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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
[ x ] 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, 1998
[ ] 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 333-38567
WORLD WIRELESS COMMUNICATIONS, INC.
(Name of registrant in its charter)
Nevada 87-549700
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2441 South 3850 West, West Valley City, Utah 84120
(Address of principal executive offices) (Zip Code)
Registrant's telephone number (801) 575-6600
Securities registered under Section 12(g) of the Exchange Act:
None
__________________________________________
(Title of Class)
__________________________________________
(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 price at which the stock was sold,
or the average bid and asked prices of such stock, as of a specified date
within the past 60 days (i.e., March 31, 1999) was $16,440,918.
As of December 31, 1998 there were 13,920,400 shares of the registrant's
common stock issued and outstanding.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Background
The Company and its subsidiaries are principally engaged in the design,
development and manufacture of wireless communications technology, systems and
products. The Company also provides contract manufacturing services to the
electronics and wireless communications industry.
Prior to its acquisition of Digital Radio Communications Corporation
("DRCC") in February 1997, a substantial majority of the Company's revenues
were derived from sales of SecuriKey(R), a small hardware device that prevents
the unauthorized use of software protected by a SecuriKey system, and related
software products. At the time of its acquisition by the Company, DRCC was in
the process of developing a number of proprietary wireless communications
products, and provided wireless design, development and manufacturing services
on a contract basis. With the acquisition of DRCC, the Company's business focus
shifted to the design, development and manufacture of wireless communication
technology, systems and products, although the Company continues to provide
contract manufacturing services. Sales of SecuriKey products did not contribute
materially to revenues in 1997 (approximately 5%), and that product line was
sold by the Company in January 1998.
Wireless Communications Products
Electronic communications devices take many forms, including mobile
telephone, broadcast television and radio products. The central problem in
modern communications is developing the means to transmit large volumes of data
over long distances without losing or distorting the information in the most
cost effective manner. Wireless communications, using radio transmission rather
than transmission over a wire or cable, is an increasingly important segment
of the communications industry.
As illustrated below, wireless communication devices fall under various
names (television, radio, cellular, microwave, among others), but all utilize
the electromagnetic spectrum. This spectrum is the range of all electromagnetic
waves differentiated according to the frequency of the particular wave. An
electronic communication device is usually named according to the wave
frequency at which the device operates. Frequency is the number of cycles per
second in a wave and is measured in hertz (Hz). One hertz is one cycle per
second. The radiowave spectrum ranges from a few kilohertz (Khz) to 40
gigahertz (Ghz), or 40,000 megahertz (MHz). Portions of the radiowave spectrum
are dedicated to specific uses, as follows:
Wireless Device Frequency
- - - ---------------- ---------
AM radio 535 - 1635 Khz
Analog cordless phones 44 - 49 MHZ
TV channels (VHF) 54 - 88 MHZ
FM radio 88 - 108 MHZ
TV channels (VHF) 174 - 216 MHZ
TV channels (UHF) 470 - 806 MHZ
RF wireless modems 800 MHZ
Cellular phones 806 - 890 MHZ
Digital cordless phones 900 MHZ
Personal communication services 900 - 929 MHZ
Nationwide rs 929 - 932 MHZ
Two-way rs 932 - 940 MHZ
Satellite phones uplink 1610 - 1626.5 MHZ
Satellite phones downlink 2483.5 - 2500 MHZ
Satellite TV, large dish 4 - 6 GHz
Satellite TV, small dish 11.7 - 12.7 GHz
Wireless "cable" TV 28 - 29 GHz
Existing Products
The Company's wireless communications products are designed to transmit
and receive voice, video and data in applications where a hard-wired system is
cost prohibitive or simply more expensive. The Company's principal line of
existing products is a series of low speed digital radios (LSDRs) and related
devices. These products are suitable for use in a telemetry network which has
been developed by Williams Wireless, Inc., doing business as "Williams
Telemetry Services" (hereinafter "Williams"), a subsidiary of The Williams
Companies, Inc. The initial sales of products in this line were made to
Williams in September 1997.
Description of Existing Products
Products which the Company has developed for use in and have been
purchased for use and testing by Williams include devices called Telemetry
Interface Modules, or TIM(TM)s, which operate at the point of data origination.
For example, in the Williams Telemetry Network the TIM(TM)s units are designed
to be mounted on meters and other devices to be monitored. The function of
these TIM(TM)s is to gather and transmit data to a data collection and
forwarding point called a WinGate(TM) unit, which includes a wireless
receiver/transmitter. The WinGate(TM) unit forwards the data to an operating
center via a wide area network. Once the data arrives at the operating center,
it is recorded and stored in a computer system.
The TIM(TM)s are short range (up to 1200 feet) transmitters which
transfer data at rates up to 9600 bits per second, and function over the entire
industrial temperature range (-40oF to 185oF). The Company has at least two
TIM(TM)s models available, which differ primarily in frequency coverage,
modulation type and power.
The WinGate(TM) units utilize Low Speed Digital Radio ("LSDRs") which are
matched to the TIM(TM)s units from which they receive data. In this context,
"low speed" refers to speed of transmission which, for the Company's LSDRs,
ranges from 1200 to 9600 bits per second ("bps"). The Company presently has a
number of LSDR models available, three of which (the LSDR 100, the 900 MHZ
Hopper Radio and the 900 MHZ Micro - Hopper Radio) have been sold to Williams
for use and/or testing in the Williams Telemetry Network. Like the TIM(TM)s
units, the various LSDR models differ primarily in frequency coverage,
modulation type, range and power.
The Company's LSDRs are designed to provide a wireless communication link
for multiple locations, with a range of up to 35 miles under "unobstructed"
line of sight conditions. The products are intended for use primarily in remote
monitoring systems in which data must be transmitted from multiple locations
and collected at one central location, e.g., to monitor data such as capacity,
temperatures and flow rates from underground or above ground fuel tanks and oil
and gas pipeline meters. Radios can be spread out over numerous locations to
transmit data large distances within a line of sight and the data will be
collected and processed in one central location for processing. Data and power
requirements for the radios are low, allowing the radios to run on battery or
solar energy. LSDR communications do not require a license from the Federal
Communication Commission ("FCC") and there is no FCC restriction on the type
of data being transmitted.
An important feature of certain of the Company's LSDR products involves
the use of spread spectrum (meaning a wide frequency bandwidth) solutions to
facilitate the wireless transmission of data. Spread spectrum wireless devices
are required to modulate and demodulate a signal that is "spread" across a wide
bandwidth to reduce interference and provide enhanced security. "High power"
systems (from 0.10 to 1.0 watts) which operate in the ISM (Industrial,
Scientific and Medical) bands (902 - 928 MHZ, 2400 - 2483.5 MHZ, and 5725 -
5850 MHZ) can only use spread spectrum techniques. Under Part 15 of the FCC
Telecommunications Code, these ISM bands do not require the customer to pursue
costly and time consuming FCC licensing approval and eliminate usage charges
involved with transmitting data via cellular networks. Thus, they are desirable
for many wireless applications, including telemetry systems for use in data
collection, high-speed wireless communication links between buildings on
corporate and other campuses, wireless speaker connections and other peripheral
applications.
During 1998, revenue from the sales of the Company's existing radio
products and SCADA systems (other than antennas) were $51,619.
Williams
The Williams Telemetry Network is a fixed wireless network intended by
Williams principally for use by utility companies to collect gas, water and
electric usage data, and to closely monitor usage on a "real time" basis when
required. A wireless monitoring unit mounted on a meter or other device to be
monitored gathers data and transmits it to a local WinGate(TM) collection
point, which then relays the data to a centralized operating center. While
automated meter reading is the most immediate potential application for the
Williams Telemetry Network, its possible uses also include alarm monitoring,
a reliable back up to telephone reporting and other, similar applications.
As described elsewhere in this Report, the Company's initial sales of
wireless communications products occurred in September 1997, and sales to date
have been extremely limited. A number of the Company's wireless communications
products were introduced as part of the Williams Telemetry Network for the
first time in mid-September 1997 at the Automated Meter Reading Association
Trade Show in Chicago. At the present time, Williams has installed its
telemetry system with a number of national companies for testing under normal
commercial conditions.
In December 1997, the Company received its initial orders for equipment
under a Technical Development and Marketing Alliance Agreement with Williams.
See "Contract Design and Development" below. The orders cover products,
described below, designed and manufactured by the Company and used in the
Williams Telemetry Network. The delivery schedule established by the orders
initially called for shipments of approximately $2.25 million in the first
quarter of 1998, increasing to approximately $3.1 million per quarter in each
of the last three quarters of 1998, and with significant increases in shipments
scheduled during calendar 1999. Total sales under these orders, if completed
in full by the end of 1999, would have amounted to $70 million. However,
quantities and shipping dates in any calendar quarter are subject to adjustment
by Williams upon notice 90-days prior to the first scheduled delivery in the
quarter if customer demand or other factors beyond Williams' control make such
adjustment necessary.
Williams did not implement the orders originally contemplated under the
above agreement during 1998. Instead Williams decided to redesign the
Company's products to meet with Williams' further technical specifications.
In addition, there was a delay in submitting the system to the FCC for
clearance. While FCC certification was obtained prior to the end of 1998, the
system had been submitted to Underwriters Laboratories for approval as of the
end of December, 1998 and such request for approval was pending as of that date
and as of the date hereof.
As of a result of these delays in the fulfillment of orders from
Williams, the Company in 1998 derived revenues from Williams of only
$2,664,000, of which $2,434,000 consisted of engineering services relating to
changing the wireless system products for the Williams Telemetry Network, and
$230,000 from the sale of material and labor to Williams.
Antenna Products:
In November 1997, the Company acquired certain business assets of Austin
Antenna, Ltd., including the name "Austin Antenna", and the outstanding stock
of a corporation related to Austin Antenna which the Company now operates as
a wholly owned subsidiary under the name Austin Antenna, Ltd. The acquired
entities and assets were primarily employed or engaged in the design and
engineering of antenna products for various industries and customers, including
the Company. However, the Company does not intend to continue the antenna
engineering and design activities previously conducted by the acquired
entities. During 1998, revenues from the sales of antennas were $411,303.
Moreover, the Company does not expect antenna products to contribute materially
to its consolidated net sales or income in the foreseeable future.
Proposed Products
The Company currently has a number of products in various stages of
development, the two most significant of which are a High Speed Digital Radio
and a Low Cost Spread Spectrum Radio.
