000 to Henning Capital Ltd. for merger consultations.
On August 1, 2001, we issued 330,000 shares of its common stock pursuant to the
exercise of a special warrant that was issued as a part of the reverse merger
agreement with CraftClick.com, Inc. The conversion price of this warrant was
$330 or $0.001 per share, the par value of the common stock. The issuance of
shares was valued at $577,500, the fair value of the Company's stock at that
time. We believe the issuance of the stock to be exempt from registration under
Section 4(2) of the Securities Act.
On September 6, 2001, we issued a total of 1,500,000 shares of its common stock
under the 2001 Performance Equity Plan to Camilla Holdings for services
rendered. These services were valued at $0.165 per share or a total of $247,500.
On October 26, 2001, we issued 25,000 shares of its common stock to David Lake,
4,000 shares, James Sacks, 3,000 shares, Donna Villegas, 1,000 shares, Jon Lake,
1,000 shares, Mark Daugherty, 1,000 shares, Ashok Mirpuri, 5,000 shares, Sanjay
Sabnani 10,000 shares. We believe they were all non-affiliated with the Company
at the time of issuance. In connection with the reorganization/redomestication
of CraftClick from a Utah corporation to a Delaware corporation, the 25,000
shares were issued as settlement shares in connection with the change in the
terms of the preferred stock. The issuance of shares was valued at a total of
$1,250, the fair value of our stock at that time. We believe the value of the
settlements were commensurate with the value of the stock issued. We believe the
issuance of the stock to be exempt from registration under Section 4(2) of the
Securities Act.
On November 19, 2001, we had a 1 for 200 reverse stock split which effectively
reduced their issued and outstanding shares 16,677,711. Additionally, on that
date we issued 3,000,000 shares for services in conjunction with an Investors
Rights Agreement. We valued that issuance at a value of $240,000, the fair value
of our stock at that time. We believe the issuance of the stock to be exempt
from registration under Section 4(2) of the Securities Act. On February 15,
2002, we entered into an agreement to issue 86,000 shares of our common stock to
John Madigan, 30,000 shares, Douglas Tucker, 30,000 shares, Wallenstein &
Wagner, 30,000 shares, Natalie Boitehouk, 2,000 shares, Gregory Bochniak, 2,000
shares, and Stephen Jouzapaitis, 2,000 shares for services rendered.. We believe
they were all non-affiliated with the Company at the time of issuance. The
shares issued on February 15, 2002 were authorized to be issued on February 19,
2002 by instruction letter of that date. Per the agreement, the shares were
subsequently issued on March 22, 2002. The issuance of the shares were valued at
$90,300, the fair value of our
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stock at that time. We believe the value of the services provided were
commensurate with the value of the stock issued. We believe the issuance of the
stock to be exempt from registration under Section 4(2) of the Securities Act.
On February 19, 2002, we issued 25,000 shares of our common stock to Scott R.
Smith 25,000 shares were issued to Scott Smith in exchange for his surrender of
his rights to past wages and other benefits under his employment agreement of
June 2001 and cancellation of that employment agreement as an executive and
officer of our Company. The shares were valued at $26,250, the fair value of our
stock at that time. We believe the issuance of the stock to be exempt from
registration under Section 4(2) of the Securities Act.
On March 18, 2002, we issued a total of 960,000 shares of our common stock under
the "2001 Equity Performance Plan" to the following parties: 255,000 to Mr.
Daniel Lozinsky, our Chief Executive Officer for employment services and
services as a director, 355,000 to Mr. Arne Dunhem for services as an officer
and director, 25,000 to Mr. Scott Smith for services as an officer and director,
and 325,000 to Jesus Gomez Romero for engineering consulting services for
advanced software related projects. These shares were issued at $0.55 per share
based on a Board Resolution fixing the Fair Market Value of the securities
pursuant to the 2001 Equity Performance Plan on and as of March 6, 2002.
On April 23, 2002, we issued 12,352,129 shares of our common stock to the
holders of NeoReach's common stock pursuant to an Agreement and Plan of Merger,
dated March 21, 2002. A newly formed, wholly-owned subsidiary of Mobilepro
merged into NeoReach, in a tax-free one-for-one share exchange transaction. The
merger was consummated on April 23, 2002. As a result of the merger, NeoReach is
now a wholly-owned subsidiary of Mobilepro. The issuance of the shares were
valued at a fair value of $ 6,546,628, based on the last trading price of $0.53
and assuming there was actual active trading of our stock at that time. We
believe the issuance of the stock to be exempt from registration under Section
4(2) of the Securities Act.
On May 31, 2002, We issued a total of 690,000 shares of its common stock to the
following parties: 450,000 shares to INFe, Inc., 150,000 shares to Thomas
Richfield, 60,000 shares to Francene Goodman, and 30,000 shares to Triple Crown
Consulting. These shares were issued for consulting services regarding the
Mobilepro-NeoReach merger. The issuance of the shares were valued at $ 317,400,
the fair value of our stock at that time. We believe the value of the services
provided were commensurate with the value of the stock issued. We believe the
issuance of the stock to be exempt from registration under Section 4(2) of the
Securities Act.
On May 31, 2002, Mobilepro issued a convertible debenture to Cornell Capital in
the original principal amount of $250,000. The convertible debenture is
convertible into shares of our common stock as a price equal to either 120% of
the closing bid price of our common stock as of May 31, 2002, or 80% of the
average of the four lowest closing bid prices of our common stock for the five
trading days immediately preceding the conversion date. If such conversion had
taken place on May 31, 2002, then the holder of the convertible debenture would
have received 452,899 shares of our common stock. 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.
On June 10, 2002, we issued a total of 784,314 shares of its common stock to the
following parties: 764,706 to Cornell Capital Partners, LP and 19,708 to
Westrock Advisors, Inc. These shares were issued pursuant to an equity line of
credit arrangement with Cornell Capital Partners, dated May 31, 2002. The
issuance of the shares were valued at $517,647, the fair value of our stock at
that time. We believe the issuance of the stock to be exempt from registration
under Section 4(2) of the Securities Act.
Except as otherwise noted, the securities described in this Item were issued
pursuant to the exemption from registration provided by Section 4(2) of the
Securities Act of 1933. Each such issuance was made pursuant to individual
contracts which are discrete from one another and are made only with persons who
were sophisticated in such transactions and who had knowledge of and access to
sufficient information about Mobilepro to make an informed investment decision.
Among this information was the fact that the securities were restricted
securities.
-19-
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The financial information set forth in the following discussion should be read
in conjunction with, and qualified in its entirety by, the financial statements
of the Company included elsewhere herein. These financial statements reflect
only the financial information of our prior business operations as a wireless
business solutions provider and are not reflective of our new business strategy
(See "BUSINESS").
FINANCIAL CONDITION AND CHANGES IN FINANCIAL CONDITION
OVERALL OPERATING RESULTS
We had no sales from our wireless business solutions provider operation for the
years ended March 31, 2002 and 2001. However, our general and administrative
expenses were $3,147,119 for the current year and $1,009,193 for the prior year,
which resulted in substantial operating losses for each year. Operating losses
were $3,147,119 and $1,009,193 for the years ended March 31, 2001 and 2000,
respectively. The Company had other income, including income from the
forgiveness of debt of $248,717 and $0 for the years ended March 31, 2001 and
2000, respectively. The areas where we expended the most funds for each year
were for payroll, professional fees, consulting fees, and marketing expenses.
Because of these large losses and the fact that we did not have adequate capital
in order to continue to operate, we were pursuing alternative business
opportunities in the first quarter of 2002. See "BUSINESS" for our change in
control and our future business strategy.
Our net losses after taxes and other income/expenses were $2,898,402 for March
31, 2002 and $1,009,193 for March 31, 2001.
OPERATING LOSSES
We have accumulated approximately $1,563,018 of net operating loss carryforwards
as of March 31, 2002, that may be offset against future taxable income. There
will be limitations on the amount of net operating loss carryforwards that can
be used due to the change in the control of the management of the Company. No
tax benefit has been reported in the financial statements, because we believe
there is a 50% or greater chance the carryforwards will expire unused.
