WORLD WIRELESS COMMUNICATIONS INC - 10-K Annual Report

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U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

[No Fee Required] For the fiscal year ended December 31, 2001

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

[No Fee Required]

For the transition period from to

Commission file 001-15837

WORLD WIRELESS COMMUNICATIONS, INC.

(Name of registrant in its charter)

Nevada		87-0549700
(State or other jurisdiction of Incorporation or organization)		(I.R.S. Employer Identification No.)

5670 Greenwood Plaza Boulevard, Penthouse, Greenwood Village, Colorado		80111
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number (303) 221-1944

Securities registered under Section 12(g) of the Exchange Act:

None

(Title of Class)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2)has been subject to such filing requirements for the past 90 days.

Yes x No ¨

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-K, and no disclosure will be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Not applicable.

The aggregate market value of the voting stock held by non-affiliates of the registrant computed by reference to the average of the high and low price at which the stock was sold, as of February 28, 2002, was $11,927,093.

As of February 28, 2002 there were 31,387,087 shares of the registrant’s common stock issued and outstanding.

PART I

ITEM 1. DESCRIPTION OF BUSINESS

BUSINESS

Overview

World Wireless Communications, Inc. (the “Company”, “we” or “us”) is a developer of wired and wireless telemetry (which is the monitoring, collection and transmission of data by wire or radio from remote sources) and remote control systems. By leveraging our experience developing low-cost, reliable communications systems, we have created the latest generation of technology to monitor and control various remote devices through the internet.

Our products and services allow data from remote devices to be accessed via a secure, encrypted Internet connection using a standard web browser located anywhere where there is internet access. Our technology has applications across a broad range of industries, for which it can substantially improve the efficiency and cost of access and manipulation of important data from widely dispersed equipment. For example, we are currently deploying our technology in the automatic meter reading field, whereby utility companies can read natural gas, electric, and water usage on commercial and residential meters on an immediate basis in order to better balance their energy loads, monitor usage, predict requirements, and ultimately improve service and reduce costs. Another example is remotely monitoring industrial restaurant equipment, such as a fast food restaurant grill, ice machine, fryers, and coolers, to ensure that the particular piece of equipment is functioning within desired parameters. In this example, our technology can provide maintenance notification so as to avoid malfunction during a peak time in the business day, or ensure a grill or fryer is cooking at the proper temperature.

Since January 1999, we have successfully combined all of our technologies into a functional package that not only collects data, but also transmits it and provides control from remote locations. It also enables our customers to use an ordinary browser to access the data-gathering and remote control functions from anywhere in the world through the internet, where there is internet access. Our management has been engaged principally in developing product positioning strategies, strategic planning and final development and testing of our integrated technology.

Current Status

We have completed development and testing of the core systems and sub-systems comprising our internet technology, and are currently engaged in implementing the first phase of our near-term plan—the introduction of our products and services to selected customers in major target markets to establish test installations for a variety of commercial and industrial applications.

While our X-traWeb^™ technology has a wide range of diverse applications, we originally targeted four principal areas to focus our sales: (a) vending machines; (b) facilities management and automatic meter reading;(c) security systems; and (d) food services equipment. As a result of the slower receipt of revenues from the sale of our X-traWeb^™ products, we decided in July 2001 to focus our activities principally on the sale of such products in the automatic meter reading and facilities management fields (in part due to the recent energy crisis experienced in parts of the United States), although we will continue to market our products in the areas of (i) vending machines, (ii) security systems and (iii) food services equipment. We also decided to reduce the number of our employees, particularly in the engineering and administrative areas, ceased the operations of our Italian subsidiary and also closed our office in Kansas City, Kansas. Thus, as of December 31, 2001, we had a total of 29 employees, a reduction of 19 from the total of 48 employees we had as of December 31, 2000. We will continue to market our products in Italy through our wholly-owned Delaware subsidiary, X-traWeb, Inc.

Our current and former customers include FreedomPay.com (which sells cashless vending machines), Enodis Chains PLC (the largest manufacturer of equipment for fast food vendors), a subsidiary of the U.K.-based Enodis, National Gas Automation Inc. (a developer of a liquid propane gas monitoring system), RealTime Data (a vending machine operator) and Midwest United Energy (which provides natural gas to the agricultural irrigation market). Our current

and former alliance partners include Texaco Natural Gas Inc. (for marketing to the natural gas industry), Co-operative ConNEXTions, LLC, (a provider of products and services to rural distribution cooperatives in the Western United States), Novar Controls Corp. ( a supplier of advanced building automation control systems), Fracarro Radioindustrie S.p.A. (a supplier of satellite-based video distribution), and Audiotel S.p.A. (which is marketing certain of our X-traWeb^TM products in Italy). We also had relationships with Kyushu Matsushita Electric Co. Ltd. (“Panasonic”), Motorola, Inc. and Williams Wireless Inc. dba Williams Telemetry Services, a subsidiary of the Williams Company (“Williams”).

Industry

Commercialization of the Internet began in the mid-1980s, with e-mail providing the primary means of communication. However, it was the Internet’s World Wide Web, which provided a means to link text and pictures, which led to the blossoming of e-commerce and sparked the explosive growth of the Internet in the 1990s. Today, millions of people around the world send and receive information, and purchase products and services through the Internet. The potential of such a large and still-growing market has led many business analysts to consider e-commerce as a significant business opportunity. The growth of the Internet is being driven by:

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The increasing familiarity, acceptance, and use of the Internet by governments, businesses, and consumers;

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The large and growing number of personal computers (“PCs”) installed in homes and offices;

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The decreasing cost of PCs and related peripherals;

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The growth and development of technologies that use the Internet to report information about the use or maintenance of various devises;

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The proliferation of Internet content;

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Easier, faster, and less expensive access to the Internet; and

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Significant improvements in network infrastructure and bandwidth.

