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U. S. SECURITIES AND EXCHANGE COMMISSION
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Washington, D.C. 20549
FORM 10 - KSB
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 for the Fiscal Year Ended December 31, 1997.
__ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 for the transition period from to .
Commission File No. 0-18122
ANTENNAS AMERICA, INC.
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(Name of small business issuer in its charter)
UTAH 87-0454148
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
4860 ROBB ST., SUITE 101, WHEAT RIDGE, COLORADO 80033-2163
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(Address of principal executive offices)
303-421-4063
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(Issuer's telephone number)
Securities registered pursuant to Section 12(b) of the Exchange Act:
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(None)
Securities registered pursuant to Section 12(g) of the Exchange Act:
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$.0005 par value common stock
Check whether the issuer (1) filed all reports required by Section 13 or 15(d)
of the Securities Exchange Act of 1934 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 past 90 days.
YES _X_ NO __
Check here if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, 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-KSB
or any amendment to this Form 10-KSB. ___
Issuer's revenues for its most recent fiscal year: $3,012,266
As of March 12, 1998, the aggregate market value of the voting stock held by
non-affiliates of the issuer was approximately $6,965,000. This calculation is
based upon the average of the closing bid price of $.12 and ask price of $.14 of
the stock on March 12, 1998.
The number of shares of the Registrant's $.0005 par value common stock
outstanding as of March 12, 1998 was 73,839,422.
PART I
Item 1. Business
- ----------------
Business Development. Antennas America, Inc. (the "Company"), formerly
Westflag Corporation, which was formerly Westcliff Corporation, was organized
under the laws of the State of Utah on September 30, 1987 for the purpose of
acquiring one or more businesses. In January 1989, the Company completed its
initial public offering of 10,544,650 units at $.04 per unit resulting in net
proceeds to the Company of approximately $363,000. (The number of units and
price per unit have been adjusted to reflect the Company's one-for-four reverse
split in April 1989 that is described below). Each unit consisted of one share
of common stock, one Class A Warrant and one Class B Warrant. All the Class A
and Class B Warrants expired without exercise and no longer exist. In April
1989, the Company effected a one-for-four reverse split so that each four
outstanding shares of common stock prior to the reverse split became one share
after the reverse split. Unless otherwise indicated, all references in this
report to the number of shares of the Company's common stock have been adjusted
for the effect of the one-for-four reverse split.
On April 12, 1989, the Company merged with Antennas America, Inc. a
Colorado corporation ("Antennas Colorado") that had been formed in September
1988 and that had developed an antenna design technique that would permit the
building of flat (as compared to parabolic) antenna systems. Pursuant to the
merger, Antennas Colorado was merged into the Company, all the issued and
outstanding stock of Antennas Colorado was converted into 41,951,846 shares of
the Company's common stock, and the Company's name was changed to Antennas
America, Inc.
Business Of Issuer. The Company's operations consist of the design,
development, marketing and sale of a diversified line of antennas and related
wireless communication systems, including conformal and phased array antennas.
Principal Products
- ------------------ Conformal Antennas
------------------
A conformal antenna is one that is constructed so that it conforms
technically and physically to its product environment. The first product
introduced by the Company in this category was the disguised decal antenna,
which has been patented by the Company. This product, introduced in 1989
originally only for conventional automobile cellular phones, is an alternative
to the conventional wire type antenna and has been expanded to be used for
numerous mobile applications, including Cellular, UHF, VHF, ETACS, GSM, PCS,
SMR, Passive Repeaters and GPS. The antenna is approximately 3 1/2" x 3 1/2" and
typically installs on the inside of the vehicle so that it is not detectable
from the outside of the vehicle.
Several derivative products of this antenna design have been developed for
special applications and O.E.M. (original equipment manufacturer) customers. For
the fiscal year ended December 31, 1997, the patented decal antenna and other
conformal derivatives of the decal antenna accounted for approximately 60
percent of the Company's sales.
The Company began marketing several new conformal antenna systems in 1997,
including two off-air antennas to receive local TV broadcasts, a GPS (Global
Positioning Systems) antenna, and the Twinbooster passive repeater antenna
system to improve the performance of a cellular phone signal when used inside an
automobile.
2
GPS Antennas
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The Company has developed a proprietary flat GPS system that integrates
with a GPS receiver. GPS receivers communicate with several globe-circling
satellites that will identify longitude and latitude coordinates of a location.
These satellite systems have been used for years by the military and more
recently for boats, planes surveying and even hikers. Accurate to within
approximately 100 yards, there are several types of GPS systems some of which
are the size of a car phone and are very easy to use. The Company anticipates
marketing its GPS antenna products on an O.E.M. basis for the purposes of fleet
management and in-vehicle mapping systems.
Flat Panel and Phased Array Antennas
------------------------------------
The flat panel and phased array antennas are flat antennas that typically
incorporate a group of constituent antennas all of which are equidistant from
the center point. These types of antennas are used to receive and/or transmit
data, voice and, in some cases, video from microwave transmitters or satellites.
The Company is currently developing and selling various versions of these
antennas to private, commercial and governmental entities. As described below,
the Company's three primary projects for this antenna design are (i) the
"off-air" antennas for local television reception with satellite and other TV,
(ii) the flat panel receive and transmit antennas for Micron Communications, a
subsidiary of Micron Technologies Inc. ("Micron"), and (iii) the MMDS phased
array antenna systems for the wireless cable market as described below.
Off-Air Antennas For Local Reception With Satellite And Other TV. Home
satellite television systems recently have become extremely popular and
affordable. The single biggest drawback to the 18" home TV satellite system is
that the viewer cannot receive local TV broadcasts from the satellite system.
U.S. federal law prohibits subscribers to satellite services from receiving
local channels or other network programming if those networks are available
using a VHF/UHF antenna. In order to receive local TV broadcasts, the viewer
must resort to installing outdated receive equipment which typically includes
"rabbit ears" or the conventional "yagi" roofmount antenna. In December 1996,
the Company introduced two new flat conformal antenna systems to provide local
TV reception where digital satellite systems are utilized. These antennas
combine the Company's conformal and phased array technology.
The Company's FREEDOM(TM) Antenna System is a flat VHF/UHF TV antenna that
provides local TV reception and attaches to the back of the satellite dish so
that it is virtually invisible when installed. Designed to be inconspicuous, the
FREEDOM(TM) Antenna is an ideal solution to the problem of local TV program
reception with the popular 18" dishes.
In July 1997 the Company was licensed by DIRECTV(R), a division of Hughes
Electronics Corporation, to use the DSS(R) trademark on the Company's new
FREEDOM(TM) Antenna system. Prior to issuing the license, DIRECTV(R) evaluated
the FREEDOM(TM) Antenna for performance. DIRECTV(R), which is the largest
provider of direct-to-home (DTH) digital programming, broadcasts directly from
satellites to the home via the popular, easily installed 18" satellite dish.
The WALLDO(TM) Antenna System is a flat VHF/UHF TV antenna, measuring 15
1/2"x 13" x 2", which attaches to the house or other structure and provides
local TV reception. This antenna is designed so that it conceals the fact that
an outdoor antenna has been installed. Both the FREEDOM(TM) and the WALLDO(TM)
antennas are omnidirectional and work in locations where a medium gain antenna
is required, which is generally within a 25 mile radius of the local TV
stations' transmitters. Because the WALLDO(TM) antennas can be attached to the
side of the
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house or to the other structures, the Company will market it as the solution to
the problem of antenna installations on rooftops where there may be limitations
due to zoning codes, covenants, or homeowner restrictions or where there is the
need for a more aesthetically pleasing solution. The Company has not applied to
DIRECTV(R) for licensing the WALLDO(TM) Antenna.
In March, 1998, the Company announced that it had agreed with Jasco
Products, Inc. ("Jasco") based in Oklahoma City, Oklahoma for Jasco to market
the Company's new local TV antennas. Under the arrangement, Jasco will market
the antennas to mass-market retail accounts within the United States under the
Emerson(R) name and will be responsible for the marketing and distribution of
the antennas, including product literature, in-store point of purchase displays,
and other related marketing services to these customers.
Flat Panel Antennas for Micron Communications. By modifying its existing
line of flat panel and phased array antenna designs, the Company has developed
and is in the process of submitting final prototype antennas for approval and
possible incorporation into Micron Communication's Microstamp(R) program.