High Speed Digital Radio (HSDR)
The Company has developed a pre-production working prototype High Speed
Digital Radio. HSDR can be used as a wireless link to transmit digitized
information (data, voice or video) to and from locations within a "line of
sight" at high speeds (i.e., up to 2.048Mbps). This transmission rate is faster
than "T1" wired lines at the present time. T1 is a data transmission standard
at which 1.544 megabits are transmitted per second. Furthermore, HSDR is a
private network so users avoid the access delays caused by excessive traffic
and high costs of using T1 lines.
HSDR technology can be adapted to a variety of applications, depending
upon the user's communication requirements. One HSDR application for data
sensitive companies is to set up data links to off-site data storage and
back-up facilities which are capable of handling large volumes of information.
This application provides a user with an inexpensive real time back-up system
in the event of a disaster or other malfunction to the main or primary line of
transmission.
HSDR also can be used as a "short hop" teleconferencing and/or
video-conferencing system. The private network can connect two or more line of
sight locations with telephone service and/or video service allowing unlimited
access and usage with the cost of local and long distance telephone charges.
The installation of a private communication link is very cost effective because
of the low installation cost and lack of additional usage charges. Moreover,
HSDR can be used to establish a wireless Local Access Network (LAN) to
interconnect multiple computers that need to share information.
HSDR operates at frequencies classified under Part 15 of the FCC
Telecommunication Code, and, as a result of this classification, no license is
required nor is there any restriction on the type of data being transmitted.
Low Cost Spread Spectrum Radio (LCSSR)
The Company has developed proprietary technology for a low cost, spread
spectrum radio which the Company believes can be sold in quantity for less than
$20 per radio. As a result, the LCSSR has the potential of substantially
reducing the cost of such consumer products as cordless telephones, wireless
speakers, wireless telephone jack extensions, wireless keyboards, wireless
printer connections, security devices and wireless toys. An LCSSR device was
the principal product involved in the Company's design and development contract
with Kyushu Matsushita Electric Co., discussed below under the caption
"Contract Design and Development". During 1998, the Company completed its
development of two LCSSR (the LSDR 60 and LSDR 100), and is currently working
on the development of two additional LSDRs.
Products for Motorola, Inc.
In December, 1998, the Company entered into a Value Added Reseller
agreement with Motorola's Inc. Under the agreement, the Company will sell and
incorporate Motorola's MOSCAD Remote Terminal Units, along with the Company's
complimentary line of HART interface devices, legacy SCADA (Supervisory
control and Data Acquisition) protocol converters and VSAT interface products
for SCADA and Telemetry applications. MOSCAD is the Motorola line of products
specifically designed to the requirements of fixed data applications. It
provides the features of both a Remote Terminal Unit (RTU) and a Programmable
Logic Controller (PLC). This combination allows the Company provide RTUs with
hardware and software for monitoring and control in the oil/gas,
water/wastewater, irrigation and electric industries. The Company derived no
revenues under this agreement in 1998.
Xtra-Web Products
In early 1999, the Company successfully implemented its proprietary Xtra-
Web network for integrating wireless solutions with Internet technologies.
The Company's Xtra-Web network allows data from a remote wireless radio
frequency (RF) system to be accessed via a secure, encrypted Internet
connection using a standard Web browser. The data is available to any
Internet-accessible remote location to simplify the control, access and
monitoring of those devices. Currently, Xtra-Web is used to monitor, via the
Internet, data on energy use from an automatic meter reading (AMR) system with
Modesto Irrigation District in Modesto, California.
Applications for Xtra-Web in addition to AMR include remote monitoring
and control of wireless supervisory control and data acquisition (SCADA)
implementations in the oil and gas pipeline; environmental control; water and
wastewater management; and heating, ventilation and air conditioning (HVAC)
industries. Other applications include data access and monitoring for vending
machines, medical devices, and security systems.
Contract Design and Development
The Company's business has included providing engineering, design and
development services to client specifications on a fee for services basis. At
the present time, the Company is not seeking design and development service
contracts except in "partnering" situations in which the Company would have an
ownership interest in the products and/or technology which are the subject of
the contract. The two most significant such contracts, entered into in 1997 and
continued in 1998 with Kyushu Matsushita Electric Co. and Williams Wireless,
Inc., are described below.
Kyushu Matsushita Electric Co. (Panasonic) Contract
In April 1997, DRCC entered into a contract with Kyushu Matsushita
Electric Co., Ltd. ("KME" which is also known as Panasonic) to develop low cost
spread spectrum radio technology for use in certain KME products. Under the
terms of the contract, KME agreed to pay the Company $1,296,000 for its
services in three installments of $432,000, subject to the Company's
satisfaction of certain performance goals. The Company received the initial
installment in May 1997, and the second installment and one-half of the third
installment in September 1997, following KME's evaluation of certain prototypes
furnished by the Company. The Company received all of such balance by the end
of 1998, following KME's evaluation of final working samples.
As part of its development contract with KME, the Company 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 the Company's LCSSR technology in the manufacture of KME products, and
agreed not to license others to use technology which is developed under its
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 the Company's services, KME
agreed to pay royalties to the Company 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. No royalty is paid on sales
of the first 600,000 units of product using the technology. A royalty of $1.00
per unit of product sold is payable on sales of units 600,001 through
1,000,000. Thereafter, the royalty is $.50 per unit on all units sold until the
second anniversary of the date of the first sale of products using the
technology. The Company is unable to predict the amount of any royalties which
it may receive under this license, or whether it will receive any royalties.
In 1998, the Company entered into an agreement with KME to develop a key
wireless RF transmitter/receiver utilized in KME's new 5.7GHz MicroCast . The
MicroCast is a convergence appliance that allows home personal computers to
distribute and control personal computer - based interactive media and Internet
content using a standard TV set. The MicroCast enables consumers to control
their personal computer remotely using a keyboard, joystick, and/or mouse from
other rooms in the home. Two of the three-piece system use the Company's
designs for the video and audio baseband and the 5.7GHz RF technology, the
newest and highest performance RF technology available to consumers today.
Under its MicroCast contract with KME, World received a development fee
of $50,000, of which the entire amount was paid in 1998, and will receive
royalty payments for a two-year period commencing on the first shipment,
currently scheduled for introduction in 1999. A royalty of $1.50 per unit of
product sold is payable on each unit sold. The Company is unable to predict
the amount of any royalties it may receive under this Agreement.
In addition, the Company entered into a second technical development
agreement with KME in October, 1998 to provide additional technical services
relating to KME's existing Gigarange telephone. Under this agreement, the
Company was to be paid a development fee of $400,000 for services rendered, of
which $200,000 was paid in 1998 and the balance of which is expected to be paid
during the first half of 1999.
Williams Wireless, Inc. Contract
In September 1997, the Company entered into a Technical Development and
Marketing Alliance Agreement (the "TDMA Agreement") with Williams Wireless,
Inc., pursuant to which the Company has agreed to assist and cooperate with
Williams in developing and manufacturing "Telemetry Radio Products", which are
generally defined in the agreement as wireless radios for transmitting and/or
receiving data as part of the Williams Telemetry Network. The TDMA Agreement,
which followed a letter of understanding entered into by the parties in June
1997 and a relationship between the companies which pre-dated the letter of
understanding in the course of which the Company developed a "proof of concept"
radio for use in Williams' information gathering network, was amended and
restated in December 1997 in connection with Williams' issuance of its initial
orders for equipment under the Agreement, as described under the caption
"Existing Products" above.
Under the TDMA Agreement, as amended and restated in December 1997,
Williams may, but is not required to, contract with the Company for specific
system engineering and design services to create Telemetry Radio Products. The
Company would have the exclusive right to manufacture any Telemetry Radio
Products which were designed exclusively for use in Williams' network, so long
as the Company met prescribed quality and other performance criteria. Williams
would "own" such products, but the technology used in creating the products
(including components that the Company has patented or for which it holds a
copyright, and all drawings, specifications, prototypes and circuit boards
relating thereto) would remain the property of the Company, provided that
Williams would have a royalty-free license to use the technology in its
telemetry network. The Company also has a non-exclusive right to market
Williams' information gathering service on terms mutually agreeable to the
parties, based upon a "standard" Williams marketing agreement which is in the
process of development.
As indicated above under the caption "Existing Products", the Company has
designed and developed a number of LSDR products and related devices that have
been sold to Williams for use in the Williams Telemetry Network. While these
products meet the definitions of "Telemetry Radio Products" used in the TDMA
Agreement, since they were developed outside the Agreement, the Company retains
all property rights to such products, subject to Williams' right to use the
technology associated with the products in its telemetry network. Sales prices
to Williams for existing products were negotiated between the Company and
Williams. Such terms relating to further products which Williams may call upon
the Company to develop under the TDMA Agreement would be negotiated at that
time.
During 1998, the Company redesigned a number of LSDR products and related
devices for use by Williams both in the monitoring of oil and gas pipeline
information and separately for other automatic meter reading purposes.
Other Third Parties
During 1998, the Company engaged in a number of other development
agreements for third parties, including, without limitation, developing a
point-of-sale device for supermarkets for Klever Marketing Inc. and an asset
tracking system for Eagle Eye Technologies.
Contract Manufacture and Assembly
The Company performs assembly and manufacturing services for other
manufacturers and vendors of medical, communications, computer graphics and
consumer electronic products at its Salt Lake City manufacturing facility. In
the current fiscal year, the Company has provided manufacturing and assembly
services for such customers as Williams, Bourns, Klever Kart Inc., Len Gordon,
L-3 Communications, Inc. and Wavephore. During 1998, revenues from contract
manufacturing and assembly services represented approximately 19% of the
Company's total revenues.
Markets and Distribution
The principal markets for the Company's wireless communications products
are original equipment manufacturers ("OEM's") which utilize the Company's
products and technology in their own equipment and products, and value added
resellers and systems integrators ("VAR/Integrators") which use the Company's
products, along with hardware and software from other vendors, in systems which
they design and sell to meet their customers' data processing, transmission,
collection, storage, security and other related needs.
Marketing to OEM's and VAR/Integrators involves establishing and
increasing prospective customers' awareness of the Company's products and
technology. This is accomplished through direct mail and print advertising, and
through promotional activities which include direct contacts with trade journal
editors, industry analysts and other opinion makers. More direct sales activity
includes research to identify specific OEM's and VAR/Integrators whose products
and services make them potential buyers of the Company's products and
technology, and direct sales efforts to introduce the Company to the potential
customers. Early contacts, if successful, are likely to involve very detailed
technical discussions between the Company's and the prospective customer's
engineers and researchers. The Company's objective at this stage is to
demonstrate how its existing products and technology and/or its capacity to
custom design and develop products can benefit the customer. The prospective
customer's objective, of course, is to find sources of such products and
technology.