We expect that corporate investment in technology using the internet will to continue to grow both in the U.S. and abroad over the long term future, despite the recent economic downturn and the recent reduction of anticipated growth in the telecommunications sector. For example, various members of the utility industry in California and other states have expressed an interest in obtaining real time data readings as a way of managing the flow of energy supply.

Our Technology

We are a leading developer of wired and wireless telemetry communications and remote control systems and products. We also develop digital radios in the 900 megahertz (“MHZ”)and 2.4 gigahertz (“GHZ”) bands. We have extensive experience in developing low-cost, reliable communications systems. By leveraging this experience, we have developed the latest generation of technology to monitor and control various devices through the internet.

At the heart of our strategy is the promotion of our communication systems designed to provide supervisory control of, and obtain data from equipment or devices in remote locations via the internet.

Our proprietary technology consists of three parts, of which the first is our “X-Node^TM”. The X-Node^TM is a miniature web server compacted into a one square inch circuit board, which often requires less than 2 kilobytes of memory. This miniature web server collects information from a remote piece of equipment (e.g., vending machine, natural gas meter, and the like) and makes that information available via the Internet.

The second part of the technology is our product for large-scale installations, the “X-Gate^TM”. The X-Gate^TM is an Internet gateway that can collect information over a wired or wireless network from a substantial number of X-Nodes^TM (e.g., an array of vending machines), and transmit the information to an information repository via the

Internet. This transmission device provides the connection to the Internet and translates the data between the connected devices and formats it for use on the Internet. The X-Gate^TM offers distinct advantages over the more commonly used gateway—the personal computer—in that it requires no human intervention and incorporates advanced technologies to ensure performance and reliability.

Completing our technology is our business-to-business web site, located in the Denver, Colorado area. This database-driven site collects the operations and transactional data which has been transmitted from a customer’s remote equipment, then stores it securely for delivery to authorized customer personnel in raw form, or processed and formatted into standard or customized reports using software we employ.

Following is an illustration of a typical design for our communication systems:

Competitive Advantages

Our

technologies offer customers a number of advantages, including, without limitation:

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Open architecture solutions that do not use proprietary protocols, and components that are fully compatible with most important Internet protocols;

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Use of a standard web browser and Internet tools (such as Java) to monitor and control remote equipment and functions from any Internet-accessible location;

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Wireless technology option that eliminates the need for additional (and generally costly) electrical, telephone, or other “hardwired” systems at remote locations;

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Highly durable components that can operate in a wide range of environmental conditions;

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Ease of installing, configuring, bringing online, and maintaining or replacing components;

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Software embedded in a chip that allows customized configuration of equipment already possessing embedded micro-controllers, which collect, process and transmit information like a standard computer; and

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Software embedded in a chip that allows automatic updating of micro-controller functions from a remote location to reflect changes in customer needs and specifications.

Competitive Adaptability

Since we utilize the standard language of the Internet, our products are capable of communicating with any Internet

web browser and meet current and emerging international Internet communications standards, which provide important benefits when compared to closed, proprietary solutions.

Based on our development and engineering experience, we are positioned to provide up-to-date technical solutions to customers with remote monitoring and control needs.

Strategic Growth Plan

We plan to develop and sell our products and services in three separate, but at times overlapping phases.

Phase One. During Phase One, in which we are currently engaged, we are debuting our unique combination of telemetry technologies by providing them to selected Fortune 1000 and other customers. During this phase, we are focused on selling the wide-ranging capabilities of our unique technological approach by working with our customers to design and configure our products and services that address their specific industrial, internet communication needs, while building a database of standardized technology configurations that can be used or easily adapted for a variety of applications. Throughout the process, we will seek to establish ourselves as a recognized “brand” for innovative, technologically advanced products and services. This phase will continue for each industry application until the related products reach maturity.

Phase Two. During Phase Two, we plan to leverage our design and engineering experience to expand our market for products and services by offering product and service packages for applications in a variety of industries as described in “Current Status” above. The basic products will be designed to plug in and be ready for use or, if necessary, they can be readily configured—even by customers. During this phase, we plan to develop new applications for our technologies, along with a selection of value-added web-based services, to strengthen our ties with our established customers and extend our reach into new markets. The implementation of this phase in our strategic growth has been delayed as the result of slower than anticipated sales in our target markets and our focus on automated meter reading, as described in “Current Status” above.

Phase Three. During Phase Three, we expect to evolve into an industry-specialized, customer-only Internet Application Service Provider, whereby our customer data can be accessed through our business-to-business website, that will focus on customer web and data hosting. We envision such a step as a natural and necessary extension of our technology products and services package in order to ensure uninterrupted 24-hour access to operations-critical remote data by our customers. We offer such hosting services to customers upon sale of our products and services to such customer. We commenced such phase in 2001 on a limited basis.

Products and Services

X-traWeb^TM Products

Our product strategy is to utilize our existing technologies to develop innovative solutions that enable users of telemetry technologies to leverage the power of the Internet in order to greatly enhance the efficiency and cost of controlling and monitoring remotely located equipment.

Our products and services allow standard web browsers, rather than customized host system software packages, to monitor and control equipment throughout the world where there is internet access using industry-standard Internet tools. The result is that, from any Internet-accessible location, customers in a variety of industries have real-time comprehensive, cost-efficient information available that helps them better manage their telemetry requirements.

Our existing X-traWeb^TM products which are available for sale are listed below. These typically are sold as part of a specifically-designed installation for any particular customer.

The X-Node^TM

The X-Node^TM is a small (approximately 1 inch by 1 inch printed circuit board that possesses less than 2 kilobytes of memory), fully functional micro-controller which collects, processes and transmits information, and can provide wired or wireless internet access. X-Nodes^TM are extremely durable in most environmental conditions, have low manufacturing costs, and can be attached easily to a wide variety of existing equipment for the purposes of remotely monitoring and controlling the equipment over the Internet.

Each X-Node^TM has various input and output capabilities, and allows flexible programming and extremely rapid execution speed.

The circuit board permits the installation of our flexible software programs to be done automatically during the manufacturing process. The embedded software program is also designed to allow us, from a remote location, to quickly, easily, and inexpensively update the functions of an X-Node^TM to respond to changes in customer needs.

