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U. S. Securities And Exchange Commission
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, 1998.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 for the transition period from _____ to _____.
ANTENNAS AMERICA, INC.
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(Exact name of small business issuer in its charter)
Utah 87-0454148
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4860 Robb Street, Suite 101, Wheat Ridge, Colorado 80033, (303) 421-4063
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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:
(None)
Securities registered pursuant to Section 12(b) of the Exchange Act:
$.0005 par value common stock
Check whether the issuer (1) has 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 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. _X_
Issuer's revenues for its most recent fiscal year: $2,926,728
As of March 23, 1999, the aggregate market value of the voting stock held by
non-affiliates of the issuer was approximately $4,443,088. This calculation is
based upon the average of the closing bid price of $.07 and ask price of $.09 of
the stock on March 23, 1999.
The number of shares of the Registrant's $.0005 par value common stock
outstanding as of March 23, 1999 was 75,382,957.
PART 1
Item 1. Business
Business Development. The Company was organized under the laws of the
State of Utah under the name Westcliff Corporation on September 30, 1987. In
January 1989, the Company completed a small initial public offering. In April
1989, the Company merged with Antennas America, Inc., a Colorado corporation
that had been formed in September 1988 and had developed an antenna design
technique that would permit the building of flat (as compared to parabolic)
antenna systems. Pursuant to the merger, Antennas America, Inc. was merged into
the Company, all the issued and outstanding stock of Antennas America, Inc. was
converted into shares of the Company's common stock, and the Company's name was
changed to Antennas America, Inc. Also 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.
Business Of The Company. The Company's operations consist of the
design, development, manufacture, 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 OEM (original equipment manufacturer) customers.
For the fiscal year ended December 31, 1998, the patented decal antenna and
other conformal derivatives of the decal antenna accounted for approximately 55
percent of the Company's sales.
GPS Antennas
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 in boats and planes, for surveying purposes, and even by 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 OEM basis for the
purposes of fleet management and in-vehicle mapping systems.
1
F Antennas
In February 1999, the Company announced the introduction of a new
antenna system designed to provide wireless access to the Internet and other
data for laptop computers. Utilizing its experience in designing conformal
antenna systems, the Company's new F800 and F900 antennas are powerful yet
flexible antenna systems which can be installed directly on the computer and are
connected to a wireless modem inserted in the computer's PCMCIA slot. The main
design parameter of the antenna is its flexibility, creating an antenna that
will function in several wireless applications or installations without
requiring modification of the fundamental design of the antenna. The Company
will market the new F800 and F900 series antenna systems along with its existing
commercial wireless channels to existing and new OEM customers.
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. The Company's three primary projects for this antenna design are (i)
the "off-air" antennas for local television reception, (ii) the flat panel
receive and transmit antennas for Micron Communications, a subsidiary of Micron
Technologies Inc. ("Micron"), and (iii) the 2.4 GHz spread spectrum wireless
communications antennas.
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 from the satellite provider 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 used.
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.
The WALLDO(TM) Antenna System is a flat VHF/UHF TV antenna, measuring
15 1/2"x 13" x 2", which attaches to a 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 a house or to other structures, the Company markets the antenna 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.
2
New Low Profile Local TV Antennas. In January 1999, the Company began
producing and delivering three new low profile antennas to receive local TV
broadcasts. These antennas use a revolutionary electromagnetic antenna design to
maximize installation flexibility and yield longer range reception of off-air
(VHF/UHF) signals. Unlike conventional dipole antennas, this new design can
receive signals in both vertical and horizontal planes with minimum
cross-polarization loss. This highly efficient design allows for a low profile
antenna solution that provides numerous installation options. The antenna has a
built-in switchable amplifier and can be painted to match its environment. At
the present time the Company is marketing three versions of the new low profile
antenna system: indoor/outdoor, mid-range outdoor and long-range outdoor. The
indoor/outdoor product is unique in that when used indoors it is designed to fit
inconspicuously in the more popular home entertainment systems. The outdoor
versions consist of a mid-range and long-range outdoor antenna system. The
Company will market the new low profile antenna systems along with its other
local TV antennas.
