SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 KSB
Amendment No. 2
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.
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(Exact Name of Registrant as Specified in Charter)
Delaware 002-97869-D 87-0419571
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(State of Incorporation) (Commission File Number) (IRS Employer
Identification No.)
3204 Tower Oaks Blvd., Suite 350
Rockville , MD 20852
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(Address of principal executive offices) (Zip Code)
(301) 230-9125
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(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
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK
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(TITLE OF CLASS)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes _X_ No ___.
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy of information
statements incorporated by reference in Part 10-KSB or any amendment to this
Form 10-KSB. { }
State issuer's revenues for its most recent fiscal year: $0.
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock as of a specified date within the past 60
days: As of December 9, 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 December 9, 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
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PART I.......................................................................................4
ITEM 1. DESCRIPTION OF BUSINESS..........................................................4
BUSINESS................................................................................4
CORPORATE HISTORY.......................................................................6
BUSINESS STRATEGY BEFORE THE MOBILEPRO MERGER...........................................7
BUSINESS STRATEGY AFTER THE MOBILEPRO MERGER AND BEFORE THE NEOREACH MERGER.............7
BUSINESS STRATEGY AFTER THE NEOREACH MERGER.............................................8
MARKET/INDUSTRY PROJECTIONS.............................................................9
FINANCIAL FUNDING NEEDS AND USE OF FUNDS...............................................10
PRODUCTS AND SERVICES..................................................................10
MARKETING AND COMPETITION..............................................................11
RESEACH AND DEVELOPMENT................................................................11
INTELLECTUAL PROPERTY..................................................................12
GOVERNMENT APPROVALS...................................................................12
RECENT DEVELOPMENTS....................................................................12
ITEM 2. DESCRIPTION OF PROPERTY.........................................................13
ITEM 3. LEGAL PROCEEDINGS...............................................................13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............................13
PART II.....................................................................................15
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS........................15
MARKET FOR COMMON STOCK................................................................15
TRANSFER AGENT.........................................................................15
DIVIDEND POLICY........................................................................16
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS.....................16
RECENT SALES OF SECURITIES.............................................................17
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.......................21
FINANCIAL CONDITION AND CHANGES IN FINANCIAL CONDITION.................................21
LIQUIDITY AND CAPITAL RESOURCES........................................................22
NEW ACCOUNTING PRONOUNCEMENTS..........................................................22
INFLATION..............................................................................22
PLAN OF OPERATION......................................................................22
EMPLOYEES..............................................................................24
FORWARD-LOOKING INFORMATION............................................................24
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.....................................29
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.....................................................................47
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PART III....................................................................................47
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT........................................47
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE................................49
ITEM 10. EXECUTIVE COMPENSATION.......................................................50
COMPENSATION OF DIRECTORS..............................................................51
OTHER COMPENSATION ARRANGEMENTS........................................................51
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...............51
PRINCIPAL STOCKHOLDERS.................................................................51
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...............................53
INVESTORS RIGHTS AGREEMENT.............................................................54
NEOREACH PURCHASE AGREEMENT............................................................55
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.............................................55
a) Exhibits............................................................................55
b) Reports on Form 8-K.................................................................56
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
BUSINESS
The Business Background
The generation of digital wireless networks primarily in use today for cell
phone services is often referred to as the second generation ("2G") services.
The services are primarily for voice services and for some limited low-speed
data transmission services. The features of the third generation ("3G") wireless
technology far surpass the 2G services and include voice and data services,
access to high-speed Internet and intranet applications, such as corporate
private data networks, interactive e-mail and data exchange, full motion video
transmission e.g. video movies or video conferences - all delivered to a mobile
device such as a cellular phone, Personal Digital Assistant ("PDA") or laptop
computer, and global roaming of all the features, i.e. the services can be used
in many different countries around the world. We believe that the demand for
wireless networks supporting faster information-rich applications will increase,
pushing the wireless communications industry toward a generation of services
that are expected to result in higher productivity, greater transmission speed
and seamless access around the world.
The current 2G wireless networks are based on different communications standards
with the Global System for Mobile Communication ("GSM") being the most widely
adopted standard. That standard has also been adopted in the United States by
larger wireless networks such as AT&T Wireless and T-Mobile. The U.S. company
Qualcomm has developed an alternative standard called Code Division Multiple
Access ("CDMA"). CDMA networks exist primarily in the United States, Korea and
some countries in South America.
The various 3G wireless networks being built around the world are based on
primarily two different network standards: Wideband - Code Division Multiple
Access ("W-CDMA") that is an extension of the widely adopted GSM standard and
CDMA2000 that is an extension of the CDMA standard. The selection of a network
standard by different operators in different countries depends largely on
government policies regarding spectrum availability and licensing conditions. As
a result we expect that 3G services will be adopted at at different rates in
different regions of the world. Europe and Japan have network operators with
systems that are based on W-CDMA while operators in the United States and Korea
will deploy systems that are based on both 3G standards. Wireless operators in
Europe, Japan and Korea have recently started to roll out 3G services, while
operators in the United States are expected to begin to roll out true
nation-wide 3G services in late 2003 or 2004.
A wireless network consists of three major elements; first, the user equipment,
i.e. the handheld device that could be a cell phone, also called a handset, PDA
or a wireless laptop computer; second, the radio access network, i.e. all the
base stations with transmit and receive equipment and transmit towers to provide
network coverage; and the core network, that includes the telephone and data
switches for connection of the calls, the computer systems to control the
operation of the network, and the billing and support of the customers using the
networks.
To provide a complete 3G network across a typical geographical area, three types
of base stations are normally deployed: those that provide a signal over a very
large area, such as a whole city, those that provide a signal over a medium size
area, such as one community in a city, and those that provide a signal over a
small area, such as in one office building in the community.
The Company
Mobilepro is a development stage company whose business focus has been recently
redirected towards developing solutions that will support the 3G digital
wireless network market through its wholly-owned subsidiary, NeoReach Inc.
NeoReach will design, develop and manufacture 3G modem and data processing
technologies in integrated circuits and associated prototype or demonstration
printed circuit boards for
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- 3G network base stations and,
- 3G handsets and other user equipment.
NeoReach will exclusively focus its products to be used for the medium and small
area Base Stations since the market size and required quantity of these units is
expected to be much greater than for the large area Base Stations.
In addition, NeoReach will also develop miniature radio frequency transceiver
integrated circuits for the wireless markets, to include both the 3G base
stations and the handsets. These integrated circuits have an advantage over
other current semiconductor technologies in that they utilize little power - an
important feature for a small battery in a consumer cell phone. Power is only
consumed in case the circuit actually is in operation. Secondly, the integrated
circuit will allow a substantial reduction in the space necessary for the radio
frequency function.
NeoReach will initially focus its efforts on developing the technology for the
3G network base stations in the form of prototype or demonstration printed
circuit boards. Upon the successful completion of these boards to include
various testing of functions and demonstrations, we intend to develop
semiconductor integrated circuits with the technology embedded. In some cases,
we also intend to sell the prototype or demonstration printed circuit board to
potential customers.
Handsets - each 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. NeoReach will develop and provide the modem solution as a
semiconductor integrated circuit installed on a printed circuit board inside of
the handset. NeoReach also intends to develop and provide the complete radio
frequency transceiver as a semiconductor integrated circuit.
Our state-of-the-art modem solutions will support the 3G wireless communications
systems as defined by the worldwide W-CDMA standard and, in a later development
stage, the GSM standard. The W-CDMA specifications standard has been defined
such that the base station modem will properly communicate with the
corresponding handset modems.
The NeoReach modem solution will be developed to provide key competitive
advantages in the market place:
1) EASILY TRANSMIT VOICE AND DATA - The base station modem will be designed
using two different types of transmission systems as defined by the W-CDMA
standards. We believe that this is ideal for transmitting both voice and data.
2) REDUCE OPERATING COSTS THROUGH HIGH BASE STATION MODEM CAPACITY - NeoReach
will offer a dense multi-channel modem with up to 64 user channels expanding in
later versions to up to 256 user channels. This will allow operators to service
more customers with the same base station. The number of user channels is
primarily determined by how complex the semiconductor integrated circuit is. We
intend to use integrated circuits from Texas Instruments which has a technology
that we believe currently allows up to 64 user channels while the next
generation of integrated circuits from Texas Instruments to be made available in
year 2003 we believe are expected to allow for up to 256 channels.
3) MAXIMIZE PERFORMANCE THROUGH SMART ANTENNA PROCESSING - NeoReach will enhance
small area Base Station capacity by supporting various types of antennas. We
believe that this may result in supporting more users per area covered by the
transmitted signals and lower data error rates since the NeoReach patented smart
antenna processing can in certain cases almost double the number of simultaneous
users that can be received and processed by the base station.
4) SERVICE LARGER AREAS AT LOWER COSTS - NeoReach will offer modems with greater
coverage capacity, three miles vs. the typical 0.6 miles, thereby enabling
operators to service larger areas using medium and small area Base Stations
instead of installing a more expensive large area Base Station. The coverage
capacity is determined by a design choice for the modem that includes receiving
and processing signals from handsets that are up to three miles away from the
base station. This distance is determined by the maximum time it takes the
signal to travel that distance.
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5) GREATER RETURN ON INVESTMENT FOR THE OPERATOR - Flexible Architecture that we
believe will enable easy upgrades and modifications, thereby lengthening product
life.
NeoReach has signed a Memorandum of Understanding with RF Microelectronics
Laboratory of Information and Communications University of South Korea for the
co-development of the Radio Frequency integrated circuit. This memorandum of
understanding is non-binding on either party and additional agreements are
necessary before the parties may collaborate together.
NeoReach intends to use third-party manufacturing for its products. Because of
this approach, the Company does not expect to make any significant purchase of
plants or equipment. The Company has initiated some preliminary discussions with
contract manufacturers for product development, prototyping and production
agreements for its planned integrated circuit and modems systems. None of these
agreements have been finalized as of this date and no assurances can be given
that any agreements will be forthcoming.