Accordingly, the potential tax benefits of the loss carryforwards is offset by a
valuation allowance of the same amount.
LIQUIDITY AND CAPITAL RESOURCES
We do not currently have any revenues, liquidity or capital resources as we move
forward into our new business venture (See "BUSINESS") and our independent
auditors have issued a going-concern opinion. We will need additional financing
in order to implement our business plan and continue as a going concern. We do
not currently have a source for any additional financing and we cannot give any
assurances that we will be able to secure any financing.
NEW ACCOUNTING PRONOUNCEMENTS
We have adopted FASB Statement 128. It is not expected that we will be impacted
by other recently issued standards. FASB Statement 128 presents new standards
for computing and presenting earnings per share (EPS). The Statement is
effective for financial statements for both interim and annual periods ending
after December 15, 1997.
FASB Statement 131 presents news standards for disclosures about segment
reporting. We do not believe that this accounting standard applies to us as all
of our operations are integrated for financial reporting and decision-making
purposes.
-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 only the financial information of our
prior business operations as a wireless business solutions provider business and
are reflective of our new business strategy (See "BUSINESS").
MobilePro generated revenue in September, 2002 by the sale of its currently
available base station modems (version 1.0) for shipment to prospective
customers. These modems are currently available in board format. Continued
product development will evolve the base station modems from the boards to ASICs
(Application Specific Integrated Circuit).
Product development plans include defining specifications for the next version
of the base station board subsequently leading to base station modem ASICs. We
believe that the timeline below demonstrates the current product delivery
schedule, and the anticipated costs associated with the achieving the
milestones. This schedule could change depending on challenges faced in
engineering and development.
April, 2003 August, 2003 October, 2003 December, 2003
----------- ------------ ------------- --------------
Base Station Modem Prototype Beta GA (general
ASIC availability)
RF CMOS Prototype Beta GA
Handset ASIC Prototype
Financial Resources $7M $10M $15M
Needed - Cumulative
The next generation (version 2.0) of MobilePro's base station modem board will
incorporate up to 256 channels - up from the currently offered 4 channels. In
addition to the base station modem, MobilePro intends to develop RF-CMOS (Radio
Frequency Complementary Metal Oxide Semiconductor) chipsets for the wireless
markets. These chipsets will be designed to support the GSM (Global System for
Mobile Communications) and the WCDMA (Wide Band Code Division Multiple Access)
markets. Product development cycle of these chipsets is typically 12 to 14
months. MobilePro will outsource the manufacturing of the chipsets to a third
party, essentially categorizing MobilePro as a Fab-less developer of
semiconductors.
The sales cycle for MobilePro products is about 6 to 9 months. Currently
MobilePro is offerings its board to potential prospects. MobilePro's primary
markets are Europe and Asia with North America being the secondary market.
MobilePro intends to build a sales team in these regions to support its
customers. In addition to investing in a direct sales force, MobilePro will
continue to develop business relationships with potential partners who can serve
as an indirect sales channel for MobilePro's products.
Typical price points for the version 1.0 of the board begin at $10,000.
As a result of the Plan, we expect a significant increase in the number of
employees by mid 2003.
Mobilepro will need additional financing and may use the proceeds received from
the Equity Line of Credit, a private placement offering or debt financing to
raise such additional funds, to be used for the following:
1) Complete the design and development of advanced modems for both the
base station and handset markets:
a. Invest in laboratory facilities including test and simulation
equipment.
b. Acquire or license certain intellectual property related to
the development of modems and communications semiconductor and
component technology.
2) Develop plans for third party manufacturing to support the business
goals of the Company.
3) Expand the product offerings of the Company to include RF CMOS
development.
4) Develop direct and indirect sales and marketing channels for the
Company's products and services:
-21-
a. Develop business partnerships that embrace the Company as
their modem supplier for their advanced cellular handsets and
user equipment.
b. Develop plans for extending our solution offerings for use in
additional global markets such as Asia and Europe.
5) Pay-down certain debt, such as a convertible debenture from Cornell
Capital. We intend to pay-off debt owed to Mr. Daniel Lozinsky, a
Director, and Mr. Arne Dunhem, an officer and Director, during 2003.
6) General working capital purposes.
EMPLOYEES
We, as of March 31, 2002, currently employ one person. With the merger with
Neoreach effective in April of 2002, the Company employs nine people. If the
business grows as we plan, we anticipate that we will need additional persons to
fill administrative, sales and technical positions.
FORWARD-LOOKING INFORMATION
From time to time, we or our representatives have made or may make
forward-looking statements, orally or in writing. Such forward-looking
statements may be included in, but not limited to, press releases, oral
statements made with the approval of an authorized executive officer or in
various filings made by us with the Securities and Exchange Commission. Words or
phrases "will likely result", "are expected to", "will continue", "is
anticipated", "estimate", "project or projected", or similar expressions are
intended to identify "forward-looking statements". Such statements are qualified
in their entirety by reference to and are accompanied by the above discussion of
certain important factors that could cause actual results to differ materially
from such forward-looking statements.
We are currently unaware of any trends or conditions other than those previously
mentioned in this management's discussion and analysis that could have a
material adverse effect on the Company's consolidated financial position, future
results of operations, or liquidity. However, investors should also be aware of
factors that could have a negative impact on the Company's prospects and the
consistency of progress in the areas of revenue generation, liquidity, and
generation of capital resources. These include: (i) variations in revenue, (ii)
possible inability to attract investors for its equity securities or otherwise
raise adequate funds from any source should the Company seek to do so, (iii)
increased governmental regulation, (iv) increased competition, (v) unfavorable
outcomes to litigation involving the Company or to which the Company may become
a party in the future and, (vi) a very competitive and rapidly changing
operating environment. Other factors that might cause such a difference include,
but are not limited to, those discussed below:
RISK FACTORS
WE MAY NOT BE SUCCESSFUL IN INTEGRATING THE BUSINESS AND TECHNOLOGY OF NEOREACH
WITH THAT OF THE COMPANY.
We acquired NeoReach, Inc. effective April 23, 2002. We may not be successful in
integrating the business and technology of NeoReach with the business and
operations of the Company. Our failure to integrate successfully could
materially adversely affect our operating results, financial condition and the
trading price of our stock. Also, our integration efforts may divert our
management time and resources from necessary aspects of our business and
operations.
OUR MANAGEMENT TEAM IS NEW TO THE COMPANY AND MAY NOT BE ABLE TO SUCCESSFULLY
EXECUTE THE BUSINESS PLAN.
Mr. Daniel Lozinsky became our President and CEO in February 2002 after he
acquired 64.8% of our voting securities. After the acquisition of NeoReach, Mr.
Arne Dunhem, replaced Mr. Lozinsky as our President and CEO and Mr. Lozinsky
became our Senior Vice President. Our success depends to a significant extent on
the leadership and vision of Messrs. Dunhem and Lozinsky. Prior to the merger,
Messrs. Lozinsky and Dunhem had no experience working together. Failure to
successfully integrate the management teams of the two companies could adversely
affect the business and results of operations of the Company. Our future success
also depends on our ability to identify, attract, hire, retain and motivate
other well-qualified managerial, technical, sales and marketing personnel. There
can be no assurance that these professionals will be available in the market or
that we will be able to meet their compensation requirements.
-22-
OUR ACCOUNTANTS RAISED SUBSTANTIAL DOUBT AS TO OUR ABILITY TO CONTINUE AS A
GOING CONCERN AND WE WILL INCUR LOSSES FOR THE IMMEDIATE FUTURE.
Our independent accountants raised substantial doubt as to our ability to
continue as a going concern in their report to the Board of Directors in July
2002. As a result of our acquisition of NeoReach effective in April, 2002, the
Company has 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 profitability is to be achieved. To the extent that
revenue does not grow at anticipated rates 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,
our business, results of operations and financial condition will be materially
and adversely affected. We cannot ensure that we will ever achieve or sustain
profitability.
