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Koala International Wireless, Inc. (KIWI - NASD OTC)
www.koalawireless.com
This material includes forward-looking statements based on managements current reasonable business expectations. In this document, the words will, expects, and similar expressions identify certain forward-looking statements. These statements are made in reliance on the Private Securities Litigation Reform Act, Section 27A of the Securities act of 1933, as amended. There are numerous risks and uncertainties that could result in actual results differing materially from expected outcomes. The material should be read in conjunction with the Company's current annual and quarterly reports filed with the SEC, which contain discussions of currently known factors that could significantly impact the Companys future expectations.
Executive Summary (Year 1)
KIWI International Wireless Inc. a Nevada Public Company operating from Pompano Beach, Florida (KIWI) or (the Company) is developing a next-generation wireless communications platform that enables the delivery of voice, data and Short Messaging to a proprietary, network-enabled handheld device (the KEEWEE) at a substantial savings over technology currently available. By combining technology, expertise and relationships, KIWI will be able to deliver secure connectivity and services to its low-cost PDA/cell phone device.
The device and network will attack the nearly 400M unit cellular market where less than 20% of units shipped were compatible with next generation markets and were capable of integrating voice and data mobility options. The PDA market was less than 10 M units and the Blackberry(TM) was less than 100k subscribers in 2002. The KEEWEE as explained below is the NEXT GENERATION MUST HAVE COMMUNICATOR
KIWI International Wireless Inc.
Kiwi is a fully reporting up to date 12G Nevada Corporation NASDAQ OTC-BB (KIWI) with an estimated 31.5 million shares (14.8m issued and 15.7m in escrow) and further authorized for up to 100 million common shares and a further 20 million preferred shares.
The KEEWEE
The KEEWEE (code named pending market acceptance testing of the name and trademark registrations) is a handheld device that delivers the functionality of a cell phone, PDA and laptop computer in a single device. There is no entrant currently in the market that combines an always on wireless MS Windows environment with a full keyboard, touch screen and GSM cell phone. The product is also Ethernet enabled, allowing the KEEWEE to take advantage of other low cost transmission protocols outside of CDMA/GPRS. The product is differentiated from other competitive devices provided by RIM, Danger, IPAQ on one or more dimensions including a non-proprietary OS, tri band versus dual band voice capability, 128KB security to the desktop, breadth of applications supported and end-user cost.
The core KEEWEE device is a proprietary, wireless Handheld Computer that utilizes a dual Intel 400MHZ processor. Basic services include SMS, Internet browsing, MP3, calendaring and office tools. It has been designed to accommodate full cellular voice, using both CDMA/1XRTT and GPRS/GSM protocols, and will work on any cellular network. The customer will be able to purchase additional software upgrades from the KIWI Master Application Server. Hardware upgrades, such as peripherals, adapters, microphone and headsets, which are compatible with the device, are currently available at major electronics retailers worldwide. The KEEWEE can be upgraded beyond its base functionality to slot upgrades such as RAM, bar code reader, camera and other standard devices.
The KEEWEE is now in pre-manufacturing, prototype form (see picture). The device is operational with Windows CE Version 3.0 2002 and is anticipated to be upgraded to Microsoft XP Mobile and /or WindowsCE.net, when available. The device has been tested on wireless modems and is fully operational for transmission of data and basic services.
Markets
Initial target markets are based on a set of characteristics that will ensure the highest possible degree of success. These characteristics include a large and growing cell phone population and a network environment that can support next generation services, but where the network is being underutilized due to a lack of compatible and affordable devices. Additional attractive market characteristics include an acceptance and growth of value added SMS and MMS services. Desirable markets may also have constraints on wire line access for the general populace as well as under-availability of consumer PC access. Market pricing will be most rational in those areas where carriers are not subsidizing device prices with services and where GSM/next generation licenses have resulted in lower investment costs and incremental costs per message. For the above reasons market priorities include Europe, Middle East, Caribbean, South America Mexico and Africa and other mature GPRS SMS/data markets.
Other attractive markets include those where KIWI has established an IMVNO (International Mobile Virtual Network Operator) presence and already has distribution agreements in place. As noted below, a key but small initial element of the revenue model is KIWI participation in revenue from both usage based SMS/MMS services as well as flat rate internet connectivity.
KIWI has had discussions with a number of North American CDMA and GPRS carriers interested in deploying its device upon completion of the certified manufacturing prototype. The United States market will be attractive as next generation networks become more widely deployed and as providers develop value added services that already constitute a higher percentage of value in other markets. Recent introductions of AT&T Wireless M-life capability and the Sprint PCS functionality are early indications of movement in that direction, however the cost structure and dominance of home PC usage, near universal network access, subsidized-device pricing structure make it a less attractive initial entry position.
Customer Sets
The comprehensive feature functionality of the KEEWEE in conjunction with the price value position makes the product particularly attractive to the mobile user of services whether in the corporate environment or as an individual consumer. In comparison to most segmentation plans these users would be classified as one step past the early technology adapter. They are users of a wide variety of services in their everyday lives.