Micron's Microstamp(R) product is a small remote intelligence device that can
store 256 bytes of data and communicate by remote antennas with a host computer
from up to 40 feet away. Typical applications for the Microstamp(R) product
include automatic fuel dispensing, airline baggage tracking, automated warehouse
solutions and personnel ID and access control.
MMDS Antennas For Wireless Cable. In 1995, the Company introduced three new
phased array antenna systems to the wireless cable market. Known in the industry
as MMDS (Multichannel, Multipoint Distribution Systems), these antenna systems
are direct competitors of cable TV and satellite TV. MMDS (wireless cable) is
similar to conventional cable with the exception that it uses a microwave
frequency to transmit the channels for home viewing. The signals can usually be
received approximately 30 miles from the transmitter by installing a receive
antenna on the subscriber's home.
As a result of the enactment of the U.S. 1996 Telecommunications Act,
telecommunications companies are now permitted to compete directly in the video
distribution market in the United States. This allows companies such as
BellSouth, Pacific Telesis, BellAtlantic and Nynex to use this technology to
deliver video programming to selected major markets.
The Company's MMDS antennas replace conventional grid antennas commonly
installed as the receiving antenna on customers' rooftops. The product offers
several features over conventional parabolic antennas in that it is flat, has a
higher efficiency allowing for a smaller size, and can be mounted in several
locations in the home such as windows, an eave or the chimney. Typically the
Company's phased array products perform on an equal basis to conventional
antennas with cost savings and substantial installation and maintenance savings
to the MMDS service provider. The Company sold over 1,000 of its MMDS antennas
through a distributor to BellSouth Corporation in 1997 for a test of BellSouth's
new digital MMDS system and is currently attempting to market its flat antenna
to other domestic and international wireless cable customers. The wireless cable
industry in general is experiencing delays in the roll out of the digital cable
systems. The Company is currently allocating few of its marketing and
manufacturing resources to this industry until it believes that there is a clear
direction with respect to wireless cable digital programming. At such time that
this trend reverses, the Company will aggressively market its existing products
to digital wireless cable providers.
4
Other Antennas
--------------
The Company is pursuing new business opportunities for the conformal and phased
array antennas by continuing to broaden and adapt its existing technologies.
Currently, the Company designs or manufactures antennas varying in frequency
from 27 MHz to 12 GHz. These antennas all use the Company's flat antenna design
to provide inconspicuous installation. All of the Company's antennas are
designed to be manufactured using existing design footprints. This allows the
Company to better use its engineering and technical staff, suppliers and
production staff. This also allows the Company, in some cases, to use existing
tools, dies and radomes for more than one product.
Marketing And Distribution
- --------------------------
The Company's commercial line of antennas is marketed by the Company directly to
distributors, installers and retailers of antenna accessories. Current
distribution consists of several domestic and international distributors,
including several hundred active retail dealers. The Company markets its
diversified proprietary designs to its existing and potential customers in the
commercial, government and retail market places. Potential customers are
identified through trade advertising, phone contacts, trade shows, and field
visits. The Company also provides individual catalog and specification brochures
describing existing products. The same brochures are utilized to demonstrate the
Company's capabilities to develop related products for O.E.M. and other
commercial customers. The Company introduced its web page, www.antennas.com, in
late 1997. This web page includes information about the Company's products and
background as well as financial and other stockholder-oriented information. The
web page, among other things, is designed to encourage both existing and
potential customers to view the Company as a potential source for diversified
antenna solutions. The Company expects to receive additional inquiries through
the web page in 1998 that will be pursued by the Company's in-house sales
personnel. To help customers get answers quickly about its products, the Company
has established a toll-free telephone number administered by our customer
service personnel from 8:00 am to 5:00 pm MST. All the Company's products are
currently made in the U.S.A., which the Company considers to be a marketing
advantage over most of its competitors. Many of the products developed by the
Company are currently being marketed internationally. The Company currently has
9 international distributors marketing its products in 12 countries.
Production
- ----------
The Company made many changes to its production operations in 1997. In
anticipation of continued growth, investments were made in manufacturing
equipment and facilities as well as personnel. The manufacturing of the
Company's products is now more under the control of the Company than ever
before. The Company now produces most of the customized items it uses to
manufacture its products excluding cable, connectors and other generic
components. It is anticipated that these changes will allow the Company to be
more efficient and more responsive to customers, will lower the overall cost of
production, and will better allow the Company to take advantage of more
opportunities in the wireless communications market.
Research And Development
- ------------------------
Research and development and software costs are charged to operations when
incurred and are included in operating expenses except when specifically
contracted by the Company's customers. Except for salaries of engineering
personnel involved in research and development, the Company's research and
development costs were not material in 1996 or 1997. The Company's research and
development personnel develop products to meet specific customer, industry and
5
market needs that the Company believes will compete effectively against products
distributed by larger companies. Quality assurance programs are implemented into
each development and manufacturing project, and the Company enforces strict
quality requirements on components received from non-Company manufacturing
facilities. There can be no assurance that the Company's research and
development activities will lead to the successful introduction of new or
improved products or that the Company will not encounter delays or problems in
connection therewith. The cost of completing new technologies to satisfy minimum
specification requirements and/or quality and delivery expectations may exceed
original estimates that could adversely affect operating results during any
financial period.
Employees
- ---------
The Company currently has 47 full time employees including Randall P. Marx,
Chief Executive Officer and Treasurer, Kevin O. Shoemaker, Chairman of the Board
and Chief Scientist, and Richard L. Anderson, Vice President of Administration
and Secretary. Each of Messrs. Marx, Shoemaker and Anderson is a director of the
Company.
Competition
- -----------
The antenna and receiver industry is highly competitive, and the Company's
current and proposed products compete with products of larger companies that are
better financed, have established markets, and maintain larger sales
organizations and production capabilities. In marketing its products, the
Company has encountered competition from other companies, both domestic and
international, marketing more conventional antenna systems. Therefore, at the
present time the Company's market share of the overall antenna business is
small, but is significantly greater for the non-conventional antenna market. The
Company's antenna products are designed to be unique and in some cases are
patented. The Company's products normally compete with other products
principally in the areas of price and performance. However, the Company believes
that its unique antenna products work as well as conventional products in the
same design class of products, usually sell for approximately the same price or
less than competing antennas, are easier to install, and in most cases are more
desirable, primarily due to being less conspicuous.
Government Regulations
- ----------------------
The Company is subject to government regulation of its business operations in
general, and the telecommunications industry also is subject to regulation by
federal, state and local regulatory and governmental agencies. Under current
laws and the regulations administered by the Federal Communications Commission,
there are no federal requirements for licensing antennas that only receive (and
do not transmit) signals. Current laws and regulations are subject to change and
the Company's operations may become subject to additional regulation by
governmental authorities. A change in either statutes or rules may have a
significant effect on government regulation of the Company's business.
Patents
- -------
Kevin O. Shoemaker, the Company's Chief Scientist and Chairman of the Board, is
the record owner of a U.S. patent, subject to annual renewal fees, valid through
the year 2007, for microstrip antennas and multiple radiator array antennas. Mr.
Shoemaker also is the record owner of a U.S. patent for a serpentine planar
broadband antenna valid through the year 2011. This is the design that the
Company uses for some of its conformal antennas, including the vehicular
6
disguised decal antennas, local broadcast antennas and other products. Mr.
Shoemaker and Randall P. Marx, the Company's Chief Executive Officer, have
jointly applied for additional patents which include the process used to
manufacture certain of the Company's flat planar antennas and conformal
antennas, the technology required for certain of the Company's conformal
antennas to function, and the design of certain of the Company's products. Mr.
Shoemaker and Mr. Marx each has permanently assigned to the Company all of the
rights in these and all other antennas that have been and will be developed
while employed by the Company. The Company seeks to protect its proprietary
products, information and technology through reliance on confidentiality
provisions and, when practical, the application of patent trademark or copyright
laws. There can be no assurance that such applications will result in the
issuance of patents, trademarks or copyrights of the Company's products,
information or technology.