The Company also markets its wireless products through approximately 15
manufacturer's representatives located in different parts of the United States.
This is a relatively new phenomenon for the Company since it only recently
reached the point at which it has had fully developed products commercially
available. The Company expects to add additional representatives as its
product line expands.
The Company's contract design and development capabilities are an
integral part of its overall product and technology marketing effort. All of
the Company's design and development contract revenues in 1998 (which totaled
$3,009,386) have resulted from contracts in which technology was customized
and/or further developed to meet its client's specific product needs, with the
Company generally retaining ownership or partial ownership of technology
developed under the Contract and the right to manufacture and sell to others
products which employ that technology but which are outside the client's
applications. As indicated above, the Company is not seeking design and
development contracts on a purely "fee for services" basis at the present time.
In addition, the Company became a VAR/Integrator for Motorola's MOSCAD
Remote Terminal Units, as stated earlier in this Report.
The Company's marketing activities as relate to its contract
manufacturing and assembly capabilities have been limited, and consist
primarily of direct selling efforts directed to past and existing customers,
and to prospective customers who contact the Company or are located in the
Company's immediate geographic area. In the foreseeable future, the Company
expects to concentrate its available marketing resources in the marketing of
proprietary products and technology, rather than its contract manufacturing and
assembly service capabilities.
Competition
The Company has a number of current competitors in all aspects of its
business, many of which competitors have substantially greater financial,
marketing and technological resources than the Company, and which include such
industrial giants as Panasonic, Motorola, Sony and AT&T. The Company intends
to compete with these companies by concentrating on certain product or service
niches within the overall market. However, most of the Company's competitors
offer products which have one or more features or functions similar to those
offered by the Company, and many have the resources available to develop
products with features and functions, competitive with or superior to those
offered by the Company. There can be no assurance that such competitors will
not develop superior features or functions in their products or that the
Company will be able to maintain a lower cost advantage for its products.
A key element of the Company's competitive strategy is to align itself
with major manufacturers by developing proprietary products or technology that
can be incorporated into its "partner manufacturers'" products. In addition to
being compensated for its services relative to the development of the partners'
products, the Company would share in the success of products which used the
Company's component or technology through a royalty or similar arrangement. The
Company believes that its agreements with KME Panasonic, Williams and Motorola,
described above under the caption "-- Contract Design and Development" or
"Proposed Products," illustrate the manner in which the Company can "partner"
with much larger, established companies to access mass markets for its
proprietary wireless communications products and technology.
Employees
As of December 31, 1998, the Company had 64 employees, two of whom one
were part-time. Of these employees, 11 were classified as executive or
administrative personnel, 20 engineering, 26 production and manufacturing,
including contract manufacturing, and 7 sales and marketing. The Company's
employees do not belong to a collective bargaining unit, and the Company is not
aware of any labor union organizing activity. The Company considers its
employee relations to be satisfactory.
Patents and Intellectual Property
The Company believes 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 its 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 which may otherwise be subject to trade secret protection. The
Company presently owns two United States patents covering antenna technology,
which were acquired in the Austin Antenna acquisition, and has a United States
patent application pending which covers "spread spectrum" demodulation
technology. "Spread spectrum" communication is a method for transmitting and
receiving coded information which 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 the
Company's patent application is to recover and remove the spreading code from
a transmission signal, and thus obtain the original information, in a simpler,
less expensive manner.
In addition, during 1998 the Company filed a United States patent
application for each of two separate software codes.
Under the terms of a litigation settlement entered into with a former
co-venturer, the Company has agreed that its former co-venturer is entitled to
full and equal ownership with the Company, 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 result in the
loss of its rights to the technology. At this time, the Company does not have
any plans to prosecute this patent application, and is unaware of any plans by
its former co-venturer to prosecute the application.
Furthermore, during 1999, the Company is planning to file a U.S. patent
application on certain proprietary software relating to its Xtra-Web products.
Generally, the Company enters into confidentiality and invention
assignment agreements with its employees, and includes provisions in contracts
with its development contract customers intended to protect its proprietary
technology, "know how" and other trade secrets. The Company also claims
copyright protection for its circuit boards and software. However, there can
be no assurance that the Company's proprietary technology will be protected or
remain a trade secret, or that others will not develop or propose similar
technology.
The Company does not presently own any trademarks. It intends to pursue
registration on trademarks associated with key products in the future.
ITEM 2. PROPERTIES
The Company's executive offices and principal administrative offices and
manufacturing facilities are located in approximately 34,000 square feet of
space at 2441 South 3850 West, West Valley City, Utah which is leased at a
monthly cost of $27,322 for base rental and allocable common area maintenance
charges. The Company also pays for certain utility expenses. The seven-year
lease for these premises expires on November 30, 2005.
The Company closed its principal engineering facility located in the Utah
Valley Business Park, American Fork in November, 1998 and moved the engineers
to its principal office.
The Company also maintains small leased offices in Overland Park, Kansas
of approximately 2,850 square feet at a monthly rent of $3,444 and in Gonic,
New Hampshire of approximately 5,000 square feet at a monthly rent of $1,700.
The Company believes that its facilities are satisfactory for its present
scale of operations.
The Company owns most of its manufacturing equipment, and obligations
under existing equipment leases are not material.
ITEM 3. LEGAL PROCEEDINGS
Mentor Graphics, Inc. commenced a lawsuit against the Company in the
United States District Court for the District of Utah in 1998, seeking damages
of approximately $485,000 plus interest, legal fees and expenses arising out
of the Company's alleged breach of contract for the purchase of software and
related items. The Company believes that it has meritorious defenses against
the plaintiff's claim, although there can be no assurance as to the outcome
thereof.
PaineWebber Incorporated commenced a lawsuit against the Company in the
United States District Court for the Southern District of New York in which the
plaintiff seeks to recover damages of approximately $231,000, plus legal fees
and expenses of its counsel in such action. In this case, the Company asserted
a counterclaim seeking damages of approximately $250,000. Plaintiff will
file a motion for summary judgment in the case on or before April 22, 1999, and
the Company will file a reply thereto on or before May 22, 1999. While the
Company believes that it has meritorious defenses to plaintiff's claim and that
its counterclaim similarly has merit, there can be no assurance as to the
outcome of the litigation.
The Company received a oral request in 1998 from Mr. and Mrs. Richard
Austin to rescind the Company's purchase of the stock of Austin Antenna Ltd.
which closed in 1997. In addition, Mr. Austin requested that the Company bear
the cost of (i) the legal fees and expenses in a litigation commenced against
Mr. Austin in a state court in Massachusetts brought by Charles Rich seeking
damages of approximately $50,000 for non-payment of commissions arising out of
the Company's purchase of Austin Antenna Ltd. and (ii) the unpaid finder's fee
that is the subject of the litigation. The Company, in turn, has advised Mr.
and Mrs. Austin that Austin Antenna Ltd. has breached its agreement with the
Company by, among other things, failing to furnish it with proprietary
engineering drawings and related data that would enable the Company to
manufacture the antennas now produced by Austin Antennas Ltd., but such data
has not yet been completely provided to the Company's satisfaction. Although
the Company believes that its claim against Austin Antenna Ltd. and the claims
of Mr. and Mrs. Austin will be amicably resolved, there can be no assurance as
to the outcome thereof.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of shareholders in February, 1998.
At such meeting, the shareholders by the majority vote of those present in
person or by proxy approved (a) the election of David D. Singer, Philip A.
Bunker, Brian W. Pettersen, Thomas E. Sawyer and George Denney as directors and
(b) approved the Company's engagement of Hansen Barnett & Maxwell as the
Company's independent auditors for calendar year 1998.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Common Stock
The Company's Common Stock is traded on the National Association of
Securities Dealers, Inc. Electronic Bulletin Board under the Symbol "WWWC".
The high and low per share price of the Company's Common Stock and the
dividends that were paid thereon for 1997 and 1998 were as follows:
1997 1998
--------------------------- -------------------------
Quarter High Low Dividend High Low Dividend
1st 11.00 2.00 0 12.13 10.50 0
2nd 11.00 9.00 0 7.00 3.56 0
3rd 12.25 8.13 0 5.25 1.19 0
4th 12.75 8.75 0 2.13 1.25 0
These quotations reflect interdealer prices, without retail mark-up, markdown
or commissions and may not necessarily represent transactions.
At December 31, 1998 the Company had approximately 525 beneficial owners
of its Common Stock.
Dividend Policy
The Company has not paid any dividends on its Common Stock to date and
does not anticipate paying any dividends in the foreseeable future.
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,
--------------------------
1998 1997
----------- -----------
Current Assets $ 1,725,770 $ 1,529,804
Net Equipment 1,038,645 1,133,263
Total Assets 4,167,905 10,412,287
Current Liabilities 5,053,628 1,805,201
Long-Term Liabilities 84,968 34,977
Stockholders' Equity (Deficit) (970,691) 8,572,109
Total Liabilities and Stockholders' Equity (Deficit) 4,167,905 10,412,287
For the Years Ended December 31,
-------------------------------------
1998 1997 1996
------------ ----------- -----------
Sales $ 4,309,691 $ 2,913,429 $ 618,505
Cost of Sales 3,751,607 2,116,934 662,184
------------ ----------- -----------
Gross Profit (Loss) 558,084 796,495 (43,679)
------------ ----------- -----------
Operating Expenses
Research and development 3,179,557 2,943,404 92,932
General and administrative 5,018,943 4,243,779 1,789,904
Impairment of goodwill 5,839,481 - -
Amortization of goodwill 385,476 1,105,452 -
------------ ------------ -----------
Total Operating Expenses 14,423,457 8,292,635 1,882,836
------------ ------------ -----------
Net Loss From Operations (13,865,373) (7,496,140) (1,926,515)
Other Income (Expense)
Interest expense (1,414,939) (43,779) (1,310,142)
Other income 306,304 9,692 -
------------ ------------ -----------
Net Loss $(14,974,008) $ (7,530,227) $(3,236,657)
============ ============ ===========
Basic and Diluted Loss Per Common Share $ (1.34) $ (0.82) $ (1.03)
============ ============ ===========
Weighted Average Number of Common
Shares Used in Per Share Calculation 11,189,603 9,217,158 3,141,613
============ ============ ===========
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
When used in this discussion, the words "expect(s)", "feel(s)",
"believe(s)", "will", "may", "anticipate(s)" and similar expressions are
intended to identify forward-looking statements. Such statements are subject
to certain risks and uncertainties, which could cause actual results to differ
materially from those projected. Readers are cautioned not to place undue
reliance on these forward-looking statements, and are urged to carefully review
and consider the various disclosures elsewhere in this Report which discuss
factors which affect the Company's business, including the discussion under the
caption "Risk of Default with Debtholders".