Flat Panel Antennas for Micron Communications. By modifying its
existing line of flat panel and phased array antenna designs, the Company has
developed and submitted 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.
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 used to
demonstrate the Company's capabilities to develop related products for OEM and
other commercial customers. The Company introduced its Internet web site,
www.antennas.com, in late 1997. This web site includes information about the
Company's products and background as well as financial and other
stockholder-oriented information. The web site, 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
continue to receive inquiries through the web site 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 its customer service personnel from 8:00 a.m. to 5:00 p.m. 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 seven international distributors marketing its
products in 12 countries.
3
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 local TV antennas. Under the arrangement, Jasco is responsible for
the mass-marketing and distribution of the antennas to retail accounts in the
United States, including product literature, in-store point of purchase
displays, and other related marketing services to these customers. Jasco serves
as the exclusive distributor of the Company's Dishmate(TM), Optima(R) and MAX
antennas to consumer electronics retail customers in the United States, Mexico
and Central America. The Company's distribution agreement with Jasco expires in
October 2003, subject to renewal for up to two additional years. Jasco has
obtained, effective January 1, 1999, exclusive marketing and distribution rights
to the "GE" brand of consumer electronic accessories for the United States,
Mexico, and Central America. In October 1998, the Company announced that certain
of its products, including the Dishmate(TM), Optima(R) and recently introduced
MAX local TV antennas, would be marketed on a non-exclusive basis by Jasco under
the GE name beginning January 1, 1999.
Production
Due to changes made recently to its production operations, including
investments in manufacturing equipment and facilities, the manufacturing of the
Company's products has been 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 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 have
not been material. The Company's research and development personnel develop
products to meet specific customer, industry and market needs that the Company
believes will compete effectively against products distributed by other
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. The Company has
experienced delays in the development of new products. For example, delays in
the development of certain new products in 1998 subsequently led to a delay in
the introduction of those products until the first quarter of 1999. These delays
had an adverse affect on revenues and earnings for the period. 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.
4
Employees
The Company currently has 41 full time employees including Randall P.
Marx, Chief Executive Officer and Treasurer, Kevin O. Shoemaker, 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. The Company believes
that its antennas that also transmit signals are in compliance with current laws
and regulations. 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, 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. In addition, Mr. Shoemaker and Randall P. Marx, the Company's
Chief Executive Officer, are the record owners of patents relating to the
technique and design of the Company's FREEDOM(TM) and WALLDO(TM) local TV,
VHF/UHF antenna systems and one covering the process used to manufacture certain
of the Company's flat planar antennas. Furthermore, Mr. Shoemaker and Mr. Marx
have been notified by the U.S. Patent Office that the pending patent application
for the conformal FREEDOM(TM) antenna for the RCA style satellite dish has been
approved which brings the total number of patents of the Company to five, with
two addition applications under consideration. Mr. Shoemaker and Mr. Marx each
has permanently assigned to the Company all of his respective rights in these
and all other antennas that have been and will be developed while he is 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. 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.
5
Disclosure Regarding Forward-Looking Statements And Cautionary Statements
Forward-Looking Statements. This Prospectus includes "forward-looking
statements" within the meaning of Section 21E of the Securities Act Of 1934, as
amended (the "Exchange Act"). All statements other than statements of historical
fact included in this Annual Report, including without limitation under "ITEM 1.
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, 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 such forward-looking statements and the
assumptions upon which the forward-looking statements are based are reasonable,
it can give no assurance that such expectations will prove to have been correct.
Additional statements concerning important factors that could cause
actual results to differ materially from the Company's expectations are
disclosed in the following "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. Previous Losses. From the time that the Company was formed in September
1987 through the fiscal year ended December 31, 1992 and again for the year
ended December 31, 1998, the Company incurred losses from operations. The
Company operated profitably during each of the fiscal years ended December
31, 1993 through 1997. Profits for some of these periods were marginal, and
there is no assurance that the operations of the Company will be profitable
in the future. See the financial statements included in Item 13 of this
Annual Report on Form 10-KSB.