Disclosure Regarding Forward-Looking Statements And Cautionary Statements
- -------------------------------------------------------------------------
Forward-Looking Statements. This Annual Report on Form 10-KSB includes
"forward-looking" statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). All statements other than
statements of historical facts included in this Annual Report, including without
limitation statements under "ITEM 1. DESCRIPTION OF BUSINESS-Principal
Products", "Marketing And Distribution", "Production", "Research And
Development", "Competition", "Governmental Regulations" and "Patents", and "ITEM
6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS", regarding the Company's financial position, business strategy, and
plans and objectives of management of the Company for future operations and
capital expenditures, and other matters, other than historical facts, are
forward-looking statements. Although the Company believes that the expectations
reflected in the forward-looking statements and the assumptions upon which the
forward-looking statements are based are reasonable, it can give no assurance
that such expectations and assumptions will prove to have been correct.
Additional statements concerning important factors that could cause actual
results to differ materially from the Company's expectations ("Cautionary
Statements") are disclosed below in the "Cautionary Statements" section and
elsewhere in this Annual Report. All written and oral forward-looking statements
attributable to the Company or persons acting on its behalf subsequent to the
date of this Annual Report are expressly qualified in their entirety by the
Cautionary Statements.
Cautionary Statements. In addition to the other information contained in
this Annual Report, the following Cautionary Statements should be considered
when evaluating the forward-looking statements contained in this Annual Report:
1. Operating History. From its inception in September 1987 through the
fiscal year ended December 31, 1992, the Company incurred losses from
operations. For the fiscal years ended December 31, 1993, 1994, 1995, 1996 and
1997, respectively, the Company operated at a profit. Although the Company
believes that it will be able to continue to operate profitably, as it has since
1993, there is no assurance that the operations of the Company will continue to
be profitable. See the financial statements included in Item 13 of this Annual
Report on Form 10-KSB.
2. Developments In Technology. The communications industry, and
particularly the microwave and satellite communications and antenna industries,
are characterized by rapidly developing technology. Changes in technology could
affect the market for the Company's products and necessitate additional
improvements and developments to the Company's products. There can be no
assurance that the Company's research and development activities will lead to
7
the successful introduction of new or improved products or that the Company will
not encounter delays or problems in connection therewith. The cost of completing
new technologies to satisfy minimum specification requirements and/or quality
and delivery expectations may exceed original estimates that could adversely
affect operating results during any financial period.
3. Patents. Kevin O. Shoemaker, the Company's Chief Scientist and Chairman
of the Board, is the record owner of a U.S. patent, subject to annual renewal
fees, valid through the year 2007, for microstrip antennas and multiple radiator
array antennas. Mr. Shoemaker also is the record owner of a U.S. patent for a
serpentine planar broadband antenna valid through the year 2011. This is the
design that the Company uses for some of its conformal antennas, including the
vehicular disguised decal antennas and related products. Mr. Shoemaker and
Randall P. Marx, the Company's Chief Executive Officer, have jointly applied for
a patent for the process used to manufacture certain of the Company's flat
planar antennas. Mr. Shoemaker and Mr. Marx each has permanently assigned to the
Company all of the rights in these and all other antennas that have been and
will be developed while employed by the Company. Although, when practical, the
Company intends to file for patent protection on all the products or processes
that it feels are proprietary in nature, it may not be able to obtain patent
protection for all its products. The inability of the Company to be able to
patent all its products or processes may be an impediment to its capability to
exploit certain expanding markets. Even with patents granted, they may not
provide effective protection against competitors.
4. Limited Financial Resources. The Company has limited financial resources
available to it, and this may restrict the Company's ability to grow. Additional
capital from sources other than the Company's cash flow may be necessary to
develop new products, and there is no assurance that such financing will be
available from any source. Management believes that it can sustain its current
business without additional funding, but it may not be able to increase the
Company's business as desired without additional funding.
5. Competition. The communications industry is highly competitive, and the
Company competes with substantially larger companies in the production and sale
of antennas. In addition, these competitors have larger sales forces and more
highly developed marketing programs as well as larger administrative staffs and
more available service personnel. The larger competitors also will have greater
financial resources available to develop and market competitive products. The
presence of these competitors may be a significant impediment to any attempts by
the Company to develop its business. The Company believes, however, that it will
have certain advantages in attempting to develop and market its products
including a more cost-effective technology, the ability to undertake smaller
projects, and the ability to respond to customer requests more quickly than some
larger competitors. There is no assurance that these conclusions will prove
correct.
6. Availability Of Labor. The Company produces and assembles its products
at its own facility and is dependent on efficient workers for this function.
There is no assurance that efficient workers will continue to be available to
the Company at a cost consistent with the Company's budget.
7. Dependence On Key Personnel. The success of the Company is largely
dependent upon the efforts of its executive management, including Randall P.
Marx, the Chief Executive Officer of the Company. The loss of the services of
any of these persons could be detrimental to the Company as there is no
assurance that the Company could replace any of them adequately at an affordable
compensation level.
8. Government Regulation. The Company is subject to government regulation
of its business operations in general. Antennas that are designed only to
receive signals are not currently subject to regulation by the FCC, but certain
8
of the Company's new products are subject to regulation by the FCC. There is no
assurance that subsequent changes in laws or regulations will not affect the
Company's operations.
Item 2. Properties
- ------------------
The Company is the tenant on a three year lease which expires May 31, 1999 on
5,100 square feet of office space and 17,500 square feet of production space in
Wheat Ridge, Colorado at a cost of $14,084.23 per month. The Company is
obligated to pay for all utilities, taxes and insurance on the production space.
The property is in good condition. The Company is currently looking for
additional warehouse and production space to support the continued growth of the
Company's operations.
Item 3. Legal Proceedings
- -------------------------
On February 9, 1998, Mega Circuits, Inc. ("MCI") filed suit against the
Company for payment of approximately $33,000 for components allegedly billed to
the Company, some of which were used for the Company's passive repeater antenna
system which the Company was forced to recall in 1996. In its answer, the
Company has denied any liability to MCI, asserted a number of defenses based on
MCI's failure to deliver proper products ordered by the Company, and has
asserted a counterclaim for damages for, among other things, the recall of
several thousand of the Company's passive repeater antennas in fiscal 1996. The
Company intends to vigorously defend the claim of MCI and to press its
counterclaim.
On August 6, 1997, the Company filed a lawsuit against a competitor, three
individuals, and another entity for false and/or misleading representations
regarding the Company's local TV antennas. The suit was filed in the United
States District Court for the Northern District of Illinois. The suit includes
related supplemental claims for consumer fraud under the Illinois Consumer Fraud
and Deceptive Trade Practices Act, deceptive trade practices under the Illinois
Deceptive Trade Practices Act, and tortious interference with prospective
economic advantage, unfair competition and trade disparagement under Illinois
common law. The lawsuit relates to a report which falsely disparages Antennas
America, Inc.'s local TV antennas. Two distributors of the Company's products,
Jasco Products Company, Inc. and MITO Corporation, joined the lawsuit as
plaintiffs. The defendants are in the process of answering the Complaint.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
- ------------------------------------------------------------------------------
Trading in the Company's securities is very limited. The Company's Common Stock
is traded in the over-the-counter market through the "pink sheets" and the OTC
Bulletin Board. The Company's securities are not quoted on any established stock
exchange or on the NASDAQ stock market. Because trading in the Company's
securities is so limited, prices are highly volatile. Quotations provided below
for the past two fiscal years are the inter-dealer quotations provided by the
National Quotations Bureau, without retail markup, markdown or commission, and
do not necessarily represent actual transactions.