X-Nodes^TM can be used singly by connecting one to a piece of equipment and adding a modem for Internet connection. In situations with multiple devices, where more than one X-Node^TM is required, customers can use our X-Gate^TM to link the X-Nodes^TM into a self-contained communications network and manage the network. A substantial number of X-Nodes^TM may be linked on a wired or wireless basis to a single X-Gate^TM.

The X-Node^TMis illustrated below:

The X-Gate^TM

Our X-Gate is an approximately 4 inches by 7 inches printed circuit board with a flexible range of onboard memory reaching as much as eight megabytes. It serves as a data collecting and transmitting system, collecting data sent by one or more X-Nodes^TM and transmitting such data on a wired or wireless basis through the internet to a web and data hosting server maintained by us or our customer.

Each X-Gate has a micro-controller and various input and output capabilities. The X-Gate^TM is our proprietary communication system that serves as an alternative to the personal computer. Each is typically installed near telephone lines, network connections, or other communication lines. In the event of a power outage or brownout, the unit will automatically reboot and continue operation without human interference.

Our current X-Gate^TM models incorporate a modem interface, an ethernet interface, and wireless interfaces. Equipment that is concentrated in a single location can be hardwired directly to the X-Gate^TM. In situations where the equipment is impractical to hardwire or spread over a wide area, X-Nodes^TM can be linked together in substantial numbers to an X-Gate^TM through our wireless technologies. We have developed three different versions of our X-Gate^TM which provide different levels of functionality depending on a customer’s specific needs. Two such versions are geared toward industrial applications and the third supports energy management systems, including commercial and residential sites

The X-Gate^TMis illustrated below:

X-traWeb Internet Access Servers

We offer our customers the option to use our web servers to host their data in a secure co-location in the Denver Colorado area.

Radios

Spread spectrum radio technology has been used since the 1940s, limited mostly to military applications. Recently, an increased interest in spread spectrum modulation and its advantages has emerged, particularly concerning low-power, high-density personal communication devices. Because they are unlicensed, spread spectrum systems usually cost much less to install and troubleshoot than narrow band systems. In addition, spread spectrum modulation has the advantages of low probability of intercept, low probability of detection, low probability of interference and resistance to jamming.

There are two methods for employing spread spectrum, frequency hopping and direct sequence. In frequency hopping systems, the carrier frequency of the transmitter abruptly changes (or “hops”) in accordance with an apparently random pattern. This pattern is in fact a pseudo-random code sequence, with the order of the frequencies taken from a predetermined set as dictated by the code sequence. The receiver employs the same pseudo-random code sequence and, once the transmitter and receiver are synchronized, the communication is essentially narrow-band on each frequency in the sequence.

In direct sequence systems, the carrier phase of the transmitter abruptly changes in accordance with a pseudo-random code sequence. This process is generally achieved by multiplying the digital information signal with a spreading code, also known as a chip sequence. The chip sequence has a much faster data rate than the information signal and so expands or spreads the signal bandwidth beyond the original bandwidth occupied by just the information signal. The term chips are used to distinguish the shorter coded bits from the longer uncoded bits of the information signal. At the receiver, the information signal is recovered by remultiplying with a locally generated replica of the spreading code. By doing so, the receiver effectively compresses the spread signal back to its original unspread bandwidth.

We currently offer three radios for sale. These products represent our Legacy product line, which we have offered continuously over the past several years.

Our line of 900 MHZ spread spectrum radios includes the 900 SS Hopper, a frequency hopping spread spectrum radio that offers reliable communications in a variety of environments. The Hopper features transmission speeds of up to 56 kilobytes per second and a range of up to 25 miles, line of sight, depending upon conditions and antenna selection. This radio received an award as the “best of show” in 1999 at a trade show in Baltimore, Maryland.

In addition, the 900 SS MicroHopper—a miniature version of the Hopper—offers a smaller form-factor and lower power-consumption for short range applications. Measuring just 2.2 inches by 1.75 inches, the MicroHopper is suited for applications where size and cost are important considerations.

Both frequency hopping spread spectrum radios employ our proprietary encrypting technology. This coding technology is a major innovation in wireless communications, which substantially reduces the overhead inherent in

other coding methods. It adds security, increases throughput efficiency and provides faster effective communications speeds at a much lower cost.

We also offer the 900 SS Direct—either as a direct sequence or frequency-hopping combined transmitter and receiver (i.e. a transceiver), capable of transmitting data up to 40 kilometers, line of sight.

Antennas

We also manufacture and sell antennas. Our Gonic, New Hampshire based subsidiary, TWC Ltd., maintains approximately 80 different design executions of specialty antennae for use in law enforcement, marine, and custom applications.

Customer Support and Services

We support our customers with a range of services designed to help integrate our products into our customers’ systems. This support includes engineering consultation with every developer kit purchase, customer satisfaction and quality control programs, and in some cases complete turn-key solutions for large projects.

Sales and Marketing

We believe we are positioned to capitalize on trends in many targeted segments of the telemetry market (including, without limitation, automatic meter reading, fast food services equipment, facilities management, asset management and security systems) through our ability to penetrate and establish a market presence with products and services designed to meet industry-specific needs. Our marketing strategy hinges on our establishing a strong reputation as a provider of reliable and technologically superior wireless Internet-based telemetry services to a diverse customer base. To achieve our goals of substantial growth and penetration of our target markets, we have developed a strategic marketing plan that provides for the development and expansion of long-term sales channels through which we can sell our X-traWeb solutions well into the future.

Our marketing strategy involves a combination of in-house sales and marketing personnel, independent authorized agents, strategic marketing alliances, joint-ventures and direct sales. These will be enhanced and supported by secondary direct marketing, advertising, promotions and public relations efforts.

