0001050502-01-500465.txt : 20011010 0001050502-01-500465.hdr.sgml : 20011010 ACCESSION NUMBER: 0001050502-01-500465 CONFORMED SUBMISSION TYPE: SB-2/A PUBLIC DOCUMENT COUNT: 6 REFERENCES 429: gov.sec.edgar.dataobjects.object.PDSubFN429Data@8ea6b6b FILED AS OF DATE: 20011005 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GLOBUS WIRELESS LTD CENTRAL INDEX KEY: 0000939402 STANDARD INDUSTRIAL CLASSIFICATION: RADIO TELEPHONE COMMUNICATIONS [4812] IRS NUMBER: 880228274 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SB-2/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-62562 FILM NUMBER: 1752999 BUSINESS ADDRESS: STREET 1: 1955 MOSS COURT CITY: KELOWA B C CANADA V1 STATE: A1 BUSINESS PHONE: 2508603130 MAIL ADDRESS: STREET 1: 1980 WINDSOR ROAD CITY: KELOWA B C CANADA STATE: A1 FORMER COMPANY: FORMER CONFORMED NAME: GLOBUS CELLULAR & USER PROTECTION LTD DATE OF NAME CHANGE: 19950224 SB-2/A 1 globussb2a4.txt SB-2/A AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON October 5, 2001 REGISTRATION NO. 333-62562 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------------ Amendment No. 4 To FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ----------------------------- GLOBUS WIRELESS, LTD. (Exact name of small business issuer as specified in its charter) NEVADA 4812 88-0228274 (State or other jurisdiction of (Primary standard industrial (I.R.S. Employer incorporation or organization) classification code Identification No.) number) ------------------------------------------- 1955 Moss Court Kelowna, British Columbia Canada V1Y 9L3 (250) 860-3130 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) ------------------------------------------- Bernard Penner Chairman 1955 Moss Court Kelowna, British Columbia Canada V1Y 9L3 (250) 860-3130 (Name and address, including zip code, and telephone number, including area code, of agent for service) ------------------------------------------ Copies to: Gregory Sichenzia, Esq. Sichenzia, Ross, Friedman & Ference LLP 135 West 50th Street, 20th Floor New York, New York 10020 (212) 664-1200 ------------------------------------------ Approximate date of proposed sale to public: As soon as practicable after this registration statement becomes effective. ------------------------------------------ If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended (the "Securities Act"), check the following box. [X] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] --------------------------
CALCULATION OF REGISTRATION FEE ================================== ============== ================ ================== ============== PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION TO BE REGISTERED REGISTERED PER SECURITY(1) PRICE(1) FEE ---------------------------------- -------------- ---------------- ------------------ -------------- Common stock, $.001 par value, 15,000,000 (2) $0.30 $4,500,000 $1,125 underlying series A convertible preferred stock ---------------------------------- -------------- ---------------- ------------------ -------------- Common stock, $.001 par value 425,236(3) $0.30 $125,571 $32 underlying warrants ---------------------------------- -------------- ---------------- ------------------ -------------- Common stock, $.001 par value, 12,500,000(4) $0.30 $3,750,000 $938 underlying convertible notes ---------------------------------- -------------- ---------------- ------------------ -------------- Common stock, $.001 par value 500,000(5) $0.30 $150,000 $38 underlying warrants ---------------------------------- -------------- ---------------- ------------------ -------------- TOTAL 28,425,236 $8,525,571 $2,133(6) ================================== ============== ================ ================== ==============
(1) Estimated solely for the purpose of determining the registration fee. (2) Issuable upon the conversion of our series A convertible preferred stock issued December 29, 2000. This is not intended to constitute a prediction as to the number of shares of our common stock into which the convertible preferred stock will be converted. The number of shares currently issuable upon conversion of the outstanding series A convertible preferred stock is one third of this amount based on an offering amount of $0.30. The actual number of shares to be issued on conversion is dependent, in part, on the price of the common stock at the time of conversion. (3) Common stock issuable upon the conversion of warrants issued in connection with the December 29, 2000 financing. (4) Issuable upon the conversion of our convertible notes issued on May 31, 2001 and June 7, 2001. This is not intended to constitute a prediction as to the number of shares of our common stock into which the convertible preferred stock will be converted. The number of shares currently issuable upon conversion of the outstanding convertible notes is one third of this amount based on an offering amount of $0.30. The actual number of shares to be issued on conversion is dependent, in part, on the price of the common stock at the time of conversion. (5) Common stock issuable upon the conversion of warrants issued in connection with the May 31, 2001 and June 7,2001 financing. (6) Previously paid with filing registration no. 333-53760. -------------------------- The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. ================================================================================ 2 The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. PROSPECTUS October 4 2001 GLOBUS WIRELESS, LTD. 28,425,236 Shares of Common Stock -------------------------------------------------------------------------------- This prospectus relates to the resale by the selling stockholders of up to 28,425,236 shares of our common stock. The selling stockholders may sell common stock from time to time in the principal market on which the stock is traded at the prevailing market price or in negotiated transactions. The selling stockholders are deemed to be underwriters of the shares of common stock which they are offering. Please see the "Selling Stockholders" section on page 46 in this prospectus for a complete description of all of the selling stockholders. We will not receive any proceeds from the sale of shares by the selling stockholders. However, we will receive proceeds upon the exercise of any warrants that may be exercised by the selling stockholders. Our common stock is quoted on the Over-the-Counter Bulletin board under the symbol "GBWL." On September 21, 2001, the closing price of our common stock was $0.30 per share. -------------------------------------------------------------------------------- This investment involves a high degree of risk. See the "Risk Factors" beginning on page 7. -------------------------------------------------------------------------------- Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is complete or accurate. Any representation to the contrary is a criminal offense. -------------------------------------------------------------------------------- 3 TABLE OF CONTENTS Section Page Number ------- ----------- Prospectus Summary ................................................ 5 Risk Factors ...................................................... 7 Recent Financings ................................................. 13 Use of Proceeds ................................................... 15 Price Range of Common Stock ....................................... 16 Dividend Policy ................................................... 17 Selected Financial Data ........................................... 18 Management's Discussion and Analysis of Financial Condition and Results of Operation ...... 19 Business .......................................................... 27 Legal Proceeding .................................................. 32 Description of Property ........................................... 33 Management ........................................................ 34 Summary Compensation Table ........................................ 36 Security Ownership of Management and Certain Beneficial Owners .... 39 Certain Relationships ............................................. 41 Description of Capital Stock ...................................... 42 Selling Stockholders .............................................. 44 Plan of Distribution .............................................. 47 Shares Eligible for Future Sale ................................... 49 Legal Matters ..................................................... 50 Experts ........................................................... 50 Changes in Certifying Accountant .................................. 50 How to Obtain More Information About Globus Wireless, Ltd. ........ 51 Index to Financial Statements ..................................... F-1 4 PROSPECTUS SUMMARY Globus Wireless, Ltd. Our Business Our business is comprised of two distinct divisions, specific absorption rate compliance and engineered solutions laboratory operated by our wholly-owned subsidiary Celltech Research Inc., and a wireless products distribution division. Specific Absorption Rate Compliance and Engineered solutions laboratory Celltech Research Inc, a wireless compliance testing laboratory serves over 35 wireless equipment manufactures who regularly bring their new products to us for emissions testing and license submission. We help wireless equipment manufacturers satisfy their applicable government regulations, as well as carrier client and consumer client performance requirements. Celltech also serves as a testing agency and filing center for wireless equipment manufactures and their requirement to satisfy Federal Communication Commission and Industry Canada regulations for wireless communication devices. Through proprietary and trade secret processes, we provide solutions to wireless equipment manufactures, to assist in their products achieving lower specific absorption rate measures and enhanced performance, in compliance with regulatory guidelines, for such wireless communications products such as wireless phones, laptops, personal digital assistants, family service radios, marine and two-way radios. Specific absorption rate is the measurement of heat generated in human tissue by radio frequency radiation from wireless transmitting devices, such as cellular phones, wireless modems, cordless telephones, etc. Performance objectives include increased range, clarity, battery life, fewer failed attempts, and dropped calls. In addition we design, and engineer, wireless devices components, products and technologies, delivering products that are relevant to market needs that address the health and safety issues for all wireless devices. Wireless Product Distribution Our product distribution includes but is not limited to a variety of wireless equipment manufacturers' and after-market handsets and accessories, as well as Globus branded proprietary wireless products. We have in the past year grown and expanded our product distribution capabilities with the acquisitions of Edge Continental Inc., now Globus Wireless Canada Ltd, and PCI Marketing & Communications Inc, d/b/a. ShopWireless.Com, now Globus On-Line Inc., both Canadian subsidiary corporations and both distributing lower margin commodity-type wireless product. While we will continue to sell an array of wireless equipment, manufacturers cellular handsets, and accessory product, we are strategically moving towards a greater emphasis on distribution of Globus proprietary product, specifically targeting higher margin, value-added, and differentiated sales opportunities. Our Operations We have experienced negative cash flow since 1994. We have incurred a net loss in each year of our existence and expect to incur a net loss at least through 2001. We incurred losses of $737,836 in 1998, $868,596 in 1999 and $1,205,163 in 2000. We incurred a loss of $1,539,202 for the nine months ended July 31, 2001. We may never make a profit. These losses are due in part to 5 expenses associated with sales and marketing, overhead, market development. As a result, our accumulated deficit has increased from $2,762,719 at October 31, 1997 to $7,447,786 at July 31, 2001. We cannot project with certainty that losses will not continue in the short term as we grow and integrate our businesses, and that losses will not continue in the long term should we be unsuccessful in our business and integration efforts. Our Strategy o To become a profitable design and development company of relevant, proprietary, patented wireless technologies that increase user safety and/or performance; o To sell worldwide, renowned quality, high performance wireless products with Globus branded proprietary technology. Our Offices We maintain executive offices at our research center, located at 1955 Moss Court, Kelowna, British Columbia, Canada V1Y 9L3 and our telephone number is (250) 860-3130. We operate marketing, sales and distribution centers in Markham, Ontario, Canada; Los Angeles, California, USA; and Seoul, Korea. 6 RISK FACTORS You should carefully consider the following factors as well as other information contained in this prospectus before deciding to invest in shares of our securities. Risk Factors Relating To Our Business We Expect to Incur Losses for the Foreseeable Future and Continued Losses Could Result in our Inability to Fund Business Operations and Cause our Stock Price to Decline. We have incurred a net loss in each year of our existence and expect to incur a net loss at least through 2001. We incurred losses of $868,596 in 1999 and $1,205,613 in 2000. We incurred a loss of $1,539,202 for the nine months ended July 31, 2001. We may never make a profit. These losses are due in part to expenses associated with sales and marketing, overhead, market development. As a result, our accumulated deficit has increased from $4,344,891 at October 31, 1999 to $7,447,786 at July 31, 2001. If we continue to incur losses, we may not be able to fund continuing business operations, which could lead to the limitation or closure of some or all of our operations. Funding For Our Capital Needs Is Not Assured, And We May Have To Curtail Our Business If We Cannot Find Adequate Funding. Although we are exploring the possibilities of additional financing with the Laurus Master Fund, Ltd., we currently have no legally binding commitments with any third parties to obtain any material amount of additional equity or debt financing. We cannot assure you that we will be able to obtain any additional financing in the amounts or at the times that we may require the financing or, if we do obtain any financing, that it would be on acceptable terms. As a result, we cannot assure you that we will have adequate capital to implement future expansions and enhancements of our wireless technology, to maintain our current levels of operation or to pursue strategic acquisitions. Our failure to obtain sufficient additional financing could result in the delay or abandonment of some or all of our development, expansion and expenditures, which could have an adverse effect on us and on the value of our common stock. The Loss Of Any Of Our Significant Customers Would Likely Have A Material Adverse Effect On Our Revenues. There is a limited number of wireless equipment manufacturers globally that could benefit with our proprietary specific absorption rate solution process, and a limited number of other wireless equipment manufacturers that may benefit. Additionally, until such time as we undertake an expansion of research facilities at Celltech, there is a finite number of wireless equipment manufacturer clients and products that can be processed in a given time. For product distribution sales as of October 31, 2000, our dealer customer base was approximately 900 clients, of which only 50% are considered regular clients, and of which 40 accounted for approximately 65% of total accounts receivable. As we continue to increase our customer base, we believe we will be less likely to be dependent on a limited number of significant customers. We cannot assure you that we will be less dependent on a limited number of significant customers in the future, and the loss of any such significant customer, especially in the initial integration period and until expanded facilities for Celltech are completed, would likely have a material adverse effect on our revenues. Our Recent Acquisitions Of Edge Continental And PCI Marketing & Communications Inc. May Lower Our Earnings. We recently acquired Edge Continental Inc and PCI Marketing & Communications Inc. Edge Continental is an international distributor of OEM wireless phones and accessories, leading edge aftermarket products, proprietary design handset accessories, and provides clearinghouse services for OEM and 7 carrier overstocked product, for all wireless platforms. PCI Marketing, d/b/a Shop Wireless.Com is an online e-tail company specializing in wireless products. If we are unable to effectively integrate these businesses into our existing business, and retain key employee expertise in our organization, it may lower our earnings or revenue growth. We Will Face Challenges To Our Business If Our Target Market Adopts Alternate Standards For Wireless Transmission. Wireless technology is extremely complex, and products must adhere to a continually changing set of standards and compliance requirements. Currently, our solutions based technology is designed to assist wireless equipment manufactures in satisfying FCC and IC regulations. Our digital signal processing proprietary hands-free in-vehicle speakerphone is designed to address mounting safety concerns over cellular phone use while driving. However, regulatory guidelines for radio frequency emitting wireless products, and for driver safety, are established by governments and industry standards organizations over which we have no direct influence. We have invested substantial amounts of engineering resources into developing a solutions based technology and trade secret processes that assist wireless equipment manufacturers in achieving compliance to these standards. We are also investing significant sums into specific absorption rate - related product initiatives. Furthermore, we have and will invest considerable funds to bring our proprietary hands-free in-vehicle speakerphone to market. If we fail to introduce systems that meet new and evolving regulations and standards, our business would be significantly harmed. A Majority Of Service Providers That Use Wireless Technologies Are Emerging Companies With Unproven Business Models. Many of our distribution customers for our products are service providers that are using wireless technologies to attract and retain new end-user customers. Many of the wireless equipment manufacturers providing product to the service providers, and those utilizing our solutions expertise, are emerging companies with a limited degree of success in the wireless industry. The wireless market is intensely competitive, and wireless equipment manufacturer market has become increasingly competitive at all levels in recent years, primarily as a result of increased competition among the service providers that are typically forced to reduce the monthly access charges they impose upon their subscribers in order to attract and retain additional subscribers. The reduction in monthly access charges reduces the amount of capital available for service providers to invest in their purchasing of new handset models. Both service providers and wireless equipment manufacturers may therefore become under-capitalized and may not be able to remain in business for a substantial period of time. The failure or loss of both the wireless equipment manufacturers and the service providers as customers would significantly harm our business. Additionally, a number of suppliers for our distribution business are smaller and new organizations that may be under capitalized and therefore unable to meet our long term supply needs. In our distribution supply businesses, there are significant numbers of dealer organizations that are relatively small, especially in the US markets where wireless distribution markets tend to be more fragmented, and these organizations may also be under-capitalize. Both the specific absorption rate solutions business and distribution business rely heavily on successful sales and marketing to or supply from foreign firms, and most of the firms are emerging companies, with unproven business models. 8 Risks Related To Our Current Financing Agreements There Are A Large Number Of Shares Underlying Our Series A Preferred Stock, Convertible Note, And Warrants That May Be Available For Future Sale And The Sale Of These Shares May Depress The Market Price Of Our Common Stock. As of August 27, 2001, we had: o 14,502,452 shares of common stock issued and outstanding o an aggregate of 11,748,570 shares of common stock issuable upon conversion and exercise of the following securities: o 1,500 series A preferred shares that may be converted into 5,000,000 shares of common stock, based on current market prices; o an aggregate of $1,750,000 principal 8% convertible notes that may be converted into 5,883,334, based on current market prices; o 415,236 warrants to purchase 415,236 shares of common stock at an exercise price of $1.9862; and o 500,000 warrants to purchase 500,000 shares of our common stock at an exercise price of $1.15 The amount of securities issuable upon outstanding convertible notes, preferred shares and warrants represents 40% of our total outstanding common shares and that due to the floating conversion rates, we do not know the exact number of shares we will issue upon conversion. The number of shares of common stock issuable upon conversion of the outstanding convertible note and series A preferred stock will increase if the market price of our stock declines. All of the shares, including all of the shares issuable upon conversion of the note and series A preferred stock, and upon exercise of our warrants, may be sold without restriction. The sale of these shares may depress the market price of our common stock. 9 The Continuously Adjustable Conversion Price Feature Of Our Series A Preferred Stock and Convertible Notes Could Require Us To Issue A Substantially Greater Number Of Shares Which Will Cause Dilution To Our Existing Stockholders. Our obligation to issue shares upon conversion of our convertible securities is essentially limitless. The following is an example of the amount shares of our common stock that is issuable, upon conversion of our series A preferred shares and convertible notes, based on market prices 25%, 50% and 75% below the market price, as of September 21, of $0.30. Discount Number of Percentage of % Below Market Price Per Share of 20% Shares Issuable Outstanding Stock -------------- --------------- -------- --------------- ----------------- 25% $.225 $.18 15,277,778 51% 50% $.15 $.12 22,916,667 61% 75% $.075 $.06 45,833,334 76% As illustrated, the number of shares of common stock issuable upon conversion of the outstanding series A preferred shares and convertible notes will increase if the market price of our stock declines, which will cause dilution to our existing stockholders. The Issuance Of Shares Upon Conversion Of Our Series A Preferred Stock and Convertible Notes, And Exercise Of Outstanding Warrants May Cause Immediate And Substantial Dilution To Our Existing Stockholders. The issuance of shares upon conversion of the series A preferred stock and convertible notes, and exercise of warrants may result in substantial dilution to the interests of other stockholders since the selling stockholder may ultimately convert and sell the full amount. Although the preferred stockholders and note holders may not convert their securities and/or exercise their warrants into more than 9.99% and 4.99%, respectively, of our outstanding common stock, this restriction does not prevent the investors from converting and/or exercising some of their holdings and then converting the rest of their holdings. In this way, the investor could sell more than this limit while never holding more than this limit. In addition, preferred stockholders may waive the 9.99% limitation upon 60 days notice and the note holders may waive the 4.99% limitation upon an event of default. If this limit is waived there is no upper limit on the number of shares that may be issued which will have the effect of further diluting the proportionate equity interest and voting power of holders of our common stock and may result in a change of control of Globus Wireless, Ltd. The Continuously Adjustable Conversion Price Feature Of Our Series A Preferred Stock and Convertible Notes May Encourage The Investors To Make Short Sales Of Our Common Stock, Which Could Have A Depressive Effect On The Price Of Our Common Stock. The series A preferred stock and convertible notes are convertible into shares of our common stock at a 20% discount to the trading price of the common stock either prior to the issuance of the notes or prior to the conversion, whichever is lower. The significant downward pressure on the price of the common stock as the selling stockholder converts and sells material amounts of common stock could encourage short sales by the selling stockholder or others. This could place further downward pressure on the price of the common stock. The selling stockholder could sell common stock into the market in anticipation of covering the short sale by converting their securities, which could cause the further downward pressure on the stock price. 10 The Interest and/or Dividends Payable On Our Convertible Notes and Series A Preferred Stock Is Also Convertible Into Shares Of Our Common Stock. The interest payable on the convertible notes and series A preferred stock is also convertible into shares of our common stock. The convertible note bears simple interest accruing at an annual rate of 8%. $58,406 in interest has accrued to date. The preferred shares are entitled to a 12% annual cumulative dividend payable quarterly. $125,515 in dividends have accrued to date. In this regard, the lower the price of our common stock, the more shares of common stock the holder of the convertible note will receive in payment of interest. 11 If we are required for any reason to repay the outstanding convertible notes in the aggregate of $1,500,000 we would be required to deplete our working capital, if available, or raise additional funds. Our failure to repay the convertible notes, if required, could result in legal action against us which could require the sale of substantial assets. To date, we have outstanding an aggregate of $1,500,000 principal amount 8% convertible notes. The convertible notes are due and payable, with 8% interest, in May 2003, June 2003, and July 2003 unless sooner converted into shares of our common stock. In addition, any event of default as described in the convertible notes could require the early repayment of the convertible notes, including a premium of 30% of the outstanding principal balance of the note at the time of the default. We anticipate that the full amount of the convertible notes, together with accrued interest, will be converted into shares of our common stock, in accordance with the terms of the convertible notes. If we are required to repay the convertible notes, we would be required to use our limited working capital and raise additional funds. If we were unable to repay the notes when required, the note holders could commence legal action against us to recover the amounts due which ultimately could require the disposition of some or all of our assets. Any such action would require us to curtail or cease operations. Risks Related To This Offering and Our Common Stock Our Common Stock is Subject to the "Penny Stock" Rules of the SEC and the Trading Market in our Securities is Limited, Which Makes Transactions in our Stock Cumbersome and May Reduce the Value of an Investment in our Stock. Since our common stock is not listed or quoted on any exchange or on Nasdaq, and no other exemptions currently apply, trading in our common stock on the Over-The-Counter Bulletin Board is subject to the "penny stock" rules of the SEC. These rules require, among other things, that any broker engaging in a transaction in our securities provide its customers with a risk disclosure document, disclosure of market quotations, if any, disclosure of the compensation of the broker and its salespersons in the transaction, and monthly account statements showing the market values of our securities held in the customer's accounts. The brokers must provide bid and offer quotations and compensation information before making any purchase or sale of a penny stock and also provide this information in the customer's confirmation. Generally, brokers may be less willing to execute transactions in securities subject to the "penny stock" rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock. Our Commitments To Issue Additional Common Stock May Adversely Affect The Market Price Of Our Common Stock And May Impair Our Ability To Raise Capital. We currently have outstanding commitments in various forms such as warrants, options, and convertible securities to issue a substantial number of new shares of our common stock. The shares subject to these issuance commitments, to some degree, will be issued in transactions registered with the Securities and Exchange Commission and thus will be freely tradable. In many other instances, these shares are subject to grants of registration rights that, if and when exercised, would result in those shares becoming freely tradable. An increase in the number of shares of our common stock that will become available for sale in the public market may adversely affect the market price of our common stock and, as a result, could impair our ability to raise additional capital through the sale of our equity securities or convertible securities. 12 RECENT FINANCINGS December 2000 and January 2001 Financing ---------------------------------------- In this prospectus, we are registering 15,000,000 shares of common stock underlying $1,500,000 series A convertible preferred stock issued to accredited investors pursuant to a subscription agreements dated in December 2000 and January 2001. The number of shares of common stock issuable upon conversion of the outstanding series A convertible preferred stock is 5,000,000 assuming a conversion price of $0.30 per share. We are required to register 300% of this amount, for a total of 15,000,000 shares. In addition, 415,236 shares underlying warrants are being registered in connection with these financings. These warrants have an exercise price of $1.9862 per share. The Series A convertible preferred shares are entitled to a liquidation preference amount of $1,000 per share and a 12% annual cumulative dividend, calculated on the liquidation preference amount, payable quarterly and are convertible into our common stock after April 28, 2001 determined by the following formula: $1,500,000 plus any accrued and unpaid dividends divided by the lessor of: a) $1.8062; or b) b) 80% of the average of the three lowest bid prices of our common stock for the twenty days immediately prior to the conversion. The Series A convertible preferred shares are convertible until December 29, 2003 at which time any shares not converted shall automatically convert to common shares at a price determined by the above formula. The common share purchase warrants have an exercise price of $1.9862 per common share and expire on January 2, 2006. To date the purchase warrants remain unexercised. May and June 2001 Financing --------------------------- We are also registering 12,5000,000 shares of common stock underlying $800,000 and $450,000 of 8% convertible debentures, due May 31, 2003 and June 6, 2003, respectively. The convertible debentures were issued to four investors pursuant to a Subscription Agreement dated May 31, 2001. Interest only payments are due quarterly commencing September 30, 2001, and the principal is due in one lump sum on the due dates, or upon events of default. The conversion price for the convertible debentures is the lesser of 85% of the average of the three lowest closing prices for the common stock for the 30 trading days prior to but not including the day of closing, or 85% percent of the average of the three lowest closing prices for the common stock for the 30 trading days prior to but not including the conversion date. The maximum number of shares of common stock that any subscriber or group of affiliated subscribers may own after conversion at any given time is 4.99%. The number of shares of common stock issuable upon conversion of the convertible debentures is 4,166,667 based on a conversion price of $0.30 per share. We are required to register 300% of this amount, for a total of 12,500,000 shares. The actual conversion price will depend on the market price of our common stock prior to the conversion. In addition, 500,000 shares underlying warrants are being registered. These warrants, which expire May 31, 2006, have an exercise price of $1.78. 13 The parties have made mutually agreeable standard representations and warranties. We have also entered into covenants including, but not limited to, the following: * we may not redeem the convertible debentures without the consent of the holder; * we have agreed to incur penalties for untimely delivery of the shares. Upon any event of default, including the failure to register or deliver shares of common stock in a timely manner upon conversion, the note holders can require us to immediately pay a sum equal to 130% of the unconverted principal amount of the notes, together with accrued but unpaid interest 14 USE OF PROCEEDS This prospectus relates to shares of our common stock that may be offered and sold from time to time by the selling stockholders of our company. There will be no proceeds to our company from the sale of shares of common stock in this offering. However, we will receive proceeds upon the exercise of any warrants that may be exercised by the selling shareholders. We anticipate receiving approximately $1,714,742 if all of the warrants are exercised, which proceeds we will use for general corporate purposes and capital investments. 15 MARKET FOR COMMON EQUITY AND RELATED STOCK MATTERS Our common stock trades on the NASD Over-The-Counter Market under the symbol "GBWL". Trading of our common stock began on September 19, 1995. The following table sets forth the range of high and low bid quotations for our common stock for each quarter of the last two fiscal years, as reported on the NASD Bulletin Board, by ACAP Financial, M.H. Meyerson & Co., Inc. and Vantage Point Capital (Canada). The quotations represent inter-dealer prices without retail markup, markdown or commission, and may not necessarily represent actual transactions. PERIOD HIGH LOW ------ ---- --- Year Ended October 31, 1998: ---------------------------- First Quarter................ .656 .656 Second Quarter............... .531 .500 Third Quarter................ .375 .375 Fourth Quarter............... .250 .250 Year Ended October 31, 1999: ---------------------------- First Quarter................ .343 .218 Second Quarter............... 1.656 .562 Third Quarter................ 3.250 1.218 Fourth Quarter............... 2.625 1.968 Year Ended October 31, 2000: ---------------------------- First Quarter................ 2.687 1.250 Second Quarter............... 10.125 2.000 Third Quarter................ 4.937 2.875 Fourth Quarter............... 6.000 2.093 Year Ended October 31, 2001: ---------------------------- First Quarter................ 3.125 1.250 Second Quarter............... 2.093 .820 Third Quarter................ .98 .45 Fourth Quarter*.............. .75 .30 * As of September 21, 2001 The approximate number of holders of record of our common stock, $.001 par value, as of October 31, 1999, was 298. As of October 31, 2000 there were 271 holders of record. 16 DIVIDEND POLICY Holders of our common stock are entitled to receive such dividends as may be declared by our board of directors. No dividends on our common stock have ever been paid, and we do not anticipate that dividends will be paid on our common stock in the next fiscal year. 17 Consolidated and Pro Forma Combined Financial Data The following summary of consolidated and pro forma financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements, including the related notes. The consolidated statement of loss for the fiscal year ended October 31, 1999 and the balance sheet data as at October 31, 1999 are derived from the audited consolidated financial statements of Globus Wireless, Ltd., which have been audited by James E. Scheifley & Associates, P.C., Certified Public Accountants. The consolidated statement of loss for the fiscal year ended October 31, 2000 and the balance sheet data as at October 31, 2000 are derived from the audited consolidated financial statements of Globus Wireless, Ltd., which have been audited by KPMG LLP. The fiscal 2000 pro forma combined statement of loss is derived from the audited financial statements of Globus Wireless Ltd. and PCI Marketing and Communications Inc. for the years ended October 31, 2000 and December 31, 2000, respectively, which have been audited by KPMG LLP, and the unaudited financial statements of Edge Continental, Inc. for the year ended October 31, 2000. The balance sheet of Globus as at July 31, 2001 and the Globus statement of loss for the nine month period ended July 31, 2001 was derived from the unaudited financial statements of Globus. The pro forma combined statement of loss for the 2001 nine month period was derived from the unaudited financial statements of Globus and PCI for the nine month period ended July 31, 2001.