The consumer as stated above in the target section may have limited direct internet PC accessibility or personal wired line connectivity and therefore the KEEWEE will function as a multiuse device.
For the corporate user the device functions much the same but with the added advantage of secure connectivity to their primary computer, but with all the functions to operate remotely as needed.
Distribution
KIWI will market the KEEWEE through carriers and the distributor network (electronics stores, specialty retailers, carrier agents, etc) that support carriers. Specific arrangements will depend on the market needs and whether KIWI is operating as an IMVNO in the market. Numerous agreements have already been established and include Europe, Mexico and portions of Africa and the Middle East. The breadth of distribution arrangements as well as the revenue sharing capability of value added services is particularly attractive to carriers looking for communication handsets and personal handhelds that can utilize their Data/SMS and Voice Spectrum.
The KEEWEE can be leased to the carriers as part of the IMVNO package designed by KIWI thereby reducing the need to have the carriers subsidize large capital costs for devices. The low cost of consumer ownership and service of the KEEWEE make it a compelling solution for wireless carriers. In reselling the KEEWEE, the need for carrier subsidies or lease arrangements will be eliminated.
Additional options include a white label option in providing value added and co-marketing content with large multinational organizations that want to establish direct communications with their consumer franchise. For example, Any Brand Co. could white-label the KEEWEE My Any Brand and be responsible for the marketing and distribution of the product. In return, Any Brand would share in the annuity revenue generated by the use of the device while connected to the KIWI White Label Any Brand branded network. The network and operating functionality of the device can be branded to reflect the interests and characteristics of the targeted group. The calendaring and desktop interface functions of the device can present an Any Brand experience and could include direct links to the host brands events and redemption programs. The device, coupled with KIWI security, will enable the KIWIs enterprise customers to accurately track, manage and execute secure financial and informational transactions through the network. KIWI has had discussions with a number of potential Any Brand candidates and feels that it can establish itself as an internationally recognized IMVNO leader utilizing these types of branding relationships. KIWI currently has sufficient agreements with existing operators to provide a 90% global footprint and service coverage area.
Competition
RIM has developed the BlackBerry for use on private networks, and the only other two companies that KIWI has been able to identify with a device built for a public, server-based network are Danger Inc. (www.danger.com) with their Hiptop and Good Technology (www.good.com). The Hiptop was the Best of CES (Consumer Electronics Show) 2002 in the PDA, Handheld & Mobile Wireless category and first runner up for Overall Best of Show. Their business model appears to be to supply the hardware to existing cellular companies at $200 per unit and provide the backend support on a fee basis. Danger Inc. completed a $48 USD million in funding in October 2001 at a stage where KIWI is now. Good is using the same business model.
Other products such as O2 from XDA or Communicator from Nokia are mobile phones with Microsoft OS. They do not offer a keyboard, big screen or powerful CPU and have a $600-$800 retail price. The KEEWEE is truly the right balance between Laptop, PDA, RF/VPN Communicator and Mobile phone for under $500.
Revenue Model
The revenue model is based on an initial order of 100,000 from a major distributor in Europe for delivery commencing in September 2003 and occurring over the following 12 months. Devices will be priced from KIWI at approximately $400 (all figures in US for comparison unless otherwise stated) and a manufacturing cost of $245 for GSM/GPRS model ($145USD for CDMA-1XRTT) as estimated by Celestica (fourth largest build-to- order electronics manufacturer in the world). Retail pricing for the end-user is estimated to be under $500 including two years of network access. This price point is extremely competitive with a high-end stand alone PC or PDA, but with increased functionally. Initially the revenue model anticipates only revenue from the device, and is therefore conservative because of the ability to participate in revenue streams from the aggregation an sharing of revenue from both usage based value added traffic (SMS and MMS) as well as flat rate internet access usage from carriers.
Service revenue streams account for less than 5% of business plan revenues however they represent large potential upside through various partnering arrangements The first phase of KIWIs SMS business will establish an operations center in Toronto, Ontario. This division will commence billable SMS traffic in September 2003, with an initial contract that is projected to generate a minimum of $5,000 EBITDA per month, based on estimated margins of 40% (considered to be conservative for the SMS market average). Furthermore, KIWI has secured a Letter of Intent from MOBIl (Germany), confirming its intent to deliver 10,000 units in Q4 and continue over the next 12 months, with similar margins anticipated. KIWI expects to market its Short Messaging content and services to carriers with which KIWI currently has virtual carrier agreements, as well as other carriers
It is estimated that the KEEWEE, with 2 years of network access, will cost approximately 50% less than current market offerings (RIM, iPAQ, Handspring, Kyocera). As a result KIWI expects to capture a significant percentage of the world market demand for a low-cost network-enabled PDA/cell phone device in selected markets.