9
Common Stock
------------
Bid
---
Quarter Ended High Low
------------- ---- ---
March 31, 1996 .05 .02
June 30, 1996 .24 .04
September 30, 1996 .14 .03
December 31, 1996 .06 .03
March 31, 1997 .20 .06
June 30, 1997 .06 .04
September 30, 1997 .12 .03
December 31, 1997 .09 .04
As of March 12, 1998, the reported closing bid and ask prices for the Company's
common stock were $.12 and $.14 respectively. The Company had 341 shareholders
of record as of December 31, 1997. The Company has not declared or paid any cash
dividends on its Common Stock and it is not anticipated that dividends will be
paid in the foreseeable future.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
-------------
Liquidity and Capital Resources
-------------------------------
The following table sets forth certain selected financial data of the Company
for 1997 and 1996:
December 31,
------------
1997 1996
Components of Working Capital (deficit) ---- ----
- ---------------------------------------
Cash $ 61,642 $ 55,635
Accounts Receivable 327,685 166,411
Inventory 508,554 195,848
Deferred Tax Asset 102,000 0
Other Current Assets 72,469 33,475
Accounts Payable (415,377) (188,965)
Notes Payable (504,535) (224,484)
Other Current Liabilities (29,642) (22,934)
Total Working Capital 122,796 14,986
The Company had total assets of approximately $1,627,071 as of December 31,
1997 as compared with $944,232 as of December 31, 1996. Total liabilities were
$1,147,114 as of December 31, 1997 as compared with $613,775 as of December 31,
1996. The 72% increase in assets and 87% increase in liabilities is primarily
due to the increased sales and operations of the Company in 1997.
The Company's net worth was $479,957 as of December 31, 1997 as compared
with $330,457 as of December 31, 1996. This increase results primarily from the
Company's 1997 net income. As a result of past operations, the Company has an
income tax operating loss carryforward of $563,400. The Company has determined
the likelihood of continued profitability for the year ending December 31, 1998
and has recorded a $197,509 benefit for net operating loss carryforward as
provided for in FAS-109 that it reasonably expects to utilize.
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The Company's ability to generate sales revenues is dependent upon its
ability to pay for research and development and for materials and overhead
required in the production process. On May 23, 1997, the Company secured a
credit facility with Norwest Business Credit, Inc., a subsidiary of Norwest
Bank, Minneapolis, Minnesota. The credit facility is a $500,000 revolving loan
secured by the Company's accounts receivable, inventory and equipment which is
now scheduled to terminate May 31, 1999. The Company is using the proceeds from
the credit facility for working capital, capital expenditures associated with
its product development, and for general corporate purposes.
The Company's future capital requirements will depend upon many factors,
including the recruitment of key technical and management personnel, the need to
maintain adequate inventory levels to meet projected sales, the expansion of its
marketing and sales efforts, requirements of additional manufacturing equipment,
and the success of the Company's research and development efforts.
Results of Operations
---------------------
Fiscal Year Ended December 31, 1997 Compared To Fiscal Year Ended December 31,
- --------------------------------------------------------------------------------
1996
- ----
For the year ended December 31, 1997, the Company's total revenues were
$3,012,266 as compared with $1,975,184 for the prior year. The 53% increase in
revenues is primarily attributable to introduction of the Company's new
FREEDOM(TM) and WALLDO(TM) off-air antenna products and the increase in sales of
the Company's mobile line of antenna solutions.
The Company's net income increased to $134,500 from $9,346 in 1996. The
sales of the Company's FREEDOM(TM) and WALLDO(TM) antennas and the increase in
international sales of the mobile line of antenna solutions are the primary
contributing factors to this increase.
The increase in selling, general and administrative expenses to $1,081,386
in 1997 from $744,673 in 1996 is attributable to the Company's increase in
operations and personnel related to the increase in revenue and development
activity for fiscal 1997 and 1998, a decrease in the outsourcing of certain
production functions of the Company, adding production space and personnel to
production and administrative positions, and the related costs associated with
these positions.
Interest expense increased by $14,212 for fiscal 1997 over fiscal 1996. The
increase is primarily attributable to the costs associated with the Company's
increase in revenues, inventory and development activity in 1997 and the use of
the Company's line of credit to finance these activities.
Item 7. Financial Statements
- -----------------------------
The Financial Statements and schedules that constitute Item 7 of this
Annual Report on Form 10-KSB are included in Item 13 below.
Item 8. Changes In and Disagreements With Accountants On Accounting and
- --------------------------------------------------------------------------------
Financial Disclosure
--------------------
Not applicable.
11
PART III
Item 9. Directors, Executive Officers, Promoters And Control Persons: Compliance
- --------------------------------------------------------------------------------
With Section 16(a) Of the Exchange Act
- --------------------------------------
The Officers and Directors of the Company are as follows:
Name Age Title
- ---- --- -----
Randall P. Marx 45 Chief Executive Officer;
Treasurer; and Director
Kevin O. Shoemaker 43 Chairman of the Board; Chief
Scientist; and Director
Richard L. Anderson 49 Vice President; Secretary; and
Director
Bruce Morosohk 39 Director
Sigmund A. Balaban 56 Director
James H. Shook 59 Director
Randall P. Marx has served as Chief Executive Officer since November 1991,
as a director since May 1990, and as Treasurer since December 1994. From May
1990 until November 1991, Mr. Marx advised the Company with respect to marketing
matters. From 1989 to 1991, Mr. Marx served as a consultant to three domestic
and international electronic companies. His responsibilities consisted primarily
of administration, finance, marketing and other matters. From 1983 until 1989
Mr. Marx served as President of THT Lloyd's Inc., Lloyd's Electronics Corp. and
Lloyd's Electronics Hong Kong Ltd., international consumer electronics
companies. THT Lloyd's Inc. purchased the Lloyd's Electronics business from
Bacardi Corp. in 1986. Prior to 1983, Mr. Marx owned a sales and marketing
company involved in the consumer electronics business.
Kevin O. Shoemaker has served as the Chairman of the Board of the Company
since the merger with Antennas Colorado in 1989. He also served as Executive
Vice President from May 1990 until November 1991 and as President from November
1991 until April 1994. Mr. Shoemaker held the positions of Chairman of the Board
and Chief Executive Officer with Antennas Colorado from its inception in 1988
until the merger. Mr. Shoemaker's employment prior to 1988 included serving as a
design engineer for Martin Marietta Aerospace, an aerospace defense contractor,
and as a technical specialist for Ball Aerospace Systems, an aerospace
contractor.
Richard L. Anderson has served as a director of the Company since December
1994. From March 1, 1995 until December 31, 1995, he served as a part-time
consultant to assist with the general operations of the Company. Since January
1, 1996, Mr. Anderson has served as Vice President of Administration for the
Company, and as of March 2, 1998 he has held the position of Secretary. From
1990 to 1995, Mr. Anderson served as an independent financial contractor
underwriting residential and commercial real estate first mortgage credit
packages. From October 1985 until March 1990, Mr. Anderson served as Senior Vice
12
President, Administration of Westline Mortgage Corporation, a Denver, Colorado
based mortgage loan company that was a subsidiary of Bank Western Federal
Savings. Prior to October 1985, Mr. Anderson served as Vice President, Human
Resources for Midland Federal Savings.
Bruce Morosohk has served as a director of the Company since the merger
with Antennas Colorado in 1989 and has held this position since its inception in
1988, and Mr. Morosohk served as Secretary from 1988 until 1998. He also served
as Treasurer from November 1991 to December 1994. From 1980 until 1991, Mr.
Morosohk was employed by R. Greenberg and Associates, a private film production
firm, serving as a cameraman from 1981 to 1991, as manager of the Animation
Department from 1988 to 1989, and as Director of Animation from 1989 to 1991.
Sigmund A. Balaban has served as director of the Company since December
1994. Mr. Balaban has served as Vice President, Credit of Teknika Electronics of
Fairfield, New Jersey, since 1986 and as Senior Vice President and General
Manager of Teknika Electronics since 1992. Teknika Electronics is a subsidiary
of Fujitsu General, a Japanese multiline manufacturer.
James H. Shook has been a Director of the Company since May of 1990. From
May of 1990 until June of 1991, Mr. Shook also served as Chief Executive
Officer, President and Treasurer of the Company. At various times from 1973
through 1989 Mr. Shook was a business consultant to a number of companies.
Each of the Company's officers serves at the pleasure of the Company's
Board of Directors. There are no family relationships among the Company's
officers and directors except that Messrs. Shoemaker and Morosohk are
brothers-in-law.
Section 16(a) Beneficial Ownership Reporting Compliance
- -------------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, executive officers and
holders of more than 10% of the Company's common stock to file with the
Securities and Exchange Commission initial reports of ownership and reports of
changes in ownership of common stock and other equity securities of the Company.