Consolidated Statement of Loss: Fiscal Year October 31, Nine Months July 31, 2000 Nine 2001 Pro months Pro 1999 2000 Forma(1) July 31, Forma(1) 2001 ----------- ----------- ----------- ----------- ----------- Revenues -- 6,296,301 12,965,852 19,053,840 19,519,715 Operating Expenses: Cost of Sales -- 5,163,933 10,785,462 16,693,679 17,079,011 Research and development 70,745 103,487 103,487 89,127 89,127 General and 746,071 1,943,211 3,239,440 2,927,827 3,133,311 administrative Amortization 49,133 132,316 431,855 335,537 364,964 ----------- ----------- ----------- ----------- ----------- Total Expenses 865,949 7,342,947 14,560,244 20,046,170 20,666,413 ----------- ----------- ----------- ----------- ----------- (865,949) (1,046,646) (1,594,392) (992,330) (1,146,698) Interest 21,612 (158,967) (307,198) (546,872) (546,872) ----------- ----------- ----------- ----------- ----------- Loss (844,337) (1,205,613) (1,901,590) (1,539,202) (1,693,570) Loss per Share (0.10) (0.10) (0.14) (0.09) (0.12)
Consolidated Balance Sheet Data: As at October 31, As at July 31 1999 2000 2001 ---- ---- ---- Total Current Assets 585,191 6,438,363 3,373,028 Fixed Assets, at cost, less 290,351 428,738 554,524 accumulated depreciation Other Assets 16,111 52,762 289,581 Goodwill -- 1,355,409 3,498,374 Total Liabilities 141,226 5,984,626 2,460,424 Total Shareholders' Equity 750,427 2,290,646 5,255,083 --------- (1) Gives effect to the acquisition of PCI Marketing and Communications Inc., as of the most recent practicable date. 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and notes thereto included elsewhere in this prospectus. This document contains forward-looking statements including, among others, anticipated trends in our financial condition and results of operations and our business strategy. These forward-looking statements are based largely on our current expectations and are subject to a number of risks and uncertainties. Actual results could differ materially from these forward-looking statements. Important factors to consider in evaluating such forward-looking statements include (i) changes in external competitive market factors or in our internal budgeting process which might impact trends in the our results of operations; (ii) unanticipated working capital or other cash requirements; (iii) changes in the our business strategy or an inability to execute its strategy due to unanticipated changes in the industries in which we operates; and (iv) various competitive factors that may prevent the us from competing successfully in the marketplace. Results of Operations Nine Months Ended July 31, 2001 Compared to The Nine Months Ended July 31, 2000 Consolidated Revenues. Consolidated revenues for the nine months ended July 31, 2001 increased to $19,053,840 as compared to nominal revenue of $79,432 for the same period in 2000. The increase in revenues is the result of expanded wireless products distribution in the US and Canada, resulting in a $18,573,762 increase, and continued growing demand for Celltech's testing, compliance filing and specific absorption rate related services contributing an additional $400,646 over the nine month period ending July 31, 2001. Consolidated revenues for the three months ended July 31, 2001 were $2,231,911 as compared consolidated revenues for the three months ended April 30, 2001 of $5,593,887. The $3,361,976 decrease in revenues is the result of our decision in April 2001 to end a handset distribution agreement that had experienced sharp margin declines and no longer met strategic objectives. We earned $4.2 million in handset sales revenues during the quarter ending April 30, 2001, however changing market conditions, declining world pricing and margins for the product resulted in the decision to end the supply agreement. The decline in revenues as a result the severing the hand-set agreement has been partially offset by the sale of remaining accessory product located in our Los Angeles warehouse during the quarter ending July 31, 2001. During the quarter ending July 31, 2001, we refocused our product distribution business. While we will continue to distribute and sell selected wireless equipment manufacturers handsets and accessory product, we are moving towards a greater emphasis on distribution of Globus proprietary product and specifically targeting value-added, differentiated sales opportunities. As a result of refocusing our revenue stream on proprietary products, with significantly greater margins and less competition, we do not believe this trend will continue. Gross Margins. Gross margins for the nine months ended July 31, 2001 were $2,360,161 or 12.4% of revenue, an increase from nominal gross margin earnings of $67,776 or 85.3% for the same period in 2000. The dollar increase in gross margins is directly attributable to revenue volumes associated with handset and wireless accessory sales. The decline in gross margin as a percentage of revenue is the result of a change in the revenue generating product mix. Ending with the nine month period ended July 31, 2001 the distribution focus had been on higher volume, lower margin wireless handset products generating gross margins of 10.2% over the nine month period. Amortization. Amortization of $335,537 relates directly to amortization of Goodwill associated with the acquisitions of Edge Continental Inc. and PCI Marketing and Communications Inc. General and Administrative Costs. General and administrative costs for the nine months ended July 31, 2001 increased to $2,927,827 or 15.7% of revenues as compared to $916,426 for the same period in 2000 representing a 219.5% increase. Increases in general and administrative costs are attributed to additions in distribution operations and to increases experienced in investor relations and corporate administration and marketing. Distribution operations collectively accounted for increased general and administrative costs of $1,253,899, Korean manufacturing operations accounted for $28,107 and additions to corporate staffing, legal, accounting and administration relative to financing, acquisitions, and general business, and investor relations accounted for increased costs of $729,395. Interest Charges. Interest charges for the nine month period ending July 31, 2001 represents interest costs associated with debt bearing interest and non-cash interest associated beneficial conversion of notes payable, fair value of warrants, and deemed debt discount. Interest expense associated with interest bearing debt is $302,867. Non-cash interest expense associated with beneficial conversion of notes payable, fair value of warrants, and deemed debt discount is $257,803. 19 Comprehensive Loss. We recorded a comprehensive loss of $1,539,202 or $(0.09) per share for the nine months ended July 31, 2001 as compared to a comprehensive loss of $1,061,386 or $(0.09) per share over the same period in 2000. Increased revenue resulting in gross margin improvements of $2,292,385 coupled with minor cost reductions in non-operating costs of $86,265, have been offset by cost increases in general and administrative costs of $2,011,401, amortization of $284,395, and interest charges of $560,670. Accounts Receivable. Accounts receivable at July 31, 2001 is $521,917, a decrease of $4,351,960 from $4,873,877 recorded at fiscal year end October 31, 2000. The decrease is due to collection of $3,847,000, on a now exited a handsets distribution agreement, and aggressive collection policies resulting in a further contraction of $424,922. Prepaid Expenses. Prepaid expenses at July 31, 2001 are $1,895,978 as compared to $18,576 at fiscal year end October 31, 2000. The large increase is attributable to trade credits associated with the sale of wireless accessory inventory amounting $1,400,000, prepaid royalties of $275,000 associated with a technology licensing agreement, prepaid rents and deposits relating to start-up of Korean operations, and advance payments on laboratory equipment at Celltech Research Inc., and advances on operations of $129,402. Fixed Assets. Fixed assets were $554,524, net of accumulated amortization, at July 31, 2001 as compared to $428,738 at fiscal year end October 31, 2000, net of accumulated amortization. The 29.3% increase is attributable to laboratory research equipment at Celltech Research Inc., and start-up fixed assets acquisitions at Globus Wireless Korea Ltd. Deferred Financing Costs. Deferred financing costs of are associated financing activities of the Company with respect to certain financial instruments entered into by the company. Deferred financing costs of $240,500 will be realized over the earlier of the term of the financial instrument and the conversion of the financial instrument into our common shares. Accounts Payable and Accrued Liabilities. Accounts payable and accrued liabilities decreased $3,391,126, or 80.5% to $823,408 at July 31, 2001 from $4,214,534 at fiscal year end October 31, 2000. The decrease in Accounts payable and accrued liabilities is largely attributable to the settlement of outstanding balances related to the handset agreement resulting in a decrease of $3,404,268. Notes payable. Notes payable at July 31, 2001 were $475,000 and were issued to secure funding for working capital purposes and to extinguish earlier issued bridge loans of previously acquired Edge Continental Inc. Fiscal Year Ending October 31, 2000 Compared to Fiscal Year Ending October 31, 1999 Consolidated Revenues. Revenues for the period ending October 31, 2000 were $6,296,301. We did not record sales revenues during fiscal 1999. The increase in revenues reflects wireless handset and accessory sales of $6,107,253 and engineering revenues of $189,048. Gross Margins. Wireless handset and accessory gross marginswere$943,320 or 14.9% of revenue. Engineering gross margins were $189,048 or 100% of revenue. Costs associated with generation of engineering revenue are recorded in Selling, General, and Administrative costs. We did not record gross margin earnings in fiscal 1999. Selling, general, and administrative. Selling, general, and administrative costs for the year ending October 31, 2000 were $1,943,321 or 30. 9% of revenue. This compares with selling, general, and administrative for the year ended 20 October 31, 1999 of $746,071. The increase in selling, general, and administrative costs is attributable to operations in the US $21,475, integration of Eastern Canada distribution operations contributing additional costs of $221,514, and additional senior management, legal and regulatory fees, and head office operations contributing additional cost of $954,151. Loss per share. In the year ending October 31, 2000, we recorded a loss of $1,205,613 or $(0.10) per share. This compares to a $868,596 or $(0.10) per share loss recorded in the year ending October 31, 1999. The increased loss in fiscal 2000 is attributable to increased costs of amortization of $83,183, selling, general and administrative of $1,197,140, interest costs of $167,300, and Research and Development of $32,742. This is partially offset by positive variances resulting from increased sales volumes of wireless handsets and accessories translating into gross margin of $943,320, and engineering revenue of 189,048 and non-operating costs of $10,980 Accounts receivable. Accounts receivable at October 31, 2000 were $4,873,877 or 77.4% of revenue, an increase of $4,838,680 from $35,197 recorded at the year ending October 31, 1999. This increase is attributable to wireless handset and accessory sales contributing $3,846,845, and the impact of newly acquired Markham, Ontario operations contributing $782,981. The balance is attributable to US based wireless handset and accessory sales. Inventory. Inventory at October 31, 2000 was $1,143,891. There were no recorded inventories at October 31, 1999. The increase in inventory is attributable the growth of the wireless products distribution business contributing $221,326, and the acquisition of Markham, Ontario operations contributing $922,565. Short-term investments. Short-term investments reflects investments in a perspective acquisition of PCI, d/b/a Shop Wireless Ltd. Conclusion of this investment is expected to take place before the end of the first quarter of fiscal 2001. Fixed assets. Fixed assets increased $138,387, from $290,351 (net of accumulated amortization) at October 31, 1999 to $428,738 at October 31, 2000 (net of accumulated amortization). The increase is attributable primarily to the purchase of laboratory equipment for Celltech Research Inc and assets acquired in the purchase of Edge Continental Inc. Amortization. Amortization costs for the year ended October 31, 2000 were $132,316 compared with $49,133 for the year ended October 31, 1999. Accounts payable and accrued liabilities. Accounts payable and accrued liabilities increased $4,073,308, to $4,214,534 as at October 31, 2000. This increase is attributable to purchases of wireless products for distribution operations contributing $3,561,602, and acquisition of Markham, Ontario operations contributing $511,706 . Short-term. Short-term debt increased $498,879 from $1,121 at October 31, 1999 to $500,000 at October 31, 2000. The increase is attributable to private placement loan proceeds of $500,000. Notes payable. Notes payable at October 31, 2000 were $780,375 and reflect the outstanding debt due to lenders of Edge Continental Inc. There were no outstanding note loans as of fiscal 1999. Plan of Operation In fiscal 2001, we initiated the following actions and strategies with regards to the on going advancement of business opportunities through to the current quarter. 21 In November 2000, we announced the acquisition of Edge Continental Inc., a wireless products distribution company, for a combination of shares and cash totaling $1.55 million. In December 2000 its operations in Markham, Ontario were amalgamated into Globus Wireless Canada Ltd. In the 2nd quarter of fiscal 2001, the former principals of Edge Continental terminated their employment with us. Settlement with one principal is completed and involved the return of 75,000 of the 150,000 previously issued shares and forfeiture of the balance of $166,667 owing under the acquisition. Settlement with the other principal is still outstanding. Business at Markham has been reengineered.. New sales management have been retained, the integration program is now expected to be completed in our 3rd quarter of fiscal year 2001. In addition to savings of $25,000 per month from staff changes, operations have been downsized and divisional costs reduced by 25%, inclusive of salaries, benefits, and variable costs associated thereto. The operations provided 7 % of revenues in the second quarter. In December 1, 2000, we commenced setup of a new US based Marketing, Procurement & Distribution Center in California, to serve as the primary US sales and distribution center, opening in February 2001. We have a lease commitment on the facility thru to April 30, 2002, at $19,744 per month. We acquired PCI Marketing & Communications Inc., which now operates as Globus On-Line Inc., d/b/a Shop Wireless.Com. This business unit is operated as a stand-alone entity, while sharing resources with Globus Wireless Canada Ltd. We provide both growth funding, up to $486,300 thru to April 30, 2002, as well as certain proprietary products that provide Shop Wireless.Com with greater margins than in our other volume-driven distribution channels. Shop Wireless provided 5% of our total revenues for the quarter ended April 30, 2001. In January 2001, we entered into a specific absorption rate engineering services agreement with Deltacom Co. Ltd. of Korea. We completed a preliminary analysis in January 2001. In March 2001, Deltacom advised us that software technical and business difficulties were delaying the product launch. We express concerns regarding the ability of Deltacom Co. Ltd. to complete this contract and believe our relationship with Deltacom has reached a conclusion and no further transactions will transpire with respect to this contract. As a result of our concerns, we only recorded non-refundable deposits of $75,000 in our revenues. In April 2001, we secured a worldwide exclusive technology licensing agreement with Cadco Ltd., of Hamilton, Ontario, concerning products and technologies ready for the wireless market. The first product under the agreement is a portable hands-free in-vehicle speakerphone, which was launched in June 2001. Full-scale product distribution will commence over the 4th quarter of fiscal 2001 and the first quarter of 2002 as manufacturing operations in Korea come on stream. The agreement with Cadco required us to advance up to $300,000 in royalty payments to be set-off against future royalty payments due to Cadco. At July 31, 2001, we advanced $275,000 as prepayment of the royalty payments. Subsequent to July 31, 2001, we advanced further royalty prepayments of $60,000. To date, we have not received any revenue in connection with this agreement. Our maximum expense under this agreement is 6% of the revenues received in connection with the sale of this product. In April 2001, we also announced an expansion program for research subsidiary Celltech Research Inc., which will provide the resources and opportunity to service multiple wireless equipment manufacturers and to advance our proprietary research efforts. The new research and development center will be located in a new high tech park in Kelowna, British Columbia, and open this fall. In April 2001, we ended a handset distribution agreement that had experienced sharp margin declines and no longer met strategic objectives. We earned $13.6 million in handset sales revenues for fiscal 2001 prior to ending the supply agreement, however changing market conditions, declining world pricing and margins for the product resulted in the decision to end the supply agreement for the remaining $24.8 million in product. We are now concentrating 22 our revenue stream efforts on proprietary products with significantly greater margins and less competition. Revenues are projected to further decline in the 3rd quarter of fiscal 2001, while we prepare for the manufacture launch of our proprietary hands-free product and then rise again in the 4th quarter 2001 when supply lines solidified. On June 2, 2001, Mr. Tom. W. Pick was appointed President & CEO, and member of the board of directors. Mr. Pick has in excess of 20 years experience in the wireless industry, most recently as Director, North American Carrier & Distributor Operations for Motorola Inc. On August 15, 2001, Mr. Gene Haley was appointed Director of U.S. Sales, responsible for sales revenue creation, account management, and business development for the United States. On August 31, 2001, Mr. Cary Tremblay, formally Senior Vice President Corporate Development, International & Carrier Sales resigned his position. On September 1, 2001, Mr. Gord Walsh, formally Senior Vice President Marketing & Sales, Wireless Devices moved to the position of Business Unit Director for Globus Online Inc. Expertise in providing specific absorption rate solutions for wireless phone manufacturers and identifying new solutions, processes and products to address these issues and product performance remain our strategic priority. During the most recent quarter, we focused primarily on a continuing expansion of marketing efforts for a range of proprietary wireless products and a revamping of our distribution model, consistent with the specific absorption rate and performance issues focus for our business plans, including new business opportunities in this area. Our business plans call for significant expenditures over the next 12-month period, up to $5.0 million, including a $1.13 million for capital expenditures, $1.8 million in inventories and $550,000 on technologies and product development, $475,000 bridge loan retirement, and the balance of $1,045,000 for working capital. The business focus will remain on specific absorption rate and performance products in fiscal 2001, with greater emphasis on higher margin product sales as distribution channels become more firmly established. We continue to actively examine both market opportunities and market fluctuations for wireless product distribution, particularly in light of turbulent market conditions. Projected inventory finance requirements are primarily for the recently launched wireless handsfree product technology. We are committed to both expanding subsidiary Celltech Research, advancing research on technologies in both the radio frequency and audio spectrum of wireless communication devices. Any new technologies and resulting products will have relevant specific absorption rate implications and as well adhere to a commitment to high performance products. Celltech Research expansion and research program costs are projected at $836,000 thru to fiscal year end. We may have to secure additional capital financing beyond our current agreements, to meet ongoing requirements and our stated objectives throughout the fiscal year ending October 31, 2001. We are currently seeking a minimum of $5.0 million in new financing, debt and equity, to realize our business plans. Negotiations are continuing with potential investors and with current finance partners and we will look to secure new investment banking before the end of fiscal 2001, subject to general market conditions and reaching an agreement for such services that is favorable. Based on current market conditions, and success in raising private financing in the past, the we expect to complete financings as required for growth and operations. The costs of equity financings have risen significantly and we are looking to gain improved debt finance. We have only entered in to debt instrument financing this current fiscal year, firstly on a bridge loan basis, to provide for working capital and to replace more expensive bridge loan financing issued by prior owners of our recent acquisition of Edge Continental. We are not satisfied with the interest expense being incurred for our short term borrowing needs and continue to pursue alternative and less expensive financing. We expect to be in a position for greater asset based, lower interest cost finance by the 1st quarter fiscal 2002. 23 Any significant capital expenses or increases in operating costs will be dependent upon the ability to raise additional capital, debt financing, associated costs for new financing and our ability to generate revenue from sales of our products or services. Historically, we have not generated sufficient revenue from sales of our products or services to sustain operations. The sales cycle to wireless equipment manufacturers of a proprietary specific absorption rate solution processes have been lengthy and is just recently generating interest from the industry. Furthermore, the Wireless Devices Accessory Group only recently saw its sales grow in the 4th quarter of fiscal 2000. This growth trend in wireless devices distribution revenues continued in the 1st quarter fiscal 2001, however declining margins and sales were experienced in the 2nd quarter. Forecasted revenues generated by product distribution have been lowered for the last two quarters of fiscal 2001 as we moved to focus more on higher margin proprietary product, especially with the market launch of the hands-free, portable, in-vehicle speakerphone in the 3rd quarter of fiscal 2001. Our revised revenue forecast for fiscal 2001 is $23.1 million, with $19.1 million in revenues earned thru to end of the 3rd quarter. Subject to market conditions, we are projecting to self-finance some of the expansion plans and will continue to examine product offerings to improve margins. Liquidity & Capital Resources 12% Convertible Preferred Series A Shares On November 21, 2000, we received bridge financing of $250,000 bearing interest at 18% per annum, due December 21, 2000. On January 2, 2001, we received an additional $750,000 which, along with the $250,000 referred to above and $500,000 received prior to October 31, 2000, aggregating $1,500,000, was converted into 1,500 series A convertible preferred shares and 415,236 common share purchase warrants. The series A convertible preferred shares are entitled to a liquidation preference amount of $1,000 per share and a 12% annual cumulative dividend, calculated on the liquidation preference amount, payable quarterly and are convertible into our common stock after April 28, 2001 determined by the following formula: $1,500,000 plus any accrued and unpaid dividends divided by the lessor of: a) $1.8062; or b) 80% of the average of the three lowest bid prices of our common stock for the twenty days immediately prior to the conversion. The Series A convertible preferred shares are convertible until December 29, 2003 at which time any shares not converted shall automatically convert to common shares at a price determined by the above formula. The common share purchase warrants have an exercise price of $1.9862 per common share and expire on January 2, 2006. To date the purchase warrants remain unexercised.In this prospectus, we are registering 9,375,000 shares of common stock underlying $1,500,000 series A convertible preferred stock issued to 24 accredited investors pursuant to a subscription agreements dated in December 2000 and January 2001. The number of shares of common stock issuable upon conversion of the outstanding series A convertible preferred stock is 3,125,000 assuming a conversion price of $0.48 per share. We are required to register 300% of this amount, for a total of 9,375,000 shares. In addition, 415,236 shares underlying warrants are being registered in connection with these financings. These warrants have an exercise price of $1.9862 per share. A deemed discount existed at the date of issue of the $250,000 of bridge financing received on November 21, 2000, due to both the fair value of attached warrants and the resultant beneficial conversion option. As this financing was due December 21, 2000, the deemed debt discount, aggregating of $132,900 was charged against income during the period ended April 30, 2001. In conjunction with the conversion of the bridge financing, warrants were issued on January 2, 2001 as an inducement to the holder of the $500,000 of bridge financing to convert. The fair value of these warrants of $83,000 has been recorded by a charge against income at the date of their issuance. Consideration for the $750,000 of financing received on January 2, 2001 was issued as preferred shares. In accordance with EITF 98-5 and EITF 00-27, with respect to the fair value assigned to the warrants, the deemed discount of $124,500 is being recognized by a charge against equity, over the period from January 2, 2001 to the forced conversion date into common shares of December 29, 2003, and the deemed discount due to the beneficial conversion option of $231,100 was amortized over the period from January 2, 2001 to the first conversion date of April 28, 2001. Proceeds received from this financing were used for general working capital purposes, funding of operations and acquisition financing. Short Term Promissory Notes During the nine months ended July31, 2001, we received $800,000 in exchange for four promissory notes to four investors. The notes are secured by a pledge by Globus, in the event of default, to issue an amount of its common stock with a value of two times any outstanding principal and unpaid interest. $625,000 and $175,000 of the notes bear interest at 30% and 24% per annum respectively, payable monthly. The notes are due as follows: June 26, 2001 -$325,000, since repaid in full on the due date; and September 26, 2001 - $475,000. Proceeds for these notes were used for general working capital purposes and acquisition financing. 8% Convertible Debentures We are also registering 7,812,500 shares of common stock underlying $800,000 and $450,000 of 8% convertible debentures, due May 31, 2003 and June 6, 2003, respectively. The convertible debentures were issued to four investors pursuant to a Subscription Agreement dated May 31, 2001. Interest only payments are due quarterly commencing September 30, 2001, and the principal is due in one lump sum on the due dates, or upon events of default. The conversion price for the convertible debentures is the lesser of 85% of the average of the three lowest closing prices for the common stock for the 30 trading days prior to but not including the day of closing, or 85% percent of the average of the three lowest closing prices for the common stock for the 30 trading days prior to but not including the conversion date. The maximum number of shares of common stock that any subscriber or group of affiliated subscribers may own after conversion at any given time is 4.99%. The number of shares of common stock issuable upon conversion of the convertible debentures is 2,604,166 based on a conversion price of $0.177 per share. We are required to register 200% of this amount, for a total of 7,812,500 shares. The actual conversion price will depend on the market price of our common stock prior to the conversion. In addition, 500,000 shares underlying warrants are being registered. These warrants, which expire May 31, 2006, have an exercise price of $1.78. The parties have made mutually agreeable standard representations and warranties. We have also entered into covenants including, but not limited to, the following: * we may not redeem the convertible debentures without the consent of the holder; * we have agreed to incur penalties for untimely delivery of the shares. 25 Proceeds received have been used to finance general working capital purposes, opening of Korean subsidiary operations, advance royalty payments under the Globus Cadco Technology License Agreement and new specific absorption rate technology developments. Terminated Financings On October 18, 2000, we entered into an Agreement for Sale of Manufactured Goods, with Aztec Components, Inc., a California corporation. The one year agreement is for the sale of analog phone devices. We signed a Corporate Acknowledgment & Guaranty, in respect of being granted $3,000,000 credit terms received by us from Aztec and the $5,000,000 promissory note. On March 31, 2001, the parties mutually agreed to terminate the relationship owing to a severe downturn in the demand for handsets models set forth in the agreement. Accordingly, Aztec Components Inc. released Globus from obligations under the Agreement for Sale of Manufactured Goods, Corporate Acknowledgment & Guaranty, and the promissory note. Provisions under the promissory note were never exercised by Aztec Components Inc. On May 24, 2001, we terminated the equity financing agreement with Torneaux Fund, Ltd., an institutional investor. No securities were issued in connection with this agreement. Dividends No dividends have been declared since our inception nor do we anticipate that dividends will be declared in the ensuing fiscal year. Capital Commitments We do not have existing capital resources or credit lines available that are sufficient to fund our operations and capital requirements as presently planned over the next twelve months. We are actively pursuing additional funds through the issuance of debt and/or equity instruments. Currently, we are discussing with Laurus Master Fund, Ltd. the possibilities of additional financing. While we have reached agreement on individual short term financing, no assurances can be given that additional financing will be forthcoming. We may also seek a working capital line of credit to be secured by our accounts receivable and inventory. However, such funds may not be available on favorable terms or at all.
