DATAWIND INC MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ( MD&A ) FOR THE THREE MONTHS ENDED JUNE 30, 2014 DATED: AUGUST 14, 2014 1
MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is a discussion and analysis of the financial condition of Datawind Inc. as at June 30, 2014 compared to June 30, 2013 and results of operations for the three months ended June 30, 2014 compared to the three months ended June 30, 2013; however, as the company only recently incorporated no comparatives will be presented in this document. This MD&A should be read in conjunction with our audited consolidated financial statements and accompanying notes for the year ended M a r c h 3 1, 2014. References made herein to DataWind, the Company, we and our mean Datawind Inc. and its subsidiaries collectively as anticipated under the reorganization proposed in conjunction with the initial public offering, unless the context indicates otherwise. All amounts (including numbers of common shares, options and warrants) included in the MD&A are in thousands, except per share amounts or as indicated otherwise. All financial amounts are in $CDN, unless stated otherwise. Other continuous disclosure filings for the Company are available on www.sedar.com The financial statements have been prepared on the basis of accounting principles applicable to a going concern. The Company has recently completed a financing anticipated to satisfy its working capital requirements for at least the next 12 months. If the going concern assumption were not appropriate for these financial statements, adjustments might be necessary in the carrying values of assets and liabilities and the balance sheet classifications. The effective date of this MD&A is August 14, 2014. FORWARD-LOOKING STATEMENTS This MD&A includes certain forward-looking statements that are based upon current expectations, which involve risks and uncertainties associated with our business and the environment in which the business operates. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements, including those identified by the expressions anticipate, believe, plan, estimate, expect, intend and similar expressions to the extent they relate to the Company or its management. The forwardlooking statements are not historical facts, but reflect management s current expectations regarding future results or events. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from current expectations. The Company does not undertake or accept any obligation to release publicly any updates or revisions to any forward-looking statements to reflect any change in the Company s expectations, except as prescribed by applicable securities laws. Key assumptions made in preparing the forward-looking statements contained in this MD&A include, but are not limited to, the following: The Company will complete its IPO and reorganization SIGNIFICANT EVENTS Subsequent to this reporting period, on July 8, 2014, Datawind Inc. successfully completed its initial public offering of 6,316,000 common shares at a price of CAN$4.75 per Common Share for gross proceeds of CAN$30,001,000. The Company's Common Shares trade on the Toronto Stock Exchange under the symbol "DW". As a condition to the Offering, DataWind UK Plc and DataWind Inc. have completed a Pre-IPO 2
Reorganization in a private transaction completed prior to the closing of the Offering, pursuant to which shareholders of DataWind UK Plc exchanged their shares for Common Shares of DataWind Inc. and Datawind UK Plc has become a wholly-owned subsidiary of DataWind Inc. Each Common Share issued in connection with the Pre-IPO Reorganization was valued at CAN$4.75. OVERVIEW DATAWIND S BUSINESS Datawind Inc. was incorporated pursuant to the laws of the province of Ontario on April 16, 2014, for the purpose of completing the initial public offering of its shares and became a reporting issuer on June 30, 2014 for the purpose of affecting a reorganization of Datawind UK Plc in concert with its IPO that saw Datawind Inc. become the new Canadian parent company of the group. This Pre-IPO Reorganization will be accounted for as a reorganization and capital transaction of DataWind UK such that the consolidated financial statements of DataWind will be a continuation of, and will reflect, the historic financial position and results of operations of DataWind UK Plc retrospectively based on the carrying values and results of operations presented in the DataWind UK Plc historic consolidated financial statements. Datawind UK Plc is a leader in low-cost Internet connectivity for emerging markets. Our mission is to bring the Internet, which has the ability to create tremendous social and economic benefits, to billions of unconnected people in the developing world. Our Internet Delivery Platform offers a low cost Internet connectivity solution by bundling an affordable tablet device with an inexpensive one-year pre-paid 2G Internet browsing service plan. Our operations span four countries, including Canada, the United States, the United Kingdom and India. These operations are segmented into three business functions, including Research & Development, Sales & Marketing and Finance. We believe our Internet Delivery Platform represents a significant step forward in lowcost Internet connectivity. By utilizing the cloud computing technology, we are able to reduce the amount of data required to download and access webpages. The architecture of our Internet Delivery Platform consists of a browser located on the user s hardware and a cloud-based server which processes Internet requests from users. The webpages are compressed on the cloud server before being uploaded to the user s tablet or smartphone device. This architecture also protects our intellectual property as the majority of our software runs on the cloud-based server and the system can only work with both the client and server components operating in tandem. The Internet Delivery Platform s acceleration and data reduction are accomplished through the use of our algorithms resident on the cloud-based servers. These cloudbased servers operate as a gateway between the primary Internet-based content server and the user. Our architecture moves webpage processing from the device to the cloud servers with high-speed Internet connections. The servers build an image in their internal memory of the page of interest. They then compress the image, prioritizing the section of the image being viewed on the user s device. Our technology does not compress audio and video. The resulting selection and compression can reduce the amount of data being transmitted over the cellular network, with a corresponding increase in speed and reduction in cost of cellular data transmission. 3