NeoReach has been granted five patents and has one patent applications pending
for its W-CDMA smart antenna processing approaches. Smart antennae technology
combines multiple antenna elements with signal processing to optimize its
radiation and/or reception pattern automatically in response to the signal
environment. In one application, the processing may double the capacity, i.e.
the number of simultaneous user channels at a time, of the base station. This is
believed to be possible with the invention since the method will result in fewer
voice and data transmit errors and thereby the transmitter power from the
handset can be kept lower. The receiver signal performance at the base station
will also improve, making it more sensitive permitting almost a doubling of the
number of simultaneous user channels at a time. 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. Signals to a handset
from a base station are often reflected and bounced-off different obstructions
such as e.g. various buildings. The invention is believed to improve the
communication by compensating for the fact that the same signal will be received
from different directions and different signal strengths after reflection and
bouncing-off. We intend to pursue other patents to protect our intellectual
property rights in various modem design and implementation areas.
The Company is located at Mobilepro Corp., 3204 Tower Oaks Blvd., Suite 350,
Rockville, Maryland 20852. As of December 2002, the Company will have a new
address at 30 West Gude Drive, Suite 400, Rockville, Maryland 20850.
CORPORATE HISTORY
Mobilepro is a development stage company and currently trades on the Bulletin
Board under the stock symbol "MOBL". The following is a brief history of the
Company.
Mobilepro was incorporated on July 14, 2000 and was focused on the integration
and marketing of complete mobile information solutions that satisfy the needs of
mobile professionals.
The company with which Mobilepro merged in June of 2001 was first organized in
June 1988 as Bud Corp. Bud Corp. changed its name to Tecon, Inc. in July 1992,
then to Buyit.com, Inc. in May 1999 and finally to CraftClick.com, Inc. on
January 4, 2000. CraftClick's business strategy and focus was to become the
premier destination for buyers and sellers of arts and crafts products and
supplies through the use of Internet websites. Due to the lack of adequate
funding and the lack of generating enough Internet traffic to achieve
profitability, CraftClick began to cease business operations in October 2000.
CraftClick subsequently disposed of substantially all of its assets in February
2001 when secured creditors foreclosed on outstanding loans made to CraftClick.
In April 2001, CraftClick reorganized pursuant to a Plan of Merger wherein its
domicile was changed from Utah to Delaware, and the common stock was subject to
a reverse split on the basis of 1 new share for every 100 shares outstanding. On
June 6, 2001, CraftClick and Mobilepro entered into an Agreement and Plan of
Merger dated June 1, 2001 ("CraftClick Merger Agreement"). Under the CraftClick
Merger Agreement, Mobilepro merged with and
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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
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.
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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").
Upon successful completion of the NeoReach/Mobilepro merger, the business
strategy, direction and focus of the former NeoReach became the dominant
operating focus of the new Mobilepro. The former business model and marketplace
offering of Mobilepro ceased entirely. After the merger, Mobilepro has been
notified by the Patent and Trademark Office that five of the six patent
applications that had been filed by NeoReach had been approved and that the
review process was still underway for the remaining one patent application.
One 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 change
locations while using their cell phones.
Another 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 addition to being granted the approval on these two out of five patents, the
Company continued to make progress on design of the various technical features
for the base station modem. In April of 2002, the Company began working with
leading scientists at the RF Microelectronics Lab (RFIC) at Korea's Information
and Communications University in South Korea, to test some modem and radio
frequency integrated circuit development advancements. The first phase of the
simulation testing focused principally on the Company's proprietary 3G radio
frequency technology.
As result of the design effort to date, we believe that a preliminary version of
the base station modem will be ready for field evaluation during the first
quarter of 2003 with a multi-channel modem semi-conductor integrated circuit
chip to be commercially available by the end of 2003. The chip will be designed
and developed by the Company, but we will expect the chip to be manufactured by
a third party offshore it. Once this development milestone is reached, the
Company believes that it can have the completed design for the handset modem
chip commercially available by the end of 2003.
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.
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We will also be prepared to review opportunities arising for strategic
partnerships or possible acquisitions to increase our product and service
offerings. Given the increased demand for wireless remote monitoring of
industrial machinery, corporate computer networks, and various facilities at
widely dispersed global locations in combination with the data processing of all
gathered information, the Company will explore possible opportunities in this
arena. We will consider licensing or teaming arrangements for the Company's
technology working with other industry players in addition to potential
acquisition opportunities. No funds have been allocated for these new
initiatives.
NeoReach has signed a memorandum of understanding with RF Microelectronics
Laboratory of the Information and Communications University of the Republic of
Korea to cooperate in research, particularly in radio frequency integrated
circuit development for the 3G W-CDMA standard. This specific integrated
circuit, 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. This memorandum of understanding
is non-binding on either party and additional agreements are necessary before
the parties may collaborate together.
We have also announced a strategic technology alliance with Prime Circuits, Inc.
of Maryland, a semiconductor development company. As part of the alliance, we
will gain access to technical knowledge, personnel and low power semiconductor
technology. This solution targets the consumer handsets and network transmission
base stations to support 3G communications. As of December 9, 2002, no material
terms of an agreement have yet been developed. There is no affiliation between
Prime Circuits and our Company, its officers, directors and/or affiliates. The
completion of an agreement is pending a joint review of mutual additional
business opportunities and the current nature of the relationship is still under
discussion.
MARKET/INDUSTRY PROJECTIONS
Market Outlook for Third Generation Services
The current generation of digital wireless networks primarily in use today is
referred to as second generation, or 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 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.
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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.
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 at an amount of $250,000 plus accrued interest.
We also intend to pay-down debt owed to Mr. Daniel Lozinsky, a
Director, and Mr. Arne Dunhem, an officer and Director, during
2003. The total amount that we plan to pay to Mr. Lozinsky and
Mr. Dunhem during 2003 is approximately $100,000 out of total
outstanding amount of $277,617; and
4) General working capital purposes.
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 small area base station
modem and handset modem integrated curcuits. These products with features
considered by us are not currently available in the market. The Company believes
that its products will be among the first to market and will offer unique value
to the manufacturer customers and the marketplace in general. The Company
currently has a prototype available of a modem for the medium area base station.
The product line extensions will include radio frequency integrated circuit chip
set. This integrated circuit is a highly complex and miniaturized chip of a size
less than 1/4 inch by 1/4 inch that is a complete radio and transmitter system.
The chip is specialized for the 1.9 GHz/2.1 GHz frequency bands used in Europe
and Asia for the new 3G W-CDMA networks and may be used in both small area base
stations and in 3G handsets. Future similar versions of the radio frequency
integrated circuit 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 of the
Information and Communications University of South Korea based on a memorandum
of understanding between our organizations. This memorandum of understanding is
non-binding on either party and additional agreements are necessary before the
parties may collaborate together.
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. Our
method of competition will be to offer products that will compete on
performance, quality, reliability, price, adherence to industry standards,
software and hardware compatibility, marketing and distribution capability,
brand recognition and availability. We may not be able to develop new products
at competitive pricing and performance levels. Even if we are able to do so, we
may not complete a new product and introduce it to market in a timely manner.
Our customers may substitute use of our products in their next generation
equipment with those of current or future competitors.
In each area of the modem, digital and radio frequency integrated circuit market
in which we participate, we face competition from different companies. With
respect to wireless modem technology and licensing of intellectual property,
Qualcomm holds a dominant market position. Qualcomm is the leading provider of
wireless modem technology, marketing a wide variety of products worldwide.
Qualcomm products have all been designed for the CDMA standard and only recently
has the company announced it will now also build to the W-CDMA standard. Other
companies that we potentially would be competing with developing modems for the
base stations in addition to the handsets include bigger companies such as
Nokia, Ericsson, Siemens, Motorola and Samsung. Several smaller companies around
the world specialize in various niche technologies addressing the wireless
market to include the modems for the handsets. These include PrairieComm and
InterDigital in the U.S., Yozan in Japan, Sierra Wireless in Canada and Xircom
in Germany. Over the next few years, we expect additional competitors, some of
which may also have greater financial and other resources, to enter the market
with new products. In addition, we are aware of venture-backed companies that
focus on specific portions of our range of products. These companies,
individually or collectively, could represent future competition for many design
wins and subsequent product sales.
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.
-11-
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. As of December 9, 2002 we have been granted approval of
five patents and one patent application is still pending approval. The five
approved patents are as follows:
1. "Smart Antenna with Adaptive Convergence Parameter" with PTO Patent
Number 6,369,757, issued April 9, 2002
2. "A Smart Antenna With No Phase Calibration For CDMA Reverse Link" with
PTO Patent Number 6,434,375, issued August 13, 2002
3. "PN Code Acquisition With Adaptive Antenna Array and Adaptive Threshold
for DS-CDMA Wireless Communication" with PTO Patent Number 6,404,803,
issued June 11, 2002
4. "New Cellular Architecture for Code Division Multiple Access SMOA
Antenna Array Systems" with PTO Patent Number 6,459,895, issued October
1, 2002
5. "Direction of Arrival Angel Tracking Algorithm For Smart Antennas" with
PTO Patent Number 6,483,459, issue date November 19, 2002
"Improvement of PN Code Chip Time Tracking with Smart Antenna", a patent
application filed on February 6, 2002 with PTO Docket #3228-007-64 and serial
number 10/066,762 is pending - awaiting first Office Action from Patent Office.
In addition, we also have two other patent applications pending which are
referred to as "Wireless Communication System and Method of Providing Wireless
Communication Service" with specific descriptions to include "Device and Method
for Changing the Orientation and Configuration of a Display of an Electronic
Device" and "Electronic Device Having Multiple Service Functionality". Both of
these pending patent applications relate to the business of the Company before
the merger with NeoReach. We do not intend to pursue business related to these
patents and intend to assign the patents to the inventor and former president of
Mobilepro.
GOVERNMENT APPROVALS
We do not believe that there is a need for any specific government approval for
any of our modem solutions since these do not include any radio transmitter and
do not radiate any radio frequency signals. Our radio frequency integrated
circuit product will be sold to OEM customers who will integrate the product
into their own products that may be required to adhere to certain Federal
Communications Commission section requirements because it does in fact contain a
radio transmitter. We believe that the OEM customers will obtain any required
licensing as applicable in any particular country.
RECENT DEVELOPMENTS
On October 16, 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
-12-
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 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.
We have recorded a total of $57,500 of prepaid expenses as of June 30, 2002
consisting of a pre-payment on May 17, 2002 of $5,000 to Kirkpatrick & Lockhart
LLP as an initial retainer fee, a pre-payment on June 4, 2002 of $35,000 to
Kirkpatrick & Lockhart LLP for legal fees, and a pre-payment on June 4, 2002 of
$17,500 to Butler Gonzalez LLP for legal fees.