Our schedule of capital commitments as of August 2001 Interest Common Shares Notes Payable Interest Expenses Financing Instrument Warrants Preferred Shares Principle Rate April 30/01 Termination Date --------------------- ------------- ---------------- ------------- --------- ----------- ---------------- Series A Convertible - 1,500 - 12.0% $103,016 Dec 29/03 Preferred Shares --------------------- ------------- ---------------- ------------- --------- ----------- ---------------- Common Share 415,236 - - N/A $215,900 Jan 2/06 Warrants --------------------- ------------- ---------------- ------------- --------- ----------- ---------------- Note Payable - - 175,000 24.0% $ 14,038 Sept 26/01 --------------------- ------------- ---------------- ------------- --------- ----------- ---------------- Note Payable 150,000 30.0% $ 19,232 Sept 26/01 --------------------- ------------- ---------------- ------------- --------- ----------- ---------------- Note Payable 150,000 30.0% $ 19,232 Sept 26/01 --------------------- ------------- ---------------- ------------- --------- ----------- ---------------- Convertible 320,000 - 800,000 8.0% $ 33,044 May 3103 Promissory Notes --------------------- ------------- ---------------- ------------- --------- ----------- ---------------- Convertible 40,000 - 100,000 8.0% $ 3,998 June 6/03 Promissory Notes --------------------- ------------- ---------------- ------------- --------- ----------- ---------------- Convertible 40,000 - 100,000 8.0% $ 3,998 June 6/03 Promissory Notes --------------------- ------------- ---------------- ------------- --------- ----------- ---------------- Convertible 100,000 - 250,000 8.0% $ 9,998 June 6/03 Promissory Notes --------------------- ------------- ---------------- ------------- --------- ---------- ---------------- Convertible 100,000 - 250,000 8.0% $ 7,368 July 24/03 Promissory Notes --------------------- ------------- ---------------- ------------- --------- ---------- ---------------- Convertible 100,000 - 250,000 8.0% - August 16/03 Promissory Notes --------------------- ------------- ---------------- ------------- --------- ---------- ----------------
26 BUSINESS Overview Globus Wireless, Ltd., with its wholly-owned subsidiaries Celltech Research Inc., Globus Wireless Canada Ltd., and Globus On-Line Inc., designs, engineers, and markets wireless devices components, products and technologies. We deliver products that are relevant to market needs that address the health and safety issues for wireless devices. We have two primary objectives: o To become a profitable design and development company of relevant, proprietary, patented wireless technologies that increase user safety and/or performance; o To sell worldwide, renowned quality, high performance wireless products with Globus branded proprietary technology; Our primary business focus is divided into two distinct segments, the wireless field of specific absorption rate research and solutions engineering, and wireless product distribution with emphasis on Globus proprietary product, specifically targeting larger volume sales to wireless equipment manufacturers and carriers. We maintain corporate offices as well as head offices for Globus Wireless Canada and our research center, Celltech Research, at 1955 Moss Court, Kelowna, British Columbia, Canada V1Y 9L3. Our registered offices in the United State are Ste 220 - 1495 Ridgeview Reno, NV. We operate marketing, sales and distribution centers in Los Angeles, CA., Markham, Ontario, Canada; and Seoul, Korea. Our common shares currently are traded on the NASD Over-The-Counter market under the trading symbol "GBWL." Our subsidiaries and the percentage of voting shares that we beneficially own are as follows: Name of Subsidiary (Jurisdiction) Ownership --------------------------------- --------- Celltech Research, British Columbia 100% Globus Wireless Canada, Ltd., Federal 100% Globus Online Inc., Alberta 100% Globus Wireless Korea Ltd. 100% 27 History We were incorporated on June 10, 1987, pursuant to the laws of the State of Nevada under the name Daytona-Pacific Corporation. On October 18, 1994, we acquired all of the assets of Globus Cellular & User Protection Ltd. (Canada), a corporation formed in the Province of British Columbia, Canada, on July 28, 1993. With this acquisition of wireless technology, we then changed our name to Globus Cellular & User Protection Ltd. In August 1997, we changed our name to Globus Cellular, Ltd. On December 9, 1999, we changed our name to Globus Wireless, Ltd., the name being more indicative of our expertise, technologies and new product lines. From 1995 to 1999, we were a development stage company. Research prototype antennae were continually designed and tested by researchers at Globus as they pursued advancements in near field radiation reduction and far field performance enhancement. An extensive patent program commenced. Research efforts were to be bolstered when on August 16, 1996, the United States Federal Communications Commission came out with new stringent guidelines for the cellular industry manufacturers of phone devises requiring that these products not exceed radiation exposure levels to users. These guidelines force manufacturers into compliance by either tuning down the output of the phones or redesigning the antennas to reduce exposure to users. In June 1999, we had a change in our management following the resignation of the President and CEO. Our board of directors subsequently appointed a new executive group to manage Globus. Past Vice President, 1994-97, Mr. Bernard Penner, was appointed President, CEO and Chairman, past General Manager, Mr. Nick Wizinsky, was appointed Chief Operations Officer and Secretary Treasurer, and later was named Chief Financial Officer, and Mr. Cary Tremblay was appointed Vice President--Marketing & Sales, moving to Senior Vice President Corporate Development, International & Carrier Sales in September 2000. Mr. Tremblay resigned his position on August 31, 2001. The decision was made by the board of directors to move Globus forward from being a development company to an operational concern with proven product, manufacturing capabilities, marketing and sales revenue and profitability. In April 2000, Mr. Gord Walsh joined the executive group and serves as Senior Vice President Marketing & Sales, Wireless Devices Dealer Distribution. Mr Walsh has since moved to the position of Business Unit Director, Globus Online Inc. In June of 2001, Mr. Tom W. Pick, former Director of Operations for Motorola Inc., joined us as President, CEO and Director. Our former President and CEO, Bernard Penner, continues to serve us as Chairman and President of Globus Wireless Canada Ltd. and Globus On-Line Inc. Our research operation is headed by physicist, Mr. Shawn McMillan, recognized and respected industry-wide in the field of specific absorption rate research.. Mr. McMillan is a member of the FCC IEEE subcommittee responsible for establishing industry regulations for Radio Frequency or RF radiation of wireless communication devices. 28 Principal Products and Services Specific Absorption Rate Compliance and Engineering Laboratory services The primary objective of our research and development division, Celltech Research Inc., is to assist wireless equipment manufacturers with their product compliance to Federal Communications Commission guidelines for specific absorption rate and effective radiated power emissions, simultaneously providing real-world performance enhancing solutions as demanded from the marketplace. In addition to providing third party testing and engineered specific absorption rate solutions, Celltech provides Globus with on-going research and development in the pursuit of specific absorption rate related initiatives for both aftermarket and wireless equipment manufacturers. Celltech competes with a very limited number of like qualified testing-only driven labs around the world, based primarily in North America and Europe, including PC Test, and Apprel, as well as other US-based firms such as Rhientech and Washington Labs. Wireless Product Distribution Our recently revamped international product distribution engine, including contributions from the acquisitions of Edge Continental and PCI Marketing, has provided us with the means to move products, wireless equipment manufacturers, aftermarket or our design, both ways through the distribution channel. While we will continue to sell an array of wireless equipment, manufacturers handsets, and accessory product, we are strategically moving towards a greater emphasis on distribution of Globus proprietary product, specifically targeting higher margin, value-added, and differentiated sales opportunities. Presently, we distribute wireless equipment and aftermarket accessories directly to a network of Canadian dealers and select US distributors and carriers. We currently hold exclusive distribution rights for certain aftermarket wireless products. This distribution network allows us to introduce the portable in-vehicle speakerphone and other proprietary products to the market quickly. Having a distribution capability is an important means for us to readily identify the needs of dealers and consumers, especially for the development of new technologies and their respective niche market opportunities. Primary distribution of Globus proprietary products will occur through established, large-scale distributors, carriers and wireless equipment manufacturers. Defined territory international distribution agreements and strategic joint ventures will be considered and promoted on the basis of receiving advanced licensing fees. We are currently negotiating for distribution rights to the hands-free, in-vehicle speakerphone in Japan and Europe. We own and operate Globus On-Line Inc., d/b/a ShopWireless.com, a business to consumer e-commerce Company with US, Canadian and United Kingdom URLs. Although e-tail businesses in general have had major declines in business, we remain committed in the long term to the business and distribution channel provided by ShopWireless. Plans have been initiated to re-engineer and re-focus the business, maximizing cost efficiencies through direct cost reductions and cost avoidance programs, improve on current product margins and see Globus core products, such as the portable in-vehicle speakerphone, moved through this channel. Additionally, we are now seeking strategic partners for this business unit, targeting regional and national businesses currently without an e-commerce operation. We will continue to explore new market, product and technology opportunities in the industry, leverage established relationships and build new relationships in our various distribution channels. 29 Research & Development Design and engineering of specific absorption rate related technologies have been the primary focus of our research and development efforts. Research efforts have been further defined to focus on resolving emissions and design issues to enable clients to get their products to market as quickly as possible. For the year ended October 31, 1999, we expensed approximately $70,745 in research & development. For the year ended October 31, 2000, we have expensed $103,487 in research and development. Competition Specific Absorption Rate Compliance and Engineering Laboratory services We are not aware of any direct competition for our core specific absorption rate solution processes that focus on low radiation and high performance factors in a wireless equipment manufacturers handset, or other RF-emitting devices. There are several firms in the marketplace providing a variety of antenna technologies, such as Centurion in Nebraska, Ace Antenna in Korea and Algon in Sweden; however, we have established an expertise in antenna design and shielding research, particularly in the areas of low radiation and high performance, through our wholly-owned subsidiary Celltech Research. There are other testing labs, including PC Test in Maryland, and Apprel Labs in Ottawa, Ontario, operating for the sole purpose of generating testing only revenues; however, to our knowledge there is no other testing center like Celltech were testing, solutions and compliance filing can all be provided to the wireless equipment manufacturers. Most of the wireless equipment manufacturers do have some type of internal testing lab organization, but with the exception of a few larger wireless equipment manufacturers such as Nokia, Motorola, Ericsson and Samsung, most contract out testing of the product to FCC and/or Industry Canada regulations, or other regulatory bodies in other parts of the world. With supporting efforts and facilities at Celltech, we will continue filing for patent protection of new antennae designs should we deem such action to be in our best interests. Our policy is to seek patent protection in the major industrial markets firstly, and to then seek protection in emerging markets where wireless networks are or will be surpassing growth of traditional land-based communication networks. With respect to our proprietary specific absorption rate solutions processes, we have instead elected to protect these and our how-to knowledge under an internal trade-secret policy. Wireless equipment manufacturers' clients are provided only with an end-solution and do not participate in research efforts to resolve specific absorption rate and performance issues on their particular handset or other device. Key employees and senior management knowledgeable in the trade secret processes utilized are under non-competition non-disclosure agreements and full disclosure is limited to senior-most persons in the organization.Celltech's advantage comes in providing a "total solution", from testing, problem solving and engineering, design and if required contract manufacture of components. Additionally, Celltech testing and solution services are focused on requirements for RF emitting devices and the company has the latest in testing apparatus, equipment and facilities, facilitated by GM Shawn McMillen's position on the FCC subcommittee for SAR. Wireless Product Distribution There are a host of wireless equipment manufacturer, aftermarket and e-commerce competitors to the product line in these and other world markets. Each of our products, with the exception of the recently launched hands-free, in-vehicle speakerphone, has a proven track record in North American, European or Asian marketplaces. Competition with similar products, if any, would be on the basis of price, performance, quality of the products and delivery time to the client. It is the latter factor, the ability to fulfill quickly, that has become of increasing importance in the highly competitive wireless industry 30 market and we are confident, with distribution centers in Los Angeles, Markham Ontario, Seoul Korea and Kelowna, B.C., it can satisfy market demands to deliver quality product on time. As well, products, such as the hands-free, in-vehicle speakerphone, provide an exclusive technology leadership position. Marketing The world wide wireless industry has been and will continue to demonstrate tremendous growth. In less than a decade it has become a trillion US dollar industry. Emergence of new wireless platforms that are able to converge with the other technologies are opening up new markets worldwide. Lower acquisition and operating costs for the consumer are making wireless technology more accessible each day. So much so that in some markets in Asia Pacific wireless is starting to directly compete with traditional landline services. There are conflicting analyst projections regarding the rate of growth, but there is consensus the industry will continue to experience explosive growth. Proprietary products will become the focus of our sales and distribution efforts, allowing it to further differentiate the Globus brand in the marketplace. The Company is moving away from distribution sales of product lines with large numbers of competitors, competing primarily on the basis of price and supply time, resulting in low and declining margins. The Company recently opted out of a handset distribution agreement for these reasons and is now distributing handsets on an opportunistic, limited numbers, set margin target basis. Manufacturing Globus maintains a facility in Seoul, Korea, primarily for the purpose of supervising quality and coordinating contract manufacturing for exclusively distributed Globus products. In addition to controlling contract manufacturing, Globus Korea is responsible for distribution of Globus products in the local Korean market. Through an exclusive worldwide technology licensing agreement with Cadco Ltd., Globus will introduce the first portable speakerphone for cellular telephone communication in a vehicle using true digital signal processing. We have filed for trademark protection of the name hands-free, in-vehicle speakerphone for this product. The first such product being manufactured in Korea is the hands-free, in-vehicle speakerphone. The manufacturing processes were tested and proven initially in Canada by Cadco and then transferred to Globus personnel in Korea, who were able to reduce the cost of manufacturing by a factor of over 50%. Globus Korea consists of several key individuals with extensive industry and manufacturing experience, and local and Asian networks. Employees We currently have 36 full-time employees in the operations, marketing, sales and research areas of the business. None of our employees in any division or subsidiary are covered by a collective bargaining agreement, and we believe that our relations with employees are good. To date, employee turnover has been nominal, and we have historically been able to attract qualified and experienced personnel. Government Regulations According to federal environmental regulators, US and Canada, our specific absorption rate solutions technologies and processes, are considered passive devices and, as such, fall outside the scope of Radiation Emitting Devices Regulations. At present there are no federal environmental regulations to which our products are subject. Currently, the US government, through the FCC, has set 31 guidelines for antenna radiation emission levels, measured in conjunction with the operation of a wireless phone. Our specific absorption rate solutions are designed to assist wireless phone wireless equipment manufacturers whose product must satisfy these guidelines. There is no assurance, however, that specific regulations on Globus product will not be implemented in the future, by FCC or other government agencies. Various products in the Wireless Devices Product Group, as provided by wireless equipment manufacturers, are tested and in compliance with their respective standards in the applicable jurisdiction, including FCC, IC, UL and CSA standards. Otherwise it is our policy not to distribute non-standard or non-complying product. Liability Insurance; Indemnification We have comprehensive and global insurance policies providing for general liability, fire, and other loss types, as well to protect against liabilities arising out of the negligence of our officers and directors and/or deficiencies in any of our business operations. We presently pay $125,000 annually for our business insurances coverage. There is no assurance, however that such insurance coverage would be adequate to satisfy any potential claims made against us, our officers and directors, or resulting losses that may arise in our business operations or with loss of products. Any such liability that might arise could be substantial and may exceed the assets of Globus. Our articles of incorporation and by-laws provide for indemnification of our officers and directors to the fullest extent permitted under Nevada law. However, insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons, it is the opinion of the Securities Exchange Commission such indemnification is against public policy, as expressed in the Act, and is therefore, unenforceable. Legal Proceedings In December 1999, we filed a statement of claim in the British Columbia Supreme Court, against Paul Bickert, our former president and director, including allegations that he breached fiduciary duties as a director and officer, and requests for confirmation of our ownership of the patented technology and for unspecified damages against Mr. Bickert. A trial date had been set for April of 2002, however in September 2001, Globus and Mr. Bickert announced an out of court settlement of this dispute. This non-cash resolution is based on a Letter of intent between the parties and is subject to formalization of the settlement documents in which Mr. Bickert will assign all patents and patent pending applications in the proprietary antenna technology to Globus. 32 DESCRIPTION OF PROPERTY We currently lease approximately 6,000 square feet in Kelowna, British Columbia for $2,467 per month. This facility currently houses executive offices, western sales and administrative offices for Globus Wireless Canada, and lab facilities for Celltech Research Labs. Eastern sales, distribution, technical and administrative offices for Globus Wireless Canada are located in a 7,000 square feet facility in Markham, Ontario, at a cost of $5,000 per month. On December 1, 2000, Globus Wireless, Ltd. subleased approximately 45,000 square feet in Garden Grove, California, for $19,744 per month, to serve as US Marketing, Procurement & Distribution Center. As a result of our re-focus of our business we have leased approximately 30,000 square feet to a third party on a month-to-month basis. The balance of the warehouse has been subleased until March 31, 2001 for a monthly fee of $6,000. We do not plan to renew our lease with the landlord upon expiry. In September 2000, we opened a marketing & procurement branch in Seoul, Korea, an operation that was expanded and registered as a subsidiary company in June 2001. The following sets forth additional information concerning our facilities: Approximate Number Location Expiration Date of Lease of Square Feet -------- ------------------------ -------------- 1955 Moss Court Kelowna, British Columbia Canada, V1Y 9L3 April 20, 2002 6,000 Unit 113 - 550 Alden Road Markham, Ontario, Canada December 28, 2002 7,500 7375 Chapman Avenue Garden Grove, California March 31, 2002 45,000 6F Younghwa Bldg. 42-4 Chamwon, seacho Seoul, Korea Monthly 1,000 33 MANAGEMENT Executive Officers, Directors, And Key Employees The executive officers, directors and key employees of the Company and their ages and positions with the Globus as of September 1, 2001 are as follows: NAME AGE POSITION/TERM ---- --- ------------- Bernard Penner 40 Chairman, June 1999 - Present Past President & CEO, June 1999 - June 2001 Tom W. Pick 44 President & CEO, Director, June 2001 - Present Nicholas Wizinsky 40 CFO/COO, Secretary & Treasurer, October 1998 - Present Director May 2001 - Present Gord Walsh 45 Sr. Vice President Marketing & Sales, Wireless Devices, April 2000 - Present Ben Hewson 37 Corporate Controller, July 2000 - Present Shawn McMillen 39 General Manager, Celltech Research Inc., September 1999 to Present Hans Schroth 56 Director, June 1999 - Present Norman D. Hawkins 63 Director, November 2000 - Present Gregory Sichenzia 48 Director May 2001 - Present All directors will serve on the board until our next annual meeting of the shareholders, or until their successors have been duly elected and qualified Background of Directors & Officers Bernard Penner currently serves as Chairman of the Board, and in an operational capacity as well as President of Globus Wireless Canada Ltd. and Globus On-Line Inc. Mr. Penner was President, Chief Executive Officer and Chairman form June 9, 1999 to June 4, 2001. Prior to then Mr. Penner had served as a member of the Globus Advisory Board and manufacturing planning group examining opportunities with foreign manufacturers. From 1994 to 1997 Mr. Penner served as Vice President and Director for the Company. Between 1997 and 1999 Mr. Penner was President of Redline Contracting Ltd. Mr. Penner serves as well on Compensation Committee. Tom W. Pick was appointed President & CEO effective June 4, 2001. Prior to joining us, Mr. Pick most recently served as Director, North American Carrier & Distributor Operations, for Motorola Inc. In his immediate past he has had primary responsibility for distribution channel development, distributor optimization and product sales of approximately $750million within the Personal Communications Sector. From 1996-1997 Mr. Pick was with Phillips Consumer Communications and established the North American messaging device business for the company. From 1989-1996 Mr. Pick worked for Arch Communications Group Inc., a leading US paging and messaging service provider in several capacities. Mr. Pick earned his Bachelor of Business Administration form University of Texas At Arlington in 1978. 34 Nicolas Wizinsky was General Manager from August 1997 to October 1998, was first appointed Chief Operations Officer in November 1998, and was re-appointed as Secretary/Treasurer and Chief Operations Officer by the Board in July 1999, and named Chief Financial Officer in August 2000. Mr. Wizinsky served as a Director of the Company from October 1998 to December 1999, and was appointed to the board of directos again May 2001. From 1994 to 1997, Mr. Wizinsky was self-employed as a business management consultant, including serving as Business Consultant to the Company from February 1997 to July 1997. From 1986 to 1993, Mr. Wizinsky worked in various positions for FCSAL. Mr. Wizinsky obtained a Bachelor of Commerce from the University of British Columbia in 1985. Gord Walsh was appointed Vice President Accessory Sales in April 2000 and was in September 2000 named Senior Vice President Marketing & Sales, Wireless Devices. Mr. Walsh joined Globus after a 19-year career at Lenbrook Industries Ltd., were he served in several capacities including Director Sales & marketing for the Wireless Business Systems Group. From 1977-79 he worked for AGT Mobile Communications was instrumental in the launch of mobile phone service in Western Canada. Ben Hewson, C.A., joined Globus in July 2000 and serves as Corporate Controller. Mr. Hewson joined Globus after building a successful private accounting practice business serving technology based companies in the local region from 1996 to 2000. Prior to that period Mr. Hewson was in public practice with BDO Dunwoody and Ernst & Young in British Columbia and Ontario, Canada. Mr. Hewson earned a Bachelor of Economics in 1985, and Honors in Business Administration from the University of Windsor in 1987, and received his Chartered Accountant designation 1992. Hans Schroth has served as a Director since June 25, 1999. Since 1994 Mr. Schroth has been the major principal and served as President for six corporate-owned restaurants in British Columbia. He is also a major principal in a home manufacturing operation in Western Canada. In 1981 Mr. Schroth immigrated to Canada and up to 1993 undertook a series of business ventures while semi-retired in Ontario, Canada. From 1972 to 1981 Mr. Schroth built and franchised seven Wood Fire Bakery and Coffee Shops in Germany & Austria. In 1972 Mr. Schroth obtained a Masters in Business from Munich Management School. Mr. Schroth serves as well on the Audit & Compensation Committees. Norm Hawkins was appointed to our board on November 1, 2000. Currently Mr. Hawkins is semi-retired, serving as a consultant for the wireless industry, after a distinguished twenty-seven year career in the industry. From 1993-97 Mr. Hawkins served as President & CEO for Allen Telecom Canada Inc. In 1978, he was a founding shareholder of Lenbrook Inc., and served in several Vice President capacities as served as a Director for Lenbrook until 1993. He successfully introduced the LTR radio technology in to Canada, which would later became the foundation for Clearnet Communications, a PCS carrier, recently acquired by Telus for $6.6 billion, the largest telecommunications acquisition in Canadian history. Mr. Hawkins also brings to the Board telecommunications contract experience in Asia. Mr. Hawkins serves as well on the Audit and Compensation Committees. Gregory Sichenzia was appointed to our board in May 2001. Mr. Sichenzia also serves on the board of directors of Able Energy Inc. and Rosedale Decorative Products Ltd., since June 1999 and June 1998, respectively. In addition, Mr. Sichenzia has been a founding partner of the law firm of Sichenzia, Ross & Friedman LLP in New York, New York since May 1998. Prior to that he was a partner of Singer Zamansky LLP in New York, New York, since November 1996. Except for Mr. Sichenzia, no director or nominee for director holds a directorship in any other company with a class of securities registered pursuant to Section 12 of the Securities Exchange Act of 1934 or subject to the requirements of Section 15(d) of such Act or any company registered as an investment company under the Investment Company Act of 1940. 35 EXECUTIVE COMPENSATION The following table sets forth information regarding compensation we paid to our Chief Executive Officer and our other executive officers whose income exceeded $100,000 for our last fiscal year ended October 31, 2000 (the "Named Officers").
Summary compensation table ============================================================================================================= Annual Compensation Long-Term Compensation Awards --------------------------- -------------------------------- Awards Payouts ----------------------- ------- Securities Restricted Under Shares or Other Annual Options Restricted LTIP All Other Name and Principal Year Salary Bonus Compensation Granted Share Units Payouts Compensation Position ($) ($) ($) # ($) ($) ($) ------------------ ---- ------ ----- ------------ ------- ----------- ------- ------------ Bernard D. Penner, 2000 75,000 Nil Nil Nil Nil Nil Nil President & CEO Nick G. Wizinsky, COO, 2000 54,000 Nil Nil 100,000 Nil Nil Nil Secretary and Treasurer A. Cary Tremblay, Vice 2000 58,000 Nil Nil Nil Nil Nil Nil President Marketing & Sales Gord Walsh, 2000 33,500 10,000 Nil 100,000 Nil Nil Nil Vice President Marketing & Sales ============================================================================================================= Aggregate Options Exercised During the Most Recently Completed Financial Year and Financial Year-End Option Values. The following table sets out information relating to options exercised by the Named Officer during the most recent financial year and the value of unexercised in-the-money options held by such person as of October 31, 2000: ======================================================================================================== Securities Aggregate Unexercised Options at Value of Unexercised Acquired on Value FY-End in-the-Money Options at FY-End Exercise Realized (#) ($) Name (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable (2) -------------------------------------------------------------------------------------------------------- Bernard D. Penner (1) Nil Nil 100,000/300,000 $262,500/$787,500 Nick Wizinsky 10,000 16,000 0/90,000 $0/236,250 A. Cary Tremblay 33,333 28,333 0/258,333 $0/678,124 Gord Walsh 20,000 80,000 0/80,000 $0/210,000 ========================================================================================================
36 ------------ (1) Represents presently exercisable options to purchase 100,000 shares of common stock at $.85 per shares and unexercisable options to purchase 100,000 shares of common stock at $.85 per share, and unexercisable options to purchase 200,000 shares of common stock at $3.00 per share. (2) Assumes a fair market value of $2.625 per share of common stock, which was the average price for our common stock on October 31, 2000. Options Granted During Most Recent Financial Year. The following table sets out information relating to options granted during the most recent financial year to the Named Executive Officers.
================================================================================================== Securities % of Total Market Value of Securities Under Options Granted Exercise Per Underlying Options on the Options to Employees in Security Date of the Grant Expiration Name Granted Financial Year ($/Security) ($/Security) Date -------------------------------------------------------------------------------------------------- Nick Wizinsky 10,000 1.46 (1) $1.96 02/09/03 Gord Walsh 10,000 6.82 (2) $4.50 04/14/03 --------------------------------------------------------------------------------------------------
---------- (1) 10,000 are at $1.70. (2) 10,000 are at $4.00. Compensation of Directors Our board of directors currently receive an honorarium of $12,000 per year, payable in cash, S-8 stock at market, restricted stock of Globus at 85% of the market bid or in stock options with the exercise price set at 85% of the market bid. During fiscal 1999, $48,000 in directors' fees was paid by way of stock and $8,000 in directors' fees has been paid by way of options reserved and allotted. During fiscal 2000, $30,960 in director's fees were paid by way of stock options reserved and allotted, with an exercise price at 85% of market. All officers and directors are reimbursed for expenses incurred on our behalf. We presently have no other pension, health, stock option, annuity, bonus, insurance, profit sharing or other similar benefit plans; however, we may adopt such plans in the future. We do not provide personal benefits for directors, officers or employees, however, we may and are planning to adopt such plans in the future. Employment Agreements We have a Compensation Committee of the board of directors that is currently comprised of two non-employee directors, and the Chairman. Decisions as to executive compensation are made by the board of directors, primarily on the recommendation of such committee. There is no formal compensation policy for our executive officers, other than employment agreements described below. Compensation for executive officers consists of base salary, bonus and stock option awards. Historically and thru the recent period of growth, the executives and board had agreed on annual and renewable agreements consistent with the scope of our operations. The board of directors have recently approved implementation of an omnibus stock incentive plan to attract, retain and motivate key personnel, to be administered and managed by the Compensation Committee. The Committee is also charged with greater formalization of our compensation policies and practices, including reasonableness based on job responsibilities, and ensuring such policies and practices are consistent with industry standards. 37 Globus and Tom W. Pick, President & Chief Executive Officer, are parties to an agreement, made in June 2001, which provides payments aggregating $16,500 per month. The agreement, which also provides for increases, performance bonuses and stock option bonuses subject to performance and services rendered, is expected to continue in force until amended by mutual agreement or terminated by either party or the expiry of the term. Globus and Bernard D. Penner, Chairman Globus Wireless, Ltd., President Globus Wireless Canada Ltd. and Globus On-Line Inc., Nick Wizinsky, Chief Financial and Operations Officer and Secretary Treasurer, and A. Cary Tremblay, Senior Vice President Corporate Development, International & Carrier Sales Marketing & Sales, are parties to annually renewable agreements which currently provide for payments aggregating up to $10,000 per month. The agreements, which also provide for increases, performance bonuses and stock option bonuses subject to performance and services rendered, are expected to continue in force until amended by mutual agreement or terminated by either party or the expiry of the term. Gord Walsh, Senior Vice President Wireless Devices, and the Company are parties to an annual renewable agreement which currently provides base payments aggregating $6,000 per month plus commissions. The agreement, which also provides for increases, performance bonuses and stock option bonuses subject to performance and services rendered, is expected to continue in force until amended by mutual agreement or terminated by either party or the expiry of the term. With the exceptions of Bernard Penner having an $85,000 loan buyout, and Gord Walsh having a six-month notice for termination, and payment of one month's service fee per year of service for all others, there is currently no plan or arrangement with respect to compensation received or that may be received by the executive officers in the event of termination of employment or in the event of a change in responsibilities following a change in control. 38 SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS The following table sets forth the beneficial ownership of Globus voting securities as of the closing date of this offering by: o each person known by us to beneficially own 5% or more of the outstanding shares of our voting securities o each of our directors o our named executive officers o all directors and executive officers as a group. As of June 1, 2001, there were 13,066,569 shares of common stock issued and outstanding. The information set forth in the table and accompanying footnotes has been furnished by the named beneficial owners. Number of Shares Percent Title of Class Identity of Person or Group Beneficially Owned(1) of Class -------------- --------------------------- --------------------- -------- Common Shares Bernard D. Penner 497,956 (2) 3.81% 1523 Lawrence Avenue Kelowna, B.C., Canada Common Shares Gregory Sichenzia 10,000(3) * 135 West 50th St. New York, NY 10020 Common Shares Hans Schroth 215,029(4) * 365 Clifton Place Kelowna, B.C., Canada Common Shares Nick Wizinsky 121,840(5) * 1160 Trevor Drive Kelowna, B.C., Canada Common Shares Stonestreet Limited Partnership 1,210,872(6) 8.09% Common Shares All Officers and 1,151,384 Direct 14.19% Directors as a Group 702,985 Indirect ---------- * Less than 1% (1) Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Unissued common shares subject to options, warrants or other convertible securities currently exercisable or convertible, or exercisable or convertible within 60 days, are deemed outstanding for the purpose of computing the beneficial ownership of common shares of the person holding such convertible security but are not deemed outstanding for computing the beneficial ownership of common shares of any other person. (2) Includes (i) 276,341 shares owned directly, (ii) 121,522 shares held in the name of Mr. Penner's wife, Loretta Penner, (iii) 21,346 shares held in the name of Burns Fry Ltd., in trust for Loretta Penner, 3GDJNT5, a Canadian retirement account, (iv) 22,647 shares held in the name of Burns Fry Ltd., in trust for Bernie Penner #3GDFXT2, a Canadian retirement account, (v) 38,553 shares held by 488725 B.C. Ltd., a corporation controlled by Mr. Penner, (vi) 17,547 shares held by Redline Contracting Ltd., a corporation controlled by Mr. Penner 39 (3) Includes 10,000 shares owned by Sichenzia, Ross & Friedman, in which Mr. Sichenzia is a member. (4) Includes (i) 90,696 shares owned directly, (ii) 63,000 shares held jointly in the names of Ruth and Hans Schroth, which Mr. Schroth has shared voting rights, and (iii) 61,333 options to purchase shares of our common stock which options are presently exercisable . (5) Includes (i) 25,000 shares held directly, (ii) 61,840 shares held jointly in the names of Sharon and Nick Wizinsky, (ii) 5,000 shares held in a Registered Education Savings Plan and Nick Wizinsky has shared voting rights, (iv) 30,000 shares held in-trust -for each of four children and under which Nick Wizinsky has full voting rights. (6) Represents shares of common stock issuable upon conversion of series A convertible preferred stock. Includes (i) 79,206 shares underlying warrants that are currently exercisable at a price of $1.982 per share and (ii) 100,000 shares underlying warrants that are currently exercisable at a price of $1.78 per share. In accordance with Rule 13d-3 under the Securities Exchange Act of 1934, Michael Finkelstein may be deemed a control person of the shares owned by such entity. The selling shareholder is deemed an "underwriter" within the meaning of Section 2(11) of the Securities Act of 1933. We do not know of any arrangements, the operation of which may, at a subsequent date, result in a change in control of Globus. 40 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Prior to this offering, we entered into transactions and business relationships with of our officers, directors and principal stockholders or their affiliates. Except as discussed below, we believe that all of the transactions were on terms no less favorable than we could have obtained from independent third parties. Any future transactions between us and our officers, directors or affiliates will be subject to approval by a majority of disinterested directors or stockholders in accordance with Nevada. Between January and May 1999, and prior to Mr. Penner rejoining Globus in June 1999, we hired and paid $74,820 to Redline Contracting Ltd., a company controlled by Mr. Penner, for improvements to our new Celltech Research facility and offices in Kelowna, B.C. We undertook a further $10,900 in improvements, completed by this same company, following Mr. Penner's appointment. We believe that such amounts for the services rendered are not in excess of their fair market value. Gregory Sichenzia, a director of Globus Wireless, Ltd., is a partner of the law firm Sichenzia, Ross, Friedman & Ference LLP, which is US securities counsel to Globus. During the year 2000 and up to July 2001, Globus paid to Sichenzia, Ross, Friedman & Ference LLP in consideration of legal services provided an aggregate of $136,200. 41 DESCRIPTION OF CAPITAL STOCK Our authorized capital stock consists of 100,000,000 shares of common stock, par value $.001 per share, of which 14,502,452 shares were issued and outstanding as of the date hereof, and 20,000,000 shares of "blank check" preferred stock, of which 2,000 series A convertible preferred were authorized and 1,500 have been issued and outstanding as of August 27, 2001. Common Stock The holders of common stock are entitled to one vote for each share held of record on all matters to be voted on by the shareholders. The holders of common stock are entitled to receive dividends ratably, when, as and if declared by the Board of Directors, out of funds legally available therefor. In the event of a liquidation, dissolution or winding-up of Globus, the holders of common stock are entitled to share equally and ratably in all assets remaining available for distribution after payment of liabilities and after provision is made for each class of stock, if any, having preference over the common stock. The holders of shares of common stock, as such, have no conversion, preemptive, or other subscription rights and there are no redemption provisions applicable to the common stock. Preferred Stock General. Under our articles of incorporation, our board of directors is authorized, subject to any limitations prescribed by the laws of the Nevada, but without further action by our shareholders, to provide for the issuance of up to 20,000,000 shares of preferred stock in one or more series, to establish from time to time the number of shares to be included in each such series, to fix the designations, powers, preferences and rights of the shares of each such series and any qualifications, limitations or restrictions thereof, and to increase or decrease the number of shares of any such series (but not below the number of shares of such series then outstanding) without any further vote or action by the stockholders. Our board of directors may authorize and issue preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of common stock. The issuance of preferred stock, for example in connection with a shareholder right's plan, could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from acquiring, a majority of Globus's outstanding stock. 12% Series A Convertible Preferred Stock The 12% series A convertible preferred stock has priority over the common stock and all other classes and series of equity securities of our company in the event of a liquidation of Globus. Holders of shares of the our 12% series A convertible preferred stock are entitled to, among other things, a 12% quarterly dividend based on the accrued value of such shares at the time of dividend, which is payable at the option of the holders in cash or as an accrual to the liquidation value of such shares. Holders of the 12% series A convertible preferred stock are entitled to voluntary and mandatory conversion and redemption of their shares under certain circumstances. The Series A convertible preferred shares are entitled to a liquidation preference amount of $1,000 per share and a 12% annual cumulative dividend, calculated on the liquidation preference amount, payable quarterly and are convertible into our common stock after April 28, 2001 determined by the following formula: $1,500,000 plus any accrued and unpaid dividends divided by the lessor of: a) $1.8062; or b) 80% of the average of the three lowest bid prices of our common stock for the twenty days immediately prior to the conversion. 42 The Series A convertible preferred shares are convertible until December 29, 2003 at which time any shares not converted shall automatically convert to common shares at a price determined by the above formula. Upon the occurrence of major transactions or triggering events, each holder may require us to redeem their shares of 12% series A convertible preferred stock at a price equal to 125% of the liquidation value of such shares at that time. Our failure to effect any voluntary or mandatory conversion or redemption of shares of 12% series A convertible preferred stock may result in the payment of liquidated damages to the holders. Holders of the 12% series A convertible preferred stock have class voting rights, which require approval or consent of at least 75% of such holders before we may: o authorize, create, issue or increase the authorized or issued amount of any class or series of our stock that ranks prior to the 12% series A convertible preferred stock, with respect to the distribution of assets on liquidation, dissolution or winding up; o amend, alter or repeal the provisions of the 12% series A convertible preferred stock, whether by merger, consolidation or otherwise, so as to adversely affect any right, preference, privilege or voting power of the 12% series A convertible preferred stock; o repurchase, redeem or pay dividends on shares of our lower priority equity; o amend our articles of incorporation or by-laws to affect any right, preference, privilege or voting power of the 12% series A convertible preferred stock, except that any creation and issuance of another series of equity of lesser or equal priority to the 12% series A convertible preferred stock is not deemed to materially and adversely affect such rights, preferences privileges or voting powers; o effect any distribution with respect to our lower priority equity; or o reclassify our outstanding securities. Outstanding Warrants and Options As of June 1, 2001, there were 1,626,833 options to purchase shares of our common stock at exercise prices between $0.85 and $5.00. Transfer Agent And Registrar Nevada Agency & Trust Company, in Reno, Nevada, serves as transfer agent and registrar for our common stock. 43 SELLING STOCKSTOCKHOLDERS The table below sets forth information concerning the resale of the shares of common stock by the selling stockholders. We will not receive any proceeds from the resale of the common stock by the selling stockholders. We will receive proceeds from the exercise of the warrants. Assuming all the shares registered below are sold by the selling stockholders, none of the selling stockholders will continue to own any shares of our common stock. The following table also sets forth the name of each person who is offering the resale of shares of common stock by this prospectus, the number of shares of common stock beneficially owned by each person, the number of shares of common stock that may be sold in this offering and the number of shares of common stock each person will own after the offering, assuming they sell all of the shares offered.