General
The Company was incorporated in November 1995. In March 1996, it
completed the acquisition of the assets of a limited liability company, which
related to a computer hardware device used to prevent unauthorized duplication
or use of software. This device, the SecuriKey(R), and related software
products accounted for substantially all sales of the Company prior to October
1996, and the results of operations of the Company prior to March 1996 include
the results of operations of the limited liability company from which the
Company acquired the SecuriKey(R) assets.
In October 1996, the Company commenced contract manufacturing operations
and, in February 1997, acquired Digital Radio Communications Corporation
("DRCC"). The Company's results of operations for the nine month period ended
September 30, 1997, includes purchased research and development costs and
amortization of goodwill incurred in connection with the acquisition of DRCC,
and the results of contract manufacturing and DRCC operations (from February
12, 1997, in the case of DRCC operations), while prior periods do not.
Pro forma financial information in this discussion and elsewhere in the
Report is presented as if the acquisition of DRCC had been consummated at
January 1, 1996. Thus, the Company's results of operations on and after January
1, 1996, when presented on a pro forma basis, include the operations of DRCC
and exclude nonrecurring expenses incurred by the Company in connection with
the acquisition of DRCC.
In November 1997, the Company acquired certain business assets of Austin
Antenna, Ltd. and acquired a related corporation, and presently operates those
assets in a subsidiary corporation using the name Austin Antenna, Ltd. The
subsidiary is not considered a material subsidiary for accounting purposes.
Purchased research and development costs incurred in connection with the
acquisition are reflected in the Company's results of operations for the fourth
quarter of 1997, and operations of Austin Antenna, Ltd. are be included in the
Company's consolidated results of operations from the date of the acquisition.
The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements and respective notes thereto, Selected
Consolidated Pro Forma and Historical Financial Data, Unaudited Condensed Pro
Forma Consolidated Statements of Operations and respective notes thereto, as
well as the Summary Consolidated Historical and Pro Forma Financial Information
and the Consolidated Financial Statements of Digital Radio Communications
Corporation, and respective notes thereto, which are set forth elsewhere in
this Report.
Results of Operations
1998 Compared to 1997
Sales in the twelve-month period ended December 31, 1998, were $4,350,000
compared to sales of $2,913,000 during the twelve-month period ended December
31, 1997. The Company's principal source of revenue for the twelve-months ended
December 31, 1998, was a design and development contract with Williams
Telemetry, a Williams company, in the amount of $2,664,000. Other significant
revenues include contract manufacturing of $531,000 and sales of the Company's
own branded goods of $586,000. Significant revenues for 1997 were derived from
an engineering contract with Kyushu Matsushita Electric Co. ("KME") in the
amount of $1,596,000. Sales relating to the SecuriKey business were
insignificant during 1997 and the line was sold to a prior employee/shareholder
with no revenues were recorded in 1998.
Cost of sales for the twelve-months ended December 31, 1998, were
$3,751,607 compared to cost of sales for the twelve-month period ended December
31, 1997, of $2,116,934. Cost of sales as a percentage of sales decreased from
73% to 87% in the twelve-months ended December 31, 1998. The related gross
profit for the twelve-months ended December 31, 1998 was $558,084 or 13% of
sales compared to $796,495 or 27% of sales for the twelve-month period ended
December 31, 1997.
The Company incurred research and development costs of $3,179,557, during
the twelve-months ending December 31, 1998, relating to the development of
proprietary technology. Included in the $3,179,557 is $305,651 of purchased
research and development expense arising out of the acquisition of radio
technology in May 1998. The amount spent on research and development for the
twelve-month period ended December 31, 1998 was greater than the amount spent
for the twelve-month period ended December 31, 1997 of $2,943,404 of which
$1,258,000 was for purchased research and development expense arising out of
the acquisition of Digital Radio in February 1997.
The Company's selling, general and administrative expenses for the
twelve-months ended December 31, 1998 increased to $5,018,943 from $4,243,779
for the twelve-month period ended December 31, 1997. Included in the $5,143,000
is $1,024,000 of non-cash compensation relating to the grant of stock options
in December 1997. Such increase also reflected a substantial increase in the
average number of employees of the Company to approximately 90 in the current
year as compared to an average of approximately 50 employees in the prior
year. During the three months ended December 31, 1998, the Company reduced its
employees by approximately 30%. However, the Company had increased the number
of its higher paid employees as a result of acquisitions in 1997. The Company
also increased staffing in anticipation of the launch of the Company's
proprietary radio products. The increase in costs was also attributable to its
maintenance of duplicate administrative facilities and related administrative
expenses by virtue of its two business locations in Utah. Management
eliminated duplicate administrative efforts by consolidating into one facility
during October 1998.
Interest expense for the twelve-months ended December 31, 1998, increased
to $1,414,939 from $43,779 for the twelve-month period ended December 31, 1997,
which increase was attributable to the greater amount of the Company's
outstanding borrowings during the current year of which $874,000 resulted from
the amortization of debt discount.
The Company's net loss of $14,974,008 for the twelve-months ended
December 31, 1998, represents an increase from the net loss of $7,530,227 for
the twelve-months ended December 31, 1997, as a result of the above items.
During April 1998, the Board of Directors approved the repurchase of
unvested employee stock options at a price of $0.01 per share. These options
were granted during the fourth quarter of 1997. The repurchase enables the
Company to discontinue charging the difference between fair market value in the
stock at the time of option grant and the option exercise price to operations.
1997 Compared to 1996
For the twelve months ended December 30, 1997, the Company's sales
increased to $2,913,429 from sales of $618,505 in the twelve month period ended
December 30, 1996. The increase was primarily attributable to the inclusion
of DRCC operations from February 12, 1997 in the 1997 results, and revenues
derived from contract assembly services. 1996 results do not include any
revenues from DRCC. Sales of the SecuriKey device and related software
products were $160,990 in the twelve months ended December 30, 1997 compared
to $618,505 during the comparable twelve month period of 1996. This decrease
was due to the Company's business focus shifting to other products and
services.
The Company's net loss of $7,530,227 in the twelve months ended December
30, 1997 includes a non-recurring charge of $6,780,621 for the write-off of
purchased research and development and represents the excess of the DRCC
acquisition price over the fair value of the acquired assets. General and
administrative expenses for 1997 were $4,234,087 compared to $1,789,904 for
1996. The Company experienced substantial increase in cost of sales and
general and administrative expenses in the twelve months ended December 30,
1997 compared with the year earlier period primarily as a result of the
inclusion of DRCC costs and expenses in the 1997 results.
Liquidity and Capital Resources
The Company's liquidity at December 31, 1998 decreased compared to
December 31, 1997. Current assets increased by $209,366 although short term
borrowings increased by $3,372,693.
In order to sustain operations, the Company borrowed $2,500,000 pursuant
to an offering of units consisting of (a) its Senior Secured Notes, maturing
on May 15, 1999 and bearing simple interest at the rate of 16% per annum,
payable quarterly (the "Notes") and (b) warrants to purchase 250,000 shares of
the Common Stock exercisable for up to five years from the date of issuance at
an excise price of $.75 per share (subject to adjustment under certain
circumstances, such as stock splits). Moreover, in the event the Company fails
to pay the Notes at their maturity date, the Company can be required to issue
warrants to purchase up to an additional 333,333 shares of the Company's common
stock exercisable for up to five years at an exercise price of $2.50 per share
(subject to adjustment under certain circumstances), payable at the rate of
83,333 shares of Common Stock for each 90-day period thereafter during which
such default continues. Such offering was made in a private placement
transaction exempt from registration under the Securities Act of 1933, as
amended. The Notes are mandatorily prepaid in the event that the Company
closes an offering of its securities, whether through one or more private
placement or secondary public offerings, in accordance with the formula
described below under "Risk of Default with Debtholders."
Nevertheless, in management's opinion, the Company will not be able to
satisfy its needs for additional capital through borrowing, but will be able
to meet these needs only by issuing additional equity securities. Thus, after
May, 1998, the Company decided to secure additional financing of up to at least
$5,000,000 through the further sale of its equity securities. As part of this
plan, pursuant to certain private placements during the Fall of 1998, the
Company raised a total of $1,463,000 through the sale of its Common Stock. In
addition, pursuant to its Confidential Private Placement Memorandum dated
January 24, 1999, as amended (the "Offering"), the Company raised additional
equity financing in the first quarter of 1999. However, there can be no
assurance that the Company will be able to obtain any additional capital or,
if so, on terms acceptable to it.
Also, approximately $894,000 of its current notes payable was converted
to stock through March 31, 1999, at the conversion rate of one share of Common
Stock for each $1 of debt.
Risk of Default with Debtholders
As stated above, on May 15, 1998, the Company closed an offering
consisting of $2,500,000 of its Senior Secured Notes (the "Notes") and warrants
to purchase 250,000 share of its common stock (individually a "Warrant" and
collectively the "Warrants) (the "Debt Offering"). The Notes originally bore
interest at the rate of 10% per annum payable quarterly commencing on August
15, 1998, mature on May 15, 1999 and are secured by substantially all of the
assets of the Company. Pursuant to the terms of the Debt Offering, the Company
gave the holders of the Notes a first security interest in all of the Company's
machinery, equipment, automobiles, fixtures, furnitures, accounts receivable
and general intangibles, including any stock in any subsidiary, under the
Pledge/Security Agreement.
The Company would have been in default under the Pledge/Security
Agreement on August 15, 1998 because the Company had revenues of less than 70%
of that projected for the quarter ended June 30, 1998, which failure would have
constituted an event of default under the Loan Agreement between the parties.
In addition, the Company would have been in default under the Pledge/Security
Agreement on November 19, 1998 because the Company had revenues of less than
70% of that projected for the quarter ended September 30, 1998, which failure
would have constituted an event of default under the Loan Agreement between the
parties. Upon the occurrence of an event of default, the holders of the Notes
have the right, among other things, to accelerate the due date of the Notes to
the date of the default and to sell the assets of the Company's securing the
debt as means of repaying the debt.