ITEM 2. DESCRIPTION OF PROPERTY
Our offices are located at 3204 Tower Oaks Blvd., Suite 350, Rockville , MD
20852. The offices consisting of approximately 5,680 square feet of office space
are sub-leased from PrimeWire, Inc. with a monthly rental rate of $11,356. The
current sub-lease agreement terminated on September 30, 2002 and we initiated a
re-negotiation with the landlord directly. We signed and executed a
month-by-month lease agreement with the landlord directly on September 26, 2002.
We have also initiated discussions with other potential new office locations at
lower monthly rental rate. We have a preliminary agreement for lease of office
space at 30 West Gude Drive, Suite 400, Rockville, Maryland 20850. The new
offices consisting of approximately 3,500 square feet of office space, that can
expanded to approximately 7,000 square feet alternatively to as much as
approximately 13,000 square feet, will be sub-leased from Amisys, LLC with a
monthly rental rate of $4,500. The lease agreement has not yet been mutually
signed and executed. We believe that this facility is adequate to meet our needs
in the near future. In the event our business expands, we believe we will have
an ability to expand within the same facility.
As of March 31, 2002, we 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
As of March 31, 2002, 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. An employee of the Company filed a formal complaint
against the Company on October 29, 2002 with the State of Maryland, Department
of Labor, Licensing and Regulation for a claim for unpaid wages. The Company
intends to negotiate a settlement with the employee for the claim.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Board of Directors announced that the close of business on
November 1, 2001 was the record date for the determination of stockholders
entitled to notice about the proposal authorizing the reverse stock split of the
outstanding common stock, par value $.001 par value, of the Company at the rate
of one new share for each 200 issued and outstanding shares of common stock and
the subsequent restoration of the authorized capital of the Company to
50,000,000 shares of common stock, $.001 par value, 5,000,000 shares of
preferred stock, $.001 par value and 35,425 shares of Series A Convertible
Preferred Stock, $.001 par value ("Recapitalization") and the approval of the
Mobilepro 2001 Equity Performance Plan ("Equity Performance Plan").
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.
-13-
On November 1, 2001, stockholders owning of record an aggregate of 9,605,393
shares of the Company's common stock, representing approximately 53.7% of the
outstanding voting securities of the Company, executed and delivered to the
Company a written consent authorizing and approving the Recapitalization and
approving the Plan. Under Section 228 of the Delaware General Corporation Law,
and the certificate of incorporation and by-laws of the Company, any action
required or permitted to be taken at an annual or special meeting of
stockholders of a Delaware corporation may be taken without a meeting, without
prior notice and without a vote, is signed by the holders of outstanding stock
entitled to vote thereon having not less than the minimum number of votes that
would be necessary to authorize or take such action at a meeting at which all
shares entitled to vote thereon were present and voted. Prompt notice of the
consent to the Recapitalization and approval of the Equity Performance Plan must
be given, and was given on or about November 2, 2001, to those stockholders who
have not consented in writing to the action and who, if the action had been
taken at a meeting, would otherwise have been entitled to notice of the meeting.
The purpose of the Mobilepro Corp. 2001 Equity Performance Plan ("Equity
Performance Plan") is to enable the Company to offer to its employees, officers,
directors and consultants whose past, present and/or potential contributions to
the Company and its Subsidiaries have been, are or will be important to the
success of the Company, an opportunity to acquire a proprietary interest in the
Company. The various types of long-term incentive awards that may be provided
under the Equity Performance Plan will enable the Company to respond to changes
in compensation practices, tax laws, accounting regulations and the size and
diversity of its businesses.
In effecting the Recapitalization, a majority of the Stockholders, in their
written consent authorizing and approving the Recapitalization, and the Board of
Directors of the Company approved the following Certificate of Amendment of the
Certificate of Incorporation of Mobilepro Corp.:
FIRST: The name of the Corporation is Mobilepro Corp.
SECOND: The Certificate of Incorporation of the Corporation is hereby amended by
deleting the first paragraph of Article FOURTH in its entirety and by
substituting the following two new paragraphs at the beginning of Article FOURTH
in lieu thereof:
"FOURTH: That as of the effective date of this Certificate of Amendment
of the Certificate of Incorporation of the Corporation ("Amendment")
each 200 shares of the Corporation's common stock that is issued and
outstanding shall be changed, without any further action, into one
fully paid and non-assessable share of the Corporations common stock,
fractional shares to be rounded up.
As of the effective date of this Amendment, after the reverse stock
split set forth above, the total number of shares of capital stock of
all classes which the Corporation shall have authority to issue
55,035,425 shares, of which 50,000,000 shares shall be common stock,
par value $.001 per share ("Common Stock"), 5,000,000 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.
-14-
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.
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
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March 31, 2002 4.00 1.05
December 31, 2001 4.00 0.19
September 30, 2001 3.95 0.06
June 30, 2001 2.00 0.15
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March 31, 2001 0.19 0.02
December 31, 2000 0.53 0.03
September 30, 2000 2.00 0.38
June 30, 2000 3.88 0.88
----------------------------------------------------------------
March 31, 2000 2.88 1.50
December 31, 1999 3.75 1.25
----------------------------------------------------------------
The ability of an individual shareholder to trade their shares in a particular
state may be subject to various rules and regulations of that state. A number of
states require that an issuer's securities be registered in their state or
appropriately exempted from registration before the securities are permitted to
trade in that state. Our shares are subject to the provisions of Section 15 (g)
and Rule 15g-9 of the Securities and Exchange Act of 1934, as amended (the
"Exchange Act"), commonly referred to as the "penny stock" rule. Section 15 (g)
sets forth certain requirements for transactions in penny stocks and Rule
15g-9(d)(1) incorporates the definition of penny stock as that used in Rule
3a51-1 of the Exchange Act.
The Commission generally defines penny stock to be any equity security that has
a market price less than $5.00 per share, subject to certain exceptions. Rule
3a51-1 provides that any equity security is considered to be a penny stock
-15-
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 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 Plan
Categories
Number of securities to Weighted average Number of securities
be issued upon exercise exercise price of remaining available
of outstanding options, outstanding options, for future issuance
warrants and rights warrants and rights
--------------------------------------------------------------------------------------------------------
Approved by security holders
- 2001 Equity Performance 0 $0.00 20,000
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).
-16-
RECENT SALES OF SECURITIES
COMMON STOCK
We have issued the following shares of our common stock from March 31, 2000
through December 9, 2002. On May 11, 2001, we implemented a 1 share for 100
shares reverse stock split of our common stock. On November 19, 2001, we
implemented a 1 share for 200 shares reverse stock split of our common stock.
The issuances below have not been adjusted for these reverse stock splits, but
rather disclosed as issued.
On April 16, 1999, we had subscriptions to issue 257,666 shares of our common
stock for consideration of $386,499 at the time of the merger with Tecon (See
"CORPORATE HISTORY"). These subscriptions were reduced to 245,997 and were
exercised upon the consummation of the merger with Tecon. Tecon also issued
1,621,621 shares of common stock of Tecon for additional subscriptions in
consideration of $600,000, cash. Additional subscriptions were received and
215,702 common shares were issued for $315,515. Simultaneously, we issued 10,333
common shares for business equipment valued at $15,500. The Company believes the
issuance of the stock to be exempt from registration under Section 4(2) of the
Securities Act.
At various dates during the year ended March 31, 2000, we issued 1,812,829
shares of common stock to various consultants and professionals for services
rendered. The total value of the shares has been recorded at $1,000,000. The
Company believes the issuance of the stock to be exempt from registration under
Section 4(2) of the Securities Act.
From April through June 2000, we issued 430,000 shares of common stock for
additional website business valued at $.75 per share or $322,500 and a total of
38,000 shares of preferred stock was issued under a Private Placement
Memorandum. We believe the issuance of the stock to be exempt from registration
under Section 4(2) of the Securities Act.
In August 2000, we granted 1,903,574 common stock options valued at $475,000 for
a Note Receivable for the same amount. The options were granted pursuant to the
"2000 Stock Option Plan". As of March 31, 2001, we had granted a total of
2,562,250 additional options pursuant to the "2000 Stock Option Plan", not
including the initial 1,903,574 common stock options. These options were granted
to employees and consultants and were vesting over a period of up to 4 years
with an exercise price of $1.00. Since these options were granted, 1,186,000
were cancelled and 850,125 expired due to termination of employee relationships,
i.e. only 526,125 remained as options as of March 31, 2001. We believe that all
these remaining granted options expired effectively as part of the merger
between Mobilepro and CraftClick.com on June 6, 2001.
On June 7, 2000 we exchanged 500,000 shares of our stock for 450,706 shares of
Popmail.com in a transaction valued at $500,000. We subsequently sold this
investment to meet our financial obligations. The shares were "Restricted" under
rule 144, i.e. the investor received shares of common stock that could not be
resold with twelve months from the date the investor received them. On September
15, 2000, the Popmail.com stock was sold to an individual related party for
$74,650, in a private sale to an accredited/sophisticated investor. A loss of
$425,350 was realized during the period. Approximately $225,353 of the loss was
due to market value decline during the holding period. We believe the issuance
of the stock to be exempt from registration under Section 4(2) of the Securities
Act.
On March 12, 2001, we issued 4,040,000 shares of common stock for services out
of which 1,180,000 shares to Sandip Seth, 1,180,000 to Maninder Singh, both
being officers of the Company, 1,180,000 shares to Sanjay Sabnani, 350,000
shares to Cora Castillion and 150,000 shares to Amber Luke valued at a total of
$1,284,923. We believe that Sabnani, Castillion and Luke were not affiliated
with the Company. We believe the issuance of the stock to be exempt from
registration under Section 4(2) of the Securities Act.
On December 1, 2000, we issued 25,000,000 shares of common stock at $.004 per
share and 1,000 shares of Class C preferred stock at $10 per share to creditors
as settlement of $110,000 worth of debt. We believe the issuance of the stock to
be exempt from registration under Section 4(2) of the Securities Act.