By virtue of the monthly burn-rate (i.e. the excess of expenditures over revenue received, in each case on a cash basis) ceiling of $250,000 effective for the month of September 2001, and $375,000 for each month thereafter as set forth in our recent secured financing, we are severely limiting our marketing activities while the 2001 Notes remain outstanding (see “Senior Secured Indebtedness Financing” under Item 5 and Item 7 – “Management’s Discussion and Analysis of Results of Operations and Financial Condition – Liquidity”).

Direct Sales Organization

During the early launch stages of our marketing program, our senior management is managing and conducting our marketing activities for our X-traWeb^TM products and services. A target market-oriented, direct sales organization has been established that has responsibility for specific geographic regions, and coordinates the activities of outside marketing partners, including value-added resellers and information technology consultants within those regions. Currently, there are three employees focused on direct sales in the United States. We also engage independent commission agents to market our products in the energy and other targeted markets.

As we expand our operations, we plan to hire additional sales personnel, or engage additional independent commission agents, to cover new markets and augment the services of sales and marketing personnel in certain larger markets.

Strategic Marketing Alliances

As an integral part of our marketing program, we are establishing strategic marketing alliances with outside

companies that have strong influence within the respective target markets for our X-traWeb^TM products and services. We will seek to align ourselves with partners that are capable of substantially accelerating our penetration of a target market or of adding material value to our marketing program through the reduction of costs, managerial infrastructure, and other economic advantages. We have implemented a sales plan targeting and pursuing prospective customers through organizations such as management consulting firms, computer networking consultants and value-added resellers.

We are in discussions to form marketing alliances in the residential security, facilities management and Internet sectors. Moreover, we have formed several such alliances to date in the natural gas and energy sectors. Our staff formerly worked with Texaco Natural Gas Inc. to market our X-traWeb products to customers in the natural gas field. We are also working with Cooperative ConNEXTions, LLC to market our X-traWeb products and services to rural electrical utilities operating in approximately 16 states west of the Mississippi River.

Our technology offers these co-marketing partners a value-added component to the services already being provided to their existing customers. These co-marketing partners provide us with a credible avenue of introduction to other potential customers for our products and services.

Advertising and Promotions

An integral part of our long-term marketing plan is the generation of awareness within the target markets for our products and services. We allocate a portion of our budget toward ongoing advertising, promotions, and public relations activities, including direct mail, trade print media advertising, trade show participation and sales personnel incentives. To reach an even wider audience as we continue to develop widespread awareness of our portal and proprietary telemetry solutions, we plan to implement an advertising and promotional support program designed to:

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Establish X-traWeb as a recognized “brand name” that is especially familiar to decision-makers within our target markets, and synonymous with premier-quality technology and products, highly effective services and tangible cost efficiencies;

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Enhance our branding efforts through the use of industry experts to promote our product and services;

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Position our technological capabilities, management, products, services and level of support as an industry standard.

also plan to implement advertising in trade publications on a regular basis.

We have appointed a public relations firm, with substantial expertise in the information technology industry, to assist us in the development and execution of periodic public relations campaigns, including campaigns coordinated with new product introductions in existing markets and expanded introductions to new markets. We have also highlighted our activities through occasional articles in trade publications and national business newspapers.

We have participated in regional, national and international trade shows that are conducted for industries that comprise our target markets, including telemetry and Internet technology industry trade shows (such as the annual trade show Cibet in Hannover, Germany and Comdex in Las Vegas, Nevada). We intend to maintain a regular presence at key trade shows throughout our development, and use our presence at such events to not only attract customers, but also generate follow-on marketing opportunities, subject to budget constraints imposed by the terms of the 2001 Notes.

In the past we have invested heavily in such advertising and promotions. In 2000 we spent approximately $850,000, and in 2001 we spent approximately $447,000, in such activities. However, our budget constraints have significantly curtailed these advertising plans, and we anticipate spending only $300,000 to execute the marketing and promotion plans during 2002. Because of our limited resources, and restriction on our spending, it is possible that we will further curtail these activities.

Research and Development

We invest significantly in research and development activities. These activities consist of proprietary development on our spread spectrum radios and X-traWeb^TM products and services. We plan to continue to invest in research and development in the future, subject, however, to the limitation that we cannot incur a monthly burn-rate greater than $375,000 in any month, while the 2001 Notes are outstanding. Thus, our

research efforts will be significantly curtailed during such period. Also, in October, 2001 we closed down our Kansas City office, where our research and development activities were primarily conducted.

We will continue to engage in research and development activities for our own products, on a limited basis as discussed above. Current and future projects include new spread spectrum transceivers in the 2.4GHz band, improving X-traWeb^TM products to enable plug-and-play developer kits, improved X-traWeb^™ components such as the X-traCam^TM, a camera that captures video images and transmits them to the internet without the use of a personal computer where they can be viewed using a standard browser, and similar projects.

Manufacturing

Until December 31, 1999, we also performed manufacturing services for other manufacturers and vendors of medical, communications, computer graphics and consumer electronic products at our Salt Lake City manufacturing facility, and sold antennas from our Gonic, New Hampshire facility.

We discontinued our direct manufacturing operations effective as of December 31, 1999, and now outsource the manufacturing activities of our products through third parties (except antennae which we manufacture directly). These third-party manufacturers include a Taiwan-based company and several domestic manufacturers.

Contract Design and Development

General

At the present time, we are not seeking design and development service contracts except in “partnering” situations in which we would have an ownership interest in the products and/or technology which are the subject of the contract and which promote the sale of our proprietary products, such as our X-traWeb^TM products. For example, we typically provide certain engineering services for the application of our X-traWeb^TM products for use in a specific application or applications desired by a vending machine manufacturer or a manufacturer of fast-food restaurant equipment or for installation in the monitoring of a gas pipeline or the control system in a refrigeration storage unit or office management system.

Formerly, we were engaged in providing engineering, design and development services to client specifications on a fee for services basis. Under one significant contract, we developed a low-cost spread spectrum technology for use in certain products sold by Kyushu Matsushita Electric Co., Ltd. (“KME,” which is also known as Panasonic) which is more fully described below. We also developed devices for use in the automatic meter reading field for Williams Wireless, Inc., a wholly owned subsidiary of the Williams Companies.