Shares Beneficially Owned Shares Beneficially Owned Prior to the Offering After the Offering ------------------------- ------------------------- Total Shares Name Number Percent Registered (2) Number Percent ---- ------ ------- -------------- ------ ------- The Keshet Fund 517,740(10)(3) 3.57% 1,400,000 - - Keshet L.P. 900,050(10)(4) 4.99% 3,099,999 - - Candid Investments Ltd. 900,050(1)(5) 4.99% 2,500,000 - - Stonestreet Limited Partnership 900,050(1)(6) 4.99% 5,000,000 - - Magellan International, Ltd. 900,050(1)(7) 4.99% 2,500,000 - - Aspen International, Ltd. 900,050(1)(8) 4.99% 2,500,000 - - Warwick Corporation, Ltd. 900,050(1)(9) 4.99% 2,500,000 - - Laurus Master Fund, Ltd. (11) 2,986,666(10) 4.99% 8,000,000
The number and percentage of shares beneficially owned is determined in accordance with Rule 13d-3 of the Securities Exchange Act of 1934, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rule, beneficial ownership includes any shares as to which the selling stockholder has sole or shared voting power or investment power and also any shares which the selling stockholder has the right to acquire within 60 days. The actual number of shares of common stock issuable upon the conversion of the convertible preferred stock is subject to adjustment depending on, among other factors, the future market price of the common stock, and could be materially less or more than the number estimated in the table. (1) Represents shares of common stock issuable upon conversion of series A convertible preferred stock and exercise of warrants of the selling shareholder, at an assumed conversion price of $0.30 per share and at an exercise price of $1.9862 per warrant. Because the number of shares of common stock issuable upon conversion of the preferred stock is dependent in part upon the market price of the common stock prior to a conversion, the actual number of shares of common stock that will be issued upon conversion will fluctuate daily and cannot be determined at this time. However the selling shareholder has contractually agreed to restrict its ability to convert its preferred stock or exercise its warrants and receive shares of our common stock such that the number of shares of common stock held by it and its affiliates after such conversion or exercise does not exceed 9.99% of the then issued and outstanding shares of common stock. 44 (2) Includes (i) 300% of the shares issuable on conversion of the debentures, based on an offering price of $0.48 per share, as required by our agreement with the selling shareholders, and (ii) shares of common stock issuable upon the exercise of warrants held by such selling stockholder. The number of shares of common stock issuable upon conversion of the securities is dependent in part upon the market price of the common stock prior to a conversion, the actual number of shares of common stock that will be issued in respect of such conversions and, consequently, offered for sale under this registration statement, cannot be determined at this time. (3) Includes (i) 11,073 shares underlying warrants that are currently exercisable at a price of $1.982 per share and (ii) 40,000 warrants that are currently exercisable at a price of $1.78 per share. In accordance with Rule 13d-3 under the Securities Exchange Act of 1934, John Clark may be deemed a control person of the shares owned by such entity. The selling shareholder is deemed an "underwriter" within the meaning of Section 2(11) of the Securities Act of 1933. Keshet LP, and Keshet Fund LP are under common control and all shares registered hereunder may be deemed to be beneficially owned by such control person. (4) Includes (i) 58,133 shares underlying warrants that are currently exercisable at a price of $1.982 per share and (ii) 40,000 warrants that are currently exercisable at a price of $1.78 per share. In accordance with Rule 13d-3 under the Securities Exchange Act of 1934, John Clark may be deemed a control person of the shares owned by such entity. The selling shareholder is deemed an "underwriter" within the meaning of Section 2(11) of the Securities Act of 1933. Keshet LP, and Keshet Fund LP are under common control and all shares registered hereunder may be deemed to be beneficially owned by such control person. (5) Includes 69,206 shares underlying warrants that are currently exercisable at a price of $1.9862 per share. In accordance with Rule 13d-3 under the Securities Exchange Act of 1934, C. B. Williams may be deemed a control person of the shares owned by such entity. The selling shareholder is deemed an "underwriter" within the meaning of Section 2(11) of the Securities Act of 1933. (6) Includes (i) 79,206 shares underlying warrants that are currently exercisable at a price of $1.982 per share and (ii) 100,000 shares underlying warrants that are currently exercisable at a price of $1.78 per share. In accordance with Rule 13d-3 under the Securities Exchange Act of 1934, Michael Finkelstein may be deemed a control person of the shares owned by such entity. The selling shareholder is deemed an "underwriter" within the meaning of Section 2(11) of the Securities Act of 1933. 45 (7) Includes 69,206 shares underlying warrants that are currently exercisable at a price of $1.9862 per share. In accordance with Rule 13d-3 under the Securities Exchange Act of 1934, Anthony L. M. Inder Rieden may be deemed a control person of the shares owned by such entity. The selling shareholder is deemed an "underwriter" within the meaning of Section 2(11) of the Securities Act of 1933. (8) Includes 69,206 shares underlying warrants that are currently exercisable at a price of $1.9862 per share. In accordance with Rule 13d-3 under the Securities Exchange Act of 1934, Deirdre M. McCoy may be deemed a control person of the shares owned by such entity. The selling shareholder is deemed an "underwriter" within the meaning of Section 2(11) of the Securities Act of 1933. (9) Includes 69,206 shares underlying warrants that are currently exercisable at a price of $1.9862 per share. In accordance with Rule 13d-3 under the Securities Exchange Act of 1934, Anna Marie Lowe may be deemed a control person of the shares owned by such entity. The selling shareholder is deemed an "underwriter" within the meaning of Section 2(11) of the Securities Act of 1933. (10) Represents shares of common stock issuable upon conversion of securites and exercise of warrants of the selling shareholder. Because the number of shares of common stock issuable upon conversion of the preferred stock is dependent in part upon the market price of the common stock prior to a conversion, the actual number of shares of common stock that will be issued upon conversion will fluctuate daily and cannot be determined at this time. However the selling shareholder has contractually agreed to restrict its ability to convert its preferred stock or exercise its warrants and receive shares of our common stock such that the number of shares of common stock held by it and its affiliates after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of common stock. As a result of the contractual agreement not to exceed 4.99% beneficial ownership, the selling shareholder does not believe it is a control person as defined in the Securities Exchange Act of 1934 or is required to file a Schedule 13D. (11) Includes 320,000 shares underlying warrants that are currently exercisable at an exercise price of $1.78 per share. In accordance with Rule 13d-3 under the Securities Exchange Act of 1934, Laurus Capital Management, L.L.C. may be deemed a control person of the shares owned by such entity. David Grin and Eugene Grin are the principals of Laurus Capital Management, L.L.C. 46 PLAN OF DISTRIBUTION The selling stockholders may, from time to time, sell any or all of their shares of common stock on any stock exchange, market, or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. There is no assurance that the selling stockholders will sell any or all of the common stock in this offering. The selling stockholders may use any one or more of the following methods when selling shares: o Ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers. o Block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction. o An exchange distribution following the rules of the applicable exchange o Privately negotiated transactions o Short sales or sales of shares not previously owned by the seller o A combination of any such methods of sale any other lawful method The selling stockholders may also engage in: o Short selling against the box, which is making a short sale when the seller already owns the shares. o Other transactions in our securities or in derivatives of our securities and the subsequent sale or delivery of shares by the stockholder. o Pledging shares to their brokers under the margin provisions of customer agreements. If a selling stockholder defaults on a margin loan, the broker may, from time to time, offer to sell the pledged shares. Broker-dealers engaged by the selling stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from selling stockholders in amounts to be negotiated. If any broker-dealer acts as agent for the purchaser of shares, the broker-dealer may receive commission from the purchaser in amounts to be negotiated. The selling stockholders do not expect these commissions and discounts to exceed what is customary in the types of transactions involved. Penny Stock Rules Our common shares are subject to the "penny stock" rules that impose additional sales practice requirements should because our common shares are below $5.00 per share. For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchase of the common shares and must have received the purchaser's written consent to the transaction prior to the purchase. The "penny stock" rules also require the delivery, prior to the transaction, of a risk disclosure document mandated by the Securities and Exchange Commission relating to the penny stock market. The broker-dealer must also disclose: 47 o the commission payable to both the broker-dealer and the registered representative, o current quotations for the securities, and o if the broker-dealer is the sole market maker, the broker-dealer must disclose this fact and the broker-dealer's presumed control over the market. Finally, monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. These rules apply to sales by broker-dealers to persons other than established customers and accredited investors (generally those with assets in excess of $1,000,000 or annual income exceeding $200,000, or $300,000 together with their spouse), unless our common shares trade above $5.00 per share. Consequently, the "penny stock" rules may restrict the ability of broker-dealers to sell our common shares, and may affect the ability to sell the common shares in the secondary market as well as the price at which such sales can be made. Also, some brokerage firms will decide not to effect transactions in "penny stocks" and it is unlikely that any bank or financial institution will accept "penny stock" as collateral. Underwriter Status The selling stockholders and any broker-dealers or agents that are involved in selling the shares may be considered to be "underwriters" within the meaning of the Securities Act for such sales. An underwriter is a person who has purchased shares from an issuer with a view towards distributing the shares to the public. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be considered to be underwriting commissions or discounts under the Securities Act. Because the selling shareholders are deemed "underwriters" within the meaning of Section 2(11) of the Securities Act, they will be subject to the prospectus delivery requirements. We are required to pay all fees and expenses incident to the registration of the shares in this offering. However, we will not pay any commissions or any other fees in connection with the resale of the common stock in this offering. We have agreed to indemnify the selling shareholders and their officers, directors, employees and agents, and each person who controls any selling shareholder, in certain circumstances against liabilities, including liabilities arising under the Securities Act. Each selling shareholder has agreed to indemnify us and our directors and officers in certain circumstances against certain liabilities, including liabilities arising under the Securities Act. If the selling stockholder notifies us that they have a material arrangement with a broker-dealer for the resale of the common stock, then we would be required to amend the registration statement of which this prospectus is a part, and file a prospectus supplement to describe the agreements between the selling stockholder and the broker-dealer. We have agreed with the selling stockholders to keep this registration statement continuously effective under the Securities Act of 1933 until such date as is the earlier of (x) the date when all of the securities covered by such Registration Statement have been sold or (y) the date on which the securities may be sold without any restriction pursuant to Rule 144(k) as determined by our counsel. 48 SHARES ELIGIBLE FOR FUTURE SALE Shares Outstanding and Freely Tradable After Offering. Upon completion of this offering, we will have approximately 23,669,118 shares of common stock outstanding, based on current market prices. The shares to be sold by the selling stockholders in this offering will be freely tradable without restriction or limitation under the Securities Act, except for any such shares held by "affiliates" of Globus, as such term is defined under Rule 144 of the Securities Act, which shares will be subject to the resale limitations under Rule 144. Lock-up Agreements. In connection with our acquisition of Edge Continental Inc., we issued 300,000 shares of restricted common stock pursuant to a Stock Purchase Agreement, dated as of October 31, 2000. The parties to the Stock Purchase Agreement agreed not to sell, transfer, or otherwise dispose of any shares of our common stock owned by them for a one-year period ending on October 31, 2001. In addition, the shares are subject to a bleed-out plan for each of the months in the 11 month period commencing on October 31, 2001. Rule 144. In general, under Rule 144, as currently in effect, a person (or persons whose shares are aggregated) who has beneficially owned shares for at least one year, including an affiliate of us, would be entitled to sell, within any three-month period, that number of shares that does not exceed the greater of 1% of the then-outstanding shares of common stock (approximately 236,691 shares after this offering) or the average weekly trading volume in the common stock during the four calendar weeks immediately preceding the date on which the notice of sale is filed with the Commission, provided certain manner of sale and notice requirements and requirements as to the availability of current public information about us is satisfied. In addition, affiliates of ours must comply with the restrictions and requirements of Rule 144, other than the one-year holding period requirement, in order to sell shares of common stock. As defined in Rule 144, an "affiliate" of an issuer is a person who, directly or indirectly, through the use of one or more intermediaries controls, or is controlled by, or is under common control with, such issuer. Under Rule 144(k), a holder of "restricted securities" who is not deemed an affiliate of the issuer and who has beneficially owned shares for at least two years would be entitled to sell shares under Rule 144(k) without regard to the limitations described above. Effect of Substantial Sales on Market Price of Common Stock. We are unable to estimate the number of shares that may be sold in the future by our existing shareholders or the effect, if any, that such sales will have on the market price of the common stock prevailing from time to time. Sales of substantial amounts of common stock, or the prospect of such sales, could adversely affect the market price of the common stock. 49 LEGAL MATTERS The validity of the common stock offered hereby will be passed upon for Globus by Sichenzia, Ross & Friedman LLP, New York, New York. Sichenzia, Ross & Friedman LLP received 10,000 shares of common stock in connection with their representation of Globus. EXPERTS Our financial statements as at October 31, 1999 and for the year ended October 31, 1999 have been included in this prospectus in reliance on the report of James E. Scheifley & Associates, P.C., certified public accountants, as given upon the authority of said firm as experts in accounting and auditing. The financial statements for Edge Continental Inc. as at July 31, 1999 and 2000, our financial statements as at October 31, 2000 and for the years then ended have been included in this prospectus in reliance on the report of KPMG, LLP given upon their authority as experts in accounting and auditing. CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT On April 26, 2000, we dismissed our former independent auditor, James E. Scheifley & Associates, P.C., based on our agreement that such action is in the best interests of both firms. Effective as of that date, we have engaged KPMG LLP as our new independent auditor. The decision to end our relationship with Scheifley & Associates and to engage KPMG was recommended by our independent Audit Committee and unanimously approved by our board of directors on March 26, 2000. Over the course of Scheifley & Associates' engagement, we and Scheifley & Associates had no disagreements on any matter of accounting principles or practices, financial statement disclosure, auditing scope or procedure, which disagreement, if not resolved to the satisfaction of Scheifley & Associates, would have caused it to make reference to the subject matter of the disagreement in connection with any report or opinion it might have issued. Furthermore, neither of Scheifley & Associates' reports on our financial statements for the past two years contained an adverse opinion, disclaimer of opinion, or modification or qualification of opinion. 50 HOW TO OBTAIN MORE INFORMATION ABOUT GLOBUS WIRELESS, LTD. We are subject to the informational requirements of the Securities Exchange Act of 1934, and in accordance therewith file reports, proxy or information statements and other information with the Securities and Exchange Commission. Such reports, proxy statements and other information can be inspected and copied at the public reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, as well as at the following regional offices: Seven World Trade Center, New York, New York 10048, and Citicorp Center, 500 W. Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can be obtained from the Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.20549, at prescribed rates. In addition, the Commission maintains a web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. The address of the Commission's web site is http://www.sec.gov. Globus has filed with the Commission, a registration statement on Form SB-2 under the Securities Act of 1933 with respect to the shares of common stock being offered by its selling shareholders. As permitted by the rules and regulations of the Commission, this prospectus does not contain all the information set forth in the registration statement and the exhibits and schedules thereto. For further information with respect to our common stock offered by the selling shareholders, reference is made to the registration statement, and such exhibits and schedules. A copy of the registration statement, and the exhibits and schedules thereto, may be inspected without charge at the public reference facilities maintained by the Commission at the addresses set forth above, and copies of all or any part of the registration statement may be obtained from such offices upon payment of the fees prescribed by the Commission. In addition, the registration statement may be accessed at the Commission's web site. 51 GLOBUS WIRELESS, LTD CONSOLIDATED FINANCIAL STATEMENTS (October 31, 2000 and 1999) Report of KPMG, Independent Auditors ...................................... F-2 Report of James E. Scheifley & Associates, P.C............................. F-3 Consolidated Balance Sheets ............................................... F-4 Consolidated Statements of Operations...................................... F-5 Consolidated Statements of Stockholders Equity ............................ F-6 Consolidated Statement of Cash Flows....................................... F-7 Notes to Consolidated Financial Statements................................. F-8 GLOBUS WIRELESS, LTD UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (July 31, 2001) Consolidated Balance Sheets ............................................... F-20 Consolidated Statements of Loss and Comprehensive Loss..................... F-21 Consolidated Statements of Stockholders Equity ............................ F-23 Consolidated Statement of Cash Flows....................................... F-25 Notes to Consolidated Financial Statements................................. F-26 PCI MARKETING & COMMUNICATIONS INC. FINANCIAL STATEMENTS (December 31, 2000 and 1999) Report of KPMG, Independent Auditors ...................................... F-32 Consolidated Balance Sheets ............................................... F-33 Consolidated Statements of Loss............................................ F-34 Consolidated Statements of Stockholders (Deficiency) Equity and Comprehensive Loss............................................ F-35 Consolidated Statement of Cash Flows....................................... F-36 Notes to Consolidated Financial Statements................................. F-37 EDGE CONTINENTAL INC. CONSOLIDATED FINANCIAL STATEMENTS Report of KPMG LLP, Independent Auditors .................................. F-44 Consolidated Balance Sheets ............................................... F-45 Consolidated Statements of Operations...................................... F-46 Consolidated Statement of Cash Flows....................................... F-47 Notes to Consolidated Financial Statements................................. F-48 UNAUDITED CONSOLIDATED PRO FORMA FINANCIAL INFORMATION Pro Forma Condensed Consolidated Financial Statements...................... F-54 Pro Forma Consolidated Statement of Loss (Year ended October 31, 2000)..... F-56 Pro Forma Consolidated Statement of Loss (Nine Months ended July 31, 2001). F-57 Notes to Pro Forma Consolidated Financial Information...................... F-58 F-1 Auditors' Report to the stockholders We have audited the accompanying consolidated balance sheet of Globus Wireless Ltd. and subsidiaries as at October 31, 2000, and the related statements of loss and comprehensive loss, stockholders' equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with 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. In our opinion, the financial statements referred to above, present fairly, in all material respects, the financial position of Globus Wireless Ltd. and subsidiaries as at October 31, 2000 and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. The accompanying consolidated balance sheet of Globus Wireless Ltd. as at October 31, 1999 and the related statements of loss and comprehensive loss, stockholders' equity and cash flows for the year then ended were audited by other auditors who expressed an opinion without reservation on those statements in their report dated April 4, 2000. Signed "KPMG LLP" Kelowna, Canada January 18, 2001 F-2 REPORT OF INDEPENDENT AUDITORS Shareholders and Board of Directors Globus Wireless Ltd. We have audited the accompanying balance sheet of Globus Wireless Ltd. as of October 31, 1999, and the related statements of operations, stockholders' equity, and cash flows for the years ended October 31, 1999 and 1998. 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 conducted our audit in accordance with generally accepted auditing standards. 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 by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Globus Wireless Ltd. as of October 31, 1999, and the results of its operations, and its cash flows for the years ended October 31, 1999 and 1998, in conformity with generally accepted accounting principles. /s/ James E. Scheifley & Associates, P.C. Certified Public Accountants Denver, Colorado April 4, 2000 F-3
Globus Wireless Ltd. Consolidated Balance Sheets $ United States October 31, 2000 and 1999 2000 1999 ----------- ----------- Assets Current assets Cash and cash equivalents $ 319,511 $ 487,562 Accounts receivable (net of allowance of $nil, 1999 - $nil) 4,873,877 35,197 Advances (note 3) 82,508 -- Inventory 1,143,891 -- Prepaid expenses 18,576 62,432 ----------- ----------- 6,438,363 585,191 Fixed assets (note 4) 428,738 290,351 Website development (note 5) 32,119 -- Patents and trademarks (note 6) 20,643 16,111 Goodwill (note 7) 1,355,409 -- ----------- ----------- $ 8,275,272 $ 891,653 =========== =========== Liabilities and Stockholders' Equity Current liabilities Accounts payable and accrued liabilities (note 11(d)) $ 4,214,534 $ 141,226 Loans payable to related parties (note 8) 780,375 -- Bridge financing payable (note 9) 500,000 -- Due to stockholders (note 2) 489,717 -- ----------- ----------- 5,984,626 141,226 Stockholders' equity Capital stock (note 10) 20,000,000 preferred shares, issuable in series with a par value of $0.001 per share authorized 100,000,000 common shares with a par value of $0.001 per share authorized, 12,777,621 issued (1999 - 11,079,930 issued) 12,778 11,080 Additional paid-in capital 7,840,973 4,563,514 Subscriptions for common stock -- 533,325 Deficit (5,550,504) (4,344,891) Accumulated other comprehensive income (12,601) (12,601) ----------- ----------- 2,290,646 750,427 Commitments and contingencies (note 11) Subsequent events (note 13) ----------- ----------- $ 8,275,272 $ 891,653 =========== =========== See accompanying notes to consolidated financial statements. Approved by the Board: , Director ---------------------- , Director ---------------------- F-4 Globus Wireless Ltd. Consolidated Statements of Loss and Comprehensive Loss $ United States Years ended October 31, 2000 and 1999 2000 1999 ------------ ------------ Sale of products $ 6,107,253 $ -- Cost of sales 5,163,933 -- ------------ ------------ 943,320 -- Engineering revenue 189,048 -- ------------ ------------ 1,132,368 -- Expenses Amortization 132,316 49,133 General and administrative 1,943,211 746,071 Interest 171,009 3,709 Research and development 103,487 70,745 ------------ ------------ 2,350,023 869,658 ------------ ------------ Loss before other income (1,217,655) (869,658) Other income 12,042 25,321 ------------ ------------ Loss $ (1,205,613) $ (844,337) ============ ============ Weighted average common shares, basic and diluted 11,896,115 8,742,127 Loss per common share, basic and diluted $ (0.10) $ (0.10) ------------ ------------ Comprehensive loss: Loss $ (1,205,613) $ (844,337) Foreign currency translation adjustment -- (24,259) ------------ ------------ Comprehensive loss $ (1,205,613) $ (868,596) ============ ============ See accompanying notes to consolidated financial statements. F-5 Globus Wireless Ltd. Consolidated Statement of Stockholders' Equity $ United States Years ended October 31, 2000 and 1999 Capital Stock ------------------------- Accumulated Number Additional Other of Common Paid-in Stock Accumulated Comprehensive Shares Amount Capital Subscriptions Deficit Income Total ----------- ----------- ----------- ------------- ----------- ----------- ----------- Balance, October 31, 1998 6,744,711 $ 6,745 $ 3,325,270 $ -- $(3,500,554) $ 24,155 $ (144,384) Exercise of warrants and options for cash 3,081,813 3,082 964,206 -- -- -- 967,288 Compensation cost of options issued to employees -- -- 20,600 -- -- -- 20,600 Common stock issued for services 291,927 292 125,849 -- -- -- 126,141 Common stock issued for debt conversion 238,055 238 128,312 -- -- -- 128,550 Options exercised for notes receivable 723,424 723 149,975 -- -- -- 150,698 Notes receivable -- -- (150,698) -- -- -- (150,698) Common stock subscribed for cash -- -- -- 435,475 -- -- 435,475 Common stock subscribed for lawsuit settlement -- -- -- 97,850 -- -- 97,850 Foreign currency translation adjustment -- -- -- -- -- (36,756) (36,756) Loss -- -- -- -- (844,337) -- (844,337) ----------- ----------- ----------- ----------- ----------- ----------- ----------- Balance, October 31, 1999 11,079,930 11,080 4,563,514 533,325 (4,344,891) (12,601) 750,427 Common stock issued for subscriptions for common stock 384,000 384 435,091 (435,475) -- -- -- Common stock issued for subscription for common stock for lawsuit settlement 47,500 48 97,802 (97,850) -- -- -- Common stock issued for a subscription for common stock received in prior year 29,070 29 8,304 -- -- -- 8,333 Common stock issued for cash, net of share issue costs 789,833 790 1,591,738 -- -- -- 1,592,528 Exercise of options for cash 33,455 33 24,633 -- -- -- 24,666 Common stock issued for services (note 10(a)) 20,000 20 62,480 -- -- -- 62,500 Common stock issued for notes receivable (note 10(b)) 93,833 94 184,759 -- -- 184,853 Notes receivable -- -- (184,853) -- -- -- (184,853) Compensation cost of options issued to employees (note 10(c)) -- -- 57,905 -- -- -- 57,905 Compensation cost of warrants issued to non-employees (note 10(d)) -- -- 101,500 -- -- -- 101,500 Common stock issued to acquire Edge Continental Inc. (note 2) 300,000 300 773,100 -- -- -- 773,400 Conversion feature of bridge financing payable (note 9) -- -- 125,000 -- -- -- 125,000 Loss -- -- -- -- (1,205,613) -- (1,205,613) ----------- ----------- ----------- ----------- ----------- ----------- ----------- Balance, October 31, 2000 12,777,621 $ 12,778 $ 7,840,973 $ -- $(5,550,504) $ (12,601) $ 2,290,646 =========== =========== =========== =========== =========== =========== =========== See accompanying notes to consolidated financial statements. F-6 Globus Wireless Ltd. Consolidated Statements of Cash Flows $ United States Years ended October 31, 2000 and 1999 2000 1999 ----------- ----------- Cash flows from operating activities: Loss $(1,205,613) $ (844,337) Non cash items: Amortization 132,316 49,133 Common stock issued for subscription received in prior year 8,333 -- Common stock issued for services 62,500 126,141 Common stock subscribed for lawsuit settlement -- 97,850 Compensation cost of options issued to employees 57,905 20,600 Compensation cost of warrants issued to non-employees 101,500 -- Foreign exchange translation adjustment -- 39,483 Conversion feature of bridge financing payable 125,000 -- Changes in non cash working capital: Increase in accounts receivable (4,306,966) (29,637) Increase in inventory (422,440) -- (Increase) decrease in prepaid expenses 63,539 (60,606) Increase in accounts payable 3,526,599 27,015 Decrease in net assets of discontinued operation -- 56,647 ----------- ----------- (1,857,327) (517,711) Cash flows from investing activities: Advances (82,508) -- Purchase of fixed assets (166,087) (277,582) Website development costs (33,516) -- Purchase of patents and trademarks (7,084) -- ----------- ----------- (289,195) (277,582) Cash flows from financing activities: Common stock issued for cash net of share issue costs 1,617,194 1,402,763 Repayment of notes payable -- (769) Repayment of loans payable to related parties (159,745) -- Proceeds from bridge financing payable 500,000 -- Repayment of officer loans -- (150,812) Business combination (note 2) 21,022 -- ----------- ----------- 1,978,471 1,251,182 ----------- ----------- (Decrease) increase in cash and cash equivalents (168,051) 455,889 Cash and cash equivalents, beginning of year 487,562 31,673 ----------- ----------- Cash and cash equivalents, end of year $ 319,511 $ 487,562 =========== =========== Supplemental cash flow information: Interest paid $ 46,009 $ 3,709 Income taxes paid -- -- Non-cash financing activities: Common stock issued for debt conversion $ -- $ 128,550 Common stock issued for subscriptions made in prior year 435,475 -- Common stock subscribed for to settle prior year lawsuit -- 97,850 Common stock issued for subscription received in prior year 8,333 -- Common stock issued for services 62,500 126,141 Compensation cost of options issued to employees 57,905 20,600 Common stock issued for notes receivable 184,853 150,698 Compensation cost of warrants granted to non-employees 101,500 -- Common stock issued on business combination 773,400 -- Cash consideration payable on business combination 489,717 -- See accompanying notes to consolidated financial statements. F-7