Based on current trends, KIWI expects obtain an order for an additional 150,000 units in 2003 and to manufacture a minimum of 1.5 million KEEWEE units over five years.
Costs and Expenses
The initial income statement is dominated by the COGS based on the Celestica estimate of $245 per GSM/GPRS capable unit. Other expenses include lean staff of KIWI and travel associated with additional development of carrier and distributor relationships and further development of the SMS and corporate infrastructure. Key assumptions include unit pricing as discussed above as well as payment terms from customers and suppliers. Vendor financing needs to be 90 days with 30 days receivables from distributors for sold units. Managing inventory and production will be critical to achieving immediate cash flow. Breakeven will occur at only 1,333 units a month against a purchase order that is 8,333 per month. Monthly cash flow pro formas and sensitivity analyses are available.
Capital Needs
As of now, May 2003, KIWI is actively seeking an investment of $US 300K, by way of a Collateral Loan Agreement with Free Trading Shares in KIWI being provided as Collateral or a Private Equity Placement. This procurable Bridge capital will provide KIWI with the exclusive rights to the IP and control over all future development while providing short term, 6 months of operating expenses. In addition, this funding will allow KIWI to miniaturize the KEEWEE device and provide a prototype ready for manufacturing.
KIWI, having a Purchase Order from MOBIL, Germany to deliver 10,000 units ($Euros 4M) will begin manufacturing the device. A Memorandum of Understanding has been formulated with a manufacturing company to begin production based on this Memorandum. Delivery is expected to begin to MOBIL in September 2003. The funds from this initial sale will be used to divest the present $800,000 debt.
Then the company is looking to raise $3.215 million to complete the KEEWEE product, build additional unit sales and create market presence as a rational market innovator in handheld computing. This level of financing will permit KIWI to finish the KEEWEE product and fulfill the terms of the purchase order. Furthermore, it will allow the company to secure additional orders, in a managed growth pattern.
$400,000--Staff salaries
$370,000--Device completion and certification
$2,000,000--2 months working capital to augment vendor financing
$200,000--Corporate accounting, inventory, sales and device billing.
$200,000--SMS/Content reverse billing systems
$50,000--Lawyer/Accounting/Professional services
$55,000--Hire product manger
$25,000--Trade show attendance
$15,000--Office space/telecom
$3,215,000--Total
The company is also actively pursuing a revolving production or vendor financing facility in the $10 - 12 million range. This is a separate financing activity.
The Company has commenced formal laboratory testing of the KEEWEE Device for global certification. The final-form factory mould for the device and all certification can be completed within 18 to 24 weeks from funding. This timeline can be dramatically reduced should the Company be able to secure adequate lab time to complete its Final Prototype and Certification. Should, KIWI secure its Bridge financing as outlined below, the Company is confident that it can deliver the KEEWEE Device to the manufacturing entity within 8-10 weeks. Current discussions with the manufacturers indicate the ability to produce over 50,000 units of the device per day with an advance line set-up period of 60 days.
Funding Strategy
KIWI intends to complete its funding under the following agenda:
A) Completion of a Collateral Loan with a bona fide lender for $300-$500,000USD against existing issued and outstanding Free Trading Shares at a to be negotiated price per share or Private Equity Placement
B) Completion of a Formal Private Placement for $3,215,000USD under Rule 144 at a market specified share price
Key Management
Key management are listed below and a more detailed staffing plan has been developed based on additional funding.
Chief Executive Officer Harold (Hal) Fischer
Chief Financial Officer/President Derek Pepler
Chief Operating and Financial Officer Terrence Clarke
Chief Technical Officer Peter Ianace
Chief Hardware Officer Robert Nimon
Chief Software Officer Dan Goldman
Chief Business Development Officers Steve Remandini/Bob Wilson
Board of Directors
Chairman Bradley Wilson
Secretary Derek Pepler
Treasurer Hal Fischer
Director Lorne Catling
Director Dan Goldman
Contract Hardware Developer David Mackinnon
David Mackinnon is the President and Founder of a Quebec based micro-electronics lab. David attended St. Marys University and Dalhousie University in Maritime Canada and spent several years in the Geology Business sector. He later developed a number of technologies in the area of radio frequency that lead to a number of patents that are widely used today. He was the Vice President and General Manager of the Weather Channel and Weather Network while at SNC Lavalin. David has extensive broadcast, telecommunications and radio frequency experience and has consulted for a number of major news and media organizations including Reuters.
Contract Software and Device Client Integrator James Hardy
James Hardy is one of Canadas leading database and hardware integration experts and is responsible for the database development and integration model for KOALA. Jim has been instrumental in the development of some of the world's leading open architecture companies. He was one of the principal architects (Vice President) and code writers for the Oracle Cluster and has worked extensively in the area of broadcast and media applications for fixed and wireless organizations.
Note: This pump was done right after PO w/Allo Mobile was announced on 13 May 2003 |