Kyushu Matsushita Electric Co. Ltd. (Panasonic) Contract

In April 1997, we acquired a corporation (by merger in 1997), which entered into a contract with Kyushu Matsushita Electric Co., Ltd. to develop low cost spread spectrum radio technology for use in certain Panasonic products. As part of our development contract with KME, we granted KME a world-wide, non-exclusive license to use or authorize the use of any patents, copyrights, technical know-how and other intellectual property rights embodied in our LCSSR technology in the manufacture of KME products, and agreed not to license others to use technology which is developed under our contract with KME in connection with any telephone-related products for a period of two years from the first shipment of KME products using the technology. In consideration for these rights and our services, KME agreed to pay royalties to us on sales of KME products using the technology above a prescribed minimum amount of sales for a period of two years from the initial shipments of any such products.

During 2000, $447,049, or about 98.0% of the $457,194 royalty income we recognized was earned under this contract and we have not received any further royalties therefrom since such contract expired in September, 2000.

Competition

We have a number of current competitors in all aspects of our business, many of which have substantially greater financial, marketing and technological resources than us, and which include such industrial giants as Panasonic, Motorola, Sony and AT&T. We intend to compete in our industry by concentrating on certain product or service niches within the overall market. However, most of our competitors offer products which have one or more features

or functions similar to those offered by us, and many have the resources available to develop products with features and functions, competitive with or superior to those offered by us. We cannot assure you that such competitors will not develop superior features or functions in their products or that the we will be able to maintain a lower cost advantage for our products.

A key element of our competitive strategy is to align ourself with major manufacturers by developing proprietary products or technology for market leaders that can be incorporated into its “partner manufacturers” products. We formerly had a marketing alliance with Texaco Natural Gas Inc., and currently have such alliances with Cooperative ConNEXTions, LLC to market our X-traWeb products in the United States and with Audiotel S.p.A. for marketing such products in Italy. We previously licensed low-cost spread spectrum technology for use in certain products sold by Panasonic (which agreement expired in September, 2000) and entered into a VAR Agreement with Motorola, Inc. to sell its MOSCAD Remote Terminal Units. We also believe that our agreements with KME (i.e., Panasonic), and Motorola, illustrate the manner in which we can “partner” with much larger, established companies to access mass markets for our proprietary wireless communications products and technology.

Our management has identified five primary competitors offering either telemetry-related products and services or web-enabled technologies:

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Itron, a developer and manufacturer of automated meter reading solutions, including wired and wireless automated meter reading devices;

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Spyglass, Inc. which develops software and firmware, including web-enabling firmware for embedded microcontrollers;

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emWare, a provider of distributed embedded device networking software that provides Internet connectivity for any device that scales from 8-bit microcontrollers to 32-bit microprocessors;

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Connect One, a developer and manufacturer of Internet connectivity solutions that enable devices to connect to the Internet without requiring a PC; and

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Phar Lap Software, Inc., a provider of realtime operating systems and software development tools for applications.

While each of these companies offers products and/or services that have some parallels to those provided by X-traWeb, none currently provides, to our knowledge, the type of cost-effective, total solution approach that we do. In addition, we believe we combine successfully all of the necessary technical elements with the additional capability for wireless system integration and communications.

In addition, our management has identified two key competitors in the radio products field. However, our management believes that our radios provide better performance at a lower price for comparable radios offered by such companies.

Employees

As of December 31, 2001 we had 29 employees. Of these employees, 3 were classified as executive, 11 as administrative personnel, 11 as engineering, and 4 as sales and marketing. Our employees do not belong to a collective bargaining unit, and we are not aware of any labor union organizing activity.

Patents and Intellectual Property

We believe that reliance upon trade secrets, copyrights and unpatented proprietary know-how in conjunction with the development of new products is at least as important as patent protection in our business since most patents provide fairly narrow protection, and are of limited value in areas of rapid technological change. Further, patents require public disclosure of information that may otherwise be subject to trade secret protection. We presently own two United States patents covering antenna technology, and have a United States patent which covers “spread spectrum” demodulation technology. “Spread spectrum” communication is a method for transmitting and receiving coded information that is resistant to interference due to the fact that the transmission is spread over a large bandwidth. This method requires, however, that both the transmitter and the receiver have the same spreading code

(i.e., a pre-determined, fixed pattern) used to spread the information over the larger bandwidth. The purpose of the technology covered by our spread spectrum patent is to recover and remove the spreading code from a transmission signal, and thus obtain the original information, in a simpler, less expensive manner.

Under the terms of a litigation settlement entered into with a former co-venturer, we agreed that our former co-venturer is entitled to full and equal ownership with us, of the spread spectrum demodulation technology covered by the patent application, including the right to incorporate, develop, utilize and exploit the technology. Any uses or products developed or derived from such technology, however, shall be the sole property of the party which develops or derives such uses or products. In addition, if one of the parties elects to prosecute the patent application prior to final acceptance or rejection by the U.S. Patent Office, failure by the other party to contribute equally to the costs of prosecuting the application will result in the loss of its rights to the technology. At this time, we do not have any plans to prosecute this patent application, and are unaware of any plans by our former co-venturer to prosecute the application.

In addition, during 1998 we filed a United States patent application for each of two separate software codes. Furthermore, during 2000, we filed four U.S. patent applications on various operating aspects of the X-traWeb^TM system, although we cannot assure you that any patents will be issued to us.

Williams Wireless, Inc. (“Williams”) raised a claim that we violated the non-competition provisions of their agreements by allegedly marketing X-traWeb^TM products in the telemetry meter reading applications. We, in turn, claimed that Williams Wireless, Inc. failed to satisfy all of its duties under its various agreements with us. While we believed that Williams’ claim was properly disputable, the parties orally agreed to enter into a settlement agreement and mutual release. On March 8, 2000, before such settlement agreement was concluded, Williams sold substantially all of its assets and business, including its agreements with us, to an unrelated party, Internet Telemetry Corp. (“ITC”), and thereafter we resolved this dispute amicably.