Globus Wireless Ltd. Notes to Consolidated Financial Statements $ United States Years ended October 31, 2000 and 1999 -------------------------------------------------------------------------------- Globus Wireless Ltd. ("the Company" or "Globus") was incorporated under the laws of the State of Nevada on June 10, 1987. The major activities of the Company include the wholesale distribution of cellular phones and related accessories in North America and developing advanced antenna designs that incorporate the Company's proprietary technology. 1. Significant accounting policies: (a) Basis of presentation and consolidation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated. (b) Use of estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (c) Inventory Inventory is recorded at the lower of cost, determined on a first in, first out basis, and net realizable value. (d) Fixed assets Fixed assets are recorded at cost. The carrying values of fixed assets are reviewed on a regular basis for the existence of facts and circumstances, both internally and externally, that may suggest impairment. To date, no such impairment has been indicated. Amortization is provided annually on a straight-line basis over the assets' estimated useful lives as follows: Computer equipment 5 years Computer software 2 years Furniture and fixtures 5 years Leasehold improvements 5 years Research and development equipment 5 years (e) Website development Website development costs incurred in the planning stage are expensed as incurred. The costs of application and infrastructure development incurred subsequent to the preliminary project stage, and that have received management approval for further development, are capitalized and amortized on the straight-line method over their estimated useful life (estimated to be two years). Once the website is developed, operating costs are expensed as incurred. (f) Patents and trademarks Patents and trademarks are recorded at cost. Amortization is provided annually on a straight-line basis over five years. F-8 Globus Wireless Ltd. Notes to Consolidated Financial Statements (page 2) $ United States Years ended October 31, 2000 and 1999 -------------------------------------------------------------------------------- 1. Significant accounting policies (continued): (g) Goodwill Goodwill represents the excess of the purchase price over the fair value of assets acquired in business acquisitions accounted for under the purchase method. Amortization is provided annually on a straight-line basis over fifteen years. (h) Revenue recognition Revenue from the sale of product is recognized at the time of shipment of inventory when the risks and rewards of ownership have transferred to the customer. Revenue from engineering services is recognized ratably over the contract period. (i) Income taxes The Company accounts for income taxes by the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. When it is not considered to be more likely than not that a deferred tax asset will be realized, a valuation allowance is provided for the excess. Although the Company has consolidated loss carryforwards of approximately $5,500,000 available, no amount has been reflected on the balance sheet for deferred income taxes as any deferred income tax asset has been fully offset by a valuation allowance. (j) Translation of financial statements The functional currency of the Company and its subsidiaries is the United States dollar. The Company's subsidiaries operate in Canada and their operations are conducted in Canadian currency. The method of translation applied is as follows: i) Monetary assets and liabilities are translated at the rate of exchange in effect at the balance sheet date, being US $1.00 per Cdn $1.5315 at October 31, 2000 (1999 - $1.5100). ii) Non-monetary assets and liabilities are translated at the rate of exchange in effect at the date the transaction occurred. iii) Revenues and expenses are translated at the exchange rate in effect at the transaction date. iv) The net adjustment arising from the translation is included in the consolidated statement of loss and comprehensive loss. F-9 Globus Wireless Ltd. Notes to Consolidated Financial Statements (page 3) $ United States Years ended October 31, 2000 and 1999 -------------------------------------------------------------------------------- 1. Significant accounting policies (continued): (k) Financial instruments The fair values of cash and cash equivalents, accounts receivable, advances and accounts payable and accrued liabilities approximate their carrying values due to the relatively short period to maturity of these instruments. The fair values of loans payable to related parties and amounts due to stockholders are not readily determinable due to the related party nature of the amounts and the absence of an active trading market for such instruments. The fair value of the bridge financing payable approximates its carrying amount due to the fixed interest rate of the payable closely approximating floating rates at the financial statement date. The maximum credit risk exposure for all financial assets is the carrying amount of that asset. (l) Loss per share Basic loss per share has been calculated using the weighted average number of common shares outstanding during the period. As the Company has a loss in each of the periods presented, basic and diluted loss per share is the same. (m) Stock option plan During the year ended October 31, 1997, the Company adopted a stock option plan whereby directors, officers, consultants and employees of the Company could be granted options to subscribe for unrestricted stock of up to 500,000 of the common shares of the Company. Options granted pursuant to this plan are not subject to a vesting period, have exercise periods of not more than ten years from the date of grant and have exercise prices not less than 85% of the fair market value of the Company's common stock at the date of grant. No options were outstanding under this plan during the years ended October 31, 2000 and 1999. During the year ended October 31, 1999, the Board of Directors approved a stock option plan whereby directors, officers, consultants and employees of the Company could be granted options to subscribe for restricted stock of the Company. Options granted pursuant to this plan are not subject to a vesting period, have exercise periods of not more than ten years from the date of grant, and have exercise prices not less than 85% of the fair market value of the Company's common stock at the date of grant. Options issued under this plan are disclosed in note 10(c). The Company applies APB Opinion No. 25 in accounting for stock options granted to employees whereby compensation cost is recorded only to the extent that the market price exceeds the exercise price at the date of grant. Options granted to non-employees are accounted for at their fair value at the date the related services are provided. (n) Accounting standards change In June, 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." In December, 1999, the Financial Accounting Standards Board issued SFAS No. 101 "Revenue Recognition in Financial Statements". Adoption of these statements is not expected to materially impact the Company's results of operations or financial position. F-10 Globus Wireless Ltd. Notes to Consolidated Financial Statements (page 4) $ United States Years ended October 31, 2000 and 1999 -------------------------------------------------------------------------------- 1. Significant accounting policies (continued): (o) Cash and cash equivalents Cash and cash equivalents are comprised of the following amounts: 2000 1999 ---- ---- Cash $120,595 $487,562 Interest bearing deposit 198,916 -- -------- -------- $319,511 $487,562 ======== ======== The Company considers all highly liquid securities with an original term to maturity of three months or less to be cash equivalents. (p) Research and development Research and development costs are expensed as incurred. 2. Business combination: Effective September 1, 2000, Globus acquired Edge Continental, Inc. ("Edge") for a total purchase price of $1,545,262 in a transaction accounted for under the purchase method of accounting in accordance with APB Opinion No. 16. Edge's principal activity is the wholesale distribution of cellular phones and related accessories. Globus issued 300,000 shares of its common stock with a fair value of $773,400, agreed to pay cash consideration of $679,579 and paid direct acquisition costs of $92,283 for all of the outstanding common stock of Edge. The common stock issued by Globus was valued using the average of Globus' stock price on the date the transaction was announced and the prices of the stock two days before and after the announcement. The cash consideration is payable in increments of $169,895 on October 31, 2000, December 31, 2000, March 31, 2001 and June 30, 2001. Outstanding cash consideration, aggregating $489,717, bears interest at 6% per annum and is unsecured. The purchase price allocation is based on management's estimate of the fair values of Edge's tangible assets and liabilities. The purchase consideration is summarized as follows: Common stock $ 773,400 Cash 189,862 Due to stockholders 489,717 Acquisition costs 92,283 ----------- Total purchase price $ 1,545,262 =========== Allocation of the purchase price is as follows: Cash $ 303,167 Accounts receivable 531,714 Inventory 721,451 Prepaid expenses 19,683 Fixed assets 85,446 Accounts payable and accrued liabilities (546,709) Loans payable to related parties (940,120) Goodwill 1,370,630 ----------- Net assets acquired $ 1,545,262 =========== F-11 Globus Wireless Ltd. Notes to Consolidated Financial Statements (page 5) $ United States Years ended October 31, 2000 and 1999 -------------------------------------------------------------------------------- 2. Business combination (continued): The pro forma consolidated financial information for the years ended October 31, 2000 and 1999, determined as if the acquisition of Edge had occurred on November 1 of each year, would have resulted in the following: 2000 1999 ---- ---- Sales $ 11,447,000 $ 6,339,000 Loss $ (973,000) $ (872,000) Loss per share $ (0.08) $ (0.10) This unaudited pro forma information is presented for illustrative purposes only and is not necessarily indicative of the results of operations in future periods or results that would have been achieved had the Company and Edge been combined during the specified periods. 3. Advances: During 2000, the Company advanced funds to PCI Marketing and Communications Inc. ("PCI"). The advances are non-interest bearing, are demand in nature and are unsecured. On September 7, 2000, the Company signed a letter of intent to acquire all of the issued and outstanding shares of PCI in exchange for common shares of the Company. The letter states the purchase price shall be CDN $0.35 per share of PCI to a maximum purchase price of CDN $3,554,635. The proposed transaction would be accounted for under the purchase method of accounting with the Company identified as the acquirer. Implementation of the proposed acquisition and share exchange is subject to shareholder and regulatory approval which has not been received at January 18, 2001. 4. Fixed assets: 2000 Accumulated Net Book Cost Amortization Value ---- ------------ ----- Computer equipment $ 71,444 $ 12,583 $ 58,861 Computer software 38,274 29,091 9,183 Furniture and fixtures 64,530 25,730 38,800 Leasehold improvements 114,584 21,550 93,034 Research and development equipment 344,288 115,428 228,860 ------- ------- ------- $633,120 $204,382 $428,738 ======== ======== ======== 1999 Accumulated Net Book Cost Amortization Value ---- ------------ ----- Computer equipment $ 22,302 $ 5,293 $ 17,009 Computer software 8,363 -- 8,363 Furniture and fixtures 32,182 18,253 13,929 Leasehold improvements 78,862 2,557 76,305 Research and development equipment 239,878 65,133 174,745 ------- ------ ------- $381,587 $ 91,236 $290,351 ======== ======== ======== F-12 Globus Wireless Ltd. Notes to Consolidated Financial Statements (page 6) $ United States Years ended October 31, 2000 and 1999 -------------------------------------------------------------------------------- 5. Website development: 2000 1999 -------- --------- Capitalized costs $ 33,516 $ -- Accumulated amortization (1,397) -- -------- --------- $ 32,119 $ -- ======== ========= 6. Patents and trademarks: 2000 1999 -------- -------- Capitalized costs $ 27,627 $ 20,543 Accumulated amortization (6,984) (4,432) -------- -------- $ 20,643 $ 16,111 ======== ======== 7. Goodwill: 2000 1999 ----------- ----------- Capitalized costs $ 1,370,630 $ -- Accumulated amortization (15,221) -- ----------- ----------- $ 1,355,409 $ -- =========== =========== 8. Loans payable to related parties:
The Company has loans payable at the following rates and terms: 2000 1999 -------- --------- Note payable, due on demand, interest payable monthly at prime minus 1%, secured by a general security agreement over the assets of the Company $ 19,960 $ -- Note payable, due on demand, interest payable monthly at 30%, secured by a general security agreement over the assets of the Company 78,355 -- Notes payable, due on demand, interest payable monthly at 20%, unsecured 118,560 -- Notes payable, due on demand, interest payable monthly at 20%, secured by a general security agreement over the assets of the Company 302,318 -- Notes payable, due on demand, interest payable monthly at 37.34%, secured by a general security agreement over the assets of the Company 261,182 -- -------- --------- $780,375 $ ======== ========= F-13
Globus Wireless Ltd. Notes to Consolidated Financial Statements (page 7) $ United States Years ended October 31, 2000 and 1999 -------------------------------------------------------------------------------- 8. Loans payable to related parties (continued): All of the above amounts are payable to related parties who are immediate family members of the former shareholders of Edge, except for $59,794 of the unsecured notes payable bearing interest at 20% which is payable to an employee and an associate of the former shareholders of Edge. During the year ended October 31, 2000, the Company paid interest of $39,631 (1999 - $nil) on the loans payable to related parties. 9. Bridge financing payable: Bridge financing payable bears interest at 12% per annum, is due December 31, 2000 and is convertible at the option of the lender into Series A convertible preferred shares of the Company with a stated value of $500,000 and common share purchase warrants, the number of which is determined by the following calculation: $250,000 divided by the lessor of: a) $4.00; or b) the average trading price of the Company's common stock for the five days immediately prior to conversion of the financing. The preferred shares are entitled to a 12% annual cumulative dividend, payable quarterly and are convertible into common shares of the Company after April 28, 2001 determined by the following formula: $500,000 plus any accrued and unpaid dividends divided by the lessor of: a) Lessor of $4.00 or the average of the closing bid prices of the Company's common stock during the five days immediately prior to conversion; or b) 80% of the average of the three lowest bid prices of the Company's common stock for the twenty days immediately prior to the conversion. The preferred shares are convertible until December 29, 2003 at which time any shares not converted shall automatically convert to common shares at a price determined by the above formula. The common share purchase warrants would entitle the lender to acquire common shares at an exercise price as determined in the immediately above formula and are exercisable for a period of five years from the date of conversion. The bridge financing payable contains a beneficial conversion feature as the preferred shares are convertible for a price that is less than the market price of the common shares at the date of issuance. Accordingly, interest expense of $125,000 and a corresponding increase in additional paid-in capital has been recorded in the statements of loss and comprehensive loss and stockholders' equity. The bridge financing payable was converted into Series A convertible preferred shares of the Company subsequent to October 31, 2000 as disclosed in note 13(a). F-14 Globus Wireless Ltd. Notes to Consolidated Financial Statements (page 8) $ United States Years ended October 31, 2000 and 1999 -------------------------------------------------------------------------------- 10. Capital stock: a) During 2000, the Company signed an agreement to receive investor relation services for which it agreed to issue 40,000 common shares at their market value of $3.125 per share. The shares vest in increments of 10,000 on August 1, 2000, November 1, 2000, February 1, 2001 and May 1, 2001. b) During 2000, the Company issued 93,833 common shares for notes receivable aggregating $184,853 from the exercise of employee stock options. The notes receivable do not bear interest, are due within 364 days and are secured by the common shares issued. c) Stock options The following options have been granted under the Company's restricted stock option plan:
2000 --------------------------------------------------------------------------------------------------- Number outstanding, Granted Exercised Expired Number Exercise beginning of during during during outstanding price Expiry year the year the year the year end of year per share date -------------------------------------------------------------------------------------------------- 42,666 - (21,333) - 21,333 $1.0625 July 5, 2001 - 10,000 - - 10,000 $1.3270 August 31, 2001 - 48,000 - - 48,000 $1.3270 December 21, 2001 12,122 - (12,122) - - $0.1650 April 16, 2002 50,000 83,333 (33,333) - 100,000 $0.8500 June 7, 2002 - 7,500 (7,500) - - $4.0000 August 8, 2002 - 23,000 (23,000) - - $1.3270 August 8, 2002 - 72,000 - - 72,000 $1.8598 August 17, 2002 - 10,000 - - 10,000 $5.0000 March 28, 2003 - 10,000 (10,000) - - $1.6000 March 28, 2003 - 20,000 (20,000) - - $4.0000 March 28, 2003 -------------------------------------------------------------------------------------------------- 104,788 283,833 (127,288) - 261,333 -------------------------------------------------------------------------------------------------- Weighted average exercise price $0.8573 $1.7205 $1.9701 - $1.4100 -------------------------------------------------------------------------------------------------- During the year ended October 31, 2000, the Company granted 283,833 common share options with exercise prices fixed at no less than 85% of the market value of the Company's common shares at the grant date. Accordingly, compensation cost of $57,905 (1999 - $20,600), representing the excess of the market price over the exercise price of the options granted, has been included in the determination of the loss for the period. 1999 -------------------------------------------------------------------------------------------------- Number outstanding, Granted Exercised Expired Number Exercise beginning of during during during outstanding price Expiry year the year the year the year end of year per share date -------------------------------------------------------------------------------------------------- - 331,392 (331,392) - - $0.1650 April 16, 2001 - 42,666 - - 42,666 $1.0625 July 5, 2001 - 100,000 (100,000) - - $0.2500 February 9, 2002 12,122 - - - 12,122 $0.1650 April 16, 2002 - 673,424 (623,424) - 50,000 $0.8500 June 7, 2002 -------------------------------------------------------------------------------------------------- 12,122 1,147,482 (1,054,816) - 104,788 -------------------------------------------------------------------------------------------------- Weighted average exercise price $0.1650 $0.6078 $0.5779 - $0.8573 -------------------------------------------------------------------------------------------------- F-15
Globus Wireless Ltd. Notes to Consolidated Financial Statements (page 9) $ United States Years ended October 31, 2000 and 1999 -------------------------------------------------------------------------------- 10. Capital stock (continued): c) Stock options (continued) The Company applies APB Opinion No. 25 in accounting for its stock options. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS 123 the Company's loss would have increased to the pro forma amounts indicated below: 2000 1999 ---- ---- Loss As reported $ (1,205,613) $ (844,337) Pro forma (1,375,613) (958,137) Loss per share As reported $ (0.10) $ (0.10) Pro forma (0.12) (0.11) The weighted average fair value of $170,000 of the options granted during the year ended October 31, 2000 was determined using the Black Scholes method using a weighted average expected life of 11 months, volatility factor of 55%, risk free rate of 5.5% and no assumed dividend rate. d) Warrants During the year ended October 31, 2000, the Company entered into an agreement to issue common share purchase warrants for services with terms as disclosed in note 11(b). The fair value of these warrants of $101,500 has been determined using the Black Scholes Method using an expected life of six months, volatility factor of 55%, risk free rate of 5.5% and no assumed dividend rate and has been included in the determination of the loss for the year. 11. Commitments and contingencies: a) Pursuant to a technology licensing agreement, the Company was required to make monthly payments of $10,000 to an individual who is the Company's founder, major stockholder and former President. Technology license payments owing under the agreement amounted to approximately $240,000 at October 31, 1999 and $360,000 at October 31, 2000. During 1999, the Company launched a lawsuit against its former President for breach of his fiduciary duties. As part of its claims against its former President, the Company contends that its obligations under the agreement have been eliminated. Consequently, no accrual for technology license payments has been made as at October 31, 2000 and 1999. In addition, the former President has amounts payable to him by the Company for advances and unpaid salary unrelated to the above technology license payments aggregating $51,843 (1999 - $51,843) which have been included in accounts payable and accrued liabilities. The former President has filed a counterclaim which seeks declaration that the technology agreements are valid, payment of monies due and owing plus unspecified damages. Management believes the counterclaim is without merit. Any costs to the Company related to the claim and counterclaim will be recognized when determinable. F-16 Globus Wireless Ltd. Notes to Consolidated Financial Statements (page 10) $ United States Years ended October 31, 2000 and 1999 -------------------------------------------------------------------------------- 11. Commitments and contingencies (continued): b) On May 8, 2000, the Company signed a letter of agreement with Coleman and Company Securities Inc. to secure investors for the Company. In consideration for these services, the Company was required to: i) pay a monthly cash fee of $5,000; ii) issue, within 30 days, 100,000 share purchase warrants with an exercise price of $4.00 per share, exercisable for a period of 5 years; and iii) issue, within 30 days, an additional 100,000 share purchase warrants with an exercise price of $5.00 per share, exercisable for a period of 5 years, vesting 20,000 warrants every 30 days from the execution of the letter. On November 6, 2000, the Company elected to terminate the arrangement and is no longer obligated to make the monthly payments outlined above. c) The Company is committed to payments under operating leases for equipment, vehicles and buildings over the next five years as follows: 2001 - $198,431; 2002 - $183,175; 2003 - $39,545; 2004 - $3,226; 2005 - $2,552. d) On October 18, 2000, the Company signed an agreement with a supplier to purchase $40,199,200 of cellular phones and accessories by October 31, 2001, with up to $3,000,000 of trade financing available for purchases made under this agreement from time to time. In conjunction with the agreement, the Company was required to sign a promissory note as collateral against any amounts owed by the Company up to a maximum of $5,000,000. The note is exercisable thirty days after written notice of default is provided to the Company. The note may be converted into common stock of the Company at a conversion rate equal to 75% of the average trading price of the Company's common stock for the ten day period immediately prior to conversion of the note. Included in accounts payable and accrued liabilities at October 31, 2000 is an amount payable to the supplier of $3,120,049 which is secured by the above promissory note and a security agreement providing a first priority interest in the inventory purchased under this agreement and all proceeds from the sale thereof. 12. Related party transactions: During 2000, the Company made building rental payments to a shareholder of the Company totaling $42,900 (1999 - $27,204). 13. Subsequent events: (a) On November 21, 2000, the Company received additional bridge financing of $250,000 which bore interest at 18% per annum and was due December 21, 2000. On January 2, 2001, the Company received an additional $750,000 which, along with the $250,000 disclosed above and the $500,000 bridge financing payable disclosed in note 9, aggregating $1,500,000, was converted into 1,500 12% series A convertible preferred shares and 415,236 common share purchase warrants of the Company. F-17 Globus Wireless Ltd. Notes to Consolidated Financial Statements (page 11) $ United States Years ended October 31, 2000 and 1999 -------------------------------------------------------------------------------- 13. Subsequent events (continued): The preferred shares are entitled to a 12% annual cumulative dividend, payable quarterly and are convertible into common shares of the Company after April 28, 2001 determined by the following formula: $1,500,000 plus any accrued and unpaid dividends divided by the lessor of: a) $1.8062; or b) 80% of the average of the three lowest bid prices of the Company's common stock for the twenty days immediately prior to the conversion. The preferred shares are convertible until December 29, 2003 at which time any shares not converted shall automatically convert to common shares at a price determined by the above formula. The warrants have an exercise price of $1.9862 per common share and expire on January 2, 2006. The bridge financing contains a beneficial conversion feature as the Series A convertible preferred shares are convertible at prices that are less than market price at the date of issuance. Accordingly, interest expense of $50,500 and a corresponding increase in additional paid-in capital will be recorded in the statements of loss and comprehensive loss and stockholders' equity in the three month period ended January 31, 2001. In addition, interest expense of $304,000, being the fair value of the warrants granted, will be included in the loss for the six month period ended April 30, 2001. The fair value of the warrants granted was determined using the Black Scholes method using the five year life of the warrants, volatility factor of 55%, risk free rate of 6.5% and no assumed dividend rate. (b) Subsequent to October 31, 2000 the Company issued 35,000 common shares, with a fair market value of $84,603 to employees as settlement of amounts due for wages. (c) Subsequent to October 31, 2000, the Company received services related to securing investors in the Company for which it agreed to issue 49,000 common shares at their fair market value of $78,094. (d) On November 17, 2000, the Company signed a sixteen month building lease which requires the following annual payments: 2001 $ 217,184 2002 98,720 (f) Subsequent to October 31, 2000, the Company issued 50,000 common shares for a note receivable of $80,000 upon the exercise of employee stock options. The note receivable does not bear interest, is due within 364 days and is secured by the common shares issued. (g) Subsequent to October 31, 2000, the Company granted 166,000 common share options to employees. 150,000 of the options have an exercise price of $1.707 per share, the remaining 16,000 options have an exercise price of $1.8598 per share. All of the options expire on January 4, 2004. 14. Comparative figures: Certain of the prior year comparative figures have been restated to comply with the financial statement presentation adopted in the current year. F-18 Consolidated Financial Statements of GLOBUS WIRELESS LTD. Nine month period ended July 31, 2001 (Unaudited) F-19