The Company obtained separate waivers of the default for the quarters
ended June 30, 1998 and September 30, 1998 from each of the holders of the
Notes. As a condition thereto, the Company agreed (a) to increase the interest
rate on the Notes from 10% to 16%, (b) to change the exercise price of each
Warrant from $3.00 per share to $0.25 per share, (c) to grant the holders of
the Notes additional warrants to purchase 83,333 shares of the Company's Common
Stock at an exercise price of $0.25 per share, and (d) to use the proceeds of
any offering of its securities to prepay the holders of the Notes on a pro rata
basis (excluding any funds provided therein by Lancer Partners L.P., Lancer
Offshore L.P., Michael Lauer and their affiliates), in accordance with a
formula set forth in the revised Notes, thereby eliminating the prior
$5,000,000 threshold for the mandatory prepayment of the Notes, effective in
each instance as of May 15, 1998. Thus, during the period from November 25,
1998 through January 27, 1999, each Note would have been prepayable as follows:
(a) 25% of the first $1,000,000 of gross proceeds in the case of
any such transaction occurring between November 25, 1998 and January 27, 1999,
and 50% of the first $1,000,000 of such proceeds raised thereafter;
(b) 50% of the next $2,000,000 of gross proceeds; and
(c) 100% of the gross proceeds in excess of $3,000,000 so raised
until each Note is paid in full.
In addition, the holders of the Notes agreed to waive any rights under the
anti-dilution clause under the Warrants arising from the Offering, except in
the case of sale of any securities of the Company at any price less than $0.25
per share, in which event the exercise price of each of the Warrants will be
changed to such price. Thus, the Company believes that such defaults will not
have any material adverse effect on the financial condition or business of the
Company.
The holders of the Notes and the Company agreed to further changes in the
mandatory prepayment terms of the Notes pursuant to an Amendment of Agreements
dated March 25, 1999 in accordance with the revised prepayment terms set forth
below:
(a) 25% of the first $3,000,000 of gross proceeds in the case of
any such transaction described above occuring between January 27, 1999 and May
15, 1999.
(b) 35% of the next $2,000,000 of gross proceeds so raised; and
(c) 50% of the gross proceeds in excess of $5,000,000 so raised
until May 15, 1999 excluding in any case any funds raised from Lancer Partners
LP, Lancer Offshore L.P., Michael Lauer and their affiliates.
Thus, this revised mandatory prepayment formula would apply to funds raised
pursuant to the Company's offering of 5,000,000 shares of its Common Stock at
$1 per share pursuant to its Confidential Private Placement Memorandum dated
January 24, 1999.
The Company will be in default under the Pledge/Security Agreement
on April 15, 1999 because the Company had revenues of less than 70% of that
projected for the quarter ended December 31, 1998, which default would
constitute an event of default under the Loan Agreement between the parties.
Since the holders of the Notes waived two similar defaults in the past and
recently amended the mandatory prepayment terms of the Note favorably to permit
the Company's use of funds raised for purposes other than prepayment of the
Notes, management believes that it will be able to negotiate a further waiver
of the current default. However, there can be no assurance that the Company
will be able to obtain such waiver, or, if so, on terms acceptable to it.
Moreover, there can be no assurance that the Company will not commit a default
under the Debt Offering in the future. In the event that the debtholders sell
the Company's assets securing the Notes following a current or future default,
such sale would materially and adversely affect the Company's business and
financial condition.
Outlook
The statements contained in this Outlook are based on current
expectations. These statements are forward looking and actual results may
differ materially.
The Company operates under various contracts with the Williams Companies
to develop principally two systems: an Automatic Meter Reading System (AMRS)
and a wireless pipeline Supervisory Control and Data Acquisition Systems
(SCADA), and with other third parties.
Analysis
Management believes that as deregulation of natural gas and other
utilities continues, multiple utility suppliers will be serving a given city,
neighborhood, or industrial park. Consequently, it will become more difficult
and time consuming for utility companies to read meters as they will generally
not be the provider to every user in the city or neighborhood which will
increase the cost effectiveness of reading utility meters remotely. Management
believes that the Williams Telemetry Network, described in detail in the
Prospectus dated February 17, 1998, is a viable alternative to the current
practice of manually reading meters. Additionally, management believes that
William's position as an affiliate of a major transporter of natural gas in the
United States positions it to successfully market its telemetry network, which
currently is designed to use collector and repeater radios supplied by the
Company to gather and transmit data.
Slower than anticipated market adoption of the Williams AMRS has
diminished projected revenues from the original estimates of $70 million over
the years 1998-2000. However, the Company continues to develop and improve
AMRS products under contract with Williams. Although there are current
negotiations in progress for firm commitments from Williams for AMRS products
at this time, there can be no assurance as to the outcome thereof.
SCADA
Management believes that deregulation of utilities will also increase the
need for petroleum transporters to monitor and control the distribution of
their product. Management believes that wireless data collection and
transmission systems are optimal solutions for energy transporters whose
pipelines often traverse remote locations not economically served by
traditional communicating systems such as telephones.
The Company has delivered initial quantities of SCADA systems to
Williams, and anticipates receiving orders from Williams for several million
dollars that will be shipped during 1999.
Management believes that the completion of development of AMRS and SCADA
systems, along with completion of proprietary radio products, may result in
significant increases in sales. However, that may lead to working capital
requirements which would not be provided for from funds generated by the
initial sales of the products. The Company is currently pursuing a private
placement to raise equity financing and is investigating ultimately a secondary
public offering to meet its working capital and operating needs. However, there
is no assurance that sufficient capital or any capital will be raised from such
endeavors.
On October 15, 1998 the Company entered into a seven-year lease for a
34,000 square foot facility in West Valley City, Utah. The Company
consolidated its American Fork and Salt Lake City, Utah operations and staff
into the new facility. Management expects the new facility to provide
sufficient manufacturing and office space for the foreseeable future. However,
if additional capacity were required, management would consider out-sourcing
a portion of the manufacturing overload.
If a portion of manufacturing is out-sourced, the Company may lose some
control over the following areas: cost, timeliness of deliveries and quality.
However, by out-sourcing a portion of its manufacturing, the Company could
avoid delays and costs associated with the expansion of its own facilities. The
magnitude of any expansion of the Company's manufacturing capabilities that is
required would be a direct function of the sales increase and manufacturing
overload, both of which are unknown at this time.
The Company anticipates an increase in revenues from the sale and
manufacturing of the Company's proprietary radio products. The Company will
market a line of radios to OEM that incorporate them into products such as
wireless smoke and security alarm systems, ambulatory patient wireless
monitoring systems, retail point-of-sale systems, and the like. The Company
has begun providing initial sales samples, and believes there is strong
customer interest for the products; however. However, there can be no
assurance that the Company will be able to manufacture or sell sufficient
quantities at adequate gross margins to achieve profitability.
The Company completed development under a contract with KME that calls
for royalty payments upon shipment of certain KME products. Shipments of KME
products containing the Company's technology began during the third quarter of
1998. Management believes royalty payments from the contract were earned
during the fourth quarter of 1998, but were subject to recoupment by KME up to
the first $600,000 of royalties. Management further believes that the Company
may become entitled to royalty payments with respect to the first quarter of
1999 (which may be paid during the second quarter of 1999), although there can
be no assurance of such result. Additionally, the Company entered into follow-
on fixed fee contracts with KME during 1998. It is management's intent that
the fees received will cover the Company's costs. However, these fixed fee
arrangements may not cover all of the Company's costs incurred in fulfilling
any such contract.
In anticipation of obtaining additional design and development contracts,
management must continually recruit and hire additional RF (radio frequency),
software, firmware, digital engineers and sales engineers with RF experience.
It is extremely difficult, time-consuming and expensive to find engineers
qualified in those fields. There is no assurance the Company will be able to
locate and hire such qualified engineers. Associated with the hiring of each
engineer is the need for test and development equipment, software and work
stations, which increases the Company's cash requirements.
In summary, while management is optimistic about the Company's future,
it is fully aware that anticipated revenue increases from product sales, design
and development contracts and royalty income are by no means assured, and that
if such increases do materialize, the requirements for capital are substantial,
for which there is no present commitment. Moreover, there can be no assurance
that such capital or other financing will be obtained when needed, or, if so,
on terms acceptable to the Company.
Statement Regarding Forward-Looking Disclosure
This report includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act which
represent the Company's expectations or beliefs concerning future events that
involve risks and uncertainties, including those associated with the ability
of the Company to obtain financing for its current and future operations, to
manufacture (or arrange for the manufacturing of) its products, to market and
sell its products, and the ability of the Company to establish and maintain its
sales of XtraNet products. All statements other than statements of historical
facts included in this Report including, without limitation, the statements
under "Management's Discussion and Analysis of Results of Operations and
Financial Condition" and "Business" and elsewhere herein, are forward-looking
statements. Although the Company believes that the expectations reflected in
such forward-looking statements are reasonable, it can give no assurance that
such expectations will prove to have been correct. Important factors that
could cause actual results to differ materially from the Company's expectations
("Cautionary Statements") are disclosed in this Report, including without
limitation, in conduction with the forward-looking statements included in this
report. All subsequent written and oral forward-looking statements
attributable to the Company or persons acting on its behalf are expressly
qualified in their entirety by the Cautionary Statements.
Year 2000
The Company has conducted a comprehensive review of its computer systems
to identify the systems that could be affected by the "Year 2000" issue and is
developing an implementation plan to resolve the issue. The Year 2000 problem
is the result of computer programs being written using two digits rather than
four to define the applicable year. Any of the Company's programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a major system failure or
miscalculations. The Company presently believes that, with modifications to
existing software and converting to new software, which the Company expects to
implement on a timely basis, the Year 2000 problem will not pose significant
operational problems for the Company's computer systems as so modified and
converted. In addition, the Company is implementing validation procedures
designed to evaluate the year 2000 exposure of its significant suppliers, other
vendors and customers whose systems may impact the Company's operations.
However, it is impossible for the Company to monitor the systems of all with
whom it interacts, and there can be no assurance that the failure of their
systems would not have material adverse impacts on the Company's business and
operations. The Company anticipates that its costs associated with this
conversion to be approximately $125,000. However, if such modifications and
conversions are not completed timely, the Year 2000 problem may have a material
adverse impact on the operations of the Company.