The Company believes that during the year ended December 31, 1997, its officers,
directors and holders of more than 10% of the Company's common stock complied
with all Section 16(a) filing requirements, except that Richard L. Anderson, a
Vice President and director of the Company, did not timely file a Form 4 or a
Form 5 with respect to the following transactions: (i) the receipt of a stock
bonus of 350,000 shares in March 1996, (ii) the receipt in March 1996 of options
to purchase up to 350,000 shares for $.05 per share for two years and the
purchase in April 1997 of 300,000 shares upon the exercise of that option, (iii)
the purchase of 29,500 shares for $.115 per share and 36,500 shares for $.13 per
share in January 1997 by Mr. Anderson's individual retirement account and by a
trust (the "Trust") for which Mr. Anderson serves as trustee, respectively, and
(iv) the purchase of 100,000 shares for $.067 per share in December 1997 by the
Trust. In making these statements, the Company has relied upon the written
representations of its directors and officers and the Company's review of the
monthly statements of changes filed with the Company by its officers and
directors.
13
Item 10. Executive Compensation
- -------------------------------
Summary Compensation Table
- --------------------------
The following table sets forth in summary form the compensation received during
each of the Company's three successive completed fiscal years ended December 31,
1997 by the Chief Executive Officer and Chairman Of The Board of the Company. No
executive officer of the Company, including the Chief Executive Officer and the
Chairman Of The Board, received total salary and bonus exceeding $100,000 during
any of the three successive fiscal years ending December 31, 1997.
Summary Compensation Table
--------------------------
Long Term Compensation
Annual Compensation Awards Payouts
Restricted
Other Annual Stock LTIP All other
Name and Principal Position Fiscal Salary Bonus Compensation Awards ($) Options Payouts Compensation
Year ($)(1) ($)(2) ($)(3) (#) ($)(4) ($)(5)
- --------------------------------------------------------------------------------------------------------------------------------
Randall P. Marx 1997 $75,000 $10,100 -0- -0- -0- -0- -0-
Chief Executive Officer,
Treasurer and a Director 1996 75,000 -0- -0- -0- -0- -0- -0-
1995 75,000 10,030 -0- -0- -0- -0- -0-
Kevin O. Shoemaker 1997 $54,000 -0- -0- -0- -0- -0- -0-
Chairman Of The Board,
Chief Scientist, and a 1996 54,000 -0- -0- -0- -0- -0- -0-
Director
1995 54,000 -0- -0- -0- -0- -0- -0-
- --------------------------
(1) The dollar value of base salary (cash and non-cash) received during the
year indicated.
(2) The dollar value of bonus (cash and non-cash) received during the year
indicated.
(3) During the period covered by the Summary Compensation Table, the
Company did not pay any other annual compensation not properly categorized as
salary or bonus, including perquisites and other personal benefits, securities
or property.
(4) The Company does not have in effect any plan that is intended to serve
as incentive for performance to occur over a period longer than one fiscal year
except for the Company's 1997 Stock Option And Compensation Plan.
(5) All other compensation received that the Company could not properly
report in any other column of the Summary Compensation Table including annual
Company contributions or other allocations to vested and unvested defined
contribution plans, and the dollar value of any insurance premiums paid by, or
on behalf of, the Company with respect to term life insurance for the benefit of
the named executive officer, and, the full dollar value of the remainder of the
premiums paid by, or on behalf of, the Company.
1997 Stock Option And Compensation Plan. In November 1997, the Board of
Directors approved the Company's 1997 Stock Option And Compensation Plan (the
"Plan"). Pursuant to the Plan, the Company may grant options to purchase an
aggregate of 5,000,000 shares of the Company's Common Stock to key employees,
directors, and other persons who have or are contributing to the success of the
Company. The options granted pursuant to the Plan may be incentive options
14
qualifying for beneficial tax treatment for the recipient or they may be
non-qualified options. With respect to options granted to persons other than
directors of the Company who are not also employees of the Company ("Outside
Directors"), the Plan is administered by an option committee that determines the
terms of the options subject to the requirements of the Plan. The option
committee may be the entire Board or a committee of the Board. Outside Directors
automatically receive options to purchase 250,000 shares pursuant to the Plan at
the time of their election as an Outside Director. These options held by Outside
Directors are not exercisable at the time of grant, but options to purchase
50,000 shares become exercisable for each meeting of the Board of Directors
attended by each Outside Director following the date of grant of the options to
that Outside Director. The exercise price for options granted to Outside
Directors is equal to the fair market value of the Company's Common Stock on the
date of grant. All options granted to Outside Directors expire five years from
the date of grant. On the date that all of an Outside Director's options have
become exercisable, options to purchase an additional 250,000 shares, which are
not exercisable at the time of grant, shall be granted to that Outside Director.
The Plan also covers options previously granted to the Outside Directors
commencing in January 1995. The first options to purchase 250,000 shares granted
to Outside Directors in January 1995 provided an exercise price of $.05 per
share at a time that the closing bid price for the Common Stock was $.001 per
share. Grants of options pursuant to the Plan are conditioned upon the approval
of the Plan by the Company's shareholders on or before November 18, 1998. No
options granted under the Plan may be exercised until 60 days after shareholder
approval.
Compensation Of Outside Directors. Outside Directors are paid $250 for each
meeting of the Board of Directors that they attend. For meetings in excess of
four meetings per year, Outside Directors will receive $50 per meeting. Pursuant
to the Plan, Outside Directors may elect to receive payment of the meeting fee
in the form of the Company's restricted Common Stock at a rate per share equal
to the fair market value of the Company's Common Stock on the date of the
meeting by informing the Company's Secretary or President of that election on or
before the date of the meeting. Directors also will be reimbursed for expenses
incurred in attending meetings and for other expenses incurred on behalf of the
Company. In addition, each director who is not an employee automatically
receives options to purchase shares of Common Stock pursuant to the Plan. See
above, "- 1997 Stock Option And Compensation Plan".
Option Grants. In addition to the automatic grants of options to the
Outside Director described above under " -1997 Stock Option And Compensation
Plan", stock options have been granted pursuant to the Company's Plan on one
occasion in November 1997. Each of three employees were granted options to
purchase 100,000 shares, for an aggregate of 300,000 shares, at an exercise
price of $.10 per share, contingent upon certain corporate goals being met.
These options expire on November 19, 1999. These options are conditioned upon
the approval of the Plan by the Company's stockholders on or before November 18,
1998.
Employment Contracts And Termination of Employment And Change-In Control
- --------------------------------------------------------------------------------
Arrangements
- ------------
Effective as of March 19, 1998, the Company entered into an Employment
Agreement with Kevin O. Shoemaker, the Chairman of the Board and Chief Scientist
of the Company. The Employment Agreement provides for a two-year term at an
annual salary rate of not less than $66,000 per year. Also pursuant to the
Agreement, the Company agreed to increase Mr. Shoemaker's annual salary rate
pursuant to the Employment Agreement by $4,000 in 1999 and made Mr. Shoemaker
eligible for a bonus of $10,000, $20,000 and $30,000. The salary increase and
the bonus eligibility are based on certain personal performance criteria and
15
1998 net profits of the Company amounting to $300,000, $600,000 and $900,000,
respectively. In connection with the Employment Agreement, Mr. Shoemaker agreed
not to dispose of any shares of Common Stock owned by him prior to December 31,
1999 without the prior written consent of the Company.
The Company does not have any written employment contracts with respect to
any of its other executive officers. However, the Company does anticipate
entering into a written employment agreement with Randall P. Marx, the Company's
Chief Executive Officer and Richard L. Anderson, Vice President, Administration.
Both Messrs. Marx and Anderson's employment contracts expired December 31, 1997.
The Company has no compensatory plan or arrangement that results or will result
from the resignation, retirement, or any other termination of an executive
officer's employment with the Company or from a change-in-control of the Company
or a change in an executive officer's responsibilities following a
change-in-control.
Item 11. Security Ownership Of Certain Beneficial Owners And Management
- ------------------------------------------------------------------------
The following table summarizes certain information as of March 12, 1998 with
respect to the beneficial ownership of the Company's Common Stock by the
Company's directors, by all officers and directors as a group, and by each
person known by the Company to be the owner of five percent or more of the
Company's common stock:
Name And Address Of Number Of Shares
Beneficial Owner Beneficially Owned Percent of Class
- ------------------- ------------------ ----------------
Richard L. Anderson 1,481,000 (1) 2.0
Antennas America Inc.