GLOBUS WIRELESS LTD. Consolidated Balance Sheets $ United States July 31, 2001 and October 31, 2000 (Unaudited) July 31, 2001 October 31, 2000 ------------- ---------------- Assets Current assets Cash and cash equivalents $ 124,687 $ 319,511 Accounts receivable 521,917 4,873,877 Loans and other advances -- 82,508 Inventories 830,446 1,143,891 Prepaid expenses (notes 6(a), 8(c) and 10) 1,895,978 18,576 ------------ ------------ 3,373,028 6,438,363 Deferred financing costs 240,500 -- Fixed assets 554,524 428,738 Website development 26,483 32,119 Patents and trademarks 22,598 20,643 Goodwill 3,498,374 1,355,409 ------------ ------------ $ 7,715,507 $ 8,275,272 ============ ============ Liabilities and Stockholders' Equity Current liabilities Accounts payable and accrued liabilities $ 823,408 $ 4,214,534 Dividends payable 99,814 -- Loans payable to related parties -- 780,375 Bridge financing payable (note 3) -- 500,000 Due to stockholders 81,699 489,717 Notes payable (note 4) 475,000 -- ------------ ------------ 1,479,921 5,984,626 Convertible notes payable, net of discount (note 5) 980,503 -- Stockholders' equity 20,000,000preferred shares, issuable in series with a par value of $0.001 per share authorized, 1,440 Series A convertible preferred shares issued (October 31, 2000 - nil) 1 -- 100,000,000 common shares with a par value of $0.001 per share authorized, 13,402,251 shares issued (October 31, 2000 - 12,777,621 shares issued) 13,402 12,778 Additional paid-in capital 10,694,065 7,840,973 Discount on convertible preferred shares (note 3) (100,536) -- Exchangeable shares of subsidiary (note 2) 2,108,538 -- Deficit (7,447,786) (5,550,504) ------------ ------------ Accumulated other comprehensive income (12,601) (12,601) ------------ ------------ Contingencies (note 8) 5,255,083 2,290,646 ------------ ------------ $ 7,715,507 $ 8,275,272 ============ ============ See accompanying notes to consolidated financial statements. On behalf of the Board: _______________________ Director _______________________ Director F-20 GLOBUS WIRELESS LTD. Consolidated Statements of Loss and Comprehensive Loss $ United States Nine month periods ended July 31, 2001 and 2000 (Unaudited) 2001 2000 ------------ ------------ Sale of products $ 18,593,947 $ 20,185 Cost of sales 16,693,679 11,656 ------------ ------------ 1,900,268 8,529 Engineering revenue 459,893 59,247 ------------ ------------ 2,360,161 67,776 Expenses Amortization 335,537 51,142 General and administrative 2,927,827 916,426 Research and development 89,127 154,132 Interest 560,670 -- ------------ ------------ 3,913,161 1,121,700 Loss, before other income (1,553,000) (1,053,924) Other income 13,798 -- ------------ ------------ Loss $ (1,539,202) $ (1,053,924) ============ ============ Weighted average number of common shares for basic and diluted loss per share 16,453,991 11,815,206 Basic and diluted loss per share (0.09) (0.09) ============ ============ Comprehensive loss Loss $ (1,539,202) $ (1,053,924) Foreign currency translation adjustment -- (7,462) ------------ ------------ Comprehensive loss $ (1,539,202) $ (1,061,386) ============ ============ See accompanying notes to consolidated financial statements. F-21 GLOBUS WIRELESS LTD. Consolidated Statements of Loss and Comprehensive Loss $ United States Three month periods ended July 31, 2001 and 2000 (Unaudited) 2001 2000 ------------ ------------ Sale of products $ 2,047,368 $ 9,473 Cost of sales 1,824,440 5,684 ------------ ------------ 222,928 3,789 Engineering revenue 184,543 19,684 ------------ ------------ 407,471 23,473 Expenses Amortization 92,868 24,510 General and administrative 735,232 373,273 Research and development 24,500 60,273 Interest 133,099 -- ------------ ------------ 985,699 458,056 ------------ ------------ Loss, before other income (578,228) (434,583) Other income 3,674 -- ------------ ------------ Loss $ (574,554) $ (434,583) ============ ============ Weighted average number of common shares for basic and diluted loss per share 17,567,968 12,071,066 Basic and diluted loss per share (0.03) (0.04) ============ ============ Comprehensive loss Loss $ (574,554) $ (434,583) Foreign currency translation adjustment -- 2,442 ------------ ------------ Comprehensive loss $ (574,554) $ (437,025) ============ ============ See accompanying notes to consolidated financial statements. F-22 GLOBUS WIRELESS LTD. Consolidated Statement of Stockholders' Equity $ United States Nine month period ended July 31, 2001 (Unaudited - Prepared by Management) Discount on Common Shares Preferred Shares Convertible Exchangeable ---------------------------- ---------------------------- Preferred Shares of Number Amount Number Amount Shares Subsidiary ------------ ------------ ------------ ------------ ------------ ------------ Balance, October 31, 2000 12,777,621 $ 12,778 -- $ -- $ -- $ -- Exchangeable shares of subsidiary issued to acquire PCI (note 2) -- -- -- -- -- 2,215,354 Exchangeable shares of subsidiary cancelled (note 2) -- -- -- -- -- (106,816) Preferred shares issued upon conversion of bridge financing (note 3) -- -- 1,500 2 -- -- Common shares issued for notes receivable (note 6(a)) 83,333 83 -- -- -- -- Notes receivable -- -- -- -- -- -- Common shares issued for wages 185,000 185 -- -- -- -- Common shares issued for share issue costs 19,000 19 -- -- -- -- Share issue costs -- -- -- -- -- -- Common shares issued for services 213,615 213 -- -- -- -- Common shares issued for prepaid leasehold improvements (note 6(b)) 43,000 43 -- -- -- -- Vested common shares issued for services (note 6(c)) 20,000 20 -- -- -- -- Beneficial conversion feature of bridge financing (note 3) -- -- -- -- -- -- Fair value of warrants granted to non-employees (notes 3 and 5) -- -- -- -- (124,500) -- Beneficial conversion feature of convertible preferred shares (note 3) -- -- -- -- (231,100) -- Amortization of discount on convertible preferred shares -- -- -- -- 255,064 -- Beneficial conversion feature of convertible notes payable (note 5) -- -- -- -- -- -- Compensation cost of options granted to employees (note 7) -- -- -- -- -- -- Cancellation of common shares (note 6(d)) (75,000) (75) -- -- -- -- Conversion of preferred shares (note 6(e) 135,682 136 (60) (1) -- -- Accrued dividends on preferred shares -- -- -- -- -- -- Loss for the nine month period ended July 31, 2001 -- -- -- -- -- -- ------------ ------------ ------------ ------------ ------------ ------------ Balance, July 31, 2001 (Unaudited) 13,402,251 $ 13,402 1,440 $ 1 $ (100,536) $ 2,108,538 ============ ============ ============ ============ ============ ============ Table continues on following page. F-23 GLOBUS WIRELESS LTD. Consolidated Statement of Stockholders' Equity (Continued) $ United States Nine month period ended July 31, 2001 (Unaudited - Prepared by Management) Accumulated Additional Other Total Paid-in Accumulated Comprehensive Stockholders' Capital Deficit Income Equity ------------ ------------ ------------ ------------ Balance, October 31, 2000 $ 7,840,973 $ (5,550,504) $ (12,601) $ 2,290,646 Exchangeable shares of subsidiary issued to acquire PCI (note 2) -- -- -- 2,215,354 Exchangeable shares of subsidiary cancelled (note 2) -- -- -- (106,816) Preferred shares issued upon conversion of bridge financing (note 3) 1,499,998 -- -- 1,500,000 Common shares issued for notes receivable (note 6(a)) 108,250 -- -- 108,333 Notes receivable (108,333) -- -- (108,333) Common shares issued for wages 222,440 -- -- 222,625 Common shares issued for share issue costs 36,803 -- -- 36,822 Share issue costs (190,275) -- -- (190,275) Common shares issued for services 172,345 -- -- 172,558 Common shares issued for prepaid leasehold improvements (note 6(b)) 73,874 -- -- 73,917 Vested common shares issued for services (note 6(c)) (20) -- -- -- Beneficial conversion feature of bridge financing (note 3) 215,900 -- -- 215,900 Fair value of warrants granted to non-employees (notes 3 and 5) 215,200 -- -- 90,700 Beneficial conversion feature of convertible preferred shares (note 3) 231,100 -- -- -- Amortization of discount on convertible preferred shares -- (255,064) -- -- Beneficial conversion feature of convertible notes payable (note 5) 470,700 -- -- 470,700 Compensation cost of options granted to employees (note 7) 95,318 -- -- 95,318 Cancellation of common shares (note 6(d)) (193,275) -- -- (193,350) Conversion of preferred shares (note 6(e) 3,067 -- -- 3,202 Accrued dividends on preferred shares -- (103,016) -- (103,016) Loss for the nine month period ended July 31, 2001 -- (1,539,202) -- (1,539,202) ------------ ------------ ------------ ------------ Balance, July 31, 2001 (Unaudited) $ 10,694,065 $ (7,447,786) $ (12,601) $ 5,255,083 ============ ============ ============ ============ See accompanying notes to consolidated financial statements. F-24 GLOBUS WIRELESS LTD. Consolidated Statements of Cash Flows $ United States Nine month periods ended July 31, 2001 and 2000 (Unaudited) 2001 2000 ----------- ----------- Net cash flows used in operating activities: $(1,264,256) $ (992,888) Cash flows from financing activities: Common shares issued for cash, net of share issue costs (153,453) 1,326,617 Repayment of loans payable to related parties (780,375) -- Repayment of due to stockholders (408,018) -- Proceeds from bridge financing 1,000,000 -- Proceeds from notes payable 800,000 -- Repayment of notes payable (325,000) (1,121) Proceeds from convertible notes payable 1,500,000 -- Financing costs paid (271,250) -- ----------- ----------- 1,361,904 1,325,496 Cash flows used in investing activities: Loans and other advances -- (26,725) Purchase of fixed assets (229,940) (157,232) Purchase of marketable security -- (199,012) Purchase of patents and trademarks (3,554) -- Business combination (note 2) (58,978) -- ----------- ----------- (292,472) (382,969) Foreign currency translation adjustment -- (7,462) ----------- ----------- Decrease in cash and cash equivalents (194,824) (57,823) Cash and cash equivalents, beginning of period 319,511 487,562 ----------- ----------- Cash and cash equivalents, end of period $ 124,687 $ 429,739 =========== =========== Supplementary information Interest paid $ 106,625 $ -- Income taxes paid -- -- =========== =========== See accompanying notes to consolidated financial statements Non-cash financing and investing activities: Common shares issued for subscriptions made in prior year -- 382,627 Exchangeable shares of subsidiary issued upon business combination 2,215,354 -- Amounts receivable extinguished by cancellation of exchangeable shares of subsidiary 106,816 -- Preferred shares issued upon conversion of bridge financing 1,500,000 -- Common shares issued for notes receivable 108,333 -- Common shares issued for wages 222,625 -- Common shares issued for share issue costs 36,822 -- Common shares issued for services 172,558 -- Common shares issued for prepaid leasehold improvements 73,917 -- Beneficial conversion feature of bridge financing 215,900 -- Fair value of warrants granted to non-employees 215,200 39,000 Beneficial conversion feature of convertible preferred shares 231,100 -- Amortization of discount on convertible preferred shares 255,064 -- Beneficial conversion feature of convertible notes payable 470,700 -- Compensation cost of options granted to employees 95,318 29,153 Common shares cancelled (note 6(c)) 193,350 -- Common shares issued to settle accrued dividends on preferred shares 3,202 -- Accrued dividends on preferred shares 103,016 -- Extinguishment of amount due to stockholder (note 6(c)) 162,233 -- F-25
GLOBUS WIRELESS LTD. Notes to Consolidated Financial Statements $ United States Nine month period ended July 31, 2001 (Unaudited) -------------------------------------------------------------------------------- 1. Significant accounting policies: a) Basis of presentation: The accompanying financial statements as at July 31, 2001 and for the three and nine month periods then ended are unaudited; however, in the opinion of management, all adjustments (consisting of normal recurring items) necessary for the fair presentation of these unaudited financial statements in conformity with accounting principles generally accepted in the United States of America have been made. These financial statements have been prepared consistent with the accounting policies described in the Company's annual report on Form 10K-SB filed with the Securities and Exchange Commission for the year ended October 31, 2000 and should be read in conjunction therewith. b) Use of estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 2. Business combination: On December 31, 2000, the Company acquired PCI Marketing & Communications Inc. ("PCI") for a total purchase price of $2,330,635 in a transaction accounted for under the purchase method of accounting in accordance with APB Opinion No. 16. PCI's principal activity is the online retail sale of wireless communication products. Pursuant to the terms of an amalgamation and re-organization agreement, PCI amalgamated with 906548 Alberta Inc., a wholly owned subsidiary of the Company, and formed Globus Online Inc. The former stockholders of PCI received 9,481,100 Class A non-voting exchangeable shares of Globus Online Inc., valued at $0.23366 per share, in exchange for all of the outstanding shares of PCI on a one for one basis upon amalgamation. The former PCI stockholders may exchange their Class A shares of Globus Online Inc. for common shares of the Company, at the option of the holder, at any time for a period of three years from the date of issuance. The number of common shares of the Company to be exchanged for each Class A share of Globus Online Inc. will be based on the fair market value of the Company's common shares at the date of exchange, such that an equal value of the Company's common shares will be issued for the value of the Class A shares exchanged, valued at $0.23366 per share. Any unexchanged Class A shares of Globus Online Inc. outstanding at December 31, 2003 will be automatically exchanged for common shares of the Company. Accordingly, the acquisition has been recorded at $2,330,635 being the value of the 9,481,100 Class A shares of $2,215,354 plus direct acquisition costs of $115,281. None of the Class A shares of Globus Online Inc. held by the former shareholders of PCI have been exchanged for common shares of the Company at July 31, 2001. During the nine month period ended July 31, 2001, amounts receivable from two of the former shareholders of PCI of $106,816 were extinguished by the cancellation of 457,142 Class A common shares of Globus Online Inc. held by the former shareholders. Accordingly, the value of the remaining Class A shares issued of $2,108,538 has been disclosed as a separate component of stockholders' equity called "Exchangeable shares of subsidiary". The actual number of common shares to be issued upon conversion of the Class A non-voting exchangeable shares of Globus Online Inc. is currently being disputed by the Company. A number of issues require resolution before the number of shares issuable can be determined. Basic loss per share includes the effect of the conversion of the exchangeable shares using the Company's common stock price at July 31, 2001 they are exchangeable for no further consideration. F-26 GLOBUS WIRELESS LTD. Notes to Consolidated Financial Statements $ United States Nine month period ended July 31, 2001 (Unaudited) -------------------------------------------------------------------------------- 2. Business combination (continued): The purchase price allocation is based on management's estimate of the fair values of PCI's tangible assets and liabilities. Allocation of the purchase price is as follows: Cash $ 56,303 Accounts receivable 7,388 Inventory 4,257 Fixed assets 49,968 Accounts payable and accrued liabilities (307,327) Due to shareholders (5,778) Due to Globus Wireless Ltd. (146,904) Goodwill 2,672,728 ----------- Net assets acquired $ 2,330,635 =========== The purchase consideration is summarized as follows: Exchangeable Class A shares of Globus Online Inc. $2,215,354 Acquisition costs 115,281 ---------- Total purchase price $2,330,635 ========== The pro forma consolidated financial information for the nine month periods ended July 31, 2001 and 2000, determined as if the acquisition of PCI had occurred on November 1 of each period, would have resulted in the following: 2001 2000 ---- ---- Revenues $ 19,519,545 $ 595,480 Loss $ (1,664,104) $ (1,274,429) Basic and diluted loss per share $ (0.12) $ (0.10) This unaudited pro forma information is presented for illustrative purposes only and is not necessarily indicative of the results of operations in future periods or results that would have been achieved had the Company and PCI been combined during the specified periods. 3. Bridge financing payable: On November 21, 2000, the Company received bridge financing of $250,000 bearing interest at 18% per annum, due December 21, 2000. On January 2, 2001, the Company received an additional $750,000 which, along with the $250,000 referred to above and $500,000 received prior to October 31, 2000, aggregating $1,500,000, was converted into 1,500 Series A convertible preferred shares and 415,236 common share purchase warrants of the Company. The Series A convertible preferred shares are entitled to a liquidation preference amount of $1,000 per share and a 12% annual cumulative dividend, calculated on the liquidation preference amount, payable quarterly and are convertible into common shares of the Company after April 28, 2001 determined by the following formula: F-27 GLOBUS WIRELESS LTD. Notes to Consolidated Financial Statements $ United States Nine month period ended July 31, 2001 (Unaudited) -------------------------------------------------------------------------------- 3. Bridge financing payable (continued): $1,500,000 plus any accrued and unpaid dividends divided by the lessor of: a) $1.8062; or b) 80% of the average of the three lowest bid prices of the Company's common stock for the twenty days immediately prior to the conversion. The Series A convertible preferred shares are convertible until December 29, 2003 at which time any shares not converted shall automatically convert to common shares at a price determined by the above formula. The common share purchase warrants have an exercise price of $1.9862 per common share and expire on January 2, 2006. A deemed discount existed at the date of issue of the $250,000 of bridge financing received on November 21, 2000, due to both the fair value of attached warrants and the resultant beneficial conversion option. As this financing was due December 21, 2000, the deemed debt discount, aggregating $132,900 was charged against income during the period ended July 31, 2001. In conjunction with the conversion of the bridge financing, warrants were issued on January 2, 2001 as an inducement to the holder of the $500,000 of bridge financing to convert to preferred shares. The fair value of these warrants of $83,000 has been recorded by a charge against income at the date of their issuance. Consideration for the $750,000 of financing received on January 2, 2001 consisted of preferred shares and warrants. In accordance with EITF 98-5 and EITF 00-27, with respect to the fair value assigned to the warrants, the deemed discount of $124,500 is being recognized by a charge against equity, over the period from January 2, 2001 to the forced conversion date into common shares of December 29, 2003, and the deemed discount due to the beneficial conversion option of $231,100 was amortized over the period from January 2, 2001 to the first conversion date of April 28, 2001. The fair value of the warrants was determined using the Black Scholes method using the following assumptions: a two year expected life, volatility factor of 40%, risk free rate of 6.5%, and no expected dividend yield. 4. Notes payable: Notes payable are due September 26, 2001 and are secured by a pledge by the Company, in the event of default, to issue an amount of its common stock with a value of two times the sum of the outstanding principal and unpaid interest. $300,000 and $175,000 of the notes payable bear interest at 30% and 24% per annum respectively, payable monthly. 5. Convertible notes payable: Convertible notes payable bear interest at 8% and are convertible into common stock of the Company at the lesser of: a) $0.48 per share for $800,000 of the notes payable, $0.448 per share for $450,000 and $0.421 per share for the remaining $250,000; or b) 80% of the average of the three lowest closing bid prices of the Company's common stock for the thirty days immediately prior to the conversion date. $800,000 of the notes payable are due May 31, 2003, $450,000 are due on June 6, 2003 and the remaining portion of $250,000 is due July 24, 2003. F-28 GLOBUS WIRELESS LTD. Notes to Consolidated Financial Statements $ United States Nine month period ended July 31, 2001 (Unaudited) -------------------------------------------------------------------------------- 5. Convertible notes payable (continued): In conjunction with the notes, the Company also granted 600,000 common share purchase warrants. 500,000 of the warrants have an exercise price of $1.78 and the remaining 100,000 warrants have an exercise price of $1.15. 320,000 of the warrants expire on May 31, 2004, 180,000 expire on June 6, 2004 and the remaining 100,000 warrants expire on July 24, 2004. The convertible notes payable contain a beneficial conversion feature as the note holders were granted common share purchase warrants and the notes are convertible into common shares at prices that are less than the market price at the date of issuance, both of which result in the convertible notes payable initially being recorded at a carrying amount which is less than their face value. The note proceeds attributable to the warrants was estimated to be $90,700 and has been recorded as a discount on the convertible notes payable. The fair value of the note proceeds attributable to the warrants was determined using the Black Scholes method using the following assumptions: the three year life of the warrants, volatility factor of 74%, risk free rate of 6.5% and no expected dividend yield. The intrinsic value of the beneficial conversion option has been calculated as $470,700 which is being accreted over the term of the debt in accordance with EITF 00-27. As a result, interest expense of $41,903, discount on the convertible notes payable of $519,497 and a corresponding increase in additional paid-in capital of $561,400 have been recorded in the consolidated balance sheet and consolidated statements of loss and comprehensive loss and stockholders' equity. Convertible notes payable $ 1,500,000 Unamortized discount related to beneficial conversion option on and warrants granted in conjunction with the convertible notes payable (519,497) ----------- $ 980,503 =========== 6. Issuance of common shares: a) During the nine month period ended July 31, 2001, the Company issued the following common shares: i) 83,333 shares for notes receivable of $108,333 upon the exercise of employee stock options. The notes receivable do not bear interest, are due within 364 days and are secured by the common shares issued; ii) 43,000 shares as prepayment for leasehold improvements to be constructed for the Company; and iii) 135,682 shares upon conversion of 60 Series A convertible preferred shares and accrued unpaid dividends of $3,202. b) During the year ended October 31, 2000, the Company issued 40,000 shares for services to be received. The shares vest in increments of 10,000 shares of which 20,000 had vested prior to October 31, 2000 and the remaining 20,000 vested during the nine month period ended July 31, 2001. c) During the nine months ended July 31, 2001, pursuant to a resignation and settlement agreement with one of the former shareholders of Edge Continental Inc. ("Edge"), the Company cancelled 75,000 common shares that were originally issued to acquire Edge. The original value of the cancelled shares of $193,350, along with the cancellation of a note payable of $162,233, were recorded as a reduction of goodwill related to the acquisition with corresponding reductions of stockholders' equity and due to stockholders. F-29 GLOBUS WIRELESS LTD. Notes to Consolidated Financial Statements $ United States Nine month period ended July 31, 2001 (Unaudited) -------------------------------------------------------------------------------- 7. Stock options: The Company applies APB Opinion No. 25 and related interpretations in accounting for employee stock options whereby compensation cost is recorded only to the extent that the market price exceeds the exercise price at the date of grant. Options granted to non-employees are accounted for at their fair value. During the nine month period ended July 31, 2001, the Company granted 204,333 common share options to employees with exercise prices fixed at 85% of the market value of the Company's common shares at the grant date. Accordingly, compensation cost of $95,318, representing the excess of the market price at the grant date over the exercise price of the options granted, has been included in the determination of the loss for the period. 8. Contingencies: a) Pursuant to a technology licensing agreement, the Company is required to make periodic payments to an individual who is the Company's founder, major stockholder and former President. Technology license payments owing under the agreement amounted to approximately $360,000 at October 31, 2000 and $450,000 at July 31, 2001. During 1999, the Company launched a lawsuit against its former President for breach of his fiduciary duties. As part of its claims against its former President, the Company contends that its obligations under the agreement have been eliminated. Consequently, no accrual for technology license payments has been made as at October 31, 2000 and April 30, 2001. Subsequent to July 31, 2001, the Company reached a tentative non-cash settlement with Company's former President. The terms of the settlement have not yet been formalized. b) As disclosed in note 11(d) of its October 31, 2000 audited financial statements, the Company signed an agreement to purchase 730,000 cellular phones with an aggregate cost of $40,199,200 by October 31, 2001. In conjunction with the agreement, during the three months ended January 31, 2001, the Company received a non-refundable purchase rebate of $2,600,000. The rebate was being recognized as a reduction of cost of sales over the total purchase commitment of 730,000 phones. $634,767 of the rebate had been recognized to January 31, 2001. During the six months ended July 31, 2001, the Company elected to discontinue the agreement and accordingly the remaining non-refundable rebate has been recognized as a reduction to cost of sales for the period. c) On March 29, 2001, the Company signed a technology license agreement for the rights to certain technology owned by a third party. The Company is required to make royalty payments to the third party once sales of any products based on the technology commences. At July 31, 2001, the Company has advanced $275,000 as prepayment of the royalty payments which is included in prepaid expenses on the consolidated balance sheet. Subsequent to July 31, 2001, the Company advanced a further royalty prepayments of $60,000. The advances are secured by a demand promissory note. Pursuant to the agreement, the Company must make minimum royalty payments of $1,500,000 by July 31, 2002. F-30 GLOBUS WIRELESS LTD. Notes to Consolidated Financial Statements $ United States Nine month period ended July 31, 2001 (Unaudited) -------------------------------------------------------------------------------- 9. Subsequent events: a) Subsequent to July 31, 2001, the Company received $250,000 for convertible notes payable. The notes are due August 16, 2003, bear interest at 8% and are convertible into common stock of the Company at the lesser of: i) $0.457; or ii) 80% of the average of the three lowest closing bid prices of the Company's common stock for the thirty days immediately prior to the conversion date. In conjunction with the notes, the Company also granted 100,000 common share purchase warrants. The warrants have an exercise price of $1.15 and expire on August 16, 2004. b) Subsequent to July 31, 2001, the Company issued the following common shares: i) 262,617 shares to settle amounts accrued in accounts payable and accrued liabilities at July 31, 2001 of $118,178; ii) 147,429 shares upon conversion of 50 Series A convertible preferred shares plus accrued unpaid dividends of $3,517; iii) 625,000 shares for cash of $216,875; and iv) 15,155 shares with a value of $6,570 for services. 10. Prepaid expenses: During the quarter ended July 31, 2001, the Company sold inventory with a fair value of $1,400,000 in exchange for trade credits to be used for future advertising. F-31 Consolidated Financial Statements of PCI Marketing & Communications Inc. (operating as ShopWireless.Com) and subsidiaries Years ended December 31, 2000 (immediately prior to amalgamation) and 1999 INDEPENDENT AUDITORS' REPORT The Board of Directors of PCI Marketing & Communications Inc. (operating as ShopWireless.Com) We have audited the accompanying consolidated balance sheets of PCI Marketing & Communications Inc. (operating as ShopWireless.Com) as of December 31, 2000 (immediately prior to the amalgamation described in the notes to the financial statements) and 1999 and the related consolidated statements of loss, stockholders' (deficiency) equity and comprehensive loss and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the 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 audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of PCI Marketing & Communications Inc. (operating as ShopWireless.Com) as of December 31, 2000 and 1999, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1(b) to the consolidated financial statements, the Company has suffered recurring losses from operations and has a net working capital deficiency at December 31, 2000, conditions that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1(b). The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Signed "KPMG LLP" Kelowna, Canada March 16, 2001 F-32 PCI MARKETING & COMMUNICATIONS INC. (operating as ShopWireless.Com) Consolidated Balance Sheets $United States December 31, 2000 (immediately prior to amalgamation) and 1999 2000 1999 --------- --------- Assets Current assets: Cash and cash equivalents $ 56,217 $ 268,098 Accounts receivable 7,377 5,429 Inventories 4,251 25,007 Prepaid expenses and deposits -- 1,713 --------- --------- 67,845 300,247 Fixed assets (note 2) 9,811 9,677 Internet website (note 3) 30,081 54,968 Deferred charges 65,271 -- --------- --------- $ 173,008 $ 364,892 --------- --------- Liabilities and Stockholders' (Deficiency) Equity Current liabilities: Accounts payable and accrued liabilities $ 419,656 $ 340,882 Advances from stockholders (note 4) 5,769 1,878 Advances from Globus Wireless Ltd. (note 4) 146,680 -- --------- --------- 570,105 342,760 Stockholders' (deficiency) equity: Capital stock (note 5) 573,684 485,523 Deficit (984,501) (475,866) Accumulated other comprehensive income: Cumulative translation adjustment 13,720 12,475 --------- --------- (397,097) 22,132 Subsequent event (note 6) --------- --------- $ 173,008 $ 364,892 ========= ========= See accompanying notes to consolidated financial statements. Approved by the Board: ___________________________ Director ___________________________ Director F-33 PCI MARKETING & COMMUNICATIONS INC. (operating as ShopWireless.Com) Consolidated Statements of Loss $United States Years ended December 31, 2000 (immediately prior to amalgamation) and 1999 2000 1999 ---------- ---------- Revenue $1,403,565 $ 812,335 Cost of sales 1,284,085 711,828 ---------- ---------- 119,480 100,507 Interest income 1,349 8,609 ---------- ---------- 120,829 109,116 Expenses Depreciation and amortization 30,530 30,631 Insurance 9,997 6,164 Internet website maintenance 28,522 7,189 Marketing and selling 34,294 41,210 Office, automotive and miscellaneous 30,931 18,127 Professional fees 235,937 55,425 Public and industry relations 475 44,318 Rent 17,482 9,701 Repairs and maintenance 926 8,739 Salaries and benefits 167,600 95,249 Supplies, postage and delivery 21,434 25,917 Telephone and internet services 23,806 22,316 Tradeshows and business travel 27,530 39,878 ---------- ---------- 629,464 404,864 ---------- ---------- Loss $ 508,635 $ 295,748 ========== ========== Loss per share, basic and diluted $ 0.05 $ 0.03 ========== ========== Weighted average shares outstanding 9,435,884 9,037,826 ========== ========== See accompanying notes to consolidated financial statements F-34
PCI MARKETING & COMMUNICATIONS INC. (operating as ShopWireless.Com) Consolidated Statement of Stockholders' (Deficiency) Equity and Comprehensive Loss $United States Years ended December 31, 2000 (immediately prior to amalgamation) and 1999 Capital Stock ------------------------ Accumulated Class A shares Other -------------- Comprehensive # of shares Amount Deficit Income Total ---------- ---------- ---------- ---------- ---------- Balance, December 31, 1998 2,826,100 $ 402,310 $ (180,118) $ 5,803 $ 228,065 Class A shares issued for cash 480,000 83,143 -- -- 83,143 Comprehensive income (loss): Loss -- -- (295,748) -- (295,748) Foreign currency translation adjustment -- -- -- 6,672 6,672 ---------- ---------- ---------- ---------- ---------- Comprehensive loss (289,076) ---------- ---------- ---------- ---------- ---------- Balance, December 31, 1999 3,306,100 485,523 (475,866) 12,475 22,132 Class A shares issued for cash 60,000 9,999 -- -- 9,999 Class A shares issued for cash on exercise of options and stock right 6,115,000 43,162 -- -- 43,162 Compensation cost of stock options and stock right issued for services (note 5(b)) -- 35,000 -- -- 35,000 ---------- ---------- ---------- ---------- ---------- 6,175,000 88,161 -- -- 88,161 Comprehensive income (loss): Loss -- -- (508,635) -- (508,635) Foreign currency translation adjustment -- -- -- 1,245 1,245 ---------- ---------- ---------- ---------- ---------- Comprehensive loss (507,330) ---------- ---------- ---------- ---------- ---------- Balance, December 31, 2000 9,481,100 $ 573,684 $ (984,501) $ 13,720 $ (397,097) ========== ========== ========== ========== ========== See accompanying notes to consolidated financial statements. F-35 PCI MARKETING & COMMUNICATIONS INC. (operating as ShopWireless.Com) Consolidated Statements of Cash Flows $United States Years ended December 31, 2000 (immediately prior to amalgamation) and 1999 2000 1999 --------- --------- Cash provided by (used in): Operating activities: Loss $(508,635) $(295,748) Adjustments to reconcile loss to net cash provided by (used in) operating activities: Depreciation and amortization 30,530 30,631 Compensation cost of stock options and stock right issued for services 35,000 -- Increase in accounts receivable (1,948) (3,186) Decrease in inventories 20,756 21,794 Decrease in prepaid expenses and deposits 1,713 1,281 Increase in accounts payable and accrued liabilities 76,774 258,601 --------- --------- (345,810) 13,373 Financing activities: Proceeds from issuance of capital stock 53,161 83,143 Advances from stockholders 3,891 -- Advances from Globus Wireless Ltd. 146,680 -- Deferred charges (65,271) -- --------- --------- 138,461 83,143 Investing activities: Purchase of fixed assets (4,381) (12,651) Development of internet website (1,396) (78,527) Proceeds on disposal of fixed assets -- 3,394 --------- --------- (5,777) (87,784) Effect of exchange rate changes on cash and cash equivalents 1,245 6,782 --------- --------- (Decrease) increase in cash and cash equivalents (211,881) 15,514 Cash and cash equivalents, beginning of year 268,098 252,584 --------- --------- Cash and cash equivalents, end of year $ 56,217 $ 268,098 ========= ========= Supplementary cash flow information: Interest paid $ -- $ -- Income taxes paid -- -- ========= ========= Non-cash financing activities: Compensation cost of stock options and stock right issued for services $ 35,000 $ -- ========= ========= See accompanying notes to consolidated financial statements. F-36