We and ITC entered into a settlement agreement and mutual release dated as of August 7, 2000, which contained the following key elements:

(a)

each party released the other of any claims under the Williams’ agreements with us, and the parties terminated such agreements in all respects;

(b)

we agreed to grant ITC a perpetual, non-exclusive irrevocable royalty-free worldwide license to manufacture, use and sell our MicroHopper radio, as configured on the date of our agreement, as a component of ITC’s telemetry systems or products, and to manufacture, use and sell such radio only when incorporated into ITC’s telemetry systems or products;

(c)

each party agreed to allow the other party to resell the other’s products pursuant to a standard resellers agreement adopted by such party; and

(d)

each party agreed to indemnify the other from any claims arising under such agreement. We believe that this agreement will have no material adverse effect on our business.

We have not filed any patent applications in foreign countries.

ITEM 2. PROPERTIES

As of December 31, 2001, our executive offices and principal administrative offices are located at 5670 Greenwood Plaza Boulevard, Greenwood Village, Colorado in approximately 10,441 square feet of space which is leased at a monthly cost of $18,594 for base rental and allocable common area maintenance charges. We also pay for certain utility expenses. The five-year lease for these premises expires on December 31, 2005.

In addition, we continue to operate our facility in Gonic, New Hampshire of approximately 5,000 square feet at a monthly rent of $2,400. Prior to November 30, 2001 we also maintained leased offices in Overland Park, Kansas of approximately 2,850 square feet at a monthly rent of $3,444 which we discontinued at such time.

We believe that our facilities are satisfactory for our present scale of operations.

We have obligations under various equipment leases which are not material.

ITEM 3. LEGAL PROCEEDINGS

On February 20, 2001 the Pinnacle Fund L.P., Barry M. Kitt and Tom and Denise Hunse filed a lawsuit against us with respect to the purchase of a total of 230,000 shares of our common stock at $3.00 per share in a private placement transaction in February 2000. The plaintiffs seek rescission of the transaction and/or damages, including treble damages, which they allege arise out of our failure to file a registration statement on or before December 31, 2000. The lawsuit is currently pending in the United States District Court for the District of Utah. The case is in the discovery stage, with certain parties having exchanged documents and written responses to questions asked. In December, 2001 the District Court in Utah approved the plaintiffs’ motion for leave to amend their pleadings to commence a lawsuit against five individual defendants (David D. Singer, an officer-director, Donald I. Wallace, a former officer-director, Malcolm Thomas, a director, Charles Taylor, a director and a former officer, Kevin Childress) and to assert an additional cause of action against them for the underlying state law securities claim against the Company, and new causes of action against the Company for breach of the implied covenant of good faith and fair dealing and promissory estoppel, and a new cause of action for fraud against Mr. Singer. The Company and individual defendants recently filed answers to these new claims in the case.

We believe that we have meritorious defenses to such action and intend to prosecute our defense of the action vigorously, but there can be no assurance as to the outcome thereof. We will also vigorously contest these new additional claims and believe we have meritorious defenses to these new claims, and it is anticipated that the individual defendants named in the lawsuit will do the same, although we cannot assure you of the result in such lawsuit.

ITEM 4. SUBMISSION

OF MATTERS TO A VOTE OF SECURITY HOLDERS

We submitted no matters to a vote of our shareholders during the fourth quarter of 2001.

ITEM 5. MARKET

FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Common Stock

Our shares of Common Stock are traded on the American Stock Exchange under the symbol “XWC”. The high and low per share price of the shares of our Common Stock and the dividends that were paid thereon for 2000 and 2001 were as follows:

	2000			2001
Quarter	High	Low	Dividend	High	Low	Dividend
1st	7.875	2.875	$0	2.00	0.68	$0
2nd	5.25	2.50	0	0.97	0.40	0
3rd	4.375	2.625	0	0.59	0.15	0
4th	3.75	1.375	0	0.88	0.25	0

At December 31, 2001 we had approximately 2,550 beneficial owners of our shares of Common Stock.

Dividend Policy

We have not paid any dividends on our shares of Common Stock to date and do not anticipate paying any dividends in the foreseeable future.

Sale of Securities

We made sales of shares of our securities during the fourth quarter of 2001, each of which is exempt from registration under the Act, as set forth below:

(a)

As of October 3, 2001, we issued (i) a Senior Secured Note in the principal amount of $25,000 (described immediately below) and (ii) a warrant to purchase 12,500 shares of our Common Stock at an exercise price of

$0.30 per share to Lancer Partners L.P. an affiliate of our largest stockholder. We believe that Lancer Partners L.P. is an accredited investor within the meaning of Regulation D issued under the Act. We issued such securities in reliance upon Section 4(2) of the Act.

(a)

As of October 3, 2001, we issued (i) a Senior Secured Note in the principal amount of $85,000 (described immediately below) and (ii) a warrant to purchase 42,500 shares of our Common Stock at an exercise price of $0.30 per share to Lancer Offshore, Inc., an affiliate of our largest stockholder. We believe that Lancer Offshore, Inc. is an accredited investor within the meaning of Regulation D issued under the Act. We issued such securities in reliance upon Section 4(2) of the Act.

(b)

As of October 9, 2001, we issued (i) a Senior Secured Note in the principal amount of $175,000 (described immediately below) and (ii) a warrant to purchase 87,500 shares of our Common Stock at an exercise price of $0.30 per share to Lancer Offshore, Inc., an affiliate of our largest stockholder. We believe that Lancer Offshore, Inc. is an accredited investor within the meaning of Regulation D issued under the Act. We issued such securities in reliance upon Section 4(2) of the Act.