WE ARE AT DEVELOPMENT STAGE AND HAVE A LIMITED OPERATING HISTORY UPON WHICH YOU
CAN BASE YOUR INVESTMENT DECISION.
The Company had a major shift in its business strategy in June 2001. It was not
until June 2001 that the Company focused on the integration and marketing of
complete mobile information solutions that satisfy the needs of mobile
professionals. The Company acquired NeoReach, another development stage company,
in April 2002. While management believes that this acquisition represents the
Company's important entry into the exciting and promising 3G wireless
communications market, the Company only very recently redirected its focus
towards solutions supporting the 3G wireless market. We have a limited operating
history upon which to evaluate our business plan and prospects. In addition, our
business prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by companies in their early stage of
development. We cannot be sure that we will be successful in addressing these
issues, and, if we are unsuccessful at doing so, our business, results of
operations and financial condition could be materially and adversely affected.
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 3G 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.
OUR INDUSTRY IS SUBJECT TO INTENSE COMPETITION.
We currently face significant competition in the telecommunications industry,
and expect that this competition will continue, particularly with respect to the
market within the telecommunications industry for wireless modem technology. Our
competitors include Qualcomm, Nokia, Ericsson, Siemens, Motorola, Samsung and
PrairieComm among others. Many of these competitors have advantages, including:
- existing rights to competing and emerging technologies;
- longer operating histories and presence in key markets;
- greater name recognition; and
- greater financial, sales and marketing, manufacturing, distribution,
technical and other resources.
As a result of these factors, these companies may be more successful than we are
in the telecommunications industry and the wireless modem technology market.
IF WE ARE NOT ABLE TO COMPETE EFFECTIVELY IN THE HIGHLY COMPETITIVE WIRELESS
COMMUNICATIONS INDUSTRY, OUR FUTURE GROWTH AND OPERATING RESULTS WILL SUFFER.
Our ability to compete effectively with our competitors depends on the following
factors, among others:
- the performance of our modem technology in a manner that meets
customer expectations;
- the success of our efforts to develop effective channels of
distribution for our products;
- 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;
- general conditions in the wireless communications industry;
-23-
- the success of our efforts to develop, improve and satisfactorily
address any issues relating to our modem technology; and
- the timely delivery and successful implementation of new technologies
deployed in connection with any 3G services offered by the national and
international wireless communications service providers.
OUR INDUSTRY IS SUBJECT TO RAPID TECHNOLOGICAL CHANGE THAT WE MUST KEEP PACE
WITH TO SUCCESSFULLY COMPETE.
New technological innovations generally require a substantial investment before
they are commercially viable. The market for our products and technology is
characterized by many factors, including:
- rapid technological advances and evolving industry standards;
- changes in customer requirements; o frequent introductions of new
products and enhancements; and
- evolving methods of building and operating telecommunications
systems.
Our failure to keep pace with these rapid technological changes could adversely
affect our business and results of operations.
OUR PATENT APPLICATIONS MAY BE REJECTED, WHICH MAY ADVERSELY AFFECT OUR
BUSINESS.
We will rely on the patents that may be granted as a result of certain patent
applications that have been filed with respect to our wireless modem technology,
as well as copyrights, trademark and trade secret law, to protect our
proprietary information. The rejection of our patent applications would
adversely affect our business, because we would be unable to protect or enforce
our intellectual property rights with respect to such technology and may result
in claims by third parties that we infringe their intellectual property rights.
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.
WE WILL REQUIRE SIGNIFICANT ADDITIONAL CAPITAL IN THE FUTURE, WHICH WE MAY NOT
BE ABLE TO OBTAIN.
Part of our business strategy is to raise additional capital to finance our
operations. We cannot be sure that we will be successful in raising this
additional capital or that the net proceeds from such financing will be
sufficient to meet our funding demands. 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 pressures, any of which could have a material adverse
effect on our business, results of operations and financial condition and the
value of your investment.
In addition, the Company received a letter from the SEC dated April 26, 2002 in
which the SEC raised certain comments and questions regarding certain of the
Company's prior public filings with the SEC. Many of the issues addressed in the
SEC's letter relate to the Company's prior business operations and strategy as
well as the failure to comply with certain technical requirements relating to
the Company's SEC filings. While the Company has responded to the SEC letter,
the ability of the Company to raise funds through offerings that require
registration with the SEC could be delayed. In addition, the Company could be
subject to further action from the SEC and/or investors who may have relied on
such filings.
MANAGEMENT OF THE COMPANY CONTROLS 70.3% OF OUR COMMON STOCK ON A FULLY DILUTED
BASIS, AND THEY WILL HAVE THE ABILITY TO CONTROL MATTERS REQUIRING STOCKHOLDER
APPROVAL.
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
-24-
business combination involving the Company or discouraging a potential acquirer
from attempting to obtain control of the Company, which in turn could have an
adverse effect on your investment.
SHAREHOLDERS MAY HAVE DIFFICULTY SELLING THEIR SHARES IN THE SECONDARY MARKET
GIVEN THE NATURE OF THE BULLETIN BOARD AND RULES RELATING TO LOW-PRICE STOCKS,
OR THE "PENNY STOCK" RULES.
The Common Stock is quoted on the Bulletin Board. Shares traded on this system
are often characterized by low trading volumes and volatile prices. As a result,
investors may find it more difficult to dispose of or to obtain accurate
quotations of the Common Stock. In addition, quotations on the Bulletin Board
depend on the willingness of broker-dealers to make a market for the stock.
There can be no assurance that the Common Stock will continue to be quoted on
the Bulletin Board or that there will continue to be a market for such stock.
Further, the SEC has adopted regulations which define a "penny stock" to be any
equity security that has a market price of less than $5.00 per share, subject to
certain exceptions. The Common Stock presently is a "penny stock" and,
accordingly, is subject to rules that impose additional sales practice
requirements on broker/dealers who sell such securities to persons other than
established customers and accredited investors. There can be no assurance that
the Common Stock will trade for $5.00 or more per share, or if so, when.
Consequently, the "penny stock" rules may restrict the ability of broker/dealers
to sell the Common Stock and may affect the ability of the purchasers of any
future offering by the Company to sell the Common Stock in a secondary market.
WE HAVE NOT PAID DIVIDENDS ON OUR COMMON STOCK TO DATE.
We have not paid to date and do not expect to pay in the foreseeable future any
cash or stock dividends on our Common Stock.
THE COMPANY'S FINANCIAL PROJECTIONS CANNOT BE ASSURED.
The projections of the future business prospect of the Company were prepared by
the Company in good faith based upon the assumptions that the Company believes
to be reasonable. No assurance can be given, however, regarding the
attainability of the projections or the reliability of the assumptions on which
they were based. The projections are subject to the uncertainties inherent in
any attempt to predict the results of operations for the next two years. Certain
of the assumptions used will inevitably not materialize and unanticipated events
will occur. Therefore, the actual results of operations are likely to vary from
the projections and the variations may be material and adverse.
The projections are to give management information concerning the Company's
estimates of future operating results based on the assumptions and no assurance
can be made that such results will be achieved. The financial projections have
not been prepared, reviewed or compiled by any firm of accountants. The
projections of the Company were not prepared with a view to public disclosure or
compliance with published guidelines of the Securities and Exchange Commission
or any state securities commission, or the guidelines established by the
American Institute of Certified Public Accountants and should not be considered
as a forecast of actual earnings.
THE BUSINESS PLAN CONTAINS ASSUMPTIONS THAT MAY PROVE TO BE INCORRECT OR MAY NOT
BE ADHERED TO BY MANAGEMENT.
The Company's Business Plan is based upon numerous assumptions that may later
prove to be incorrect. The Company's ability to adhere to the Business Plan will
depend upon factors that the Company believes are beyond its control. Likewise,
management is not bound to follow the Business Plan and may elect to adopt other
strategies based upon changes in circumstances.