PCI MARKETING & COMMUNICATIONS INC. (operating as ShopWireless.Com) Notes to Consolidated Financial Statements $United States Years ended December 31, 2000 (immediately prior to amalgamation) and 1999 -------------------------------------------------------------------------------- PCI Marketing & Communications Inc. (operating as ShopWireless.Com) (the "Company" or "PCI") was incorporated under the Business Corporations Act (Alberta) on October 16, 1997. The Company's main business activity includes the marketing and sale of wireless communications products. On July 1, 1999, the Company launched its website and switched from a catalogue retailer to an on-line retailer. Pursuant to an Amalgamation and Re-Organization Agreement ("the Agreement") between the Company, Globus Wireless Ltd. ("Globus") and 906548 Alberta Ltd. (a wholly owned subsidiary of Globus), the Company amalgamated with 906548 Alberta Ltd. to form a new corporation named Globus Online Inc. ("Globus Online") effective December 31, 2000. Pursuant to the Agreement, the Company's stockholders will exchange their Class A common shares for Class A shares of Globus Online which, on completion of the Re-Organization, will become exchangeable, on a one for one basis, for Globus common shares. The consolidated financial statements as of December 31, 2000 and for the year then ended reflect the Company's consolidated financial statements immediately prior to the amalgamation. 1. Significant accounting policies a) Basis of consolidation These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Shop Wireless Inc. and Personal Communications Inc. All material inter-company balances and transactions have been eliminated. b) Basis of presentation These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the Unites States of America on the going concern basis, which presumes the realization of assets and discharge of liabilities in the normal course of operations in the foreseeable future. The Company has suffered losses from operations in each year of its existence and has a working capital and a stockholders' deficiency at December 31, 2000. The Company's ability to continue as a going concern, is dependant on its ability to achieve profitable operations and to obtain additional financing. Management plans to obtain additional financing through the Company's transaction with Globus (described above), and plans to achieve profitable operations through increased future sales. The outcome of these matters cannot be predicted at this time. These consolidated financial statements do not give effect to any adjustments which could be necessary should the Company be unable to continue as a going concern and, therefore, be required to realize its assets and discharge its liabilities in other than the normal course of business and at amounts differing from those reflected in the consolidated financial statements. F-37 PCI MARKETING & COMMUNICATIONS INC. (operating as ShopWireless.Com) Notes to Consolidated Financial Statements (continued) $United States Years ended December 31, 2000 (immediately prior to amalgamation) and 1999 -------------------------------------------------------------------------------- 1. Significant accounting policies (continued) c) Translation of financial statements The Company operates in Canada, and its operations are conducted in Canadian currency. Thus, the Company's functional currency is Canadian dollars. These consolidated statements have been translated to United States dollars using the following method: i) Assets and liabilities are translated at the balance sheet date exchange rate, being US $1.00 per Cdn. $1.5002 at December 31, 2000 and US $1.00 per Cdn. $1.4433 at December 31, 1999; ii) Revenue and expenses are translated at the exchange rate in effect at the transaction dates; and iii) The net adjustment has been recorded as a separate component of stockholders' equity called the "cumulative translation adjustment" which is included in accumulated other comprehensive income. d) Financial instruments The fair values of cash and cash equivalents, accounts receivable and accounts payable and accrued liabilities approximate their carrying values due to the short term nature of these instruments. It is not practical to determine a fair value for the advances from stockholders and the advances from Globus Wireless Ltd. due to the related party nature of the amounts and the lack of a ready market for such financial instruments. The maximum credit risk exposure for all financial assets is the carrying value of that asset. e) Use of estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. f) Cash and cash equivalents Cash and cash equivalents consists of cash and short term investments having terms to maturity of three months or less when acquired. g) Inventories Inventories are recorded at the lower of cost, determined on a weighted average basis, and net realizable value. F-38 PCI MARKETING & COMMUNICATIONS INC. (operating as ShopWireless.Com) Notes to Consolidated Financial Statements (continued) $United States Years ended December 31, 2000 (immediately prior to amalgamation) and 1999 -------------------------------------------------------------------------------- 1. Significant accounting policies (continued) h) Fixed assets Fixed assets are recorded at cost. Depreciation is provided over the estimated useful lives of the assets at the following bases and annual rates: Asset Basis Rate ----- ----- ---- Computer hardware Declining balance 30% Computer software Declining balance 100% Leasehold improvements Straight line 20% Office furniture and equipment Declining balance 20% i) Internet website Internet website includes costs of the application and infrastructure development of the Company's website incurred subsequent to its planning stage, and that have received management approval for further development. Costs incurred in the planning stage and operating costs are expensed as incurred. The capitalized internet website costs are amortized on a straight-line basis over three years. Once the internet website is developed, operating costs are expensed as incurred. j) Deferred charges Deferred charges consist of professional fees related to the Agreement. Pursuant to the Amalgamation and Re-Organization Agreement, these costs will be borne by the amalgamated entity, Globus Online. Accordingly, these costs have been deferred in the Company's consolidated financial statements in the consolidated balance sheet. k) Income taxes The Company accounts for income taxes by the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and their respective tax bases, and operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. When it is not considered more likely than not that a deferred tax asset will be realized, a valuation allowance is provided for the excess. F-39 PCI MARKETING & COMMUNICATIONS INC. (operating as ShopWireless.Com) Notes to Consolidated Financial Statements (continued) $United States Years ended December 31, 2000 (immediately prior to amalgamation) and 1999 -------------------------------------------------------------------------------- 1. Significant accounting policies (continued) l) Revenue recognition Revenue from on-line and catalog sales, including shipping and handling costs billed to the customer, is recognized when the products are shipped to customers, title has transferred to the customer and the sales price is collectible. Provisions are recorded for returns and concessions based on historical experience. m) Cost of sales Cost of sales includes costs to acquire and distribute products, including shipping and handling costs. n) Loss per share Loss per share has been calculated using the weighted average number of Class A common shares outstanding during the year. The weighted average number of Class A common shares outstanding includes shares related to stock options, issued with exercise prices below market price at the grant date, from the date those options are granted. As the effect of stock options exercised in the year is anti-dilutive, diluted loss per share does not differ from basic loss per share. o) Stock options The Company applies Accounting Principles Board ("APB") Opinion 25 in accounting for stock options granted to directors, officers and employees, whereby, compensation cost is recorded only to the extent that the market price exceeds the exercise price at the date of grant. Options to non-employees are accounted for at their fair value at the date of provision of the related services as the options are earned. 2. Fixed assets 2000 ------------------------------ Accumulated Net book Cost depreciation value ---- ------------ ----- Computer hardware $17,454 $ 9,284 $ 8,170 Computer software 2,251 2,251 -- Leasehold improvements 1,333 800 533 Office furniture and equipment 2,061 953 1,108 ------- ------- ------- $23,099 $13,288 $ 9,811 ======= ======= ======= 1999 ------------------------------ Accumulated Net book Cost depreciation value ---- ------------ ----- Computer hardware $13,606 $ 6,011 $ 7,595 Computer software 1,773 1,773 -- Leasehold improvements 1,386 554 832 Office furniture and equipment 1,953 703 1,250 ------- ------- ------- $18,718 $ 9,041 $ 9,677 ======= ======= ======= F-40 PCI MARKETING & COMMUNICATIONS INC. (operating as ShopWireless.Com) Notes to Consolidated Financial Statements (continued) $United States Years ended December 31, 2000 (immediately prior to amalgamation) and 1999 -------------------------------------------------------------------------------- 3. Internet website 2000 1999 ---- ---- Capitalized cost $79,923 $78,527 Accumulated amortization 49,842 23,559 ------- ------- $30,081 $54,968 ======= ======= 4. Advances from stockholders and Globus Wireless Ltd. Advances from stockholders and Globus Wireless Ltd. are unsecured, non-interest bearing and are due on demand. 5. Capital stock a) Authorized: Unlimited number of Class A common voting shares, without par value Unlimited number of Class B common non-voting shares, without par value Unlimited number of Class C preferred, non-cumulative, retractable shares, without par value, redeemable at the price at which shares were issued, voting rights assigned by directors on issuance
b) Stock options: The Company has granted the following stock options: 2000 1999 ----------------------------------------------------- Weighted average Weighted average Shares exercise price Shares exercise price ------ -------------- ------ -------------- Balance, beginning of year 6,045,000 Cdn. $0.01 6,030,000 Cdn. $0.01 Issued 215,000 Cdn. $0.25 15,000 Cdn. $0.25 Exercised (6,015,000) Cdn. $0.01 -- -- Expired or cancelled (245,000) Cdn. $0.25 -- -- ---------- ---------- ---------- ---------- Balance, end of year -- -- 6,045,000 Cdn. $0.01 ========== ========== ========== ==========
At December 31, 1999, all options were exercisable. The number of options and range of exercise prices were 6,000,000 options at Cdn. $0.01 to 45,000 options at Cdn., $0.25 and the remaining contractual life of the outstanding options was 0.08 to 2.29 years. The Company applies APB Opinion No. 25 in accounting for its stock options issued to directors, officers and employees and, accordingly, because options issued to these individuals have been granted at the market price on the issue date, no compensation cost has been recognized for its stock options in the consolidated financial statements. F-41 PCI MARKETING & COMMUNICATIONS INC. (operating as ShopWireless.Com) Notes to Consolidated Financial Statements (continued) $United States Years ended December 31, 2000 (immediately prior to amalgamation) and 1999 -------------------------------------------------------------------------------- 5. Capital stock (continued) Had the Company determined compensation costs based on the fair value of its stock options at the grant date under SFAS No. 123, the Company's loss for the year would have been increased to the pro forma amounts below: 2000 1999 ---- ---- Loss As reported $ 508,635 $ 295,748 Pro forma 508,768 296,342 Loss, per share, basic and diluted As reported $ 0.05 $ 0.03 Pro forma $ 0.05 $ 0.03 During the year ended December 31, 2000, 15,000 (1999 - 15,000) options were issued to directors. The Company has applied APB Opinion No. 25 in accounting for these options and, accordingly, no compensation cost has been recorded. The fair value of the options, for the pro forma loss and loss per share, has been determined under the Black Scholes Method using the expected life of the options, a volatility of nil%, a risk-free rate of 4.67% (1999 - 4.67%) and no assumed dividends. During the year ended December 31, 2000, the Company issued 200,000 options, with an exercise price of Cdn. $0.25, and a right to purchase 100,000 Class A common shares of the Company at a price of $0.01 per share to a non-employee for services. The compensation cost related to these options has been estimated to be $35,000 and has been charged to professional fees. The fair value of the options and stock right issued has been recorded using the Black Scholes Method using the expected life of the options, a volatility of 50%, a risk-free rate of 6.01% and no assumed dividends. c) Agent's option The Company has an agent's option outstanding issued in the year ended December 31, 1998, which allows the agent to purchase 400,000 Class A shares at an exercise price of Cdn. $0.25 per share on or before June 7,2001. The agent's option was cancelled on December 31, 2000. 6. Subsequent event On December 31, 2000, the Company's amalgamation with 906548 Alberta Ltd. received shareholder approval and the Company's shareholders received 9,481,100 Class A shares of Globus Online. On January 26, 2001, Globus Online's Re-Organization received shareholder approval and was finalized. Consequently, Globus Online's Class A shares became exchangeable into common shares of Globus Wireless Ltd. F-42 PCI MARKETING & COMMUNICATIONS INC. (operating as ShopWireless.Com) Notes to Consolidated Financial Statements (continued) $United States Years ended December 31, 2000 (immediately prior to amalgamation) and 1999 -------------------------------------------------------------------------------- 7. Income taxes The tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities at December 31, 2000 and 1999 are presented below: 2000 1999 ---- ---- Deferred tax assets (net): Tax loss carryforwards expiring 2004 to 2007 $ 422,000 $ 215,000 Share issue costs, expiring 2002 10,000 16,000 Differences between the accounting and tax bases of the Company's assets 7,000 14,000 --------- --------- Gross deferred tax assets 439,000 245,000 Less valuation allowance (439,000) (245,000) --------- --------- Net deferred tax assets $ -- $ -- ========= ========= The ultimate realization of deferred tax assets is dependant upon the generation of future taxable income during the periods in which the temporary differences became deductible and prior to the expiry of the tax loss carryforwards. In order to fully realize the deferred tax assets, the Company will need to generate taxable income of approximately $866,000 prior to the expiration of the tax loss carryforwards in 2007. Based upon the Company's history of tax losses, management is unable to assert that it is more likely than not the Company will realize the benefits of the deferred tax assets at December 31, 2000. Subsequently recognized tax benefits relating to the valuation allowance for deferred tax assets as of December 31, 2000 will be reported in the statement of earnings in the year it is determined more likely than not that they will be realized. 8. Comparative figures Certain comparative figures have been reclassified to conform with the financial statement presentation adopted in the current year. F-43 Auditors' Report to the stockholders We have audited the accompanying balance sheets of Edge Continental Inc. as at July 31, 2000 and 1999, and the statements of operations and deficit and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the 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 audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above, present fairly, in all material respects, the financial position of the Company as at July 31, 2000 and 1999 and the results of its operations and its cash flows for the years then ended, in accordance with accounting principles generally accepted in the United States of America. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the financial statements, the Company, to date, has cumulative losses since inception of $179,338. This factor, among others, as discussed in Note 1 a), raises substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. signed "KPMG LLP" Kelowna, Canada November 24, 2000 F-44 Edge Continental Inc. Balance Sheets $ United States July 31, 2000 and 1999 Assets 2000 1999 ----------- ----------- Current Cash $ 38,070 $ 40,994 Accounts receivable (net of allowance of $21,582, 1999 - $nil) 399,878 312,695 Advances to shareholders (note 2) 74,731 33,874 Inventory 303,870 427,538 Prepaid expenses and deposits on inventory 266,234 23,657 ----------- ----------- 1,082,783 838,758 Capital assets (note 3) 85,446 17,761 ----------- ----------- $ 1,168,229 $ 856,519 =========== =========== Liabilities and Shareholders' Deficiency Current Accounts payable and accrued liabilities $ 609,494 $ 328,413 Advances from related parties (note 4) 38,726 38,957 Loans payable to related parties (note 5) 697,667 489,278 ----------- ----------- 1,345,887 856,648 Shareholders' deficiency Share capital (note 6) 13 13 Deficit (179,338) (182) Cumulative translation adjustment 1,667 40 ----------- ----------- (177,658) (129) ----------- ----------- Commitments (note 8) $ 1,168,229 $ 856,519 =========== =========== See accompanying notes to financial statements. Approved by the Board: , Director ----------------------------------- , Director ----------------------------------- F-45 Edge Continental Inc. Statements of Operations and Deficit $ United States Years ended July 31, 2000 and 1999 2000 1999 ----------- ----------- Sales $ 5,851,634 $ 5,983,435 Cost of sales (5,313,103) (5,551,492) ----------- ----------- 538,531 431,943 Expenses Amortization 15,451 2,601 General and administrative 580,625 386,561 Interest 121,611 42,963 ----------- ----------- 717,687 432,125 ----------- ----------- Loss (179,156) (182) Shareholders' deficiency, beginning of year (182) -- ----------- ----------- Shareholders' deficiency, end of year $ (179,338) $ (182) =========== =========== See accompanying notes to financial statements. F-46 Edge Continental Inc. Statements of Cash Flows $ United States Years ended July 31, 2000 and 1999 2000 1999 --------- --------- Cash provided by (used in): Operating activities Loss $(179,156) $ (182) Item not involving cash: Amortization 15,451 2,601 Changes in non-cash operating working capital Accounts receivable (87,183) (312,695) Inventory 123,668 (427,538) Prepaid expenses and deposits on inventory (242,577) (23,657) Accounts payable and accrued liabilities 281,081 328,413 --------- --------- (88,716) (433,058) Financing activities Advances from (to) related parties (231) 38,957 Advances to shareholders (40,857) (33,874) Shares issued for cash -- 13 Loans payable 208,389 489,278 --------- --------- 167,301 494,374 Investing activities Purchase of capital assets (83,136) (20,362) Translation adjustment 1,627 40 --------- --------- (Decrease) increase in cash (2,924) 40,994 Cash, beginning of year 40,994 -- --------- --------- Cash, end of year $ 38,070 $ 40,994 ========= ========= Supplementary information Interest paid $ 116,816 $ 40,078 Income taxes paid -- -- ========= ========= See accompanying notes to financial statements. F-47 Edge Continental Inc. Notes to Financial Statements $ United States Years ended July 31, 2000 and 1999 -------------------------------------------------------------------------------- The Company was incorporated under the laws of the Province of Ontario on April 7, 1998 and was inactive until October 1, 1998. The major activity of the Company is the wholesale distribution of cellular phones and related accessories in North America. 1. Accounting Policies: (a) Basis of Presentation These financial statements have been prepared on the going concern basis, which assumes the realization of assets and liquidation of liabilities in the normal course of business. As shown in the financial statements, to date, the Company has an accumulated deficit of $179,338. This factor, among others, raises substantial doubt about the Company's ability to continue as a going concern. The Company's ability to continue as a going concern is dependent on its ability to generate future profitable operations and to receive continued financial support from its shareholders and other investors. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Management of the company in pursuing additional sources of financing (see note 9) and plans to achieve profitable operations through increased future sales. (b) Use of estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (c) Inventory Inventory is recorded at the lower of cost, determined on an average cost basis, and net realizable value. (d) Capital assets Capital assets are recorded at cost. Amortization is provided annually on a straight-line basis over the assets' estimated useful lives as follows: Computer equipment 5 years Computer software 3 years Furniture and fixtures 5 years Leasehold improvements 3 years F-48 Edge Continental Inc. Notes to Financial Statements $ United States Years ended July 31, 2000 and 1999 -------------------------------------------------------------------------------- 1. Accounting Policies (continued): (e) Revenue recognition Revenue is recognized at the time of shipment of inventory when the risks and rewards of ownership have transferred to the customer. (f) Income taxes Under the asset and liability method, future tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Future tax assets and liabilities are measured using enacted or substantively enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on future tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Although the Company has loss carryforwards available, no amount has been reflected on the balance sheet for deferred income taxes as any deferred income tax asset has been fully offset by a valuation allowance. (g) Translation of financial statements These statements have been translated into United States dollars. The method of translation applied is as follows: i) Assets and liabilities are translated at the rate of exchange in effect at the balance sheet date, being US $1.00 per Cdn $1.4870 at July 31, 2000 and US $1.00 per Cdn $1.5063 at July 31, 1999. ii) Revenues and expenses are translated at the exchange rate in effect at the transaction date. iii) The net adjustment arising from the translation is recorded in a separate component of shareholders' deficiency called "Cumulative translation adjustment". (h) Financial instruments The fair values of cash, accounts receivable and accounts payable and accrued liabilities approximate their carrying values due to the relatively short period to maturity of these instruments. The fair values of advances to/from shareholders and related parties and loans payable to related parties are not determinable due to the related party nature of the amounts and the absence of a trading market for such instruments. The maximum credit risk exposure for all financial assets is the carrying amount of that asset. F-49 Edge Continental Inc. Notes to Financial Statements $ United States Years ended July 31, 2000 and 1999 -------------------------------------------------------------------------------- 2. Advances to shareholders: Advances to shareholders are non-interest bearing, have no stated terms of repayment and are unsecured. 3. Capital assets: 2000 Accumulated Net Book ---- Cost Amortization Value -------- ------------ -------- Computer equipment $ 35,478 $ 8,085 $ 27,393 Computer software 28,193 4,228 23,965 Furniture and fixtures 33,102 5,067 28,035 Leasehold improvements 6,725 672 6,053 -------- -------- -------- $103,498 $ 18,052 $ 85,446 ======== ======== ======== 1999 Accumulated Net Book ---- Cost Amortization Value ------- ------------ -------- Computer equipment $ 9,652 $ 976 $ 8,676 Furniture and fixtures 10,710 1,625 9,085 ------- ------- ------- $20,362 $ 2,601 $17,761 ======= ======= ======= 4. Advances from related parties: Advances from related parties are non-interest bearing, have no stated terms of repayment and are secured by a general security agreement over the assets of the Company. The related parties are the spouses of the shareholders. F-50 Edge Continental Inc. Notes to Financial Statements $ United States Years ended July 31, 2000 and 1999 -------------------------------------------------------------------------------- 5. Loans payable to related parties: The Company has loans payable at the following rates and terms: 2000 1999 -------- -------- Note payable, due on demand, interest payable monthly at prime less 1%, secured by a general security agreement over the assets of the Company $ 23,357 $ -- Note payable, due on demand, non-interest bearing, secured by a general security agreement over the assets of the Company 235,373 132,775 Note payable, due on demand, interest payable monthly at 13.5%, unsecured -- 33,194 Notes payable, due on demand, interest payable monthly at 20%, unsecured 127,572 26,555 Notes payable, due on demand, interest payable monthly at 20%, secured by a general security agreement over the assets of the Company 297,915 260,240 Notes payable, due on demand, interest payable monthly at 11%, secured by a general security agreement over the assets of the Company 13,450 13,278 Note payable, due on demand, interest payable monthly at 12%, secured by a general security agreement over the assets of the Company -- 23,236 -------- -------- $697,667 $489,278 ======== ======== All of the above amounts are payable to related parties who are immediate family members of the shareholders except for $67,048 (1999 - $nil) of the unsecured loans payable bearing interest at 20%. During the year ended July 31, 2000, the Company paid interest of $79,348 (1999 - $40,078) on the loans payable to related parties. F-51 Edge Continental Inc. Notes to Financial Statements $ United States Years ended July 31, 2000 and 1999 -------------------------------------------------------------------------------- 6. Share capital: Shares Amount ------ ------ Authorized: Unlimited number of common shares Issued: Common shares issued for cash at CDN $0.10 per share 2,000 $ 13 ----- ----- Balance, July 31, 2000 and 1999 2,000 $ 13 ===== ===== 7. Income taxes: As at July 31, 2000, the Company has the following amounts available to reduce future years' income for Canadian income tax purposes, the tax effect of which has not been recorded in the accounts: Non-capital losses carried forward available until the year: 2006 $ 144 2007 185,907 Amounts deducted for accounting purposes in excess of those deducted for income tax purposes 10,288 -------- $196,339 ======== No amount has been recorded for the above amounts as any tax asset has been fully offset by a valuation allowance. 8. Commitments: The Company is committed to payments under operating leases for equipment, vehicles and buildings over the next five years as follows: 2001 - $103,976; 2002 - $97,594; 2003 - $38,866; 2004 - $2,422; 2005 - $2,169. 9. Subsequent Events: (a) On September 1, 2000 the Company's shareholders entered into a share purchase agreement under which all of the shareholders will exchange all of their shares of the Company for 300,000 common shares of Globus Wireless Ltd., the shares of which are listed and posted for trading on the NASD OTC bulletin board, and cash consideration totaling $672,495. This proposed transaction is subject to both shareholder and regulatory approval. F-52 Edge Continental Inc. Notes to Financial Statements $ United States Years ended July 31, 2000 and 1999 -------------------------------------------------------------------------------- (b) Subsequent to July 31, 2000, the Company received $81,196 from a related party in exchange for a promissory note. The note bears interest at 36% per annum, is demand in nature and is secured by a general security agreement over the assets of the Company. (c) On August 31, 2000, the Company received $33,625 from a related party in exchange for a non-interest bearing promissory note and subsequently renegotiated this note and the $235,373 non-interest bearing note outstanding at July 31, 2000. The new note, aggregating $268,998, bears interest at 37.34% and is secured by a general security agreement over the assets of the Company. 10. Related party transactions: General and administrative expense includes commissions of $47,603 (1999 - $10,763) paid to related parties. 11. Differences between Canadian and United States generally accepted accounting principles: In accordance with Statement of Financial Accounting Standards No. 130, the Company is required to disclose comprehensive income. Comprehensive income for each of the years ended July 31, 2000 and 1999 is: 2000 1999 --------- --------- Loss $(179,156) $ (182) Translation adjustment 1,627 40 --------- --------- Comprehensive loss $(177,529) $ (142) ========= ========= F-53 Unaudited Pro Forma Combined Financial Information for GLOBUS WIRELESS LTD. and subsidiaries F-54 GLOBUS WIRELESS LTD. And subsidiaries Unaudited pro forma combined financial information The following unaudited pro forma combined financial information gives effect to the acquisitions of Edge Continental, Inc. ("Edge") and PCI Marketing and Communications Inc. ("PCI") by Globus Wireless Ltd. ("Globus"), which occurred on September 1, 2000 and December 31, 2000, respectively. The acquisitions were accounted for under the purchase method in accordance with APB Opinion No. 16. Under the purchase method of accounting, the purchase price is allocated to the assets acquired and liabilities assumed based on their estimated fair values. The unaudited pro forma combined statements of loss give pro forma effect to the acquisitions as if the transactions were consummated as of November 1, 1999. The fiscal year pro forma statement of loss was derived from the Globus and PCI audited statements of loss for the years ended October 31, 2000 and December 31, 2000, respectively and the Edge unaudited statement of operations for the year ended October 31, 2000. The Globus and PCI pro forma statement of loss for the nine month period was derived from their unaudited statements of loss for the nine month periods ended July 31, 2001. The unaudited pro forma combined financial information has been prepared by management and is not necessarily indicative of the combined results of operations in future periods or the results that actually would have been realized had Globus, Edge and PCI been a combined company during the specified periods. The unaudited pro forma combined financial information, including the notes thereto, should be read in conjunction with the historical consolidated financial statements of Globus included in its October 31, 2000 Form 10-KSB and July 31, 2001 Form 10-QSB filed January 26, 2001 and March 19, 2001 September 19, 2001, respectively, and the historical financial statements of Edge included in Form 8K/A filed by Globus on January 11, 2001 with the Securities and Exchange Commission, and the historical financial statements of PCI included in this SB-2 registration statement. F-55
GLOBUS WIRELESS LTD. Unaudited Pro Forma Combined Statement of Loss $ United States Historical Pro Forma -------------------------------------------- ------------------------------ Globus Edge PCI Adjustments Combined Year ended Year ended Year ended October 31, October 31, December 31, 2000 2000 2000 (note 4(a)) (Note 2) ------------ ------------ ------------ ------------ ------------ Sale of products $ 3,934,282 $ 7,438,957 $ 1,403,565 $ -- $ 12,776,804 Cost of sales 3,164,514 6,242,761 1,284,085 94,102(a) 10,785,462 ------------ ------------ ------------ ------------ ------------ 769,768 1,196,196 119,480 (94,102) 1,991,342 Engineering revenue 189,048 -- -- -- 189,048 ------------ ------------ ------------ ------------ ------------ 958,816 1,196,196 119,480 (94,102) 2,180,390 Expenses Amortization 88,947 42,821 30,530 91,375(b) 431,855 178,182(d) General and administrative 1,724,731 915,775 598,934 -- 3,239,440 Interest 131,785 148,029 -- 40,775(c) 320,589 Research and development 103,487 -- -- -- 103,487 ------------ ------------ ------------ ------------ ------------ 2,048,950 1,106,625 629,464 310,332 4,095,371 ------------ ------------ ------------ ------------ ------------ Net earnings (loss) before other income (1,090,134) 89,571 (509,984) (404,434) (1,914,981) Other income 11,966 76 1,349 -- 13,391 ------------ ------------ ------------ ------------ ------------ Net earnings (loss) $ (1,078,168) $ 89,647 $ (508,635) $ (404,434) $ (1,901,590) ============ ============ ============ ============ ============ Weighted average number of shares 11,895,293 13,376,794 Loss per share (note 3) $ (0.09) $ (0.14) ============ ============ See accompanying notes to financial information. F-56 GLOBUS WIRELESS LTD. Unaudited Pro Forma Combined Statement of Loss $ United States Historical Pro Forma ---------------------------- ------------------------------- Globus PCI Adjustments Combined Nine month Nine month period ended periodended July 31, July 31, 2001 2001 (note 4(b)) (Note 2) ------------ ------------ ------------ ------------ Sale of products $ 17,967,936 $ 1,091,886 $ -- $ 19,059,822 Cost of sales 16,090,697 988,314 -- 17,079,011 ------------ ------------ ------------ ------------ 1,877,239 103,572 -- 1,980,811 Engineering revenue 459,893 -- -- 459,893 ------------ ------------ ------------ ------------ 2,337,132 103,572 -- 2,440,704 Expenses Amortization 231,599 -- 133,365(c) 364,964 General and administrative 2,606,437 526,874 -- 3,133,311 Interest 560,670 -- -- 560,670 Research and development 89,127 -- -- 89,127 ------------ ------------ ------------ ------------ 3,487,833 526,874 133,365 4,148,072 ------------ ------------ ------------ ------------ Loss before other income (1,150,701) (423,302) (133,365) (1,707,368) Other income 13,798 -- -- 13,798 ------------ ------------ ------------ ------------ Loss $ (1,136,903) $ (423,302) $ (133,365) $ (1,693,570) ============ ============ ============ ============ Weighted average number of shares 16,453,911 14,194,796 Loss per share (note 3) $ (0.07) $ (0.09) ============ ============ See accompanying notes to financial information. F-57