Accounting Changes
In March, 1998, the AICPA issued SOP98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. The Company is
currently analyzing the impact of this statement, which is required to be
adopted in 1999, and does expect such statement to have a material impact on
the Company's financial position, results of operations or cash flows.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements, Page F-1
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNT AND
FINANCIAL DISCLOSURE
None.
PART III.
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers and directors of the Company at December 31, 1998
were, and at present are, as follows:
Name Age Position
David D. Singer 49 Chairman of the Board of Directors,
President, Chief Executive Officer and
a Director
Philip A. Bunker 47 Chief Technical Officer and Secretary
and a Director
Donald I. Wallace 54 Vice President --Telemetry and SCADA
Division
Eric Lee Williams 34 Vice President --Manufacturing
Brian W. Pettersen 41 Director
George Denney 61 Director
James O'Callaghan 45 Vice President - Sale/Marketing
Kevin Childress 39 Vice President - Finance
David Andrus 47 Vice President - Engineering
David D. Singer - Mr. Singer was appointed President of the Company in
November 1996, and became a Director in February 1997. From 1977 to 1983, Mr.
Singer was President of CSL Energy Controls, Inc., a company specializing in
third party energy conservation. From 1983 to 1985, Mr. Singer was a special
consultant to the General President of the Sheetmetal Workers Association. From
1985 to 1988, Mr. Singer was Vice President First Municipal Division, Bank One
Leasing Corporation. From 1989 to 1994, Mr. Singer was President of Highland
Energy Group. From 1991 to 1996, Mr. Singer was employed by Navtech Industries,
Inc., an electronic assembly company, as Vice President Sales and Marketing
from February 1994 to July 1995, and as President and Chief Operating Officer
from July 1995 to July 1996.
Philip A. Bunker - Mr. Bunker was a co-founder, the President and Chief
Executive Officer, of Digital Radio Communications Corp. ("DRCC"), and has
served as a Director of the Company since its acquisition of DRCC and serves
as its Chief Technical Officer since such merger and became the Secretary in
1998. From 1982 to 1986, Mr. Bunker was Vice President of CAECO, Inc.
("CAECO"), a semiconductor circuit design software company. While at CAECO, Mr.
Bunker and his engineering team developed a computer-aided program used in
advanced integrated circuit design programs such as Motorola's 68020 and 68030
and National's 32000 microprocessors. CAECO was subsequently sold to Mentor
Graphics. From 1986 to 1991, Mr. Bunker was the President of Desert Digital,
a company that was acquired by DRCC in 1992.
Donald I. Wallace - Mr. Wallace was appointed Vice President -- Telemetry
and SCADA (i.e., Systems Control and Data Access) Division of the Company in
January 1998. Prior to his employment by the Company, Mr. Wallace was employed,
from December 1995, as President of PrimeLink, Inc., a Lenexa, Kansas company
which Mr. Wallace founded to engage in the development and marketing of
wireless telemetry products for remote meter reading. Between September 1991
and November 1995, Mr. Wallace was employed as the President of Arcom Control
Services, Inc., which developed and marketed computer-based monitoring and
control products for the oil and gas industry.
Eric Lee Williams - Mr. Williams was appointed Vice President --
Manufacturing of the Company in January 1998. Prior to joining the Company, Mr.
Williams was employed from June 1995 to January 1998 as a Manager of
Manufacturing by 3Com Corp., a broad based supplier of networking systems and
related products, including routers, switches, modems and remote access and
telephony products. Prior to his employment by 3Com, Mr. Williams was employed
as General Manager of Navtech Industries, Inc. from December 1992 to June 1995.
Brian W. Pettersen - Mr. Pettersen has served as a Director of the
Company since February 1996, and was elected a member of the Audit Committee
of the Board in February 1998. Mr. Pettersen served as Executive Vice President
of the Company from February 1996 to December 1997. From 1980 to 1992, Mr.
Pettersen served as Trading Manager for Covey & Co., a retail full service
securities brokerage firm. From 1992 to 1995, Mr. Pettersen served as a
Wholesale Trader for the Paulson Investment Company. From 1995 to the present,
Mr. Pettersen has served as President of Utah Internet Services, a full service
Internet provider.
George Denney - Mr. Denney was elected a director of the Company in
February 1998. Mr. Denny founded Cole-Haan in 1975, and has served as Chairman
of Cole-Haan since its inception. Cole-Haan was acquired by NIKE, Inc. in 1988.
Headquartered in Yarmouth, Maine, Cole-Haan designs and sells fine dress and
casual footwear and accessories.
David Andrus - Mr. Andrus joined the Company has Director of RF
Engineering in April 1997 and became Vice President - Engineering in December,
1998. Prior to joining the Company, Mr. Andrus owned and operated
Innovatronics Engineering, a Radio Frequency and Data Communications Consulting
Firm which he formed in 1987.
Kevin Childress - Mr. Childress joined the Company as its Controller in
November, 1998 and became Vice President - Finance in December, 1998. Prior
to joining the Company, Mr. Childress served as Director of Finance of American
Procurement and Logistics for a subsidiary of American Stores.
James O'Callaghan - Mr. O'Callaghan joined the Company and became its
Vice President - Sales Marketing in December, 1998. Prior to joining the
Company, Mr. O'Callaghan served as Executive Vice President and Co-Founder of
Cirque Corporation, a manufacture of computer periphals.
ITEM 11. EXECUTIVE COMPENSATION
The table below sets forth information concerning compensation paid in
1998 to David D. Singer, the Company's Chairman, President and Chief Executive
Officer, Except as set forth in the table no executive officer of the Company
received compensation of $100,000 or more in 1998.
Restricted Securities
Other Annual Stock Underlying
Name and Compensation LTIP All other
Principal Position Year Salary($) Bonus($) $ Award(s)($) Options/SARs(#) Payouts($) Compensation($)
- - ------------------ ---- -------- -------- ------------ ----------- --------------- ---------- ---------------
David D. Singer 1998 143,533 0 $ 5,833 0 0 0 0
1997 120,000 0 0 0 300,000 (1) 0 0
1996 27,692 0 0 0 0 0 0
(1) 240,000 shares subject to the options were cancelled by the Company in 1998.
The following table sets forth certain information regarding options
owned by Mr. Singer at December 31, 1998:
Aggregated Option\SAR Exercises in Last Fiscal Year and
Options\SAR Values
Number of Securities Underlying
Unexercised Options\SARs at Value of Unexercised In-
Fiscal Year-End The-Money Options/SARs
Shares Acquired (#) 31-Dec-98
Name on Exercise (#) Value Realized($) Exercisable Unexercisable Exercisable Unexercisable
- - --------------- --------------- ----------------- ------------ ------------- ----------- -------------
David D. Singer 0 0 60,000(1) 0 0
(1) The stock options are exercisable as follows: all were fully vested as
of December 31, 1998
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Set forth below is information as of December 31, 1998
pertaining to ownership of the Company's Common Stock, determined in accordance
with Rule 13(d)(3) under the Securities and Exchange Act of 1934, by persons
known to the Company who own more than 5% of the Company's Common Stock:
Name and Address of Number of
Title of Class Beneficial Owner Shares(1) Percent of Class
- - -------------- ------------------------ -------------- ----------------
Common Stock Michael Lauer 4,258,000(2) 30.9
200 Park Avenue
Suite 3900
New York, NY 10166
Common Stock Lancer Offshore, Inc. 2,213,750 16.1
200 Park Avenue
Suite 3900
New York, NY 10166
Common Stock Lancer Partners LLC 500,000 3.6
200 Park Avenue
Suite 3900
New York, NY 10166
Common Stock Lancer Partners LP 1,305,650 9.6
200 Park Avenue
Suite 3900
New York, NY 10166
Common Stock Lancer Partners LLC 238,600 1.7
200 Park Avenue
Suite 3900
New York, NY 10166
- - ----------
(1) For purposes of this table, a person or group is deemed to have
beneficial ownership of any shares which such person has the right to acquire
within 60 days after December 31, 1998. For purposes of calculating the
percentage of outstanding shares held by each person named herein, any shares
which such person has the right to acquire within 60 days after December 31,
1998 are deemed to be outstanding, but not for the purpose of calculating the
percentage ownership of any other person.
(2) Of these shares, 2,213,750 are held directly and of record by
Lancer Offshore, Inc.; 1,305,650 are held directly and of record by Lancer
Partners, LP; 500,000 are held directly and of record by Lancer Partners, LLC;
and 238,600 are held directly and of record by Lancer Voyager. Mr. Lauer is
believed to control the voting and disposition of these shares by virtue of
being the investment manager for these entities. He is also the general
partner of Lancer Partners LP. None of the shares owned by Mr. Lauer and
held in street name are included in the Shares registered for sale.
(b) Set forth below is information as of December 31, 1998 pertaining
to ownership of the Company's Common Stock by all directors and executive
officers of the Company:
Name and Address of Number Percent
Title of Class Beneficial Owner of Shares(1) of Class
- - ----------------- ------------------------- ------------ --------
(i) Directors and
Executive Officers
Common Stock David D. Singer, President 475,000 3.4%
Chief Executive Officer,
And Director
201 East South Temple #816
Salt Lake City, UT 84111
Common Stock Brian P. Pettersen, Director 292,000 2.1%
2025 East Lincoln Circle
Holladay, UT 84124
Common Stock George Denney 140,000 1.0%
28 Woodside Lane
Freeport, ME 04032
Common Stock Phillip A. Bunker, Secretary 169,100 1.2%
and Director
946 East 880 North
Orem, UT 84057
(ii) All Directors and
Executive Officers as
a Group 1,076,100 7.8%
- - ---------------
(1) For purposes of this table, a person or group is deemed to have
beneficial ownership of any shares which such person has the right to acquire
within 60 days after December 31, 1998. For purposes of calculating the
percentage of outstanding shares held by each person named herein, any shares
which such person has the right to acquire within 60 days after December 31,
1998 are deemed to be outstanding, but not for the purpose of calculating the
percentage ownership of any other person.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company entered into a Separation and General Release Agreement with
William E. Chipman, Sr. dated as of May 26, 1998. Pursuant to such Agreement,
(a) Mr. Chipman resigned his employment as the Company's Chief Financial
Officer as of March 11, 1998, (b) Mr. Chipman received severance compensation
consisting of his regular compensation for two months, options to purchase
10,000 shares of the Company's Common Stock at an exercise price of $6.50 per
share, and options to purchase 60,000 additional shares of the Company's Common
Stock at an exercise price of $3.40 per share, all of which options expire on
March 11, 2001 and (c) the parties exchanged mutual releases.