The risks identified here are not all inclusive. New risk factors emerge from
time to time and it is not possible for management to predict all of such risk
factors, nor can it assess the impact of all such risk factors on the Company's
business or the extent to which any factor or combination of factors may cause
actual results to differ materially from those contained in any forward-looking
statements. Accordingly, forward-looking statements should not be relied upon as
a prediction of actual results.
-25-
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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
-26-
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
PAGE(S)
-------
AUDITED FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants 28
Balance Sheet as of March 31, 2002 29
Statements of Operations for the year ended
March 31, 2002 and for the period July 14, 2000
(Inception) through March 31, 2001 with Cumulative
Totals Since Inception 30
Statements of Changes in 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. 31
Statements of Cash Flows for the year ended
March 31, 2002 and the period July 14, 2000 (Inception)
through March 31, 2001 with Cumulative Totals Since
Inception 33
Notes to Financial Statements 34
-27-
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
-28-
MOBILEPRO CORP
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
MARCH 31, 2002
ASSETS
CURRENT ASSET
Cash $ 154
-----------
TOTAL ASSET $ 154
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
LIABILITIES
Due to officer $ 44,262
Short-term debt 75,000
Accounts payable and accrued expenses 187,663
-----------
TOTAL LIABILITIES 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)
-----------
TOTAL STOCKHOLDERS' DEFICIT (306,771)
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 154
===========
The accompanying notes are an integral part of these financial statements.
-29-
MOBILEPRO CORP
(FORMERLY CRAFTCLICK.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 (EXPENSES)
Interest income 56 -- 56
Forgiveness of debt 276,738 -- 276,738
Other expense (27,608) -- (27,608)
Interest expense (469) -- (469)
----------- ----------- -----------
--
TOTAL OTHER INCOME (EXPENSES) 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.
-30-
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.
-31-
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'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT DEFICIT
----------- ----------- ----------- ----------- ----------- ----------- -----------
MOBILEPRO CORP ACTIVITY:
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.
-32-
MOBILEPRO CORP
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS 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 FLOWS 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 IN CASH 87 67 154
CASH BALANCE - BEGINNING OF YEAR (PERIOD) 67 -- --
----------- ----------- -----------
CASH BALANCE - END OF YEAR $ 154 $ 67 $ 154
=========== =========== ===========
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.
-33-
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 e
significant accounting policies:
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
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.
34
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.
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.
35
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.
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 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.
36
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 6% 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 five
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 other three are still under way.
37
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.
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.
38
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Effective June 6, 2002, the Board of Directors of Mobilepro Corp. (the
"Company") dismissed its independent auditors, Mantyla, McReynolds & Associates
("Mantyla"), and engaged the services of Bagell, Josephs & Company, L.L.C.
("Bagell"), as its new independent auditors. Bagell will audit the Company's
financial statements for the fiscal year ended March 31, 2002.
During the two most recent fiscal years of the Company ended March 31, 2001, and
the subsequent interim period through June 6, 2002, there were no disagreements
between the Company and Mantyla on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to Mantyla's satisfaction, would have caused
Mantyla to make reference to the subject matter of the disagreements in
connection with its reports; and there were no reportable events described under
Item 304(a)(1)(v) of Regulation S-K.
The audit reports of Mantyla on the Company's financial statements as of and for
the fiscal years ended March 31, 2000 and 2001 did not contain any adverse
opinion or disclaimer of opinion, nor were they qualified or modified as to
uncertainty, audit scope or accounting principles, other than a fourth
explanatory paragraph describing going concern contingencies.
During the two most recent fiscal years of the Company ended March 31, 2001, and
the subsequent interim period through June 6, 2002, the Company did not consult
with Bagell regarding any of the matters or events set forth in Item
304(a)(2)(i) and (ii) of Regulation S-K.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
Certain information about the directors and executive officers of the Company as
of March 31, 2002 is included below.
Director or
Name Age Position Officer Since Term Expires
---- --- -------- ------------- ------------
Scott R. Smith 42 Director June 1, 2001 2002
Arne Dunhem 52 Treasurer and Director February 19, 2002 2003
Daniel Lozinsky 41 President and CEO and Chairman February 19, 2002 2003
Kyung (Ken) Min 46 Senior Vice-President of NeoReach, February, 2000 2003
Inc.
The following describes the business background and the experience of each of
the directors and executive officers of the Company:
Mr. Daniel Lozinsky, the President and CEO and Chairman of the Company, was
appointed a Director of the Company in February 2002. Daniel Lozinsky has 17
years of management and software development experience with small and large
multinational corporations. Mr. Lozinsky was between March 2001 and October 2001
President and CEO of VCmed Inc. a scientific medical start-up company that was
attempting to bring to the market Cancer Research technology developed at MIT
and Harvard, which allowed for early detection not otherwise available. Mr.
Lozinsky was between February 1999 and February 2001working as a business
advisor to include public relations firms for international business. Prior to
that Mr. Lozinsky was between April 1995 and January 1999 senior
-39-
software engineer of AOL, Host Systems internet department, that allowed to meet
AOL's growing Internet demands during the highest AOL's growth period between 96
and 99, when the company grew from 4 million to 21 million users. He was working
for AOL's MIS (BISY) department between 4/95 - 6/96. Prior to that Mr. Lozinsky
was employed as a senior software engineer at Eastman Kodak Corporation in
Rochester NY between 9/89 - 4/95. He was an internal software consultant to
multiple Kodak's lines of business. Mr. Lozinsky worked on Kodak PhotoCD system
that is widely available now and allows scanning film into digital format and
printing to paper or CD. He specifically worked for CD writer devices and
testing firmware software components that he developed for the system. During
those years he worked for Kodak's Mass Memory Division that manufactured and
sold optical drives and jukeboxes to commercial companies and government
offices. Working as a designer and developer of software and, occasionally as a
support engineer, he participated in winning for Kodak and delivering large
government contracts to include ADMAPS to US NAVY Printing and Publishing.
During that project Mr. Lozinsky worked both in Rochester and at the Navy
Technology Pilot Lab at Port Hueneme, Ca. Prior to that, between 8/87 - 9/88,
Mr. Lozinsky worked as a programmer analyst for PaineWebber Strategic Technology
Department, on the PaineWebber Backup System to the Maine Network at the
Weehaken Center in NJ. Prior to that, during 8/85 - 5/87, Mr. Lozinsky worked as
a programmer and systems analyst for Merrill Lynch, Real Time Pricing Group that
delivers NYSE financial data to different departments of Merrill Lynch. Mr.
Lozinsky holds MS/CS from Stevens Institute of Technology in Hoboken NJ, 1/89.
He also holds BS/CS from Polytechnic Institute of NY, 1/84.
Mr. Arne Dunhem was appointed a Director and Treasurer of the Company in
February 2002. Mr. Dunhem has over twenty-eight years general management and
engineering experience with large complex multinational corporations, large
international organizations as well as early stage technology companies. He has
been instrumental in arranging more than $300 million in investor and vendor
financing commitments and is knowledgeable in all aspects of business,
management, information systems, network operations and engineering. Between
July 2001 and January 2002 Mr. Dunhem was working as a strategic business
consultant and was in January 2002 hired by Neoreach, Inc. as its President &
CEO. Mr. Dunhem was between November 1998 and June 2001 the President & CEO of
erbia, Inc. a long-distance communications company where he took the company
from its start-up phase through the sale of the operation to another company. He
was working between January 1998 and October 1998 as a strategic business
consultant. Prior to this he was between 1993 and September 1997 the Chairman of
Tele8 Kontakt AB, a Swedish nationwide start-up wireless operator and also
between 1993 and December 1997 the Chairman of Nordiska Tele8 AB of Sweden, a
long distance and local telephone service company. Here again, he took the
company from its start-up phase through full operation and eventually the sale
of the companies. Mr. Dunhem was between September 1989 and April 1990 the
Executive Vice President, Engineering & Operations of Comvik Skyport AB, a
Swedish telecommunications company providing satellite and data communications
services. During the period September 1978 and June 1989 Mr. Dunhem was with
INTELSAT, Washington, D.C., an international satellite communications
organization in a capacity growing from staff engineer to program manager where
he had responsibilities for building-up some of the world's largest command,
control and monitoring networks. He has also been with the Saab-Scania
corporation and the Swedish Telecom. He has lived in the Washington, D. C. area
since 1978.