(c)

As of October 29, 2001, we issued (i) a Senior Secured Note in the principal amount of $175,000 (described immediately below) and (ii) a warrant to purchase 87,500 shares of our Common Stock at an exercise price of $0.30 per share to Lancer Offshore, Inc., an affiliate of our largest stockholder. We believe that Lancer Offshore, Inc. is an accredited investor within the meaning of Regulation D issued under the Act. We issued such securities in reliance upon Section 4(2) of the Act.

(d)

As of November 14, 2001, we issued (i) a Senior Secured Note in the principal amount of $1,000,000 (described immediately below) and (ii) a warrant to purchase 500,000 shares of our Common Stock at an exercise price of $0.30 per share to Lancer Offshore, Inc., an affiliate of our largest stockholder. We believe that Lancer Offshore, Inc. is an accredited investor within the meaning of Regulation D issued under the Act. We issued such securities in reliance upon Section 4(2) of the Act.

(e)

As of November 14, 2001, we issued a warrant to purchase 2,000,000 shares of our Common Stock at an exercise price of $0.05 per share to Capital Research Ltd. in consideration of financial services rendered. We believe that Capital Research Ltd. is an accredited investor within the meaning of Regulation D issued under the Act. We issued such securities in reliance upon Section 4(2) of the Act.

Senior Secured Indebtedness Financing

(a)

May 17, 2001 Financing

On May 17, 2001, the Company sold an investment unit consisting of (a) $2,250,000 principal amount of its Senior Secured Convertible Notes (the “2001 Notes”) and (b) warrants to purchase 1,125,000 shares of Common Stock of the Company to Lancer Offshore, Inc., an affiliate of the Company’s largest stockholder, in a private placement transaction exempt from registration under the Securities Act of 1933, as amended (the “Act”), subject to the following terms and conditions.

The 2001 Notes bear simple interest at the rate of 15% per annum and were to mature on September 15, 2001, unless they were mandatorily converted into shares of the Company’s Common Stock prior to such date.

Under the 2001 Notes, the Company received the principal amount of $1,125,000 on May 17, 2001 and the holder agreed to loan the additional amount of $1,125,000 on or before July 15, 2001, provided that the Company raised a minimum of $2,000,000 in equity from persons other than Michael Lauer and his affiliates, including Lancer Offshore Inc., Lancer Partners L.P., and The Orbiter Fund Ltd.

The 2001 Notes are secured by a first security interest of substantially all of the Company’s assets, including its machinery, equipment, automobiles, fixtures, furniture, accounts receivable and general intangibles, including patents, patent applications and any stock in any subsidiary.

Under the 2001 Notes, the Company and Lancer Offshore, Inc. may jointly agree to increase the amount of the loan to a total of $5,000,000 with a pro rata increase in the amount of Warrants issuable by the Company.

The 2001 Notes were mandatorily convertible into shares of our Common Stock at the rate of $0.50 per share (i.e. one share for each $0.50 of debt) upon (i) our receipt of approval of our shareholders at a meeting of such conversion and (ii) our receipt of $2,000,000 in equity from persons other than Michael Lauer and his affiliates on or before December 31, 2001.

The Company agreed to give Lancer Offshore, Inc. registration rights with respect to the shares issuable upon conversion of the 2001 Notes and upon exercise of the warrants granted to it.

Any event of default under the 2001 Notes will require the issuance of 1,000,000 shares of our Common Stock commencing with the month in which such default first occurs and thereafter in each such month in which such default is not cured, up to a maximum amount of 10,000,000 shares of our Common Stock.

The warrants issued and potentially issuable to Lancer Offshore Inc. had an exercise price of $0.50 per share, expire on the fifth anniversary date of the date of issuance and may be exercised in whole or in part, but the shares subject thereto are issuable only upon the approval of such issuance by our shareholders at a meeting. The Company issued a warrant to purchase 562,500 shares of its Common Stock, expiring on May 16, 2006, as a result of the loan of $1,125,000 to us.

The Company agreed to pay a finder’s fee to Capital Research Ltd. and Sterling Technology Partners of a total of 10% of the gross proceeds received by us on the sale of the 2001 Notes payable on each closing of a tranche of the financing under the 2001 Notes.

On May 17, 2001, the average of the high and low price per share of the Company’s Common Stock was $0.675, which was higher than the conversion rate of one share for each $0.50 of debt and the exercise price of each warrant of $0.50 per share.

(b)

August 7, 2001 Financing

The Company failed to meet the conditions described in item 2 above on the May 17, 2001 financing by July 15, 2001. As a result, on August 7, 2001, Lancer Partners L.P., another affiliate of our largest stockholder, agreed to loan us an additional $875,000 as part of the 2001 Notes on the following terms and conditions:

Lancer Partners L.P. agreed to loan the Company the additional amount of $350,000 on August, 2001 provided our Board approved the terms of the August 7, 2001 financing (which it did). The Company issued an additional 2001 Note for the $350,000 loan.

Lancer Partners L.P. agreed to loan the Company $275,000 on or about September 15, 2001 and $250,000 on or about October 15, 2001, provided that the Company raised a minimum of $1,500,000 in equity from persons other than Michael Lauer and his affiliates, including Lancer Offshore Inc., Lancer Partners L.P. and The Orbiter Fund Ltd., on or before September 15, 2001. Each of these additional loans would mature on December 15, 2001 unless mandatorily converted into shares of our Common Stock.

This tranche of $875,000 comprising the 2001 Notes is mandatorily convertible into shares of our Common Stock at the rate of $0.20 per share (i.e. one share for each $0.20 of debt) upon (a) the receipt of approval of our stockholders at a meeting of such conversion and (b) our receipt of $2,000,000 of equity from non-Lancer entities or affiliates by December 31, 2001.

The Company agreed to issue additional warrants to purchase up to an additional 562,500 shares of our Common Stock if the entire $875,000 is loaned by Lancer Partners L.P. to the Company. As a result of the $350,000 loan made on August 7, 2001, the Company issued a warrant to purchase an additional 225,000 shares of our Common Stock, expiring on August 6, 2006, at an exercise price of $0.30 per share.