4860 Robb Street, Suite 101
Wheat Ridge, CO 80033
Sigmund A. Balaban 681,676 (2) 0.9
10 Grecian Street
Parsippany, NJ 07054
Randall P. Marx 7,005,000 (3) 9.5
Antennas America Inc.
4860 Robb Street, Suite 101
Wheat Ridge, CO 80033
Bruce Morosohk 5,491,117 (4) 7.4
Antennas America Inc.
4860 Robb Street, Suite 101
Wheat Ridge, CO 80033
Kevin O. Shoemaker 6,434,474 (5) 8.7
Antennas America Inc.
4860 Robb Street, Suite 101
Wheat Ridge, CO 80033
16
Rocky Mountain Gastroenterology 4,500,000 6.1
P.C. Profit Sharing Trust
6550 West 38th Ave., Suite 300
Wheat Ridge, CO 80033
Millenium Holdings Group, Inc. 6,000,000 (6) 7.5
2200 Corporate Boulevard, N.W.
Suite 311, Boca Raton, FL 33431
All Officers and Directors 21,093,267 (1)(2) 28.2
as a group (five persons)
- --------------------
(1) Includes 636,500 shares owned by the Lloyd Anderson Marital Trust B Dated
June 21, 1990, for which Richard L. Anderson serves as trustee, 15,000 shares to
be issued under the Plan for Board meeting attendance fees at the time that Mr.
Anderson was an Outside Director, and options under the Plan to purchase 150,000
shares for $.05 per share that expire on January 3, 2000. The shares and options
under the Plan are contingent upon shareholder approval of the Plan on or before
November 18, 1998.
(2) Consists of 31,676 shares to be issued under the Plan for Board meeting
attendance fees as an Outside Director, options under the Plan to purchase
250,000 shares at $.05 per share until January 3, 2000, options under the Plan
to purchase 250,000 shares at $.0475 per share until December 26, 2001, and
options under the Plan to purchase 150,000 shares at $.08 per share until
November 19, 2002. The shares and options under the Plan are contingent upon
shareholder approval of the Plan on or before November 18, 1998.
(3) Includes 835,000 shares owned by the Harold and Theora Marx Living Trust, of
which Mr. Marx's parents are trustees. Mr. Marx disclaims beneficial ownership
of these shares.
(4) Does not include the following shares as to which Mr. Morosohk disclaims
beneficial ownership: (a) 6,434,474 shares owned by Kevin Shoemaker, Mr.
Morosohk's brother-in-law, and (b) an aggregate of 191,780 shares owned by Mr.
Morosohk's siblings and their respective spouses.
(5) Does not include 5,491,117 shares owned by Bruce Morosohk, Mr. Shoemaker's
brother-in-law, as to which shares Mr. Shoemaker disclaims beneficial ownership.
(6) Consists of currently exercisable options to purchase 2,000,000 shares for $
.06 per share until the earlier to occur of January 2, 2000 or 120 days after
the effective date of a registration statement covering the sale of the shares
underlying that option (the "Registration Statement"), 2,000,000 shares for $
.10 per share until the earlier to occur of January 2, 2002 or 365 days after
the effective date of the Registration Statement, and 2,000,000 shares for $ .30
per share until the earlier to occur of January 2, 2002 or 365 days after the
effective date of the Registration Statement.
Item 12. Certain Relationships And Related Transactions
- -------------------------------------------------------
Not applicable.
Item 13. Exhibits And Reports On Form 8-K
- ------------------------------------------
(a) Financial Statements And Financial Statement Schedules.
Index To Financial Statements And Financial Statement Schedules.
Independent Auditor's Report . . . . . . . . . . . . . . . . . . . . . .F-1
17
Consolidated Balance Sheet At December 31, 1997 . . . . . . . . . . . . F-2
Consolidated Statements Of Income For The Years Ended
December 31, 1997 and 1996 . . . . . . . . . . . . . . . . . . . . . . F-3
Consolidated Statements Of Changes In Stockholders' Equity
For The Years Ended December 31, 1997 and 1996 . . . . . . . . . . . . F-4
Consolidated Statements Of Cash Flows For The Years Ended
December 31, 1997 and 1996 . . . . . . . . . . . . . . . . . . . F-5 - F-6
Notes To Consolidated Financial Statements . . . . . . . . . . . F-7 - F-12
(a)(2) Exhibits.
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
3.1a Articles of Incorporation of Westcliff Corporation, now known as
Antennas America, Inc. (the "Company"), are incorporated herein by
reference from the Company's Form S-18 Registration Statement dated
December 1, 1987 (File No. 33-18854-D).
3.1b Articles of Amendment of the Company dated January 26, 1988 are
incorporated herein by reference from the Company's Post-Effective
Amendment No. 3 to From S-18 Registration Statement dated December 5,
1989 (File No. 33-18854-D)
3.1c Articles And Agreement Of Merger between the Company and Antennas
America, Inc. a Colorado corporation, dated March 22, 1989, are
incorporated herein by reference from the Company's Post-Effective
Amendment No. 3 to Form S-18 Registration Statement dated December 5,
1989 (File No. 33-18854-D).
3.2 Bylaws of the Company as amended and restated on March 25, 1998.
10.1a Industrial Lease dated April 20, 1995 between the Company and Five K
Investments.*
10.1b Office Lease dated May 8, 1995 between the Company and Five K
Investments.*
10.1c Industrial Lease dated December 12, 1995 between the Company and Five
K Investments.*
10.1d Industrial Lease dated April 29, 1996 between the Company and Five K
Investments.*
10.2 Employment Agreement dated as of March 19, 1998 between the Company
and Kevin O. Shoemaker.
27.1 Financial Data Schedule.
18
- -------------
* Incorporated herein by reference from the Company's Form 10-KSB for the year
ended December 31, 1996.
(b) Reports On Form 8-K. During the last quarter of the fiscal year ended
December 31, 1997, the Company filed one report on Form 8-K for an event
occurring November 26, 1997.
19
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Stockholders
Antennas America, Inc.
We have audited the consolidated balance sheet of Antennas America, Inc. as of
December 31, 1997, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for each of the two years in the period
then ended. 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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above, present
fairly, in all material respects, the financial position of Antennas America,
Inc. as of December 31, 1997 and the results of its operations and cash flows
for each of the two years in the period then ended, in conformity with generally
accepted accounting principles.
James E. Scheifley & Associates, P.C.
Certified Public Accountants
Englewood, Colorado
March 6, 1998
F-1
Antennas America, Inc.
Consolidated Balance Sheet
December 31, 1997
ASSETS
------
Current assets:
Cash $61,642
Accounts receivable, trade 327,685
Inventories 508,554
Prepaid expenses 72,469
Deferred tax asset 102,000
-------
Total current assets 1,072,350
Property and equipment, at cost, net of
accumulated depreciation of $163,272 407,355
Other assets:
Deferred tax asset, non-current 95,509
Intangible assets net of accumulated
amortization of $40,259 41,245
Deposits 10,612
------
$1,627,071
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Note payable - bank $250,730
Notes payable - others 128,569
Current portion of long term debt 100,295
Current portion of leases payable 24,941
Accounts payable 415,377
Accrued expenses 29,642
------
Total current liabilities 949,554
Long term debt 3,127
Leases payable 57,328
Notes payable - officer 137,105
Commitments (Note 11)
Stockholders' equity:
Common stock, $.0005 par value,
250,000,000 shares authorized,
73,189,422 shares issued and outstanding 36,595
Additional paid-in capital 801,039
Common stock subscriptions 18,500
Accumulated deficit (376,177)
--------
Total stockholders' equity 479,957
-------
$1,627,071
==========
See accompanying notes to consolidated financial statements.
F-2
Antennas America, Inc.