Mr. Scott R. Smith, a Director of the Company since June 1, 2001, has 20 years
experience in the high technology sector, product development, sales, business
development and engineering. Mr. Smith has since its founding in October 1997
been with the original Mobilepro Corp. and brings to this company extensive
business, sales and technology experience. Mr. Smith was between February 2001
and June 2001 the acting Chief Technology Officer for Agate Technologies, Inc.
From 1992 through 1999, he founded two technology product development companies
named Parametric Design Associates, Inc. and Level IV Technology, Ltd. providing
product development, prototyping, tooling, project management and process
consulting services to major technology companies.. From 1989 to 1992 he was
Regional Director of Sales and Technology for Rand Worldwide and was primarily
responsible for developing a midwest presence for the company by establishing
anchor accounts and building a sales and technical support team. Prior to that
Mr. Smith worked for several major technology companies, including Motorola
Automotive, Parametric Technology Corp., Intergraph Corp. and Allen-Bradley Co.
On Feb. 26, 2002, Mr. Scott R. Smith, a director of the Company since June 1,
2001 and a director as of March 31, 2002, filed a petition for personal
bankruptcy in the U.S. Bankruptcy Court for the Northern District of Illinois,
Western Division.
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Mr. 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, Ken has specialized in the areas of business
development, marketing, systems integration and engineering. Ken has had
extensive experience in designing and marketing emerging technologies including
GSM, CDMA, PCS, W-CDMA, Pico cells, and satellite communications. During his
eleven years between May 1981 and June 1992 with Motorola, the Senior Product
Manager of the Cellular Business Marketing and Sales unit developed wireless
devices, including base stations, and formed strategic alliances to ensure
product market entry on-time and within budget. Min spent more than three years
between July 1992 and December 1995 as the General Manager for
Telecommunications R&D at Samsung Electronics, heading the development of IS-95
CDMA, followed between January 1996 and June 1998 by a successful directorship
of the PCS unit at Hyundai Electronics where Min managed two hundred engineers
and technical marketing staff. Min represented Samsung and Hyundai in the CDMA
Development Group (CDG) steering committee from 1994-1998. Min served between
October 1998 and February 2000 with Hughes Network Systems as the Technical
Director for mobile satellite projects with responsibilities for project
management and system integration. As the founder in February 2000 of NeoReach,
Min now serves in a capacity where he can most effectively capitalize on his
experience in engineering and business development. Min earned his Master of
Engineering at the Institution of Illinois Technology and holds a bachelor's
degree in Computer Science from the University of Illinois.
Our Board of Directors, as of March 31, 2002, consisted of Messrs. Lozinsky,
Dunhem and Smith listed above.
Subsequent to the period covered under this report, Mr. Smith, on April 1, 2002,
resigned from the Board of Directors of the Company. His position has currently
not been filled on the Board.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than 10% of the
Company's common stock, to file with the Securities and Exchange Commission
("SEC") the initial reports of ownership and reports of changes in ownership of
the common stock. Officers, directors and greater than 10% stockholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file. The Company has received Form 4, Statement of Changes of
Beneficial Ownership of Securities from Messrs. Daniel Lozinsky (one group of
transactions), Arne Dunhem (one group of transactions) and Scott Smith (three
transactions); each of whom had failed to file such form on a timely basis.
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ITEM 10. EXECUTIVE COMPENSATION
The following table reflects compensation paid to our mostly highly compensated
executive officers and directors for the year ended March 31, 2002.
Long Term Compensation
Awards
--------------------------------
Annual Compensation Restricted Securities Payouts
--------------------------------------
For Fiscal Stock Underlying LTIP All Other
Year Ended Salary Bonus Other Awards Options Payouts Compensation
Name And Principal Position March 31, ($) ($) ($) ($) SARS (#) ($) ($) (1)
--------------------------- ---------- --------- ------- ------ ---------- ---------- -------- ------------
--------------------------- ---------- --------- ------- ------ ---------- ---------- -------- ------------
Daniel Lozinsky 2002 $ 0 $ 0 $ 0 $ 0 0 0 $ 140,250
CEO/Chairman 2001 $ 0 $ 0 $ 0 $ 0 0 0 $ 0
2000 $ 0 $ 0 $ 0 $ 0 0 0 $ 0
Arne Dunhem 2002 $ 0 $ 0 $ 0 $ 0 0 0 $ 195,250
Director 2001 $ 0 $ 0 $ 0 $ 0 0 0 $ 0
2000 $ 0 $ 0 $ 0 $ 0 0 0 $ 0
Scott Smith 2002 $ 53,652 $ 0 $ 0 $ 0 0 0 $ 80,000
Director & former CEO 2001(2) $ 218,750 $ 0 $ 0 $ 0 0 0 $ 0
2000 $ 0 $ 0 $ 0 $ 0 0 0 $ 0
Ken Min (3) 2002 $ 0 $ 0 $ 0 $ 0 0 0 $ 0
2001 $ 0 $ 0 $ 0 $ 0 0 0 $ 0
Executive Officer (NeoReach) 2000 $ 0 $ 0 $ 0 $ 0 0 0 $ 0
Notes:
(1) All of the amounts listed in this column paid paid to directors and
officiers in the form of stock. The amounts listed are the fair market
value of the stock on the date of the grant.
(2) The compensation for the period ended 3/31/2001 was earned while Mr.
Smith was an employee of MobilePro Corp, a private company, prior to
its reverse merger dated June 6, 2002. This amount was accrued and Mr.
Smith took no cash payments for salary while at MobilePro Corp, a
private company. On February of 2002 in connection with the Stock
Purchase Agreement with Mr. Daniel Lozinsky and Dungavel, Inc., and in
connection with another Stock Purchase Agreement with Mr. Daniel
Lozinsky, Ms. Joann Smith and Mr. Scott Smith, Mr. Smith forgave the
payment of this accrued amount. Part of the compensation Mr. Smith
received for his forgiveness of the accrued salary was 25,000 shares of
the Company's common stock, valued on the date of issuance at $26,250.
This amount is included in the All Other Compensation column of this
table. As of 3/31/2002, the Company does not owe Mr. Smith any accrued
salary amount.
(3) Ken Min is an Executive Officer of the wholly owned subsidiary
NeoReach, Inc. upon the merger that was consummated on April 23, 2002.
No other person makes over $100,000 per year.
COMPENSATION OF DIRECTORS
We do not currently compensate directors in cash for any services provided as a
director. Persons who are directors and employees have been additionally
compensated for their services as a director in the form of common stock of the
Company. There is no formal plan in place for compensation of persons who are
directors who are not employees of the Company, but it is expected that in the
future we will create a formal remuneration and reimbursement plan.
OTHER COMPENSATION ARRANGEMENTS
On December 4, 2001, we registered 1,000,000 shares of our common stock in an
S-8 filing with the Securities and Exchange Commission as part of the 2001
Equity Performance Plan. In March 2002, we issued 355,000 shares of the
Company's common stock to Mr. Arne Dunhem, 255,000 shares of the Company's
common stock to Mr. Daniel Lozinsky, and 25,000 shares of the Company's common
stock to Mr. Scott Smith for compensation as officers and directors. In June
2001, we issued 250,000 to Mr. Scott Smith and 50,000 to Mr. Howard Geisler, Mr.
Mitchell Geisler, and Ms. Cindy Roach for compensation as officers and directors
(See "RECENT SALES OF SECURITIES").