-17-
On March 16, 2001, Dungavel, Inc., a Bahamian company, contracted to purchase
the above referenced 25,000,000 shares of our common stock and 1,000 shares of
our Class C Preferred Stock from the former creditors (Metropolitan Capital
Partners LLC), in a private sale to an accredited/sophisticated investor. At the
time of the sale, we believe that there was no affiliation between Dungavel,
Inc. and Metropolitan Capital Partners, LLC. The transfer of 25,000,000 shares
of common stock and 1,000 shares of preferred stock by Metropolitan Capital
Partners LLC to Dungavel Inc. was made under Rule 144, i.e. the investor
received shares of common stock that could not be resold with twelve months from
the date the investor received them. In the acquisition agreement, Dungavel
represented that it was a sophisticated, accredited investor and was acquiring
restricted securities. The only entity from which Dungavel acquired shares of
CraftClick on March 16, 2001 was Metropolitan Capital Partners LLC, which name
is stated above. The shares continued to be restricted in the hands of Dungavel,
Inc. and therefore the certificate beared the same legend as the original
certificates. The Class C Preferred Stock is convertible at any time prior to
December 31, 2001, into 11.5% of the then issued and outstanding common stock of
CraftClick.com, Inc., computed on a fully diluted basis. Together the common
stock and the Class C Preferred Stock acquired by Dungavel, Inc. represents
greater than 50% of the voting control of CraftClick.com, Inc., on an as
converted basis. The sale was consummated as of March 27, 2001. We believe the
issuance of the stock to be exempt from registration under Section 4(2) of the
Securities Act.
On April 24, 2001, the 1,000 Class C Preferred shares were converted to
6,877,678 shares of common stock. The Company believes the issuance of the stock
to be exempt from registration under Section 4(2) of the Securities Act.
On June 6, 2001, CraftClick.Com, Inc. a Delaware corporation, and Mobilepro
Corp., a Delaware corporation, entered into an Agreement and Plan of Merger
dated as of June 1, 2001. Under the Merger Agreement Mobilepro merged with and
into CraftClick, with CraftClick being the surviving corporation. The
consideration for the shares of common stock issued by CraftClick to the
shareholders of Mobilepro was all the outstanding shares of Mobilepro. The
merger of Mobilepro into CraftClick was structured as a share-for-share
exchange. The exchange ratio was negotiated without reference to the market
price of the CraftClick common stock because it was difficult to value the
merger participants and the market of a thinly traded security on the OTC
Bulletin Board. The Company issued a total of 8,750,000 shares of its common
stock in connection with the Merger. Based on the last trading price of $0.16,
the fair value of the Company's stock issued was $1,400,000. Of these shares
issued, the Company issued to Ms. Joann M. Smith an aggregate of 8,227,663
shares of common stock representing approximately 55% of our 14,907,196 issued
and outstanding shares of common stock. In addition we also issued as part of
the merger, a total of 522,337 shares of its common stock at value $83,574, to
Wallenstein & Wagner, 152,730 shares at value $24,437, Laser Modeling, Inc.
152,730 shares at value $24,437, Francine B. Goodman, 152,730 shares at value
$24,437, Denise Patterson, 38,183 shares at value $6,109, and Inform Product
Development, Inc., 25,964 shares at value $4,154. We believe that all these
parties were non-affiliated with the Company at the issuance. We believe the
issuance of the stock to be exempt from registration under Section 4(2) of the
Securities Act.
Effective June 6, 2001, in connection with the Merger, we issued 3,000,000
shares in a conversion of debt and accrued interest to Dungavel, Inc. a Bahamian
company. We believe that the controlling person of Dungavel was Robert Landau,
who we believe also had a controlling interest in Mobilepro. The debt had a
recorded value of $50,000. The issuance of shares were valued at $480,000, the
fair value of the Company's stock at that time. In September 2000, Dungavel Inc.
was issued a $50,000 convertible note by Mobilepro. At the time of the merger of
Mobilepro into CraftClick, Dungavel negotiated with Mobilepro the conversion of
the note into 3,000,000 shares of the post-merger company. Dungavel was the
controlling shareholder of CraftClick at the time of this negotiation. The value
of CraftClick and Mobilepro at the time of the merger is difficult to determine
and the negotiations for the shares to be issued to acquire Mobilepro was made
without reference to the then market price. We believe the issuance of the stock
to be exempt from registration under Section 4(2) of the Securities Act.
In May 2001, we registered 6,500,000 shares of our common stock for future
issuance under the "2001 Performance Equity Plan". Effective June 6, 2001, we
issued a total of 2,600,000 shares, based on the last trading price of $0.16,
with the total fair value of $416,000 to the following parties: 250,000 shares
to Dungavel Inc. for services performed in connection with the Mobilepro merger
and reorganization and re-incorporation and using the last trading price, the
fair value of the consideration was $40,000, 250,000 shares at value $40,000 to
Mr. Scott R. Smith, our Chief Executive Officer for employment services,
1,475,000 shares at value $236,000 to ZDG
-18-
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 of our common stock to Dungavel, Inc. for
services in conjunction with an Investors Rights Agreement between CraftClick
and Dungavel, Inc. We valued that issuance at a value of $240,000, the fair
value of our stock at that time. We believe the issuance of the stock to be
exempt from registration under Section 4(2) of the Securities Act.
On December 4, 2001, we registered 1,000,000 shares of our common stock for
future issuance under the "2001 Equity Performance Plan". On February 15, 2002,
we issued a total of 20,000 shares of our common stock to the following parties:
10,000 shares to Sandy Seth and 10,000 shares to Maninder Singh. The shares were
issued for consulting services regarding items such as assisting our company in
its understanding of historical events. The issuance of all of the 20,000 shares
were valued at $21,000, the fair value of our stock at that time. We believe the
issuance of the stock to be exempt from registration under Section 4(2) of the
Securities Act.
On February 15, 2002, we entered into an agreement to issue 86,000 shares of our
common stock to John Madigan, 30,000 shares, Douglas Tucker, 30,000 shares,
Wallenstein & Wagner, 20,000 shares, Natalie Boitehouk, 2,000 shares, Gregory
Bochniak, 2,000 shares, and Stephen Jouzapaitis, 2,000 shares for services
rendered. We believe they were all non-affiliated with the Company at the time
of issuance. The shares issued on February 15, 2002 were authorized to be issued
on February 19, 2002 by instruction letter of that date. Per the agreement, the
shares were subsequently issued on March 22, 2002. The issuance of the shares
were valued at $90,300, the fair value of our stock at that time. We believe the
value of the services provided were commensurate with the value of the stock
issued. We believe the issuance of the stock to be exempt from registration
under Section 4(2) of the Securities Act.
On February 19, 2002, we issued 25,000 shares of our common stock to Scott R.
Smith. The 25,000 shares were issued to Scott Smith in exchange for his
surrender of his rights to past wages and other benefits under his employment
agreement of June 2001 and cancellation of that employment agreement as an
executive and officer of our Company. The shares were valued at $26,250, the
fair value of our stock at that time. We believe the issuance of the stock to be
exempt from registration under Section 4(2) of the Securities Act.
On March 18, 2002, we issued a total of 960,000 shares of our common stock under
the "2001 Equity Performance Plan" to the following parties: 255,000 to Mr.
Daniel Lozinsky, our Chief Executive Officer for employment
-19-
services and services as a director, 355,000 to Mr. Arne Dunhem for services as
an officer and director, 25,000 to Mr. Scott Smith for services as an officer
and director, and 325,000 to Jesus Gomez Romero for engineering consulting
services for advanced software related projects. These shares were issued at
$0.55 per share based on a Board Resolution fixing the Fair Market Value of the
securities pursuant to the 2001 Equity Performance Plan on and as of March 6,
2002.
On April 23, 2002, we issued 12,352,129 shares of our common stock to the
holders of NeoReach's common stock pursuant to an Agreement and Plan of Merger,
dated March 21, 2002. A newly formed, wholly-owned subsidiary of Mobilepro
merged into NeoReach, in a tax-free one-for-one share exchange transaction. The
merger was consummated on April 23, 2002. As a result of the merger, NeoReach is
now a wholly-owned subsidiary of Mobilepro. The issuance of the shares were
valued at a fair value of $ 6,546,628, based on the last trading price of $0.53
and assuming there was actual active trading of our stock at that time. The
valuation of Neoreach in the merger agreement was based on several factors,
including that over twenty-five man-years of development efforts had been
accumulated for achieving the prototype 3G modem boards for the base station
applications, that a management team and an engineering team were in place, that
office and laboratory facilities were in place, that six patents had been filed
or were already approved, and that contacts and relationships had already been
established with potential customers both in the United States and Korea. The
transaction was concluded following arms-length negotiations. We believe the
issuance of the stock to be exempt from registration under Section 4(2) of the
Securities Act.
On May 31, 2002, We issued a total of 690,000 shares of its common stock to the
following parties: 450,000 shares to INFe, Inc., 150,000 shares to Thomas
Richfield, 60,000 shares to Francene Goodman, and 30,000 shares to Triple Crown
Consulting. These shares were issued for consulting services regarding the
Mobilepro-NeoReach merger. The issuance of the shares were valued at $ 317,400,
the fair value of our stock at that time. We believe the value of the 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.
On July 18, 2002, we issued a total of 305,000 shares of our common stock to
various parties. 160,000 shares of our restricted common stock were issued to
Daniel Lozinsky, a director of the Corporation, in a private sale for an
aggregate cash consideration of $39,000 based on a Board Resolution as of July
17, 2002. In addition, we also issued 20,000 shares of common stock under the
2001 Equity Performance Plan and 100,000 restricted common stock as compensation
to Mark Johnson for various Merger and Acquisition related services and
associated back office services in accordance with a Consulting Agreement dated
July 17, 2002. We also issued 25,000 shares of restricted common stock as
compensation to M. Johnson & Associates, Inc. for certain services in accordance
with an Investor Relations Agreement dated July 17, 2002. The issuance of the
shares was valued at $65,250, the fair value of our stock at that time. We
believe the value of the services provided were commensurate with the value of
the stock issued. We believe the issuance of the stock to be exempt from
registration under Section 4(2) of the Securities Act.
-20-
On July 26, 2002, we issued a total of 500,000 shares of our restricted common
stock to Capital Research Group, Inc. for certain investor relations consulting
services in accordance with a Consulting Services Agreement dated July 25, 2002.