The Company agreed as a condition to the August 7, 2001 financing to reduce its operating budget to a monthly burn rate (i.e. the excess of its expenditures over revenues received, in each case determined on a cash basis) of not greater than $250,000 effective September 1, 2001 and to curtail all its discretionary spending of funds until additional equity is raised.

The Company agreed to provide Lancer Partners L.P. with fully executed loan agreements, Uniform Commercial Code and other filings and warrant agreements by August 15, 2001, which were executed and delivered by both parties on August 21, 2001.

The terms set forth in the May 17, 2001 financing described in 1, 3, 4, 6, 7 and 9 apply with the same force and effect to the August 7, 2001 financing.

In addition, under the August 7, 2001 financing, the Company agreed to amend the May 17, 2001 financing as follows:

(i) The $1,125,000 principal amount comprising a portion of the 2001 Notes became mandatorily convertible into shares of our Common Stock at the rate of $0.20 per share (i.e. one share for each $0.20 of debt);

(ii) The Company agreed to give Lancer Offshore Inc. and Lancer Partners L.P. full anti-dilution protection in the event the Company sold shares of its Common Stock at a price of less than $0.20 per share during the one-year period commencing on May 12, 2001;

(iii) The exercise price of the warrant to purchase 562,500 shares of our Common Stock was reduced to $0.30 per share which term will also apply to any additional warrants issued in such the financing transactions; and

(iv) The maximum amount of shares of our Common Stock issuable in the event of continuing monthly defaults was increased to 12,500,000 from 10,000,000.

On August 7, 2001, the average of the high and low price per share of the Company’s Common Stock was $0.38, which was higher than the conversion rate of one share for each $0.20 of debt and the exercise price of each warrant at $0.30 per share.

(c)

September 2001 Financing

The Company failed to meet the condition described in Item 2 above on the August 7, 2001 financing by September 15, 2001. Despite such failure, Lancer Partners L.P. loaned the Company an additional $100,000 and $175,000 on September 6, 2001 and September 18, 2001, respectively, which loans were to mature on December 15, 2001. As a result thereof, the Company issued a separate note comprising part of the 2001 Notes to such party (which collectively are mandatorily convertible into 1,375,000 shares of our Common Stock at $0.20 per share) and also issued a warrant to purchase 87,500 shares of our Common Stock at $0.30 per share.

In addition, the parties amended the August 7, 2001 financing as follows:

(i) The maturity date of the two tranches of the 2001 Notes totaling $1,475,000 in principal amount was extended from September 15, 2001 until October 15, 2001; and

(ii) The creditors extended the time for the Company to raise $1,500,000 until October 15, 2001 as a condition to the issuance of the $250,000 loan on or about October 15, 2001.

Also, the holders of the 2001 Notes acknowledged that there was no default of any kind as of September 14, 2001.

On September 8, 2001 and September 16, 2001, the average of the high and low price per share of the Company’s Common Stock was $0.255 and $0.235, respectively, which was higher than the conversion rate of one share for each $0.20 of debt, but lower than the exercise price of each warrant at $0.30 per share.

(d)

October and November, 2001 Financing

The Company again failed to meet the condition to raise additional equity financing of $1,500,000 on or before October 15, 2001. Despite such failure, Lancer Partners L.P. loaned the Company an additional $25,000 (bringing its total loan to the Company to $650,000 in principal amount) and Lancer Offshore, Inc. loaned the Company an additional $85,000 on October 3, 2001, $175,000 on October 9, 2001, $175,000 on October 29, 2001 and $1,000,000 on November 14, 2001 (bringing its total loan to the Company to $2,560,000 in principal amount), or a total loan from such parties of $3,210,000. As a result, the Company issued separate notes comprising part of the 2001 Notes and issued additional warrants to such parties to purchase 730,000 shares of the Company’s Common Stock at an exercise price of $0.30 per share, expiring in each case on a date in 2006 five years after the date of their respective issuance.

In addition, the parties agreed on November 14, 2001 to amend the entire 2001 Note financing as follows:

(i) The entire principal amount of $3,210,000 comprising the 2001 Notes became mandatorily convertible into shares of our Common Stock at the rate of one share for each $0.05 of debt (A) upon our receipt of approval of our shareholders at a meeting of such conversion and (B) upon our receipt of $3,210,000 in equity from sources other than Michael Lauer, Lancer Offshore, Inc., Lancer Partners L.P. and The Orbiter Fund Ltd. on or before February 28, 2002.

(ii) The maturity date of the entire principal amount of $3,210,000 comprising the 2001 Notes was extended until February 28, 2002 (unless mandatorily converted into shares of the Company’s Common Stock prior to such date);

(iii) The amount of shares issuable in the event of a default was then increased to 1,605,000 shares of our Common Stock for each month in which a default exists and continuing until such default is cured, up to a maximum of 12,500,000 shares;

(iv) The Company agreed to give Lancer Offshore Inc. and Lancer Partners L.P. full anti-dilution protection in the event the Company sold shares of its Common Stock at a price less than $0.05 per share during the one-year period commencing on November 14, 2001 (which was changed from May 12, 2001); and

(v) The finders fee payable on the transaction was increased by requiring the Company to issue a five-year warrant to Capital Research Ltd. to purchase 2,000,000 shares of the Company’s Common Stock at an exercise price of $0.05 per share, which expires on November 13, 2006.

On October 3, October 9, October 29, and November 14, 2001, the average of the high and low price per share of the Company’s Common Stock was $0.36, $0.39, $0.36, and $0.39 respectively, which was higher than the conversion rate of one share for each $0.05 of debt and the exercise price of each warrant at $0.30 per share.

ITEM 6. SELECTED FINANCIAL AND OTHER DATA

The following table sets forth selected financial and other data of the Company and should be read in conjunction with the more detailed financial statements included elsewhere in this Report. See “Management’s Discussion and Analysis of Results of Operations and Financial Condition.”

	December 31,
	2001		2000		1999		1998		1997
Current Assets	$	827,432	$	4,151,263	$	1,960,930	$	1,725,770