Consolidated Statements of Income
For The Years Ended December 31, 1997 and 1996
1997 1996
---------- ----------
Sales, net $3,012,266 $1,975,184
Cost of sales 1,660,552 1,223,287
---------- ----------
Gross profit 1,351,714 751,897
Selling, general and administrative expenses 1,080,641 744,673
---------- ----------
Income from operations 271,073 7,224
Other income and (expense):
Interest expense (72,230) (58,018)
Other income 3,810 917
---------- ----------
(68,420) (57,101)
---------- ----------
Net income before income taxes
and extraordinary item 202,653 (49,877)
Provision for income taxes (benefit) 68,153 (10,439)
---------- ----------
Net income before extraordinary item 134,500 (39,438)
Extraordinary item:
Gain from debt cancellation net of income
taxes of $12,667 - 48,784
---------- ----------
Net income $134,500 $9,346
========== ==========
Basic earnings per share
Net income before extraordinary item $0.00 $(0.00)
Extraordinary item - -
Net income $0.00 $0.00
Weighted average shares outstanding 73,189,422 73,135,255
See accompanying notes to consolidated financial statements.
F-3
Antennas America, Inc.
Consolidated Statement of Changes in Stockholders' Equity
For The Years Ended December 31, 1997 and 1996
Additional
Common Stock Paid-in Accumulated Stock
ACTIVITY Shares Amount Capital (Deficit) Subscriptions Total
- --------------------- ------------ -------- ---------- ----------- ------------- -----
Balance, December 31, 1995 71,139,422 $35,570 $616,090 $(520,023) $13,750 $145,387
Shares issued for:
Subscriptions 1,375,000 687 13,063 (13,750) -
Cash, net of $8,027 of costs 1,650,000 825 156,148 156,973
Exercise of warrants 1,025,000 513 44,738 45,251
Shares reacquired and cancelled (2,000,000) (1,000) (29,000) - (30,000)
Shares subscribed for services 3,500 3,500
Net income for the year - - - 9,346 - 9,346
---------- ------ ------- --------- -------- -------
Balance, December 31, 1996 73,189,422 36,595 801,039 (510,677) 3,500 330,457
Exercise of stock option 15,000 15,000
Net income for the year - - - 134,500 - 134,500
---------- ------ ------- --------- -------- -------
Balance, December 31, 1997 73,189,422 36,595 801,039 (376,177) 18,500 479,957
========== ====== ======= ========= ======== =======
See accompanying notes to consolidated financial statements.
F-4
Antennas America, Inc.
Consolidated Statements of Cash Flows
For The Years Ended December 31, 1997 and 1996
1997 1996
------------ ----------
Net income $134,500 $9,346
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 54,735 35,467
Gain from debt cancellation - (48,784)
Interest added to note payable 10,323 14,397
Subscriptions for services - 3,500
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (161,274) 157,944
(Increase) decrease in inventory (312,705) (33,533)
(Increase) decrease in deferred tax asset 68,153 2,228
(Increase) decrease in prepaid expenses (38,996) (29,828)
(Increase) decrease in other assets 13,500 (2,037)
Increase (decrease) in accounts payable and
accrued expenses 233,120 (94,490)
---------- ----------
Total adjustments (133,144) 4,864
---------- ----------
Net cash provided by operating activities 1,356 14,210
---------- ----------
Cash flows from investing activities:
Patent acquisition costs (12,940) (8,996)
Acquisition of plant and equipment (245,315) (89,689)
---------- ----------
Net cash (used in) investing activities (258,255) (98,685)
---------- ----------
Cash flows from financing activities:
Stock issued for cash - 202,224
Common stock subscriptions 15,000 -
Cost of share cancellation - (30,000)
Repayment of officer loans (8,500) (14,745)
Proceeds from officer loan 9,500 -
Proceeds of new borrowing 293,330 36,000
Repayment of notes and leases payable (46,425) (69,279)
---------- ----------
Net cash provided by (used in)
financing activities 262,905 124,200
---------- ----------
F-5
Increase (decrease) in cash 6,006 39,725
Cash and cash equivalents,
beginning of period 55,636 15,911
---------- ----------
Cash and cash equivalents,
end of period $61,642 $ 55,636
========== ==========
Supplemental cash flow information:
Cash paid for interest $61,907 $ 62,290
Cash paid for income taxes $ - $ -
Non-cash investing and financing activities:
Conversion of accounts payable to notes payable $ - $145,059
Abandonment of leasehold improvements $ - $ 1,677
See accompanying notes to consolidated financial statements.
F-6
Antennas America, Inc.
Notes to Consolidated Financial Statements
Note 1. Organization and summary of significant accounting policies
Organization
The Company was incorporated in Colorado on September 6, 1988 and was
reorganized as a Utah corporation on April 12, 1989. The Company is engaged in
the business of manufacture and sale of antennas used for various purposes. The
consolidated financial statements include the accounts of the Company and its
wholly owned subsidiary, Antennas America Distributing Company. All significant
inter-company items have been eliminated.
Inventory
Inventory is valued at the lower of cost or market on a first-in, first-out
basis. Inventories are reviewed annually and items considered to be slow-moving
or obsolete are reduced to estimated net realizable value. Adjustments to reduce
inventories to net realizable value have not been significant. Inventory
consists of the following at December 31, 1997
Raw materials $282,308
Work in progress 156,936
Finished goods 69,310
--------
$508,554
Property and equipment
Property and equipment are stated at cost. Depreciation is provided for using
the straight line method over estimated useful lives of five to seven years.
When assets are retired or otherwise disposed of, the cost and the related
accumulated depreciation are removed from the accounts, and any resulting gain
or loss is recognized in operations for the period. The cost of repairs and
maintenance is charged to operations as incurred and significant renewals or
betterments are capitalized.
Patent costs
Patent costs are stated at cost and are amortized over ten years using the
straight-line method. Amortization expense amounted to $8,272 and $7,397 for the
years ended December 31, 1997 and 1996.
Research and development
Research and development costs are charged to expense as incurred. Such costs
were not material for the years ended December 31, 1997 and 1996.
Revenue
Revenue is recorded when goods are shipped. Sales returns and allowances are
recorded after returned goods are received and inspected. The Company has
several major commercial customers who incorporate its products into other
manufactured goods and returns therefrom have not been significant. The Company
began sales of consumer goods in 1997 and has provided currently for estimated
product returns arising therefrom.
F-7
Income taxes
The Company records the income tax effect of transactions in the same year that
the transactions enter into the determination of income, regardless of when the
transactions are recognized for tax purposes. Income tax credits are used to
reduce the provision for income taxes in the year in which such credits are
allowed for tax purposes.
Deferred taxes are provided to reflect the income tax effects of amounts
included for financial purposes in different periods than for tax purposes,
principally accelerated depreciation for income tax purposes. Such amounts have
not been significant.
Cash
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents.
Earnings per share
In February 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 128, "Earnings Per Share." SFAS No. 128 supersedes and simplifies the
existing computational guidelines under Accounting Principles Board ("APB")
Opinion No. 15, "Earnings Per Share."
The statement is effective for financial statements issued for periods ending
after December 15, 1997. Among other changes, SFAS No. 128 eliminates the
presentation of primary earnings per share and replaces it with basic earnings
per share for which common stock equivalents are not considered in the
computation. It also revises the computation of diluted earnings per share. The
Company has adopted SFAS No. 128 and there is no material impact to the
Company's earnings per share, financial condition, or results of operations. The
Company's earnings per share have been restated for all periods presented to be
consistent with SFAS No. 128.
The basic income per share is computed by dividing the net loss for the period
by the weighted average number of common shares outstanding for the period. Loss
per share is unchanged on a diluted basis.
Earnings per share is computed using the weighted average number of shares
outstanding during the period.
Fair value of financial instruments
The Company's short-term financial instruments consist of cash and cash
equivalents, accounts and loans receivable, and accounts payable and accruals.
The carrying amounts of these financial instruments approximates fair value
because of their short-term maturities. Financial instruments that potentially
subject the Company to a concentration of credit risk consist principally of
cash and accounts receivable, trade.
During the year the Company did not maintain cash deposits at financial
institutions in excess of the $100,000 limit covered by the Federal Deposit
Insurance Corporation. The Company has several major customers, (see Note 8) the
loss of any one of which could have a material negative impact upon the Company.
Additionally, the Company maintains a line of credit with one financial
institution. The maintenance of a satisfactory relationship with this
institution is of significant importance to the Company. The Company does not
hold or issue financial instruments for trading purposes nor does it hold or
issue interest rate or leveraged derivative financial instruments.
F-8
Estimates
The preparation of the Company's financial statements requires management to
make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from these
estimates. For the years ended December 31, 1997 and 1996 the Company made
estimates of the future utilization of its net operating loss carryforward.