The issuance of the shares was valued at $220,000, the fair value of our stock
at that time. We believe the issuance of the stock to be exempt from
registration under Section 4(2) of the Securities Act.
On September 4, 2002, we issued a total of 709,853 of our common stock to
various parties. 100,000 shares were issued to Hee Han Bang, a non-affiliated
and accredited/sophisticated investor in a private sale for an aggregate cash
consideration of $25,000. These shares were issued at $0.25 per share based on a
Board Resolution fixing the value of the securities on and as of August 09,
2002. 150,000 shares of our common stock were issued to Daniel Lozinsky, a
director of the Corporation, in a private sale for an aggregate cash
consideration of $15,000. These shares were issued based on a Board Resolution
as of August 20, 2002. We issued a total of 209,853 shares of our common stock
to shares to INFe, Inc. based on a Board Resolution as of August 19, 2002. These
shares were issued for consulting services in connection with the Mobilepro
NeoReach merger and a Reverse Merger Engagement Agreement dated January 11, 2002
between NeoReach, Inc. and INFe, Inc. The issuance of the shares was valued at
$62,956, the fair value of our stock at that time. We also granted a total of
250,000 shares of our restricted common stock to Parag Sheth, an executive of
the Corporation. Parag Sheth was granted 150,000 shares of our restricted common
stock for forgiving a total of $15,000.00 in salary corresponding to a price of
$0.10 per share and he was also granted 100,000 shares of our restricted common
stock as an inducement for providing services for the Corporation. These shares
were issued based on a Board Resolution as of August 20, 2002 and the issuance
of the shares was valued at $25,000. We believe the value of the services
provided were commensurate with the value of the stock issued. We believe the
issuance of the stock to be exempt from registration under Section 4(2) of the
Securities Act.
Except as otherwise noted, the securities described in this Item were issued
pursuant to the exemption from registration provided by Section 4(2) of the
Securities Act of 1933. Each such issuance was made pursuant to individual
contracts which are discrete from one another and are made only with persons who
were sophisticated in such transactions and who had knowledge of and access to
sufficient information about Mobilepro to make an informed investment decision.
Among this information was the fact that the securities were restricted
securities.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The financial information set forth in the following discussion should be read
in conjunction with, and qualified in its entirety by, the financial statements
of the Company included elsewhere herein. These financial statements reflect
only the financial information of our prior business operations as a wireless
business solutions provider and are not reflective of our new business strategy
(See "BUSINESS").
FINANCIAL CONDITION AND CHANGES IN FINANCIAL CONDITION
OVERALL OPERATING RESULTS
We had no 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.
-21-
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.
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").
In September 2002 we shipped our prototype base station modem (version 1.0) to a
prospective customer who planned to use it for test and demonstration purposes.
No payment has yet been received from the shipment and under our revenue
recognition policy no revenue has yet been booked. This prototype version of the
modem is currently available in printed circuit board format and will be made
available to other potential customers. Continued product development will
evolve the base station modems from the boards to application specific
integrated circuits. The integrated circuits are custom products that are
designed for only one customer and can be sold only to that one customer; we are
that customer and we will in turn resell to our customers for their particular
applications. The printed circuit board version of the base station modem is
approximately 24 inches long by 16 inches wide and is built using discrete
electronic components such as integrated circuits, transistors, capacitors and
resistors. We intend to miniaturize most of the modem functions on this board to
two individual semiconductor chips, or integrated circuits, each of the
approximate size of one by one inch. One of the chips is commercially available
from Texas Instruments and will be programmed with our proprietary software that
is part of our technology while the other chip will be customized and
manufactured for our specific applications.
-22-
Product development plans include defining specifications for the next version
of the base station board subsequently leading to base station modem integrated
circuits. We believe that the timelines below demonstrate the current product
delivery schedule for the three projects, and the estimated costs associated
with achieving the milestones. This schedule could change depending on
challenges faced in engineering and development.
---------------------------------------------------------------------------------------------------------------
Project System Prototype Prototype IC Beta General
Definition Design Manufacturing Testing Manufacturing Testing Availability
---------------------------------------------------------------------------------------------------------------
Base Station V1.0 2000 2001 1Q2002 3Q2002 N/A N/A 1Q2003
Modem Board
---------------------------------------------------------------------------------------------------------------
Base Station Modem 1Q2003 2Q2003 3Q2003 3Q2003 4Q2003 1Q2004 1Q2004
Integrated Circuit
---------------------------------------------------------------------------------------------------------------
Handset Modem 1Q2003 2Q2003 4Q2003 4Q2003 1Q2004 1Q2004 2Q2004
Integrated Circuit
---------------------------------------------------------------------------------------------------------------
Radio Frequency 1Q2003 2Q2003 3Q2003 3Q2003 4Q2003 4Q2003 1Q2004
Integrated Circuit
---------------------------------------------------------------------------------------------------------------
The table below provides the estimated project development costs for the three
different main projects.
-------------------------------------------------------------------------------------------------
Estimated Project Development Dec 2002 - June 2003 July - Dec 2003 Total for Period
Costs
-------------------------------------------------------------------------------------------------
Base Station Modem Board and $2,100,000 $2,300,000 $4,400,000
Integrated Circuit
-------------------------------------------------------------------------------------------------
Handset Modem Integrated $700,000 $1,800,000 $2,500,000
Circuit
-------------------------------------------------------------------------------------------------
Radio Frequency Integrated $800,000 $1,100,000 $1,900,000
Circuit
-------------------------------------------------------------------------------------------------
Total Estimated Development $3,600,000 $5,200,000 $8,800,000
Costs
-------------------------------------------------------------------------------------------------
The estimated financing/liquidity needs for the period of December 2002 through
June 2003 is approximately $3,100,000, for the period July - December 2003 is
approximately $3,600,000, i.e. the aggregate for the period December 2002
through December 2003 is estimated to be approximately $6,700,000. This assumes
the collection of approximately $2,000,000 in revenues from the sale of our
products and supporting services. The sources of funding to support the
development is primarily three; the equity line of credit from Cornell capital,
the raising of private funds through private placement memoranda, and from
credits or equity contributions from strategic partners. We will constantly seek
alternative funding sources to supplement these three primary sources. Since the
equity line of credit with Cornell capital spans over 24 months we will not be
able to raise more than a maximum of $4,500,000 over the first 12 months from
Cornell Capital. For full project funding, this means that a minimum of
approximately $2,100,000 will need to be funded through private placement
arrangements, from credit or equity contributions from strategic partners or
through other alternative sources. Should it become apparent that we cannot
raise the funds as anticipated then we will re-evaluate the priorities between
the developments of the three main projects. We will attempt to reduce the
development costs by outsourcing some of the development activities to
engineering firms overseas and by acquiring licenses to developed technology
that we can integrate with our own developed technology.
-23-
The next generation (version 2.0) of our base station modem board will
incorporate up to 256 channels - up from the currently offered 4 channels. The
significance of this is that the more channels a modem board has the fewer
number of individual modem boards will be required for a particular base
station. This means that the base station equipment can be much smaller in size,
consume less power and be less expensive to manufacture and install. It also
means that a new type of miniaturized base stations can be developed to
incorporate the small area base station. In addition to the base station modem,
we intend to develop radio frequency integrated circuit chipsets for the
wireless markets. These chipsets will be designed to support the GSM and the
W-CDMA markets. Product development cycle of these chipsets is typically 12 to
14 months. We will outsource the manufacturing of the chipsets to a third party,
essentially categorizing MobilePro as a Fab-less developer of semiconductors. A
Fab-less semiconductor developer typically outsources its manufacturing entirely
and limits its activities to testing the manufactured chips.
The sales cycle for our products is about 6 to 9 months. Currently MobilePro is
offering our prototype modem board to potential prospects. MobilePro's primary
markets are Europe and Asia with North America being the secondary market. We
intend to build a sales team in these regions to support its customers. In
addition to investing in a direct sales force, we will continue to develop
business relationships with potential partners who can serve as an indirect
sales channel for our 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 radio frequency
integrated circuit development.
4) Develop direct and indirect sales and marketing channels for the
Company's products and services:
a. Develop business partnerships that embrace the Company as their
modem supplier for their advanced cellular handsets and user equipment.
b. Develop plans for extending our solution offerings for use in
additional global markets such as Asia and Europe.
5) Pay-down certain debt, such as a convertible debenture from Cornell
Capital in the amount of $250,000 plus accrued interest. We also intend to
pay-down part of debt owed to Mr. Daniel Lozinsky, a Director, and Mr. Arne
Dunhem, an officer and Director, during 2003. The total amount that we plan to
pay to Mr. Lozinsky and Mr. Dunhem during 2003 is approximately $100,000 out of
a total outstanding amount of $277,617.
6) General working capital purposes.
EMPLOYEES
We, as of March 31, 2002, 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".
-24-
Such statements are qualified in their entirety by reference to and are
accompanied by the above discussion of certain important factors that could
cause actual results to differ materially from such forward-looking statements.
We are currently unaware of any trends or conditions other than those previously
mentioned in this management's discussion and analysis that could have a
material adverse effect on the Company's consolidated financial position, future
results of operations, or liquidity. However, investors should also be aware of
factors that could have a negative impact on the Company's prospects and the
consistency of progress in the areas of revenue generation, liquidity, and
generation of capital resources. These include: (i) variations in revenue, (ii)
possible inability to attract investors for its equity securities or otherwise
raise adequate funds from any source should the Company seek to do so, (iii)
increased governmental regulation, (iv) increased competition, (v) unfavorable
outcomes to litigation involving the Company or to which the Company may become
a party in the future and, (vi) a very competitive and rapidly changing
operating environment. Other factors that might cause such a difference include,
but are not limited to, those discussed below:
RISK FACTORS
WE MAY NOT BE SUCCESSFUL IN INTEGRATING THE BUSINESS AND TECHNOLOGY OF NEOREACH
WITH THAT OF THE COMPANY, WHICH COULD ADVERSELY AFFECT THE QUALITY OF OUR
OPERATIONS, PRODUCTS AND PROCESSES. We acquired NeoReach, Inc. effective April
23, 2002. We may not be successful in integrating the business and technology of
NeoReach with the business and operations of the Company. Our failure to
integrate successfully could materially adversely affect our operating results,
financial condition and the trading price of our stock. Also, our integration
efforts may divert our management time and resources from necessary aspects of
our business and operations.