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ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of July 11, 2002, the name and shareholdings,
including options to acquire our Common Stock, of each person who owns of
record, or was known by the us to own beneficially, 5% or more of the shares of
the Common Stock currently issued and outstanding; the name and shareholdings,
including options to acquire the Common Stock, of each director; and the
shareholdings of all executive officers and directors as a group. The address of
each of the individuals listed below is the address of the Company.
Beneficial
Ownership (1)
-------------
Common Series A
Common Stock Preferred Percent of
Name and Address Stock Options (2) Stock (3) Total (4) Ownership(5)
---------------- ----- ----------- --------- --------- ------------
Daniel Lozinsky (6)
3204 Tower Oaks Blvd. #350
Rockville, MD 20852 6,618,694 -- -- 6,618,694 36.77%
Arne Dunhem (7)
3204 Tower Oaks Blvd. #350
Rockville, MD 20852 2,601,244 210,519 -- 2,811,763 15.44%
Ken Min (8)
3204 Tower Oaks Blvd. #350
Rockville, MD 20852 2,833,156 -- -- 2,833,156 15.74%
Scott Smith (9)
1240 Alexandra Blvd
Chrystal Lake, IL 60014 533,455 -- -- 533,455 2.96%
Cornell Capital
Partners (10)
101 Hudson Street, Ste 3606
Jersey City, NJ 07302 764,706 -- -- 764,706 4.25%
Dungavel, Inc. (11)
c/o Valdy Administration,
British Colonial Center of
Commerce, One Bay Street,
3rd Floor, P.O. Box N-7115,
Nassau, Bahamas 333,552 -- -- 333,552 1.85%
All Others (12) 4,317,128 2,996,887 35,378 7,314,192 36.32%
All executive officers and
directors as a group
(4 persons) (13) 12,586,549 210,519 -- 12,797,068 70.27%
Total 18,001,935 3,207,406 35,378 21,209,518 100.00%
(1) Unless otherwise indicated, the Company believes that all persons named in
the table have sole voting and investment power with respect to all shares
of Common Stock beneficially owned by them. A person is considered to be
the beneficial owner of securities that can be acquired by that person
within 60 days of July 11, 2002 upon the exercise of warrants or option or
the conversion of convertible securities.
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(2) Options to purchase shares of Common Stock that are presently or will
become exercisable within 60 days.
(3) Each share of Series A Preferred Stock is convertible without additional
consideration into one two-hundredth of a share of Common Stock, subject to
adjustment for stock splits, stock dividends and other recapitalizations
and reorganizations. As of July 11, 2002, the 35,378 shares of Series A
preferred stock is currently convertible into 177 shares of Common Stock,
subject to the issuance of additional fractional shares for rounding
purposes. The holders of the Series A Preferred Stock and Common Stock vote
together as a single class on all matters presented for the vote of the
Company's stockholders. Each preferred stockholder may cast a number of
votes equal to the number of shares of Common Stock issuable upon
conversion of his or her preferred stock.
(4) Assumes that the beneficial owners' shares of Series A Preferred Stock have
been converted into Common Stock, and warrants to purchase shares of Common
Stock have been exercised.
(5) Each beneficial owner's percent ownership is determined by assuming that
options or warrants that are held by that person (but not those held by any
other person) and which are exercisable within 60 days have been exercised
and that shares of Series A Preferred Stock that are held by that person
(but not those held by any other person) have been converted into Common
Stock.
(6) Includes shares owned by Mr. Daniel Lozinsky. Mr. Lozinsky is currently a
Director of the Company. His address is c/o MobilePro Corp. 3204 Tower Oaks
Blvd. Suite 350, Rockville, MD 20852.
(7) Includes, owned by Mr. Arne Dunhem, the following: 2,601,244 shares,
210,519 options vested and excercisable within 60 days, and 210,518
non-vested options. Mr. Dunhem is currently a Director of the Company. His
address is c/o MobilePro Corp. 3204 Tower Oaks Blvd. Suite 350, Rockville,
MD 20852.
(8) Includes 2,833,152 shares owned by Mr. Ken Min. Mr. Min is currently an
executive officer of the Company. His address is c/o MobilePro Corp. 3204
Tower Oaks Blvd. Suite 350, Rockville, MD 20852.
(9) Includes the following shares owned by Mr. Scott Smith and Mrs. Joann
Smith: (i) 33,455 shares of Common Stock owned directly by Scott Smith;
(ii) 500,000 shares of Common Stock owned directly by Joann Smith. Mr.
Scott was the President, Chief Executive Officer and Chairman of the Board
of Directors of the Company and, as of July 11, 2002, is currently a
Executive Vice President of the Company. Joann Smith is the wife of Scott
Smith. Their address is 1240 Alexandra Blvd., Crystal Lake, IL 60014.
(10) Cornell Capital Partners, LLP is a New Jersey-based domestic investment
fund. They use a variety of funding techniques, including both convertible
instruments and equity lines of credit (also known as Private Investments
in Public Equities or PIPEs) in making direct investments in small-
to-midsized publicly traded companies in emerging markets. Mark A. Angelo
is its President. Their address is 101 Hudson St. Suite 3606, Jersey City,
NJ 07302. All investment decisions of Cornell Capital Partners are made by
its general partner, Yorkville Advisors, LLC. Mark A. Angelo, the managing
member of Yorkville Advisors, LLC, makes the investment decisions as a
control person on behalf of Yorkville Advisors.
(11) The Company believes that Rob Landau is the control person of Dungavel,
Inc. based on the Company's and the Company's representatives' interaction
with Landau and Dungavel. Dungavel is a Bahamian company whose address is
Dungavel Inc., c/o Valdy Administration, British Colonial Center of
Commerce, One Bay Street, 3rd Floor, P.O. Box N-7115, Nassau, Bahamas.
Their telephone is 242-326-3248. Boris Stein is the Authorized Signer.
(12) As of July 11, 2002, the common stock options column in this row includes
1) options to employees convertible into 2,302,443 shares of the Company's
common stock, and 2) options to convert a $250,000 note payable into the
Company's common shares based on a price of 120% of the closing bid price
as quoted on the Nasdaq Bulletin Board System. As of July 11, 2002, the
note can be converted into 694,444 shares of the company's common stock.
(13) As of July 11, 2002, executive officers and directors include Daniel
Lozinsky, Arne Dunhem, Ken Min, and Scott Smith.
There are currently 2,723,480 outstanding options to purchase shares of our
stock, of which 2,512,962 are currently vested and excercisable within 60 days.
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ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the period ended March 31, 2000, Mr. Peter Yollin, a shareholder and
officer, the Chairman & CEO of the Company, received advances of $13,000. These
secured advances were eliminated as part of winding up the website business.
Mr. Howard Geisler, a former secretary and director of the Company, during the
period January 2001 through May 2001 provided our office space on a gratis
basis.
The Company sold its investment of 450,706 shares of Popmail.com to meet its
financial obligations in the quarter ended September 30, 2000. The shares were
"Restricted" under Rule 144. The stock was sold to Stephen C.Wolfe, being an
investor and creditor, a related party at the time of the sale, for $74,650. The
loss of $425,350 was charged to the Income Statement during the period ended
September 30, 2000. $225,353 of the loss was due to market value decline during
the holding period. The market value of the stock at the date of sale was
$366,156.
In connection with the merger effective June 1, 2001, between MobilePro and
Craftclick, a significant shareholder, Dungavel, Inc. was issued 250,000 shares
of the Company's common stock. Also in connection with the merger, ZDG
Investments Ltd., a Toronto investment company, was issued 1,475,000 shares of
the Company's common stock. The stock was given for services rendered with
regard to the merger. The Company believes that Rob Landau is the control person
of Dungavel, Inc. Mr. Landau is also the president of ZDG Investments Ltd. The
fair market value of the shares given to Dungavel and ZDG were expensed in the
amounts of $40,000 and $236,000, respectively.
Also in connection with the merger effective June 1, 2001, between MobilePro and
Craftclick, a significant shareholder, Dungavel, Inc. converted a $50,000 note
payable plus accrued interest into 3,000,000 shares of common stock of the
Company. The note payable was originally issued by MobilePro prior to the merger
into the public entity. The fair market value of the issued stock was $480,000.