In addition, the Company entered into a General Release Agreement with
Phil Acton dated November 2, 1998. Pursuant to such Agreement, (a) Mr. Acton
resigned his employment effective as of October 23, 1997, (b) Mr. Acton
received severance compensation of $4,000 and 55,000 fully vested shares of
Section 144 restricted Common Stock at an exercise price of $6.50 per share for
a three-year period and (c) the parties exchanged mutual releases.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following consolidated financial statements are included in Part II,
Item 8:
1. Consolidated Financial Statements of World Wireless Communications, Inc.
and Subsidiary:
Consolidated Balance Sheets, December 31, 1998 and 1997
Consolidated Statements of Operations for each of the three years
in period ended December 31, 1998
Consolidated Statements of Changes in Stockholders' Equity
(Deficit) for the years ended December 31, 1996, 1997 and 1998
Consolidated Statements of Cash Flows for each of the three years
in the period ended December 31, 1998
Notes to Consolidated Financial Statements
All schedules are omitted because they are not applicable or
the required information is shown in the consolidated financial
statements or notes thereto.
3. (a) Exhibits
The Exhibits which are listed on the Exhibit Index attached hereto.
4. Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned thereunto duly authorized.
WORLD WIRELESS COMMUNICATIONS, INC.
(Registrant)
By: /s/ David D. Singer
David Singer, Chairman of the Board,
President and Chief Executive Officer
Dated: April 15, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Name Title Date
/s/ David D. Singer Chairman of the Board, President, April 15, 1999
David D. Singer Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Kevin Childress Vice President - Finance
Kevin Childress (Chief Financial Officer) April 15, 1999
/s/ Philip A. Bunker Chief Technical Officer, April 15, 1999
Philip A. Bunker Secretary and Director
/s/ Brian W. Pettersen Director April 15, 1999
Brian W. Pettersen
/s/ George Denney Director April 15, 1999
George Denney
EXHIBIT INDEX
No. Description
3.1 Articles of Incorporation of the Company and all amendments thereto
3.2 Bylaws of the Company
4.1 Form of Common Stock Certificate
4.2 Form of Subscription Agreement used in private financing providing
for registration rights
5. Opinion of Connolly Epstein Chicco Foxman Engelmyer & Ewing
regarding the legality of securities being registered*
10.1 1997 Stock Option Plan
10.2 DRCC Omnibus Stock Option Plan
10.3 Development and License Agreement dated April 4, 1997, between DRCC
and Kyushu Matsushita Electric Co., Ltd.
10.4 Amended and restated Technical Development and Marketing Alliance
Agreement dated September 15, 1997, between the Company and Williams
Telemetry Services, Inc.
10.5 Lease Agreement dated May 17, 1995, between DRCC and Pracvest
Partnership relating to the Company's American Fork City offices and
facility
10.6 Lease Agreement dated February 12, 1996, between the Company the
Green/Praver, et al., relating to the Company's Salt Lake City offices
10.7 Shareholders Agreement dated May 21, 1997 between the Company, DRCC,
Philip A. Bunker and William E. Chipman, Sr.
10.8 Asset Purchase Agreement dated October 31, 1997, between the Company
and Austin Antenna, Ltd.
10.9 Stock Exchange Agreement dated October 31, 1997, between the Company,
TWC, Ltd. and the shareholders of TWC, Ltd.
10.10 Settlement Agreement, Mutual Waiver and Release of All Claims dated
November 11, 1997 between Digital Radio Communications Corp. and
Digital Scientific, Inc.
10.11 Agreement (undated) between the Company, Xarc Corporation and Donald
J. Wallace relating to the Company's acquisition of Xarc Corporation
10.12 Promissory Note dated December 4, 1997, by the Company, payable to
William E. Chipman, Sr. in the principal amount of $125,000
10.13 Promissory Note dated November 13, 1997, by the Company, payable to
T. Kent Rainey in the principal amount of $200,000
10.14 Investment Banking Services Agreement dated November 19, 1997, between
the Company and PaineWebber Incorporated
10.15 $400,000 Promissory Note dated December 24, 1997, payable to Electronic
Assembly Corporation
10.16 $400,000 Promissory Note dated January 8, 1998, payable to Tiverton
Holdings Ltd.
10.17 Loan Agreement by and among the Registrant and the Bridge Noteholders
dated as of May 15, 1998
10.18 Amendment and Waiver Agreement by and among the Registrant and the
Bridge Noteholders dated August 7, 1998
10.19 Amendment and Waiver Agreement by and among the Registrant and the
Bridge Noteholders dated September 11, 1998
10.20 Loan Agreement by and among the Registrant and the Bridge Noteholders
dated as of May 15, 1998 (Previously filed), together with the Notes,
Pledge/Security Agreement, Pledgee/Representative Agreement,
Subordination, and Registration Rights Agreement*
10.21 Separation and Mutual Release Agreement between the Registrant and
William E. Chipman, Sr. dated as of May 26, 1998*+
10.22 Registration Rights Agreement by and among the Registrant and the
purchasers of common stock issued pursuant to the Registrants
Confidential Private Placement Memorandum dated September 9, 1998,
as amended*
10.23 Employment Agreement between the Registrant and James O'Callaghan
dated May 20, 1998*+
10.24 Lease agreement between the Registrant and NP#2 dated as of July 29,
1998 relating to the premises at 2441 South 3850 West, West Valley
City, Utah 84120*
10.25 Agreement between KME and the Registrant dated October 19, 1998
relating to the Registrant's providing of technical assistance and
development relating to the Giarange telephone*
10.26 Agreement between KME and the Registrant dated as of March 1, 1998
relating to the Panasonic MicroCast System*
10.27 General and Mutual Release Agreement between the Registrant and Phil
Acton dated November 2, 1998*+
10.28 Agreement and Waiver Agreement by and among the Registrant and the
Bridge Noteholders dated November 25, 1998*
10.29 1998 Employee Incentive Stock Option Plan*+
10.30 1998 Non-qualified Stock Option Plan*+
10.31 Amendment of Agreement by and among the Registrant and the Bridge
Noteholders dated as of March 26, 1999*
27 Financial Data Schedules*
- - - ------------ -
* Filed herewith.
+ Management contract or compensatory plan or arrangement filed herewith.
All other exhibits were filed previously.
WORLD WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARY
TABLE OF CONTENTS
Page
Report of Independent Certified Public Accountants. . . . . . F-1
Consolidated Balance Sheets - December 31, 1998 and 1997. . . F-2
Consolidated Statements of Operations for Each of the
Three Years in the Period Ended December 31, 1998. . . . . . F-3
Consolidated Statements of Stockholders' Equity (Deficit) for
Each of The Three Years in the Period Ended December 31, 1998 F-4
Consolidated Statements of Cash Flows for each of the
Three Years in the Period Ended December 31, 1998 . . . . . F-5
Notes to Consolidated Financial Statements. . . . . . . . . . F-6
HANSEN, BARNETT & MAXWELL
A Professional Corporation
CERTIFIED PUBLIC ACCOUNTANTS
(801) 532-2200
Member of AICPA Division of Firms Fax (801) 532-7944
Member of SECPS 345 East Broadway, Suite 200
Member of Summit International Associates Salt Lake City, Utah 84111-2693
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
World Wireless Communications, Inc.
We have audited the accompanying consolidated balance sheets of World
Wireless Communications, Inc. and subsidiary ("the Company") as of
December 31, 1998 and 1997, and the related consolidated statements of
operations, stockholders' equity (deficit), and cash flows for each of
the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
World Wireless Communications, Inc. and subsidiary as of December 31,
1998 and 1997, and the results of their operations and their cash flows
for each of the three years in the period ended December 31, 1998, and in
conformity with generally accepted accounting principles.
HANSEN, BARNETT & MAXWELL
Salt Lake City, Utah
March 19, 1999
WORLD WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31,
--------------------
1998 1997
---------- -----------
Current Assets
Cash and cash equivalents . . . . . . . . . . . . $ 614,897 $ 218,234
Investment in securities available-for-sale . . . 137,648 188,354
Trade receivables, net of allowance . . . . . . . 327,387 345,433
Other receivables . . . . . . . . . . . . . . . . 77,005 49,208
Inventory . . . . . . . . . . . . . . . . . . . . 550,239 496,432
Prepaid expenses. . . . . . . . . . . . . . . . . 18,594 232,143
---------- -----------
Total Current Assets. . . . . . . . . . . . . . 1,725,770 1,529,804
---------- -----------
Equipment. . . . . . . . . . . . . . . . . . . . . 2,085,930 1,589,248
Less accumulated depreciation . . . . . . . . . . (1,047,285) (455,985)
---------- -----------
Net Equipment . . . . . . . . . . . . . . . . . 1,038,645 1,133,263
---------- -----------
Goodwill, net of accumulated amortization. . . . . 989,109 7,214,066
---------- -----------
Other Assets, net of accumulated amortization. . . 414,381 535,154
---------- -----------
Total Assets . . . . . . . . . . . . . . . . . . . $4,167,905 $10,412,287
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31,
-----------------------
1998 1997
---------- -----------
Current Liabilities
Trade accounts payable. . . . . . . . . . . . . . $ 982,506 $ 524,093
Accrued liabilities . . . . . . . . . . . . . . . 880,638 466,183
Notes payable - current portion . . . . . . . . . 2,992,858 809,326
Obligations under capital lease - current portion 197,626 16,301
---------- -----------
Total Current Liabilities . . . . . . . . . . . 4,992,365 1,815,903
---------- -----------
Obligations under capital lease. . . . . . . . . . 84,968 24,275
---------- -----------
Stockholders' Equity
Preferred stock - $0.001 par value; 1,000,000
shares authorized; no shares issued. . . . . . . - -
Common stock - $0.001 par value; 50,000,000 shares
authorized; issued and outstanding: 13,920,400
shares in 1998 and 10,225,260 shares in 1997 . . 13,920 10,225
Additional paid-in capital. . . . . . . . . . . . 25,101,715 20,915,068
Unearned compensation . . . . . . . . . . . . . . (70,518) (1,410,509)
Receivable from shareholder . . . . . . . . . . . (66,828) (18,409)
Accumulated deficit . . . . . . . . . . . . . . .(26,011,628) (11,037,620)
Accumulated other comprehensive income. . . . . . 62,648 113,354
----------- -----------
Total Stockholders' Equity (Deficit). . . . . . (970,691) 8,572,109
----------- -----------
Total Liabilities and Stockholders' Equity . . . .$ 4,167,905 $10,412,287
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-2
WORLD WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended
December 31,
--------------------------------------
1998 1997 1996
------------ ----------- -----------
Sales. . . . . . . . . . . . . . . $ 4,309,691 $ 2,913,429 $ 618,505
Cost of Sales. . . . . . . . . . . 3,751,607 2,116,934 662,184
------------ ----------- -----------
Gross Profit (Loss). . . . . . . . 558,084 796,495 (43,679)
------------ ----------- -----------
Operating Expenses
Research and development. . . . 3,179,557 2,943,404 92,932
General and administrative. . . 5,018,943 4,243,779 1,789,904
Impairment of goodwill. . . . . 5,839,481 - -
Amortization of goodwill. . . . 385,476 1,105,452 -
------------ ----------- -----------
Total Operating Expenses . . 14,423,457 8,292,635 1,882,836
------------ ----------- -----------
Net Loss From Operations . . . . . (13,865,373) (7,496,140) (1,926,515)
Other Income (Expense)
Interest expense, . . . . . . (1,414,939) (43,779) (1,310,142)
Other income. . . . . . . . . . . 306,304 9,692 -
------------ ----------- -----------
Net Loss . . . . . . . . . . . . . $(14,974,008) $(7,530,227) $(3,236,657)
============ =========== ===========
Basic and Diluted Loss Per
Common Share. . . . . . . . . . . $ (1.34) $ (0.82) $ (1.03)
============ =========== ===========
Weighted Average Number of
Common Shares Used in Per
Share Calculation . . . . . . . . 11,189,603 9,217,158 3,141,613
============ =========== ===========
The accompanying notes are an integral part of these financial statements.