WE MAY NOT BE SUCCESSFUL IN INTEGRATING THE MANAGEMENT TEAM OF NEOREACH WITH
THAT OF OUR COMPANY, WHICH COULD ADVERSELY AFFECT THE LEADERSHIP OF OUR COMPANY,
DIVERT MANAGEMENT TIME AND ADVERSELY AFFECT THE BUSINESS AND RESULTS OF
OPERATIONS.
Mr. Daniel Lozinsky became our President and CEO in February 2002 after he
acquired 64.8% of our voting securities. After the acquisition of NeoReach, Mr.
Arne Dunhem, replaced Mr. Lozinsky as our President and CEO and Mr. Lozinsky
became our Senior Vice President. Our success depends to a significant extent on
the leadership and vision of Messrs. Dunhem and Lozinsky. Prior to the merger,
Messrs. Lozinsky and Dunhem had no experience working together. Failure to
successfully integrate the management teams of the two companies could adversely
affect the business and results of operations of the Company. Our future success
also depends on our ability to identify, attract, hire, retain and motivate
other well-qualified managerial, technical, sales and marketing personnel. There
can be no assurance that these professionals will be available in the market or
that we will be able to meet their compensation requirements.
THERE IS SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN DUE
TO RECURRING LOSSES AND WORKING CAPITAL SHORTAGES, WHICH MEANS THAT WE MAY NOT
BE ABLE TO CONTINUE OPERATIONS UNLESS WE OBTAIN ADDITIONAL FUNDING.
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
-25-
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.
WE FACE INTENSE COMPETITION FROM COMPANIES THAT HAVE MANY ADVANTAGES COMPARED TO
OUR COMPANY. We currently face significant competition in the telecommunications
industry, and expect that this competition will continue, particularly with
respect to the market within the telecommunications industry for wireless modem
technology. Our competitors include Qualcomm, Nokia, Ericsson, Siemens,
Motorola, Samsung and PrairieComm among others. Many of these competitors have
advantages, including:
- 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;
- 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.
WE MAY NOT BE ABLE TO EFFECTIVELY PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, THE
FOUNDATION OF OUR BUSINESS, WHICH COULD HARM OUR BUSINESS BY MAKING IT EASIER
FOR OUR COMPETITORS TO DUPLICATE OUR SERVICES. We regard certain aspects of our
products, processes, services and technology as proprietary. We have taken steps
to protect them with patents, copyrights, trademarks, restrictions on disclosure
and other methods. Despite these precautions, we cannot be certain that third
parties will not infringe or misappropriate our proprietary rights or that third
parties will not independently develop similar products, services and
technology. Any infringement, misappropriation or independent development could
cause us to cease operations.
We have filed patent applications with respect to our wireless modern
technology, but these may not be issued to us, and if issued, may not protect
our intellectual property from competition which could seek to design around or
-26-
invalidate these patents. Our failure to adequately protect our proprietary
rights in our products, services and technology could harm our business by
making it easier for our competitors to duplicate our services.
We own several Internet domain names, including www.mobilepro.com and
www.neoreach.com. The regulation of domain names in the United States and in
foreign countries may change. Regulatory bodies could establish additional
top-level domains or modify the requirements for holding domain names, any or
all of which may dilute the strength of our name. We may not acquire or maintain
our domain name or additional common names in all of the countries in which our
marketplace may be accessed, or for any or all of the top-level domains that may
be introduced. The relationship between regulations governing domain names and
laws protecting proprietary rights is unclear. Therefore, we may not be able to
prevent third parties from acquiring domain names that infringe or otherwise
decrease the value of our trademarks and other proprietary rights.
We may have to resort to litigation to enforce our intellectual property rights,
protect our trade secrets, determine the validity and scope of the proprietary
rights of others, or defend ourselves from claims of infringement, invalidity or
unenforceability. Litigation may be expensive and divert resources even if we
win. This could adversely affect our business, financial condition and operating
results such that it could cause us to reduce or cease operations.
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 MAY NOT BE ABLE TO KEEP UP WITH RAPID TECHNOLOGICAL CHANGES, WHICH COULD
RENDER OUR PRODUCTS AND PROCESSES OBSOLETE. The wireless communications industry
is characterized by rapid technological change, changes in customer requirements
and preferences, frequent introduction of products and services embodying new
technologies and the emergence of new industry standards and practices that
could render our existing technology and systems obsolete. Our future success
will depend on our ability to enhance and improve the responsiveness,
functionality, accessibility and features of our products. We expect that our
marketplace will require extensive technological upgrades and enhancements to
accommodate many of the new products and services that we anticipate will be
added to our marketplace. We cannot assure you that we will be able to expand
and upgrade our technology and systems, or successfully integrate new
technologies or systems we develop in the future, to accommodate such increases
in a timely manner.
WE 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.
-27-
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 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 MAY NOT EFFECTIVELY MANAGE THE GROWTH NECESSARY TO EXECUTE OUR BUSINESS PLAN,
WHICH COULD ADVERSELY EFFECT THE QUALITY OF OUR OPERATIONS AND OUR COSTS In
order to achieve the critical mass of business activity necessary to
successfully execute our business plan, we must significantly increase the
number of strategic partners and customers that use our technology. This growth
will place significant strain on our personnel, systems and resources. We cannot
be sure that we will manage our growth effectively, and our failure to do so
could cause us to cease operations. We also expect that we will continue to hire
employees, including technical, management-level employees, and sales staff for
the foreseeable future. This growth will require us to improve management,
technical, information and accounting systems, controls and procedures. We may
not be able to maintain the quality of our operations, control our costs,
continue complying with all applicable regulations and expand our internal
management, technical information and accounting systems in order to support our
desired growth.
28
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
-29-
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 31
Balance Sheet as of March 31, 2002 32
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 33
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. 34-35
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 36
Notes to Financial Statements 37-46
-30-
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
December 11, 2002
-31-
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.
-32-
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.
-33-
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.
-34-
MOBILEPRO CORP
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS IN CHANGES OF STOCKHOLDERS' DEFICIT (CONTINUED)
FOR THE YEARS ENDED MARCH 31, 2002 AND 2001 INCLUDING
THE FORMER COMPANY CRAFTCLICK.COM, INC. AND THE REVERSE ACQUISITION THAT
OCCURRED AS OF JUNE 1, 2001
ADDITIONAL NET
COMMON STOCK PREFERRED STOCK PAID-IN ACCUMULATED STOCKHOLDERS'
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.
-35-
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.
-36-
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:
-37-
MOBILEPRO CORP
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2002 AND 2001
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEVELOPMENT STAGE COMPANY
Mobilepro Corp is a development stage company. The Company since April
23, 2002 devotes substantially all of its efforts to researching and
developing technology for the third generation wireless waves. Before
the acquisition of NeoReach, Inc., Mobilepro Corp focused on the
integration and marketing of complete mobile information solutions to
the business market through strategic partnership with established
firms already delivering information technology consulting, wireless
service and vertical market application products and services.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments and other
short- term investments with an initial maturity of three months or
less to be cash or cash equivalents.
REVENUE RECOGNITION
The Company was a development stage company and had no revenues during
the period reported. For the period going forward, the Management
intends to adopt a new revenue policy as defined below.
The Company will recognize revenue both from sales of products and from
service contracts. Revenue from product sales that contain embedded
software will be recognized in accordance with the provisions of the
American Institute of Certified Public Accountants Statement of
Position 97-2, "Software Revenue Recognition."
Revenue from product sales will be recognized based on the type of
sales transaction as follows:
Shipments to Credit-Worthy Customers with No Portion of the Collection
Dependent on Any Future Event: Revenues are recorded at the time of
shipment.
Shipments to a Customer without Established Credit: These transactions
are primarily shipments to customers who are in the process of
obtaining financing and to whom the Company has granted extended
payment terms. Revenues will be deferred (not recognized) and no
receivable is recorded until a significant portion of the sales price
is received in cash.
-38-
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)
Shipments where a Portion of the Revenue is Dependent Upon Some Future
Event: These consist primarily of transactions involving value-added
resellers ("VAR") to an end user. Under these agreements, revenues will
be deferred and no receivable is recorded until a significant portion
of the sales prices is received in cash. On certain transactions a
portion of the payment is contingent upon installation or customer
acceptance. Upon non-acceptance, the Customer may have a right to
return the product. The Company will not recognize revenue on these
transactions until these contingencies have lapsed.
Certain of the Company's product sales are sold with
maintenance/service contracts. The Company will allocate revenues to
such maintenance/service contracts based on vendor-specific objective
evidence of fair value as determined by the Company's renewal rates.
Revenue from maintenance/service contracts will be deferred and
recognized ratably over the period covered by the contract.
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.
-39-
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)
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.
-40-
MOBILEPRO CORP
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2002 AND 2001
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS (LOSS) PER SHARE OF COMMON STOCK
Historical net income (loss) per common share is computed using the
weighted average number of common shares outstanding. Diluted earnings
per share (EPS) includes additional dilution from common stock
equivalents, such as stock issuable pursuant to the exercise of stock
options and warrants. Common stock equivalents were not included in the
computation of diluted earnings per share when the Company reported a
loss because to do so would be antidilutive for periods presented.
The following is a reconciliation of the computation for basic and
diluted EPS:
MARCH 31, MARCH 31,
2002 2001
------------ ------------
Net loss $(2,898,402) $(1,009,193)
Weighted-average common shares
Outstanding (Basic) 6,462,746 8,750,000
Weighted-average common stock
Equivalents
Stock options -- --
Warrants -- --
Weighted-average common shares
Outstanding (Diluted) 6,462,746 8,750,000
Options and warrants outstanding to purchase stock were not included in
the computation of diluted EPS for March 31, 2002 and 2001 because
inclusion would have been antidilutive.
-41-
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.
-42-
MOBILEPRO CORP
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2002 AND 2001
NOTE 5- STOCKHOLDERS' DEFICIT
The beginning balances reflected as of March 31, 2000 through June 1,
2001 are those of the former company (registrant) Craftclick.com, Inc.
On June 6, 2001 Craftclick.com, Inc. and Mobilepro Corp merged under a
reverse merger as of June 1, 2001. Upon that merger the stockholders'
equity of Mobilepro Corp (a former private company) under a
recapitalization, became that equity of the 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.