These estimates account for the deferred tax asset of $197,509 at the balance
sheet date.
Advertising costs
Advertising costs are charged to operations when the advertising is first shown.
Advertising costs charged to operations were $40,940 and $39,713 in 1997 and
1996, respectively.
Stock-based Compensation
The Company adopted Statement of Financial Accounting Standard No. 123 (FAS
123), Accounting for Stock-Based Compensation beginning with the Company's first
quarter of 1996. Upon adoption of FAS 123, the Company continued to measure
compensation expense for its stock-based employee compensation plans using the
intrinsic value method prescribed by APB No. 25, Accounting for Stock Issued to
Employees, and has provided in Note 5 pro forma disclosures of the effect on net
income and earnings per share as if the fair value-based method prescribed by
FAS 123 had been applied in measuring compensation expense.
New Accounting Pronouncements
SFAS No. 130, "Reporting Comprehensive Income", establishes guidelines for all
items that are to be recognized under accounting standards as components of
comprehensive income to be reported in the financial statements. The statement
is effective for all periods beginning after December 15, 1997 and
reclassification of financial statements of financial statements for earlier
periods will be required for comparative purposes. To date, the Company has not
engaged in transactions which would result in any significant difference between
its reported net loss and comprehensive net loss as defined in the statement.
Note 2. Property and Equipment.
Property and equipment consist of the following at December 31, 1997:
Machinery and equipment $ 431,781
Furniture and fixtures 115,068
Leasehold improvements 23,778
----------
570,627
Accumulated depreciation 163,272
----------
$ 407,355
==========
Depreciation expense amounted to $49,934 and $28,070 respectively during the
years ended December 31, 1997 and 1996.
Substantially all of the Company's fixed assets secure debt described in Notes 3
and 4.
F-9
Note 3. Notes payable and long-term debt
Notes payable to bank consists of a revolving credit line having a maximum
borrowing amount of $500,000. The line bears interest at prime plus 4.5% (13%)
at December 31, 1997, and is collateralized by accounts receivable, inventory
and otherwise unencumbered machinery and equipment. The line has $249,270 of
unused credit at December 31, 1997.
Notes payable to others at December 31, 1997 consist of uncollateralized
obligations to individuals and vendors as follows:
Amount due vendor with interest at 8% per annum
due on January 31, 1998 $108,690
Amount due vendor with interest at 10% per annum
due on demand 71,795
Amount due individual without interest
due on demand 13,236
Other 619
--------
$194,340
Long term debt consists of the following:
Note payable to an individual for prior salary
and expenses due in weekly installments of
$625 without interest $ 21,489
Note payable for equipment purchase, due in
monthly installments of $1,161 including
interest at 9.5% per annum 16,163
--------
37,652
Less Current portion 34,525
--------
$ 3,127
Maturities of long-term debt are as follows: 1998 - $3,127
Note 4. Leases payable
During 1997 the Company entered into financing type lease transactions with
leasing companies whereby the Company leased certain manufacturing equipment.
Scheduled maturities of the obligations as of December 31, 1997 are as follows:
Year Amount
1998 $ 34,329
1999 34,329
2000 30,700
---------
Minimum future lease payments 99,358
Less interest component (17,089)
Present value of future net ---------
minimum lease payments 82,269
Less current portion (24,941)
---------
Due after one year $ 57,328
F-10
Property recorded under capital leases includes the following as of December 31,
1997:
Machinery and equipment $ 86,678
Less accumulated amortization (6,191)
---------
Net assets subject to capital leases $ 80,487
Note 5. Notes payable, officers
Notes payable to officers includes unpaid advances and salary accruals due to
two of the Company's officers including Randall P. Marx, the chief executive
officer, (see Note 9) who accounts for approximately 65% of the balance owed.
The advances accrue no interest and are not expected to be repaid in the
forthcoming year.
Note 6. Stockholders' equity
Effective January 1996, the Company authorized a stock bonus to one of its
officers for 350,000 shares of restricted common stock having a fair value of
$3,500. Additionally, the Company granted the officer an option to purchase
350,000 additional shares of restricted common stock at $.05 per share for a two
year period. The weighted average fair value at the date of grant for options
granted during 1996 was $.00 per option. The fair value of the options at the
date of grant was estimated using the Black-Scholes model with assumptions as
follows:
Market value $.01
Expected life 2
Interest rate 5.15%
Volatility .25%
Dividend yield 0.00%
No stock based compensation costs would be recorded by the Company as a result
of the foregoing.
During June and July of 1996, the Company sold 1,650,000 shares of its
restricted common stock to three individuals for cash aggregating $156,973 net
of associated costs of $8,027. Additionally during the year the Company issued
1,375,000 shares subscribed in the prior year and issued 1,025,000 shares
pursuant to option agreements entered into in prior years. Proceeds to the
Company for the option shares amounted to $45,250 or $.044 per share. During
June 1996 the Company purchased from an officer and retired 2,000,000 shares of
restricted common stock for $30,000 or $.015 per share.
During the year ended December 31, 1997, the Company accepted stock subscription
from an officer for 300,000 of its restricted common stock. The fair value of
the stock subscribed at the subscription date amounted to $.05 per share.
Note 7. Income taxes
The Company has not recorded a liability for federal income taxes payable
currently or deferred to future periods due to the existence of substantial net
operating loss carryforward amounts available to offset taxable income.
A reconciliation of federal income taxes computed by multiplying pre tax net
income by the statutory rate of 34% to the provision for income taxes is as
follows at December 31, 1997 and 1996:
F-11
1997 1996
Tax computed at statutory rate $ 68,902 $ 3,935
State income tax 6,687 579
Surtax exemption (7,436) (2,286)
-------- -------
Provision for income taxes (benefit) $ 68,153 $ 2,228
The Company has a net operating loss carryforward of approximately $563,400 that
will expire in years beginning in 2004 as follows:
2004 $ 39,400
2005 336,000
2006 188,000
---------
$ 563,400
The Company has determined that the likelihood of continued profitability for
the year ended December 31, 1998 and beyond is reasonably possible and has
recorded the benefit of the carryforward ($197,509) as provided for in FAS-109.
The determination of the current portion of the deferred tax asset is based upon
the Company's estimate of the expected utilization of the operating loss
carryforward during the 1998 fiscal year.
Note 8. Sales to major customers
The Company made sales in excess of 10% of its net sales to unrelated parties
for the year ended December 31, 1997 to two companies aggregating $2,279,467
(76%) and in 1996 to one company aggregating $1,126,312 (57%). Additionally, the
Company had open uncollateralized accounts receivable from these customers
aggregating $144,377 and $87,295 at December 31, 1997 and 1996, respectively.
Note 9. Gain from debt extinguishment
During the year ended December 31, 1996 the Company settled an aggregate of
$61,451 of outstanding trade accounts payable, salary and expenses without cash
expenditure.
Note 10. Commitments
Operating leases
The Company leases its facilities under operating leases through May 31, 1999.
Minimum future rentals payable under the leases are as follows:
Year Amount
---- ------
1998 56,218
1999 12,000
------
$ 68,218
Additionally, the Company rents certain equipment pursuant to short-term leasing
arrangements.
Rent expense amounted to $190,217 and $173,763 for the years ended December 31,
1997 and 1996, respectively.
F-12
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ANTENNAS AMERICA, INC.
Date: March 30, 1998 By: /s/ Randall P. Marx
-------------------- --------------------------------------------
Randall P. Marx, Chief Executive Officer and
Principal Financial Officer
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
Date: March 30, 1998 /s/ Richard L. Anderson
-------------------- --------------------------------------------
Richard L. Anderson, Director
Date: March 30, 1998 /s/ Sigmund A. Balaban
-------------------- --------------------------------------------
Sigmund A. Balaban, Director
Date: March 30, 1998 /s/ Randall P. Marx
-------------------- --------------------------------------------
Randall P. Marx, Director
Date: March 30, 1998 /s/ Bruce Morosohk
-------------------- --------------------------------------------
Bruce Morosohk, Director
Date: March 30, 1998 /s/ Kevin O. Shoemaker
-------------------- --------------------------------------------
Kevin O. Shoemaker, Director
Date:
-------------------- --------------------------------------------
James H. Shook, Director
20