F-3
WORLD WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Accumulated
Other
Common Stock Additional Unearned Compre- Total
--------------------- Paid-In Compen- Accumulated hesnive Stockholders'
Shares Amount Capital sation Deficit Income Equity
---------- ---------- ----------- ----------- ------------ ----------- -----------
Balance - December 31, 1995. . . . . 1,132,140 $ 1,132 $ 374,948 $ - $ (270,736) $ - $ 105,344
Net loss . . . . . . . . . . . . . . - - - - (3,236,657) - (3,236,657)
Beneficial conversion feature. . . . - - 719,781 - - - 719,781
Conversion of notes payable. . . . . 3,092,860 3,093 811,907 - - - 815,000
Shares issued for cash . . . . . . 900,000 900 776,797 - - - 777,697
Shares issued for services . . . . . 527,000 527 787,061 - - - 787,588
Shares issued for interest . . . . . 11,000 11 4,939 - - - 4,950
Compensation related to grant of
stock options . . . . . . . . . . - - 441,180 - - - 441,180
---------- ---------- ----------- --------- ----------- ---------- -----------
Balance - December 31, 1996. . . . . 5,663,000 5,663 3,916,613 - (3,507,393) - 441,883
Comprehensive loss:
Net loss. . . . . . . . . . . . . . - - - - (7,530,227) - (7,530,227)
Unrealized gain on
securities . . . . . . . . . . . . - - - - - 113,354 113,354
-----------
Comprehensive loss (7,416,873)
-----------
Compensation related
to grant of stock
options . . . . . . . . . . . . . . - - 2,373,849 (2,373,849) - - -
Shares and warrants
issued for cash . . . . . . . . . . 2,557,857 2,558 4,192,692 - - - 4,192,250
Issuance upon exercise
of options for cash
and a promissory
note. . . . . . . . . . . . . . . . 25,098 25 29,836 (18,409) - - 11,452
Conversion of note payable . . . . . 5,630 6 1,964 - - - 1,970
Shares issued and 201,900
stock options granted
in acquisition of
Digital Radio Communications
Corporation . . . . . . . . . . . . 1,798,100 1,798 8,672,264 - - - 8,674,062
Shares issued in acquisition to TWC 101,200 101 1,048,331 - - - 1,048,432
Shares issued in acquisition
of XARC . . . . . . . . . . . . . . 10,000 10 102,990 - - - 103,000
Shares issued in settlement
of lawsuit. . . . . . . . . . . . . 40,000 40 323,416 - - - 323,456
Shares issued for financing
fees. . . . . . . . . . . . . . . . 24,375 24 253,113 - - - 253,137
Amortization of unearned
compensation. . . . . . . . . . . . - - - 963,340 - - 963,340
---------- ----------- ----------- ---------- ----------- ---------- -----------
Balance - December 31,
1997. . . . . . . . . . . . . . . . 10,225,260 10,225 20,915,068 (1,428,918) (11,037,620) 113,354 8,572,109
-----------
Comprehensive loss:
Net loss . . . . . . . . . . . . . - - - - (14,974,008) - (14,974,008)
Unrealized loss on
securities. . . . . . . . . . . . - - - - - (50,706) (50,706)
-----------
Comprehensive loss (15,024,714)
Compensation related -----------
to grant of stock
options . . . . . . . . . . . . . . - - 463,180 (463,180) - - -
Shares issued for
cash. . . . . . . . . . . . . . . . 2,721,258 2,721 2,418,093 - - - 2,420,814
Issuance upon exercise
of options for cash
and note. . . . . . . . . . . . . . 435,051 435 191,307 (48,420) - - 143,322
Shares issued for
services. . . . . . . . . . . . . . 443,831 444 453,708 - - - 454,152
Shares issued in
acquisition of
technology. . . . . . . . . . . . . 65,000 65 324,935 - - - 325,000
Shares issued in lieu
of interest . . . . . . . . . . . . 30,000 30 1,239,043 - - - 1,239,073
Compensation related
to the issuance of stock . . . . . - - - - - - -
Reversal of unamortized
stock option
compensation. . . . . . . . . . . . - - (903,619) 903,619 - - -
Amortization of
unearned
compensation. . . . . . . . . . . . - - - 899,553 - - 899,553
---------- ------------ ---------- ---------- ----------- ---------- -----------
Balance - December
31, 1998. . . . . . . . . . . . . . 13,920,400 $ 13,920 $25,101,715 $ (137,346) $(26,011,628)$ 62,648 $ (970,691)
========== ============ =========== ========== ============ ========== ===========
The accompanying notes are an integral part of these financial statements.
WORLD WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED
DECEMBER 31,
---------------------------------------
1998 1997 1996
------------ ----------- -----------
Cash Flows From Operating Activities
Net loss. . . . . . . . . . . . . . . . . .$(14,974,008) $(7,530,227) $(3,236,657)
Adjustments to reconcile net loss
to net cash used
by operating activities:
Amortization of goodwill. . . . . . . . . 385,476 1,105,452 -
Impairment of goodwill. . . . . . . . . . 5,839,481 - -
Depreciation and amortization . . . . . . 686,121 361,007 83,097
Amortization of debt discount
and financing . . . . . . . . . . . . . 542,408 154,200 284,415
Interest paid with stock options. . . . . 331,827 - -
Purchased research and
development . . . . . . . . . . . . . . 325,000 1,561,000 -
Stock issued for services . . . . . . . . 454,153 111,370 787,588
Compensation from stock
options granted. . . . . . . . . . . . . 899,552 963,340 441,180
Interest paid with stock . . . . . . . . 39,390 - -
Gain on sale of business assets . . . . . (332,751) - -
Changes in operating assets and
liabilities:
Accounts receivable, net of
allowance for doubtful accounts . . . (36,810) 7,622 (100,688)
Inventor. . . . . . . . . . . . . . (109,182) (41,105) (99,225)
Accounts payable . . . . . . . . . . 509,631 41,546 30,741
Accrued liabilities . . . . . . . . . 467,140 (86,981) 54,965
Other assets . . . . . . . . . . . . 261,441 (237,312) (4,143)
----------- ----------- -----------
Net Cash and Cash Equivalents Used By
Operating Activities . . . . . . . . . (4,711,131) (3,589,488) (758,730)
----------- ----------- -----------
Cash Flows From Investing Activities
Payments for the purchase of property
and equipment . . . . . . . . . . . . . . (247,457) (663,707) (90,544)
Proceeds from sale of business assets
and property . . . . . . . . . . . . . . 394,499 10,754 -
Cash paid for subsidiaries, net of
cash received . . . . . . . . . . . . . . - (248,736) -
Net Cash and Cash Equivalents Provided By
(Used By) Investing Activities . . . . 147,042 (901,689) (90,544)
----------- ----------- -----------
Cash Flows From Financing Activities
Proceeds from issuance of common
stock . . . . . . . . . . . . . . . . . . 2,564,137 4,206,700 777,697
Proceeds from borrowings, net
of discount . . . . . . . . . . . . . . 2,900,000 775,000 (417,008)
Proceeds from issuance of beneficial
debt conversion feature . . . . . . . . . - - 719,781
Principal payments or obligation
under capital lease . . . . . . . . . . . (108,088) - -
Principal payments on notes payable . . . (395,297) (309,567) (223,600)
Net Cash and Cash Equivalents Provided
By Financing Activities . . . . . . . . 4,960,752 4,672,133 856,870
----------- ----------- ------------
Net Increase In Cash and Cash Equivalents 396,663 180,956 7,596
Cash and Cash Equivalents -
Beginning of Period . . . . . . . . . . . . 218,234 37,278 29,682
----------- ----------- ------------
Cash and Cash Equivalents -
End of Period . . . . . . . . . . . . . . .$ 614,897 $ 218,234 $ 37,278
=========== =========== ============
Supplemental cash flow information and noncash investing and financing
activities - Note 7
WORLD WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Business World Wireless Communications, Inc.
and its subsidiary (collectively, "the Company") design, develop and
manufacture wired and wireless communications technology, systems and
products. The Company also provides contract manufacturing services to
the electronics wireless communications industry, as well as engineering
and products related to supervisory control and data acquisition
(commonly knows as SCADA) technologies.
The Company was formed on November 15, 1995 as a Nevada Corporation. Its
name was changed during January 1997, from Data Security Corporation to
World Wireless Communications, Inc. During February 1997, the Company
combined with Digital Radio, as described in Note 2 - Business
Combination and Acquisitions, and thereby gained wired and wireless
communication technology engineering, design, assembly and manufacturing
capabilities. During October and November 1997 the Company acquired the
Delaware company, TWC Ltd., operating under the name Austin Antenna, and
the Kansas company, XARC C