-43-
MOBILEPRO CORP
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2002 AND 2001
NOTE 5- STOCKHOLDERS' DEFICIT (CONTINUED)
On February 15, 2002, the Company issued 106,000 shares for services at
a value of $111,300 ($1.05 per share), the fair value of the Company's
stock at that time.
On February 19, 2002, the Company issued 25,000 shares in conversion of
a note payable at a value of $26,250 ($1.05 per share), the fair value
of the Company's stock at that time.
On March 18, 2002, the Company issued 960,000 shares for services.
These shares were issued at 55 cents per share ($528,000) based on a
Board Resolution on March 6, 2002.
NOTE 6- LONG-TERM DEBT
In February, 2002, as part of the Company's President's private
purchase of stock, the Company entered into two (2) promissory notes of
$37,500 each ($75,000 total) with the seller and a related entity to
the seller. These notes are due September 1, 2002 at an annual rate of
interest on the notes of 5%. Should the Company fail to pay the notes
on the due date, interest will be charged at 15%. Interest expense for
2002 was $469.
NOTE 7- DUE TO OFFICER
The President of Mobilepro Corp loaned the Company, net $44,262 in
February 2002 to pay certain creditors at 5% interest due on demand.
The officer has waived interest until April 2002.
NOTE 8- SUBSEQUENT EVENTS
On April 23, 2002 the Company consummated the purchase of its
wholly-owned subsidiary NeoReach, Inc. On March 21, 2002, NeoReach,
Inc., a Delaware Company, and Mobilepro Corp entered into the above
Agreement and Plan of Merger. NeoReach, Inc. is a development stage
company designing state of the art modem solutions to support third
generation (3G) wireless communications systems. Mobilepro Corp
exchanged 12,352,129 shares of its common stock for this purchase.
NeoReach, Inc. in April 2002 received notice that two of the six filed
patent applications relating to its technology innovations have been
allowed by the U.S. Patent and Trademark Office and the review process
for the other four are still under way.
-44-
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.
-45-
MOBILEPRO CORP
(FORMERLY CRAFTCLICK.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2002 AND 2001
NOTE 8- SUBSEQUENT EVENTS (CONTINUED)
The Company on May 31, 2002, entered into a Securities Purchase
Agreement with cetain 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.
-46-
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.
Name Age Position Director or 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, Inc. February, 2000 2003
--------------------------------------------------------------------------------------------------------------------------
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 October 2001 and February
2002 working as a strategic financial and management advisor. Mr. Lozinsky was
between March 2001 and October 2001
-47-
President and CEO of VCmed Inc. a scientific medical start-up company that was
attempting to bring to the market Cancer Research technology developed at MIT
and Harvard, which allowed for early detection not otherwise available. Mr.
Lozinsky was between February 1999 and February 2001working as a business
advisor to include public relations firms for international business. Prior to
that Mr. Lozinsky was between April 1995 and January 1999 senior software
engineer of AOL, Host Systems internet department, that allowed to meet AOL's
growing Internet demands during the highest AOL's growth period between 96 and
99, when the company grew from 4 million to 21 million users. He was working for
AOL's MIS (BISY) department between 4/95 - 6/96. Prior to that Mr. Lozinsky was
employed as a senior software engineer at Eastman Kodak Corporation in Rochester
NY between 9/89 - 4/95. He was an internal software consultant to multiple
Kodak's lines of business. Mr. Lozinsky worked on Kodak PhotoCD system that is
widely available now and allows scanning film into digital format and printing
to paper or CD. He specifically worked for CD writer devices and testing
firmware software components that he developed for the system. During those
years he worked for Kodak's Mass Memory Division that manufactured and sold
optical drives and jukeboxes to commercial companies and government offices.
Working as a designer and developer of software and, occasionally as a support
engineer, he participated in winning for Kodak and delivering large government
contracts to include ADMAPS to US NAVY Printing and Publishing. During that
project Mr. Lozinsky worked both in Rochester and at the Navy Technology Pilot
Lab at Port Hueneme, Ca. Prior to that, between 8/87 - 9/88, Mr. Lozinsky worked
as a programmer analyst for PaineWebber Strategic Technology Department, on the
PaineWebber Backup System to the Maine Network at the Weehaken Center in NJ.
Prior to that, during 8/85 - 5/87, Mr. Lozinsky worked as a programmer and
systems analyst for Merrill Lynch, Real Time Pricing Group that delivers NYSE
financial data to different departments of Merrill Lynch. Mr. Lozinsky holds
MS/CS from Stevens Institute of Technology in Hoboken NJ, 1/89. He also holds
BS/CS from Polytechnic Institute of NY, 1/84.
Mr. Arne Dunhem was appointed a Director and Treasurer of the Company in
February 2002. Mr. Dunhem has over twenty-eight years general management and
engineering experience with large complex multinational corporations, large
international organizations as well as early stage technology companies. He has
been instrumental in arranging more than $300 million in investor and vendor
financing commitments and is knowledgeable in all aspects of business,
management, information systems, network operations and engineering. Between
July 2001 and January 2002 Mr. Dunhem was working as a strategic business
consultant and was in January 2002 hired by Neoreach, Inc. as its President &
CEO. Mr. Dunhem was between November 1998 and June 2001 the Chairman & CEO of
erbia, Inc. a long-distance communications company where he took the company
from its start-up phase through the sale of the operation to another company. He
was working between January 1998 and October 1998 as a strategic business
consultant. Prior to this he was between 1993 and September 1997 the Chairman of
Tele8 Kontakt AB, a Swedish nationwide start-up wireless operator and also
between 1993 and December 1997 the Chairman of Nordiska Tele8 AB of Sweden, a
long distance and local telephone service company. Here again, he took the
company from its start-up phase through full operation and eventually the sale
of the companies. Mr. Dunhem was between September 1989 and April 1990 the
Executive Vice President, Engineering & Operations of Comvik Skyport AB, a
Swedish telecommunications company providing satellite and data communications
services. During the period September 1978 and June 1989 Mr. Dunhem was with
INTELSAT, Washington, D.C., an international satellite communications
organization in a capacity growing from staff engineer to program manager where
he had responsibilities for building-up some of the world's largest command,
control and monitoring networks. He has also been with the Saab-Scania
corporation and the Swedish Telecom. 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
-48-
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.
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, small area base stations, and satellite communications.
During his eleven years between May 1981 and June 1992 with Motorola, the Senior
Product Manager of the Cellular Business Marketing and Sales unit developed
wireless 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.
Subsequent to the period covered under this report, Mr. Min, on November 13,
2002, resigned from the Board of Directors of Neoreach, Inc. 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.
-49-
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.
-50-
COMPENSATION OF DIRECTORS
We do not currently compensate directors in cash for any services provided as a
director. Persons who are directors and employees have been additionally
compensated for their services as a director in the form of common stock of the
Company. There is no formal plan in place for compensation of persons who are
directors who are not employees of the Company, but it is expected that in the
future we will create a formal remuneration and reimbursement plan.
OTHER COMPENSATION ARRANGEMENTS
On December 4, 2001, we registered 1,000,000 shares of our common stock in an
S-8 filing with the Securities and Exchange Commission as part of the 2001
Equity Performance Plan. In March 2002, we issued 355,000 shares of the
Company's common stock to Mr. Arne Dunhem, 255,000 shares of the Company's
common stock to Mr. Daniel Lozinsky, and 25,000 shares of the Company's common
stock to Mr. Scott Smith for compensation as officers and directors. In June
2001, we issued 250,000 to Mr. Scott Smith and 50,000 to Mr. Howard Geisler, Mr.
Mitchell Geisler, and Ms. Cindy Roach for compensation as officers and directors
(See "RECENT SALES OF SECURITIES").
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of July 11, 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)
--------------------------------------------------------------------------------------------------------------
Series A
Common 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.
-51-
(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. These options were granted under an Employment
Agreement between Neoreach and Mr. Arne Dunhem dated January 4, 2002
and were converted to Mobilepro options upon the merger between
Neoreach and Mobilepro. Mr. Dunhem is currently 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
-52-
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.
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.
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Also in connection with the merger effective June 1, 2001, between MobilePro and
Craftclick, a significant shareholder, Dungavel, Inc. converted a $50,000 note
payable plus accrued interest into 3,000,000 shares of common stock of the
Company. The note payable was originally issued by MobilePro prior to the merger
into the public entity. The fair market value of the issued stock was $480,000.
The difference between the face value of the note and its accrued interest was
expensed in the period.
In February of 2002, Mr. Daniel Lozinsky, the President of the Company loaned
the Company a net amount of $44,262 to pay certain creditors at 5% interest due
on demand. The officer has waived interest until April 2002.
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,
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in some instances, only so long as Dungavel owns at least 2.5% of the issued and
outstanding common stock or the right to acquire 2.5% of the issued and
outstanding common stock
In addition, the Investor Rights Agreement provides for registration rights for
common stock owned by Dungavel, and the right of first refusal and tag along
rights in the event Mr. Smith or his wife sell any of their shares of common
stock in a private transaction. Mr. and Ms. Smith have agreed that they will
also vote any shares of common stock, over which they have voting control, in
favor of the person Dungavel selects as its director nominee.
On November 19, 2001, the Company implemented a 200 for 1 reverse stock split,
which resulted in 84,492 shares outstanding. Concurrent with the reverse stock
split and as required pursuant to the Investor Rights Agreement, the Company
issued 3,000,000 new shares of common stock to Dungavel, Inc., an investor in
the Company.
On February 19, 2002, the Company entered into a Stock Purchase Agreement with
Mr. Daniel Lozinsky and Dungavel, Inc., and another Stock Purchase Agreement
with Mr. Daniel Lozinsky, Ms. Joann Smith and Mr. Scott Smith. Dungavel, Inc.,
Ms. Joann Smith and Mr. Scott Smith were all significant stockholders of the
Company at the time. Pursuant to these two stock purchase agreements, this
Investors Rights Agreement was terminated.
NEOREACH PURCHASE AGREEMENT
On February 19, 2002, the Company entered into a Stock Purchase Agreement with
Mr. Daniel Lozinsky and Dungavel, Inc., and another Stock Purchase Agreement
with Mr. Daniel Lozinsky, Ms. Joann Smith and Mr. Scott Smith. Dungavel, Inc.,
Ms. Joann Smith and Mr. Scott Smith were all significant stockholders of the
Company at the time. Pursuant to these two stock purchase agreements, Mr.