The difference between the face value of the note and its accrued interest was
expensed in the period.
In February of 2002, Mr. Daniel Lozinsky, the President of the Company loaned
the Company a net amount of $44,262 to pay certain creditors at 6% interest due
on demand. The officer has waived interest until April 2002.
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INVESTORS RIGHTS AGREEMENT
On June 6, 2001, CraftClick.Com, Inc. a Delaware corporation ("CraftClick"), and
Mobilepro Corp., a Delaware corporation ("Mobilepro"), entered into an Agreement
and Plan of Merger dated as of June 1, 2001 ("Merger Agreement"). Under the
Merger Agreement Mobilepro merged with and into CraftClick, with CraftClick
being the surviving corporation and the certificate of incorporation and bylaws
of CraftClick being the constituent documents of the surviving corporation
("Merger").
In connection with the Merger, Mr. Scott R. Smith was appointed as a director
of CraftClick by the existing board of directors. After the appointment, Mr.
Mitchell Geisler and Ms. Cindy Roach, two of the then current directors of
CraftClick, Inc. resigned. Mr. Smith was appointed the President and Chief
Executive Officer and Chairman and Mr. Howard Geisler was appointed the
secretary of CraftClick.
In connection with the Merger, CraftClick issued to Ms. Joann M. Smith an
aggregate of 8,227,663 shares of common stock representing approximately 55%
of the 14,907,196 issued and outstanding shares of common stock of CraftClick
immediately after the Merger. Ms. Smith is the wife of Mr. Scott R. Smith,
the President, Chief Executive Officer and Chairman of CraftClick after the
Merger. Ms. Smith will be the single largest stockholder of CraftClick after
the Merger.
To obtain the support for the Merger and the Merger Agreement from the largest
stockholder of CraftClick prior to the Merger, CraftClick entered into an
Investor Rights Agreement ("Investor Rights Agreement") with Dungavel, Inc.
simultaneously with the Merger Agreement. The Investor Rights Agreement provides
a number of rights to Dungavel, including:
- The right to have a person of its selection as a director of the
company, who currently is Mr. Howard Geisler, and a limit of three
persons as the size of the board of directors;
- Limitations on the issuances of securities of the company representing
more than 2.5% of the outstanding common stock in any transaction in a
three month period at less than the greater of the market price or
$1.00 per share for cash or for no cash consideration;
- Limitations on the creation of any class of securities that has the
right to elect any directors, to receive any dividends or to have the
securities registered for public resale, unless approved by Dungavel;
- Limitations on the ability of the company to merge, combine or
consolidate with another entity, repurchase any common stock of the
company, recapitalize the common stock to reduce the number of shares
outstanding, or declare a stock split or stock dividend without the
consent of Dungavel; or if no consent is given by Dungavel and the
company proceeds with the transaction, then the company must issue
3,000,000 post-transaction shares of common stock (or their
equivalent) to Dungavel; and
- The right to request information about the company in addition to
publicly disclosed information.
Although the above rights are granted to Dungavel and may be exercised within
its sole discretion, Dungavel believes that these above rights will benefit all
stockholders. The above rights last for five years after the Merger or, in some
instances, only so long as Dungavel owns at least 2.5% of the issued and
outstanding common stock or the right to acquire 2.5% of the issued and
outstanding common stock
In addition, the Investor Rights Agreement provides for registration rights for
common stock owned by Dungavel, and the right of first refusal and tag along
rights in the event Mr. Smith or his wife sell any of their shares of common
stock in a private transaction. Mr. and Ms. Smith have agreed that they will
also vote any shares of common stock, over which they have voting control, in
favor of the person Dungavel selects as its director nominee.
On November 19, 2001, the Company implemented a 200 for 1 reverse stock split,
which resulted in 84,492 shares outstanding. Concurrent with the reverse stock
split and as required pursuant to the Investor Rights Agreement, the Company
issued 3,000,000 new shares of common stock to Dungavel, Inc., an investor in
the Company.
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On February 19, 2002, the Company entered into a Stock Purchase Agreement
with Mr. Daniel Lozinsky and Dungavel, Inc., and another Stock Purchase
Agreement with Mr. Daniel Lozinsky, Ms. Joann Smith and Mr. Scott Smith.
Dungavel, Inc., Ms. Joann Smith and Mr. Scott Smith were all significant
stockholders of the Company at the time. Pursuant to these two stock purchase
agreements, this Investors Rights Agreement was terminated.
NEOREACH PURCHASE AGREEMENT
On February 19, 2002, the Company entered into a Stock Purchase Agreement
with Mr. Daniel Lozinsky and Dungavel, Inc., and another Stock Purchase
Agreement with Mr. Daniel Lozinsky, Ms. Joann Smith and Mr. Scott Smith.
Dungavel, Inc., Ms. Joann Smith and Mr. Scott Smith were all significant
stockholders of the Company at the time. Pursuant to these two stock purchase
agreements, Mr. Lozinsky became the majority shareholder of MobilePro.
Subsequent to but in connection with the Stock Purchase Agreements, on March 21,
2002, Neoreach, Inc., a Delaware company and Mobilepro entered into an Agreement
and Plan of Merger pursuant to which a newly formed, wholly-owned subsidiary of
Mobilepro would merge into Neoreach, in a tax-free one-for-one stock exchange
transaction. The merger was consummated on April 23, 2002. Mr Daniel Lozinsky
and Mr. Arne Dunhem, both members of the Company's Board of Directors, were both
significant shareholders and members of the Board of Directors of Neoreach,
Inc., holding approximately 32.5% and 18.5% of Neoreach's common stock,
respectively.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
2.1 Articles of Merger of CraftClick.com, Inc. (a Utah corporation) and
CraftClick.com, Inc. (a Delaware corporation) (incorporated by
reference to the Company's Form S-8 Registration Statement as filed
with the Securities and Exchange Commission on May 11, 2001 (File
No. 333-60726)
2.2 Plan of Merger of CraftClick.com, Inc. (a Utah corporation) with and
into CraftClick.com, Inc. (a Delaware corporation) (incorporated by
reference to the Company's Form S-8 Registration Statement as filed
with the Securities and Exchange Commission on May 11, 2001 (File No.
333-60726)
3.1 Certificate of Incorporation of CraftClick.com, Inc. (a Delaware
corporation) (incorporated by reference to the Company's Form S-8
Registration Statement as filed with the Securities and Exchange
Commission on May 11, 2001 (File No. 333-60726)
3.2 By-Laws of CraftClick.com, Inc. (a Delaware corporation) (incorporated
by reference to the Company's Form S-8 Registration Statement as filed
with the Securities and Exchange Commission on May 11, 2001 (File No.
333-60726)
3.3 Certificate of Amendment of Certificate of Incorporation of Mobilepro
Corp (a Delaware corporation) (incorporated by reference to the
Company's Form S-8 Registration Statement as filed with the Securities
and Exchange Commission on December 4, 2001 (File No.
333-74492)
4.1 2001 Performance Equity Plan (incorporated by reference to the
Company's Form S-8 Registration Statement as filed with the Securities
and Exchange Commission on May 11, 2001 (File No.
333-60726)
4.2 2001 Equity Performance Plan (incorporated by reference to the
Company's Form S-8 Registration Statement as filed with the Securities
and Exchange Commission on December 4, 2001 (File No.
333-74492)
10.1 Agreement and Plan of Merger dated as of June 1, 2001, between
CraftClick.Com, Inc. a Delaware corporation, and Mobilepro Corp., a
Delaware corporation, (incorporated by reference to the
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Company's Form 8-K Current Report as filed with the Securities and
Exchange Commission on June 20, 2001 (File No. 002-97869-D)
10.2 Stock Purchase Agreement dated February 19, 2002 with Mr. Daniel
Lozinsky and Dungavel, Inc., and another Stock Purchase Agreement dated
February 19, 2002 with Mr. Daniel Lozinsky, Ms. Joann Smith and Mr.