GLOBUS WIRELESS LTD. Notes to Unaudited Pro Forma Combined Financial Information $ United States -------------------------------------------------------------------------------- 1. Basis of presentation: This unaudited pro forma combined financial information has been prepared in accordance with accounting principles generally accepted in the United States of America. Effective September 1, 2000, Globus acquired Edge for a total purchase price of $1,545,262 in a transaction accounted for under the purchase method. Globus issued 300,000 shares of its common stock with a fair value of $773,400, agreed to pay cash consideration of $679,579 and paid direct acquisition costs of $92,283 for all of the outstanding common stock of Edge. The common stock issued by Globus was valued using Globus' average stock price on the date the transaction was announced and the prices of the stock two days before and after the announcement. The cash consideration is payable in increments of $169,895 on October 31, 2000, December 31, 2000, March 31, 2001 and June 30, 2001. Outstanding cash consideration bears interest at 6% per annum and is unsecured. On December 31, 2000, Globus acquired PCI for a total purchase price of $2,330,635 in a transaction accounted for under the purchase method. Pursuant to the terms of an amalgamation and re-organization agreement, PCI amalgamated with 906548 Alberta Inc., a wholly owned subsidiary of Globus, and formed Globus Online Inc. The former stockholders of PCI received 9,481,100 Class A non-voting exchangeable shares of Globus Online Inc., valued at $0.23366 per share, in exchange for all of the outstanding shares of PCI on a one for one basis upon amalgamation. The former PCI stockholders may exchange their Class A shares of Globus Online Inc. for common shares of Globus, at the option of the holder, at any time for a period of three years from the date of issuance. The number of common shares of the Company to be exchanged for each Class A share of Globus Online Inc. will be based on the market value of the Company's common shares at the date of exchange, such that an equal value of the Company's common shares will be issued for the value of the Class A shares exchanged, valued at $0.23366 per share. Any unexchanged Class A shares of Globus Online Inc. outstanding at December 31, 2003 will be automatically exchanged for common shares of the Company. Accordingly, the acquisition has been recorded at $2,330,635 being the cost of the 9,481,100 Class A shares of $2,215,354 plus direct acquisition costs of $115,281. The acquisitions were accounted for under the purchase method of accounting in accordance with APB Opinion No. 16. Under the purchase method of accounting, the purchase price is allocated to the assets acquired and liabilities assumed based on their estimated fair values. Goodwill arising on the acquisitions is amortized on a straight-line basis over fifteen years. F-58 GLOBUS WIRELESS LTD. Notes to Unaudited Pro Forma Combined Financial Information (continued) $ United States -------------------------------------------------------------------------------- 2. Pro forma adjustments: The pro forma combined statements of loss give effect to the following transactions as if they had occurred on November 1, 1999: a) To record the fair value of Edge inventory upon acquisition of Edge by Globus. b) To reflect amortization of goodwill arising upon the acquisition of Edge. c) To reflect interest expense on the unpaid cash consideration for the acquisition of Edge. d) To reflect amortization of goodwill arising upon the acquisition of PCI. 3. Pro forma loss per share: The unaudited pro forma combined loss per share is based upon the weighted average number of outstanding shares of common stock of Globus during the periods presented, plus the number of shares issued to consummate the acquisitions of PCI and Edge as if the acquisitions occurred on November 1, 1999. 4. Adjustments made to historical information: a) The Globus fiscal year statement of loss was derived from its audited consolidated statement of loss for the year ended October 31, 2000. The adjustments made involved deconsolidating Edge operations and reversing the related consolidation adjusting entries as follows: Edge September 1, Adjusted Year ended 2000 to Year Ended October 31, October 31, October 31, 2000 2000 2000 ----------- ----------- ----------- Revenues - sale of products and engineering revenue $ 6,296,301 $(2,172,971) $ 4,123,330 Cost of sales (5,163,933) 1,999,419 (3,164,514) Expenses (2,350,023) 301,073 (2,048,950) Other income 12,042 (76) 11,966 ----------- ----------- ----------- Loss $(1,205,613) $ 127,445 $(1,078,168) =========== =========== =========== F-59 GLOBUS WIRELESS LTD. Notes to Unaudited Pro Forma Combined Financial Information (continued) $ United States -------------------------------------------------------------------------------- 4. Adjustments made to historical information (continued): b) The Globus statement of loss for the nine-month period ended July 31, 2001 was derived from its unaudited consolidated statement of loss for that period. The adjustments made involved deconsolidating PCI operations and reversing the related consolidation adjusting journal entries as follows: PCI Nine month Seven month Adjusted nine period ended period ended month period July 31, July 31, ended July 2001 2001 31, 2001 ------------ ------------ ------------ Revenues - sale of products and engineering revenue $ 19,053,840 $ (626,011) $ 18,427,829 Cost of sales (16,693,679) 602,982 (16,090,697) Expenses (3,913,161) 425,328 (3,487,833) Other income 13,798 -- 13,798 ------------ ------------ ------------ Loss $ (1,539,202) $ (402,299) $ (1,136,903) ============ ============ ============ c) The nine months ended July 31, 2001 for PCI includes the two month period ended December 31, 2000 which was included in the pro forma income statement for the year ended December 31, 2000. Summarized operating information concerning the two month period is as follows: Revenues $ 465,875 Cost of Sales (385,332) Expenses (205,484) --------- Net Loss (124,941) ========= F-60 ================================================================================ 28,425,236 SHARES OF COMMON STOCK GLOBUS WIRELES, LTD. ----------------- PROSPECTUS ----------------- THE DATE OF THIS PROSPECTUS IS ================================================================================ PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS Subsection 1 of Section 78.7302 of Chapter 78 of the Nevada General Corporation Law ("NGCL") provides that a corporation may indemnify any person who was or is a party, or is threatened to be made a party, to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (except in an action brought by or on behalf of the corporation) if that person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or enterprise, against expenses, including attorneys' fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by that person in connection with such action, suit or proceeding, if that person acted in good faith and in a manner which that person reasonably believed to be in, or not opposed to, the best interests of the corporation, and, with respect to any criminal action or proceedings, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, alone, does not create a presumption that the person did not act in good faith and in a manner which the person reasonably believed to be in, or not opposed to, the best interests of the corporation, and that, with respect to any criminal action or proceeding, the person had reasonable cause to believe his action was unlawful. Subsection 2 of Section 78.7502 of the NGCL provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit brought by or on behalf of the corporation to procure a judgment in its favor because the person acted in any of the capacities set forth above, against expenses, including amounts paid in settlement and attorneys' fees, actually and reasonably incurred by that person in connection with the defense or settlement of such action or suit, if the person acted in accordance with the standard set forth above, except that no indemnification may be made in respect of any claim, issue or matter as to which such person shall have been adjudged by a court of competent jurisdiction after exhaustion of all appeals therefrom to be liable to the corporation or for amounts paid in settlement to the corporation unless and only to the extent that the court in which such action or suit was brought or other court of competent jurisdiction determines that, in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses as the court deems proper. Section 78.751 of the NGCL provides that unless indemnification is ordered by a court, the determination to provide indemnification must be made by the stockholders, by a majority vote of a quorum of the board of directors who were not parties to the action, suit or proceeding, or in specified circumstances by independent legal counsel in a written opinion. In addition, the articles of incorporation, bylaws or an agreement made by the corporation may provide for the payment of the expenses of a director or officer of the expenses of defending an action as incurred upon receipt of an undertaking to repay the amount if it is ultimately determined by a court of competent jurisdiction that the person is not entitled to indemnification. Section 78.751 of the NGCL further provides that, to the extent a director or officer of a corporation has been successful on the merits or otherwise in the defense of any action, suit or proceeding referred to in subsection (1) and (2), or in the defense of any claim, issue or matter therein, that person shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by that person in connection therewith; that indemnification provided for by Section 78.751 of the NGCL shall not be deemed exclusive of any other rights to which the indemnified party may be entitled and that the scope of indemnification shall continue as to directors, officers, employees or agents who have ceased to hold such positions, and to their heirs, executors and administrators. II-1 Finally, Section 78.752 of the NGCL provides that a corporation may purchase and maintain insurance on behalf of a director, officer, employee or agent of the corporation against any liability asserted against him or incurred by him in any such capacity or arising out of his status as such whether or not the corporation would have the authority to indemnify him against such liabilities and expenses. The Registrant's bylaws provide for indemnification of officer, directors and others to the fullest extent permitted by the laws of the State of Nevada. ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the estimated expenses in connection with the issuance and distribution of the securities offered hereby. SEC registration fee ................................. $ 2,401 Accountants' fees and expenses ....................... 45,000 Legal fees ........................................... 75,000 Transfer agent's and warrant agent's fees and expenses 500 -------- Total ..................................... $122,901 ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES Private Placements of Common Stock, Preferred Stock and Warrants for Cash We sold series A preferred convertible stock for cash at the prices and during the periods provided as follows: during the first quarter of 2001, 1,500 shares at a price of $1,000 per share and warrants to purchase 415,236 shares at an exercise price of $1.8062 per share were issued to seven purchasers. The offers and sales of the above securities were deemed to be exempt from registration under the Securities Act in reliance on Section 4(2) of Regulation D promulgated thereunder. No advertising or general solicitation was employed in offering the securities. The securities were offered to a limited number of persons and transfers of the shares were restricted by Globus in accordance with the requirements of the Securities Act of 1933 (the "Securities Act"). All persons were accredited investors, represented that they were capable of analyzing the merits and risks of their investment, acknowledged in writing that they were acquiring the securities for investment and not with a view toward distribution or resale and that they understood the speculative nature of their investment. Proceeds from the above sales of common stock were used for working capital and for general corporate purposes. All of the underlying common stock issued in the above transactions is being registered in this registration statement. Sales of Debt and Warrants for Cash We received $800,000 in exchange for four promissory notes. The notes are secured by a pledge by Globus, in the event of default, to issue an amount of our common stock with a value of two times any outstanding principal and unpaid interest. $625,000 and $175,000 of the notes bear interest at 30% and 24% per annum respectively, payable monthly. The offering of notes was exempt from registration under Rule 506 of Regulation D and under Section 4(2) of the Securities Act. No advertising or general solicitation was employed in offering the securities. II-2 A convertible note was issued to four investors during the second quarter of 2001. The note was in the aggregate principal amount of $1,250,000. The conversion price for the convertible debentures is the lesser of 85% of the average of the three lowest closing prices for the common stock for the 30 trading days prior to but not including the day of closing, or 85% percent of the average of the three lowest closing prices for the common stock for the 30 trading days prior to but not including the conversion date. The maximum number of shares of common stock that any subscriber or group of affiliated subscribers may own after conversion at any given time is 4.99%. The number of shares of common stock issuable upon conversion of the convertible debentures is 2,604,166 based on a conversion price of $0.177 per share. In addition, 500,000 shares underlying warrants are being registered. These warrants, which expire May 31, 2006, have an exercise price of $1.78. The offering of convertible debentures and warrants was exempt from registration under Rule 506 of Regulation D and under Section 4(2) of the Securities Act. No advertising or general solicitation was employed in offering the securities. The securities were offered to a limited number of persons, and transfers of the shares were restricted by Globus in accordance with the requirements of the Securities Act. All persons were accredited investors, represented that they were capable of analyzing the merits and risks of their investment, acknowledged in writing that they were acquiring the securities for investment and not with a view toward distribution or resale and that they understood the speculative nature of their investment. Issuances of Stock for Services or in Satisfaction of Obligations On August 27, 2001, we issued 2655 shares of our common stock to Redline Contracting Ltd., for services rendered of $1065.05. On August 24, 2001, we issued 12,500 shares of our common stock to Martin E Janis & Co., for investor and public relations services. On August 24, 2001, we issued 625,000 shares of our common stock for $216,875 to 520729 B.C. Ltd. On August 24, 2001, we issued 200,000 shares of our common stock to Excalibur International for financial consulting services of $75,000. On August 24, 2001, we issued 28,125 shares of our common stock to Hayden Communications Inc. and 21,125 shares of our common stock to Market Pathways, Inc., for investor relations services of $25,301 total. On August 24, 2001, we issued 6367 shares of our common stock to Quasar International, for media services of $2865. On August 24, 2001, we issued 147,429 shares of our common stock to Stonestreet Limited Partnership, pursuant to the conversion of $50,000 of the Company's Series A Convertible Secured Debentures issued December 22, 2000. On June 29, 2001, we issued 87,429 shares of our common stock to Stonestreet Limited Partnership, pursuant to the conversion of $40,000 of the Company's Series A Convertible Secured Debentures issued December 22, 2000. On June 29, 2001, we issued 48,130 shares of our common stock to Stonestreet Limited Partnership, pursuant to the conversion of $20,000 of the Company's Series A Convertible Secured Debentures issued December 22, 2000. On June 29, 2001 we issued 100,000 shares of our common stock to A. Cary Tremblay for services rendered. On June 29, 2001 we issued 100,000 shares of our common stock to Nick G. Wizinsky for services rendered. II-3 On May 2, 2001, we issued 1,250 shares of our common stock to Gary Leier for human resources consulting services rendered of $983. On May 2, 2001, we issued 71,000 shares of our common stock to SeedCap Inc. for acquisition consulting services rendered of $54,839. On May 2, 2001, we issued 53,240 shares of our common stock to Future Quest Inc. for marketing consulting services rendered of $42,000. On May 2, 2001, we issued 4,595 shares of our common stock to Hans Schroth for conference services rendered of $3,613. On January 19, 2001, we issued 3,350 shares of our common stock to Gary Leier for human resources consulting services rendered of $2,634. On January 15, 2001, we issued 43,000 shares of our common stock to Al Stober Construction Ltd. and 43,000 shares of our common stock to Oscar Krueger for leasehold services rendered of $129,870. In January 2001, we issued 9,000 shares of our common stock SeedCap Inc. for acquisition consulting services rendered. In January 2001, we issued 10,000 shares of our common stock to Sichenzia, Ross & Friedman LLP for legal services rendered. In December 2000, we issued 30,000 shares of our common stock to Intercoastal for investment capital services rendered. On November 15, 2000, nine employees of former Edge Continental Inc. received 35,000 shares of our common stock as employee incentive for commitment of 12 months future services. On November 15, 2000, Shawn McMillen exercised his options for 59,000 shares of our common stock. On October 27, 2000, we issued 100,000 shares of our common stock for $300,000 to Jeremie Dyck. On September 21, 2000, we issued 40,000 shares of our common stock for $108,000 to Ben Liang. On August 18, 2000, Marleen Knoblick exercised her options for 1,000 shares of our common stock. On August 18, 2000, Kerry McIntyre exercised her options for 2,000 shares of our common stock. On August 18, 2000, Pat D'Easum exercised her options for 6,000 shares of our common stock. On August 18, 2000, Lynda Newitt exercised her options for 6,500 shares of our common stock. On August 18, 2000, Kari O'Rourke exercised her options for 7,500 shares of our common stock. On August 18, 2000, A Cary Tremblay exercised his options for 33,333 shares of our common stock. On August 18, 2000, Gord Walsh exercised his options for 20,000 shares of our common stock. On August 18, 2000, Nick Wizinsky exercised his options for 10,000 shares of our common stock. On August 18, 2000, Ben Hewson exercised his options for 7,500 shares of our common stock. On August 1, 2000, Hayden Communications received 40,000 shares of our common stock for investor relations services rendered. II-4 On July 31, 2000, we issued 36,244 shares of our common stock for $70,313 to Dr. Gerald Haas. On July 31, 2000, we issued 102,457 shares of our common stock for $293,480 to Jill Twerdun. On July 18, 2000, we issued 55,382 shares of our common stock for $109,989 to Gordon Miller. On July 18, 2000, we issued 35,000 shares of our common stock for $69,510 to Konrad Komitsch. On May 8, 2000, we issued 32,000 shares of our common stock for $104,640 to Jeremie Dyck. On April 21, 2000, Tony Dyck, exercised his options for 21,333 shares of our common stock. On April 21, 2000, we issued 41,900 shares of our common stock for $155,449 to Mark Twerdun. On April 21, 2000, Ron Armstrong, exercised his options for 12,122 shares of our common stock. On April 21, 2000, we issued 37,155 shares of our common stock for $132,272 to Wolfgang Jastram. On February 18, 2000, we issued 100,000 shares of our common stock for $174,400 to Gordon Miller. On February 18, 2000, we issued 100,000 shares of our common stock for $164,000 to Ben Liang and Clement Law. On February 10, 2000, we issued 79,208 shares of our common stock for $100,000 to Haery J Park. On December 2, 1999, we issued 30,487 shares of our common stock for $49,999 Gerald Haas. On December 2, 1999, ABW Trading NFC Service received 47,500 shares of our common stock as a compensation for a legal settlement. On November 18, 1999, Patrick Tymiak exercised his warrants for 6,250 shares of our common stock. On November 18, 1999, various investors exercised their warrants for 377,750 shares of our common stock. On September 23, 1999, IV Point Management Co. exercised options for 100,000 shares of our common stock. On September 23, 1999, Bernard Penner exercised his options for 90,090 shares of our common stock. On September 23, 1999, Cutting Edge Inc. exercised options for 500,000 shares of our common stock. On September 23, 1999, A Cary Tremblay exercised his options for 33,334 shares of our common stock. On August 12, 1999, we issued 50,000 shares of our common stock for $72,650 to Rudy Streu. On August 12, 1999, we issued 46,000 shares of our common stock for $66,838 to Hans Schroth. On July 30, 1999, 8 subscribers exercised their warrants for 188,374 shares of our common stock. On July 30, 1999, Tony Dyck exercised his options for 250,000 shares of our common stock. On July 30, 1999, we issued 56,000 shares of our common stock for $28,000 to Shirley Lynch. On July 30, 1999, we issued 30,000 shares of our common stock for $15,000 to Neil Postance. II-5 On July 30, 1999, we issued 384,000 shares of our common stock for Cdn.$288,000 to Dave Wodar. On June 1, 1999, we issued 227,778 shares of our common stock for Cdn.$82,000 to Tony Dyck. On May 19, 1999, Virgin Capital Management exercised warrants for 30,000 shares of our common stock. On April 30, 1999, we issued 1,069,767 shares of our common stock for Cdn.$460,000 to Deborah Bayne. On April 26, 1999, 31 subscribers exercised warrants for 459,250 of our common stock. On April 23, 1999, Bishop & Company received 15,000 shares of our common stock as legal fees. On April 23, 1999, Taylor Bickert received 79,352 shares of our common stock as a Bickert loan repayment. On April 23, 1999, Charity Pender received 79,352 shares of our common stock as a Bickert loan repayment. On April 23, 1999, Natalie Bickert received 79,351 shares of our common stock as a Bickert loan repayment. On March 29, 1999, Neil Postance received 100,000 shares of our common stock as a stock subscription. On March 29, 1999, Excalibur International received 100,000 shares of our common stock as a stock subscription. On March 29, 1999, RBC Dominion exercised Bickert options for 23,256 shares of our common stock. On March 29, 1999, Chester Edwards exercised Bickert options for 58,136 shares of our common stock. On March 29, 1999, Ralph Warkentin received 1,000 shares of our common stock as leasehold renovations. On March 29, 1999, Redline Contracting received 28,972 shares of our common stock as leasehold renovations. On March 16, 1999, Vantage Point Capital received 6,600 shares of our common stock as an investor relations consulting. On February 8, 1999, Lynda Newitt received 11,042 shares of our common stock as an administration. On January 15, 1999, Mike Olexa received 13,905 shares of our common stock as a video production. On January 15, 1999, Lynda Newitt received 10,753 shares of our common stock as a compensation for consulting. On September 15, 1998, 12 subscribers exercised warrants for 156,343 shares of our common stock. On July 31, 1998, Shawn McMillen received 10,000 shares of our common stock for services provided. On February 9, 1998, Shawn McMillen received 10,000 shares of our common stock for services provided. On February 9, 1998, Dr. Paul Bickert received 30,000 shares of our common stock for services provided. On January 28, 1998, Robert Shultz received 6,000 shares of our common stock for services provided. II-6 January 28, 1998, Ken Blawatt received 6,000 shares of our common stock for services provided. January 28, 1998, John Ryan received 7,500 shares of our common stock for services provided. On January 23, 1998, Tingle & Associates exercised Bickert options for 50,000 shares of our common stock. Through November 21, 1997 to December 8, 1997, 37 subscribers received 542,100 shares of our common stock as a Private Placement. On November 19, 1997, Dr. P. Bickert received 12,500 shares of our common stock for services provided. On November 5, 1997, Shawn McMillen received 10,000 shares of our common stock for services provided. The above offerings and sales were deemed to be exempt under Regulation D and Section 4(2) of the Securities Act. No advertising or general solicitation was employed in offering the securities. The offerings and sales were made to a limited number of persons and transfer was restricted by Globus in accordance with the requirements of the Securities Act. II-7 ITEM 27. EXHIBITS EXHIBIT NUMBER DESCRIPTION ------ ----------- 2.1 Share Purchase Agreement with the vendor of Edge Continental, Inc., dated as of September 1, 2000 (1) 3.1 Articles of Incorporation of the Company(2) 3.2 Bylaws of the Company(3) 4.1 Specimen Stock Certificate of the Company(4) 4.2 Certificate of Designation (6) 4.3 Registration Rights Agreement dated October 6, 2000 (6) 4.4 Registration Rights Agreement dated December 29, 2001 (6) 4.5 Series A Convertible Preferred Stock Purchase Agreement with various investors dated December 29, 2001(6) 4.6 Subscription Agreement* 4.7 Laurus Master Funds, Ltd. convertible note in the principal amount of $800,000* 4.8 The Keshet Fund L.P. convertible note in the principal amount of $100,000* 4.9 Keshet L.P. convertible note in the principal amount of $100,000* 4.10 Waiver* 4.11 Stonestreet Limited Partnership convertible note in the principal amount of $250,000* 4.12 Laurus Master Funds, Ltd. warrants to purchase 320,000 shares of common stock* 4.13 The Keshet Fund L.P. warrants to purchase 40,0000 shares of common stock* 4.14 Keshet L.P. warrants to purchase 40,000 shares of common stock* 4.15 Stonestreet Limited Partnership warrants to purchase 100,000 shares of common stock* 5.1 Opinion of Sichenzia, Ross & Friedman, LLP 10.1 Security Agreement* 16.1 Letter on Change in Certifying Accountant(5) 21.1 List of Subsidiaries (6) 23.1 Consent of Sichenzia, Ross & Friedman, LLP (included in Exhibit 5.1) 23.2 Consent of James E. Scheifley & Associates, P.C. 23.3 Consent of KPMG LLP 23.4 Consent of KPMG LLP 23.5 Consent of KPMG LLP ---------- * Previously filed. (1) Incorporated by referenced to the Form 8-K filed by Globus on November 14, 2000. (2) Incorporated by referenced to the Form 10-SB File # 0-25614. (3) Incorporated by referenced to the Form 10-SB File # 0-25614. (4) Incorporated by referenced to the Form 10-SB File # 0-25614. (5) Incorporated by referenced to the Form 8-K/A filed by Globus on November 7, 2000. (6) Incorporated by referenced to the Form SB-2 File #333-53760 II-8 ITEM 28. UNDERTAKINGS The undersigned Registrant hereby undertakes: (1) To file a post-effective amendment to this Registration Statement during any period in which offers or sales are being made: (i) to include any Prospectus required by Section 10(a)(3) of the Securities Act; (ii) to reflect in the Prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post- effective amendment thereof) which, individually, or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) ((S)230.424(b) of this Chapter) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective Registration Statement; and (iii) to include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement of any material change to such information in the Registration Statement. (2) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of this offering. (3) To provide to the Underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the Underwriter to permit prompt delivery to each purchaser. (4) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment that contains a form of prospectus as shall be deemed to be a new Registration Statement relating to the securities offered therein, and this offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (5) That, insofar as indemnification for liabilities arising from the Securities Act may be permitted to directors, officers, and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. (6) That, for purposes of determining any liability under the Securities Act, the information omitted from the form of Prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or Rule 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. II-9 SIGNATURES In accordance the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirement for filing on Form SB-2 and authorized this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the Kelowna in the province of British Columbia, Canada on October 5, 2001. GLOBUS WIRELESS, LTD. By: /s/ Bernard Penner ----------------------- Bernard Penner, Chairman of the Board In accordance with the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons on behalf of the Company in the capacities and on the dates indicated. SIGNATURE CAPACITY DATE --------- --------- ---- /s/ Tom W. Pick President and Chief Executive October 5, 2001 --------------- Officer, Director Tom W. Pick /s/ Nick Wizinsky Chief Financial Officer & Director October 5, 2001 ----------------- Nick Wizinsky /s/ Hans Schroth Director October 5, 2001 ---------------- Hans Schroth /s/ Norm Hawkins Director October 5, 2001 ---------------- Norm Hawkins /s/ Gregory Sichenzia Director October 5, 2001 --------------------- Gregory Sichenzia Ben Hewson Controller October 5, 2001 ---------- /s/ Ben Hewson EX-5.1 3 globus3ex5-1.txt OPINION EXHIBIT 5.1 SICHENZIA, ROSS, FRIEDMAN & FERENCE LLP Attorneys At Law 135 West 50th Street, 20th Floor New York, New York 10020 --------------------- Telephone: (212) 664-1200 Facsimile: (212) 664-7329 July 20, 2001 VIA ELECTRONIC TRANSMISSION Securities and Exchange Commission 450 Fifth Street, N.W. Washington, DC 20549 Re: Globus Wireless, Ltd. Form SB-2 Registration Statement (File No. 333-62562) Ladies and Gentlemen: We refer to the above-captioned registration statement on Form SB-2 (the "Registration Statement") under the Securities Act of 1933, as amended (the "Act"), filed by Globus Wireless. Ltd., a Nevada corporation (the "Company"), with the Securities and Exchange Commission. We have examined the originals, photocopies, certified copies or other evidence of such records of the Company, certificates of officers of the Company and public officials, and other documents as we have deemed relevant and necessary as a basis for the opinion hereinafter expressed. In such examination, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as certified copies or photocopies and the authenticity of the originals of such latter documents. Based on our examination mentioned above, we are of the opinion that the securities being sold pursuant to the Registration Statement are duly authorized and will be, when issued in the manner described in the Registration Statement, legally and validly issued, fully paid and non-assessable. We hereby consent to the filing of this opinion as Exhibit 5.1 to the Registration Statement and to the reference to our firm under "Legal Matters" in the related Prospectus. In giving the foregoing consent, we do not hereby admit that we are in the category of persons whose consent is required under Section 7 of the Act, or the rules and regulations of the Securities and Exchange Commission. Very truly yours, /s/ Sichenzia, Ross, Friedman & Ference LLP ------------------------------------------- Sichenzia, Ross, Friedman & Ference LLP EX-23.2 4 globus4ex23-2.txt CONSENT Exhibit 23.2 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We hereby consent to the use in this Registration Statement on Form SB-2 of our report dated April 4, 2000, relating to the financial statements of Globus Wireless, Ltd. as of October 31, 1999, and the reference to our firm under the caption "EXPERTS" in the Registration Statement. /s/ James E. Scheifley & Associates, P.C. ----------------------------------------- James E. Scheifley & Associates, P.C. Certified Public Accountants October 5, 2001 Dillon, Colorado EX-23.3 5 globus4ex23-3.txt CONSENT Exhibit 23.3 The Board of Directors of Globus Wireless Ltd.: We consent to the use of our report on Edge Continental Inc. dated November 24, 2000 and to the reference to our firm under the heading "Experts" in this Form SB-2. signed "KPMG LLP" Kelowna, Canada October 5, 2001 EX-23.4 6 globus4ex23-4.txt CONSENT Exhibit 23. 4 The Board of Directors of Globus Wireless Ltd.: We consent to the use of our report on Globus Wireless Ltd. dated January 18, 2001 and to the reference to our firm under the heading "Experts" in this Form SB-2. signed "KPMG LLP" October 5, 2001 EX-23.5 7 globus4ex23-5.txt CONSENT Exhibit 23.5 The Board of Directors of Globus Wireless Ltd.: We consent to the use of our report on P.C.I. Marketing & Communications Inc. dated March 16, 2001 and to the reference to our firm under the heading "Experts" in this Form SB-2. signed "KPMG LLP" Kelowna, Canada October 5, 2001