Lozinsky became the majority shareholder of MobilePro.
Subsequent to but in connection with the Stock Purchase Agreements, on March 21,
2002, Neoreach, Inc., a Delaware company and Mobilepro entered into an Agreement
and Plan of Merger pursuant to which a newly formed, wholly-owned subsidiary of
Mobilepro would merge into Neoreach, in a tax-free one-for-one stock exchange
transaction. The merger was consummated on April 23, 2002. Mr Daniel Lozinsky
and Mr. Arne Dunhem, both members of the Company's Board of Directors, were both
significant shareholders and members of the Board of Directors of Neoreach,
Inc., holding approximately 32.5% and 18.5% of Neoreach's common stock,
respectively.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
2.1 Articles of Merger of CraftClick.com, Inc. (a Utah corporation) and
CraftClick.com, Inc. (a Delaware corporation) (incorporated by
reference to the Company's Form S-8 Registration Statement as filed
with the Securities and Exchange Commission on May 11, 2001 (File No.
333-60726)
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)
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3.3 Certificate of Amendment of Certificate of Incorporation of Mobilepro
Corp (a Delaware corporation) (incorporated by reference to the
Company's Form S-8 Registration Statement as filed with the Securities
and Exchange Commission on December 4, 2001 (File No. 333-74492)
4.1 2001 Performance Equity Plan (incorporated by reference to the
Company's Form S-8 Registration Statement as filed with the Securities
and Exchange Commission on May 11, 2001 (File No. 333-60726)
4.2 2001 Equity Performance Plan (incorporated by reference to the
Company's Form S-8 Registration Statement as filed with the Securities
and Exchange Commission on December 4, 2001 (File No. 333-74492)
10.1 Agreement and Plan of Merger dated as of June 1, 2001, between
CraftClick.Com, Inc. a Delaware corporation, and Mobilepro Corp., a
Delaware corporation, (incorporated by reference to the Company's Form
8-K Current Report as filed with the Securities and Exchange
Commission on June 20, 2001 (File No. 002-97869-D)
10.2 Stock Purchase Agreement dated February 19, 2002 with Mr. Daniel
Lozinsky and Dungavel, Inc., and another Stock Purchase Agreement
dated February 19, 2002 with Mr. Daniel Lozinsky, Ms. Joann Smith and
Mr. Scott Smith. Dungavel, Inc. (incorporated by reference to the
Company's Form 8-K Current Report as filed with the Securities and
Exchange Commission on March 6, 2002 (File No. 002-97869-D)
10.3 Agreement and Plan of Merger dated March 21, 2002, consummated April
23, 2002, between Neoreach, Inc., a Delaware company and Mobilepro.
(incorporated by reference to the Company's Form 8-K Current Report as
filed with the Securities and Exchange Commission on April 5, 2002
(File No. 002-97869-D)
10.4 Confidentiality and Non-disclosure Agreement dated April 9, 2002
between NeoReach, Inc. a Delaware corporation and Prime Circuits, Inc.
(incorporated by reference to the Company's Form 10KSB/A Annual Report
as filed with the Securities and Exchange Commission on October 4,
2002 (File No. 002-97869-D))
23. Consent letter from Bagell, Josephs & Company, L.L.C. CPA, dated
December 11 2002 (Filed herewith)
99.1 Certification by Arne Dunhem, Chief Executive Officer and Chief
Financial and Accounting Officer pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Filed herewith)
b) Reports on Form 8-K
During the fourth quarter of the fiscal year ended March 31, 2001 we filed the
following reports on Form 8-K with the Securities and Exchange Commission:
The Company filed a Current Report on Form 8-K dated February 23, 2001 with the
Securities and Exchange Commission on March 7, 2001. The Current Report was
regarding that the Company sold substantially all of its assets to a group of
California entrepreneurs (the "Group") in exchange for the forgiveness of
outstanding secured loans made by the Group to the Company totaling $546,000
plus accrued interest of $9,625 and a payment of $77,275 to substantially redeem
all of the Company's current obligations.
The Company filed a Current Report on Form 8-K dated March 27, 2001 with the
Securities and Exchange Commission on March 28, 2001. The Current Report was
regarding the change of control of the Company, contracted on March 16, 2001 and
consummated on March 27, 2001, to Dungavel, Inc., a Bahamian company, from
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Metropolitan Capital Partners LLC, arising from the private sale of the
outstanding stock of the Company representing greater than 50% of the voting
control of the Company.
Subsequent to March 31, 2001 we filed the following report on Form 8-K with the
Securities and Exchange Commission:
On June 6, 2001, we reported that CraftClick.Com, Inc. a Delaware corporation
("CraftClick"), and Mobilepro Corp., a Delaware corporation ("Mobilepro"),
entered into an Agreement and Plan of Merger dated as of June 1, 2001 ("Merger
Agreement"). Under the Merger Agreement Mobilepro merged with and into
CraftClick, with CraftClick being the surviving corporation and the certificate
of incorporation and bylaws of CraftClick being the constituent documents of the
surviving corporation ("Merger").
In connection with the Merger, Mr. Scott R. Smith was appointed as a director of
CraftClick by the existing board of directors. After the appointment, Mr.
Mitchell Geisler and Ms. Cindy Roach, two of the then current directors of
CraftClick, Inc. resigned. Mr. Smith was appointed the President and Chief
Executive Officer and Chairman and Mr. Howard Geisler was appointed the
secretary of CraftClick.
In connection with the Merger, CraftClick issued to Ms. Joann M. Smith an
aggregate of 8,227,663 shares of common stock representing approximately 55% of
the 14,907,196 issued and outstanding shares of common stock of CraftClick
immediately after the Merger. Ms. Smith is the wife of Mr. Scott R. Smith, the
President, Chief Executive Officer and Chairman of CraftClick after the Merger.
Ms. Smith will be the single largest stockholder of CraftClick after the Merger.
On August 8, 2001, we filed an amended 8-K to include the pre-merger audited
financials of Mobilepro Corp.
The Company filed a Current Report on Form 8-K dated February 19, 2002 with the
Securities and Exchange Commission on March 6, 2002. The Current Report was
regarding a change of control of registrant. On February 19, 2002, the Company
entered into a Stock Purchase Agreement with Mr. Daniel Lozinsky and Dungavel,
Inc., and another Stock Purchase Agreement with Mr. Daniel Lozinsky, Ms. Joann
Smith and Mr. Scott Smith. Dungavel, Inc., Ms. Joann Smith and Mr. Scott Smith
were all significant stockholders of the Company at the time. Pursuant to these
two stock purchase agreements, Mr. Lozinsky, an accredited investor, paid
$160,000 in cash out of his own personal funds and assumed the Company's debt of
approximately $25,000 in order to acquire an aggregate of 2,057,733 shares of
our Common Stock, representing approximately 64.7% of the Company's voting
securities. On February 28, 2002, Mr. Scott Smith resigned as the President, CEO
and Chairman of the Company, and Mr. Lozinsky became the President and CEO of
the Company.
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 valuation of Neoreach in the merger agreement was based on several factors,
including that over twenty-five man-years of development efforts had been
accumulated for achieving the prototype 3G modem boards for the base station
applications, that a management team and engineering team were in place, that
office and laboratory facilities were in place, that six patents had been filed
or were already approved, and that contacts and relationships had already been
established with potential customers both in the United States and Korea. The
transaction concluded following arms-length negotiations. The Company believes
the issuance of the stock to be exempt from registration under Section 4(2) of
the Securities Act. The
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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.
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: December 11, 2002 MOBILEPRO CORP.
Bys: /s/ Arne Dunhem
-------------------------------------------------------
Arne Dunhem
President and Chief Executive Officer
(Principal financial and principal accounting officer)
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
/s/ Arne Dunhem Chief Executive Officer and Chairman
-------------------------------------------
Arne Dunhem (Principal financial and principal accounting officer)
/s/ Daniel Lozinsky Director
-------------------------------------------
Daniel Lozinsky
CERTIFICATION
I, Arne Dunhem, certify that:
1. I have reviewed this annual report on Form 10-KSB/A of Mobilepro Corp.;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this report
(the "Evaluation Date"); and
c) presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. I have disclosed, based on our most recent evaluation, to the registrant's
auditors and the audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
December 11, 2002
/s/ Arne Dunhem
Arne Dunhem
Chief Executive Officer
Principal Financial and Principal Accounting Officer
BAGELL, JOSEPHS & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
SUITES 400-403
200 HADDONFILED-BERLIN ROAD
GIBBSBORO, NEW JERSEY 08026
(856) 346-2828 FAX (856) 346-2882
December 11, 2002
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Form Amended 10KSB March 31, 2002
Ladies and Gentlemen:
We hereby consent to the incorporation by reference in the Amended 10KSB of
Mobilepro Corp. (the "company") of our report dated July 10, 2002 on the
Company's consolidated financial statements for the year ended March 31, 2002,
which report contains and explanatory paragraph relating to certain significant
risks and uncertainties which conditions raise substantial doubt about the
Company's ability to continue as an ongoing concern relating to those
consolidated financial statements of the Company as of and for the year ended
March 31, 2002, Additionally, we consent to the use of our quarterly reviewed
Mobilepro Corp. consolidated financial statements for the three months ended
June 30, 2002.
We hereby consent to all references to our firm
/s/ Bagell, Josephs & Company, L.L.C.
BAGELL, JOSEPHS & COMPANY, L.L.C.
Certified Public Accountants
Gibbsboro, New Jersey
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Arne Dunhem, the Chief Executive Officer and Principal Financial and
Principal Accounting Officer of Mobilepro Corp. (the "Company"), certify,
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section
1350, that to the best of my knowledge:
(1) the amended Annual Report on Form 10-KSB/A of the Company for the fiscal
year ended March 31, 2002 (the "Report") fully complies with the requirements of
Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m
or 78o(d)); and
(2) the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
Dated: December 11, 2002
/s/ Arne Dunhem
--------------------
Name: Arne Dunhem
----------------
Title: President and Chief Executive Officer
(Principal Financial and Principal Accounting Officer)