Scott Smith. Dungavel, Inc. (incorporated by reference to the Company's
Form 8-K Current Report as filed with the Securities and Exchange
Commission on March 6, 2002 (File No. 002-97869-D)
10.3 Agreement and Plan of Merger dated March 21, 2002, consummated April
23, 2002, between Neoreach, Inc., a Delaware company and Mobilepro.
(incorporated by reference to the Company's Form 8-K Current Report as
filed with the Securities and Exchange Commission on April 5, 2002
(File No. 002-97869-D)
10.4 Confidentiality and Non-disclosure Agreement dated April 9, 2002
between NeoReach, Inc. a Delaware corporation and Prime Circuits,
Inc.
23. Consent letter from Bagell, Josephs & Company, L.L.C. CPA, dated
October 4, 2002
b) Reports on Form 8-K
During the fourth quarter of the fiscal year ended March 31, 2001 we filed the
following reports on Form 8-K with the Securities and Exchange Commission:
The Company filed a Current Report on Form 8-K dated February 23, 2001 with the
Securities and Exchange Commission on March 7, 2001. The Current Report was
regarding that the Company sold substantially all of its assets to a group of
California entrepreneurs (the "Group") in exchange for the forgiveness of
outstanding secured loans made by the Group to the Company totaling $546,000
plus accrued interest of $9,625 and a payment of $77,275 to substantially redeem
all of the Company's current obligations.
The Company filed a Current Report on Form 8-K dated March 27, 2001 with the
Securities and Exchange Commission on March 28, 2001. The Current Report was
regarding the change of control of the Company, contracted on March 16, 2001 and
consummated on March 27, 2001, to Dungavel, Inc., a Bahamian company, from
Metropolitan Capital Partners LLC, arising from the private sale of the
outstanding stock of the Company representing greater than 50% of the voting
control of the Company.
Subsequent to March 31, 2001 we filed the following report on Form 8-K with the
Securities and Exchange Commission:
On June 6, 2001, we reported that CraftClick.Com, Inc. a Delaware corporation
("CraftClick"), and Mobilepro Corp., a Delaware corporation ("Mobilepro"),
entered into an Agreement and Plan of Merger dated as of June 1, 2001 ("Merger
Agreement"). Under the Merger Agreement Mobilepro merged with and into
CraftClick, with CraftClick being the surviving corporation and the certificate
of incorporation and bylaws of CraftClick being the constituent documents of the
surviving corporation ("Merger").
In connection with the Merger, Mr. Scott R. Smith was appointed as a director
of CraftClick by the existing board of directors. After the appointment, Mr.
Mitchell Geisler and Ms. Cindy Roach, two of the then current directors of
CraftClick, Inc. resigned. Mr. Smith was appointed the President and Chief
Executive Officer and Chairman and Mr. Howard Geisler was appointed the
secretary of CraftClick.
In connection with the Merger, CraftClick issued to Ms. Joann M. Smith an
aggregate of 8,227,663 shares of common stock representing approximately 55%
of the 14,907,196 issued and outstanding shares of common stock of CraftClick
immediately after the Merger. Ms. Smith is the wife of Mr. Scott R. Smith,
the President, Chief Executive Officer and Chairman of CraftClick after the
Merger. Ms. Smith will be the single largest stockholder of CraftClick after
the Merger.
On August 8, 2001, we filed an amended 8-K to include the pre-merger audited
financials of Mobilepro Corp.
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The Company filed a Current Report on Form 8-K dated February 19, 2002 with
the Securities and Exchange Commission on March 6, 2002. The Current Report
was regarding a change of control of registrant. On February 19, 2002, the
Company entered into a Stock Purchase Agreement with Mr. Daniel Lozinsky and
Dungavel, Inc., and another Stock Purchase Agreement with Mr. Daniel
Lozinsky, Ms. Joann Smith and Mr. Scott Smith. Dungavel, Inc., Ms. Joann
Smith and Mr. Scott Smith were all significant stockholders of the Company at
the time. Pursuant to these two stock purchase agreements, Mr. Lozinsky, an
accredited investor, paid $160,000 in cash out of his own personal funds and
assumed the Company's debt of approximately $25,000 in order to acquire an
aggregate of 2,057,733 shares of our Common Stock, representing approximately
64.7% of the Company's voting securities. On February 28, 2002, Mr. Scott
Smith resigned as the President, CEO and Chairman of the Company, and Mr.
Lozinsky became the President and CEO of the Company.
Subsequent to the period of this report, the Company filed a Current Report on
Form 8-K dated April 5, 2002 with the Securities and Exchange Commission on
March 21, 2002. On March 21, 2002, Mobilepro entered into an Agreement and Plan
of Merger with NeoReach, Inc., a private Delaware company, pursuant to which a
newly-formed, wholly-owned subsidiary of Mobilepro merged into NeoReach in a
tax-free transaction. NeoReach is a development stage company designing state of
the art modem solutions to support third generation (3G) 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 Company believes the issuance of the stock to be exempt from registration
under Section 4(2) of the Securities Act. The related parties from both the
Company and Neoreach were Messrs. Daniel Lozinsky, Arne Dunhem, Scott Smith and
Ken Min. Mr. Daniel Lozinsky who was a controlling stockholder of Mobilepro also
owned approximately 32.5% of Neoreach.
Mr. Daniel Lozinsky who is a controlling stockholder of Mobilepro also owns
approximately 32.5% of Neoreach.
The Company filed a Current Report on Form 8-K dated May 10, 2002 with the
Securities and Exchange Commission on June 20, 2002. Effective June 6, 2002, the
Board of Directors of Mobilepro Corp. (the "Company") dismissed its independent
auditors, Mantyla, McReynolds LLC ("Mantyla"), and engaged the services of
Bagell, Josephs & Company, L.L.C. ("Bagell"), as its new independent auditors.
Bagell will audit the Company's financial statements for the fiscal year ended
March 31, 2002.
During the two most recent fiscal years of the Company ended March 31, 2002, and
the subsequent interim period through June 6, 2002, there were no disagreements
between the Company and Mantyla on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to Mantyla's satisfaction, would have caused
Mantyla to make reference to the subject matter of the disagreements in
connection with its reports; and there were no reportable events described under
Item 304(a)(1)(v) of Regulation S-K.
The audit reports of Mantyla on the Company's financial statements as of and for
the fiscal years ended March 31, 2000 and 2001 did not contain any adverse
opinion or disclaimer of opinion, nor were they qualified or modified as to
certainty, audit scope or accounting principles, other than a "going concern"
disclaimer which applied to the audit reports of Mantyla on the Company's
financial statements as of and for the fiscal years ended March 31, 2000 and
2001.
During the two most recent fiscal years of the Company ended March 31, 2001, and
the subsequent interim period through June 6, 2002, the Company did not consult
with Bagell regarding any of the matters or events set forth in Item
304(a)(2)(i) and (ii) of Regulation S-K.
Also included in the Current Report dated May 10, 2002, on May 13, 2002, the
Company announced in a press release that Mr. Daniel Lozinsky had resigned as
the President, Chief Executive Officer and Chairman of the Board of the Company
and that Mr. Arne Dunhem had been appointed to serve as the President, Chief
Executive Officer and Chairman of the Board of the Company, effective as of May
10, 2002. Mr. Lozinsky was also appointed to serve as a Senior Vice President of
the Company, effective as of May 10, 2002.
The Company filed an amended Current Report on Form 8-K/A dated May 10, 2002
with the Securities and Exchange Commission on June 25, 2002.
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: October 3, 2002 MOBILEPRO CORP.
Bys: /s/ Arne Dunhem
----------------------------------------
Arne Dunhem
President and Chief Executive
Officer
(Principal executive and financial
officer)
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
/s/ Arne Dunhem
--------------------------- Chief Executive Officer and Chairman
Arne Dunhem (Principal executive and financial officer)
/s/ Daniel Lozinsky
--------------------------- Director
Daniel Lozinsky
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