Without this technology, it would be time consuming and costly to access the Internet using 2G mobile-cellular infrastructure due to the relatively slow download speeds available on these networks combined with the growing size of modern day webpages. Additionally, the cost of data usage in the developing world is high relative to average income levels. However, given the reduction in data usage using our Internet Delivery Platform, the user may use the 2G mobile-cellular infrastructure to achieve a Basic Internet Browsing experience. The technology shifts a significant amount of the processing power that would otherwise be executed by the tablet or smartphone device to the cloud server. The receiving device has only to decompress the transmitted image, which requires less computing power than a normal web rendering. The device can then operate with a lower specification including a less expensive processer, lower cost memory and longer battery life. As a result, the device can display webpages with a significantly reduced hardware capability requirement resulting in a lower production cost. Our Internet connectivity solution is a combination of our data compression technology, the ability to create low- cost devices, and our ability to resell data as a result of our data distribution agreement with BSNL, a leading Indian telecom company. There is no capacity limitation under the agreement with BSNL. Together, these factors allow us to offer what management believes is the world s lowest cost Internet connectivity solution available today. OUTLOOK Subsequent to the reorganization and IPO, we anticipate continued production and sales growth and investment in infrastructure. RESULTS OF OPERATIONS Summary of Unaudited Quarterly Results The Company reported no revenues or expenses for the quarter ended June 30, 2014 and has no prior period comparables. Liquidity, Financing Activity and Capital Resources Datawind Inc. has $1 in cash and has no financial resource requirements pre-ipo. In order to finance t h e o perations of Datawind Uk Plc, we have relied on a number of equity and debt financings both from third parties and related parties. Based on the sales leads received, we were able to secure production financing from Tablet Investments, a related party. However, financing from Tablet Investments is limited and relatively expensive. We are now in the process of terminating our current relationship with Tablet Investments, as we will be well positioned to internally finance the increase in working capital necessary to expand supply volume. In addition, we expect to leverage our strengthened balance sheet to negotiate improved credit terms from our contract manufacturers. Summary of Cash Flows There have been no cash flows during the quarter ended June 30, 2014. We cannot assure that we will generate positive cash flows from operating activities 4
in the future or, if we do generate positive cash flows from operating activities, that they will be sustained. See Risk Factors as outlined in the prospectus filed with the initial public offering. Financial Instruments The carrying amounts of cash are the only financial instruments presented. Long-term contractual obligations We do not have any long-term contractual obligations. Options, Warrants and Special Warrants There are no options or warrants. Related Party Transactions There were no related party transactions during the Quarter ended June 30, 2014. Note that the 1 common share outstanding is held by Raja Tuli, a Director and significant shareholder in Datawind UK Plc. MANAGEMENT AND BOARD OF DIRECTORS The Board of Directors is comprised of five (5) directors, three (3) of whom are independent. Pursuant to NI 52-110, an independent director is one who is free from any direct or indirect relationship which could, in the view of the Board of Directors, be reasonably expected to interfere with a director s exercise of independent judgment. Mr. Raja Singh Tuli and Mr. Suneet Singh Tuli are not independent as they are executive officers of the Company. Messrs. Brockhouse, Gillberry and Bearsted are considered to be independent in accordance with the requirements set out under NI 52-110. We have taken steps to ensure that adequate structures and processes will be in place following the Closing to permit the Board of Directors to function independently of management of the Company. It is contemplated that independent directors will, after each meeting of the Board of Directors, meet without the non-independent directors. In addition, separate, regularly scheduled meetings of the independent directors of the Board of Directors will be held at which members of management will not be present. Lead Director Viscount Nicholas Bearsted, an independent director, is the lead director of our Company and ensures that the Board of Directors discharges its responsibilities, that the Board of Directors evaluates performance of management objectively and that the Board of Directors understands the boundaries between the responsibilities of the Board of Directors and management. Viscount Nicholas Bearsted will also assume the role of non-executive Co-Chairman of the Board of Directors and, in this capacity, will oversee all meetings of the Board of Directors and will have the overall responsibility to oversee governance matters in accordance with the duties and responsibilities attributed to the Chair of the Board pursuant to the Mandate of the Board of Directors. RISKS AND UNCERTAINTIES The Company operates in a dynamic, rapidly changing environment that involves risks and uncertainties and as a result management expectations may not be realized for a number of reasons. An investment in DataWind common shares is speculative and involves a high degree of risk and uncertainty. 5
Any investor should also consider carefully these risks and the risks and uncertainties that are detailed in APPENDIX A to the Prospectus filed in relation to the company s initial public offering. CRITICAL ACCOUNTING ESTIMATES The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, revenue and expenses and the related disclosures of contingent assets and liabilities. There were no estimates required in the accompanying financial statements relate CHANGES IN ACCOUNTING POLICIES There have been no changes to the accounting policies disclosed in financial statements since incorporation on April 16, 2014. ADDITIONAL INFORMATION Additional information related to the Company can be found on SEDAR at: www.sedar.com. 6
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