2. Rapid Changes In Technology. The Company does business in the antenna and
communications industries. These industries are characterized by rapidly
developing technology and there is no assurance that the Company will be
able to keep pace with development in technology. If the Company is not
able to keep pace with developments in technology, the Company's
competitors may be able to offer better products and attract customers away
from the Company. The Company engages in research and development in order
to keep pace with changes in technology. The costs and expenses associated
with this research and development increase the Company's overall costs and
reduce the Company's potential profits or increase the Company's losses.
6
3. Protection Of Product Design. The Company attempts to protect its product
designs by obtaining patents, when available, and by manufacturing the
Company's products in a manner that makes reverse-engineering difficult.
These protections may not be sufficient to prevent the Company's
competitors from developing products that perform in a manner that is
similar to or better than the Company's products. Competitors' success may
result in decreased margins and product sales for the Company.
4. Limited Financial Resources. The limited financial resources available to
the Company restrict the Company's ability to grow. In order to develop new
products to effectively compete in the satellite communications, antenna
and microwave industries, the Company requires capital in excess of any
cash flow generated from the Company's current operations. Limited
financial resources for these purposes may put the Company at a competitive
disadvantage as other companies develop new products that make the
Company's products obsolete. This may result in decreases in the Company's
revenues and in operating losses for the Company.
5. Competition. The satellite communications, antenna and microwave industries
are highly competitive and the Company competes with substantially larger
companies in the production and sale of antennas. These competitors have
larger sales forces, more highly developed marketing programs, and more
administrative and service personnel than the Company. These larger
competitors also have greater financial resources available for research
and development and marketing of products competitive to the Company's
products. The Company's competitive disadvantages make it more difficult
for the Company to develop, market and sell the Company's products. The
Company believes, however, that it will have certain advantages in
developing and marketing products utilizing more cost-effective technology,
to undertake smaller projects, and to respond to customer requests more
quickly than larger competitors. There is no assurance that these beliefs
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 these functions.
There is no assurance that efficient workers will continue to be available
to the Company at a cost consistent with the Company's budget. Low
unemployment rates in the Denver, Colorado region may have an adverse
affect on the Company's ability to obtain qualified workers at a reasonable
cost.
7. Dependence On Key Personnel. The success of the Company is largely
dependent upon the efforts of its executive management, including Randall
P. Marx, Chief Executive Officer of the Company. The loss of the services
of any of the Company's executive management could be detrimental to the
Company because there is no assurance that the Company could replace any of
these personnel adequately at an affordable compensation level.
8. Government Regulation. The Company is subject to government regulation of
its business operations in general. In addition, the Company's antenna
products that are designed to send signals are subject to regulation by the
Federal Communications Commission. Changes in laws or regulations may cause
the Company's cost of compliance with these laws or regulations to increase
which would reduce the Company's potential profit, or increase the
Company's losses.
7
9. Inactive Trading Of The Common Stock; Possible Volatility Of Stock Price.
There is an extremely limited public market for the common stock, and there
is no assurance that this market will be sustained or will expand. The
prices of the Company's securities are highly volatile. Many brokerage
firms have internal rules prohibiting their brokers from engaging in
transactions with low-priced stock. In addition, some brokerage firms may
not deal with low priced securities as it may not be economical for them to
do so. This could have an adverse effect on developing and sustaining the
market for the Company's securities.
For the foreseeable future, trading in the Company's securities, if any,
will occur in the over-the-counter market, and the securities will be
quoted on the OTC Bulletin Board. The closing quotes for the common stock
on March 23, 1999 were $.07 bid and $.09 asked. The Company does not
anticipate that its common stock will qualify for listing on the Nasdaq
Stock Market in the near future. As a result, holders of the Company's
securities may be unable to sell their securities when they wish to do so,
if at all.
10. Regulation Of Trading In Low-Priced Securities May Discourage Investor
Interest. Trading in the Company's common stock is subject to the SEC's
"penny stock" rules. The penny stock rules require a broker-dealer, prior
to a transaction in a penny stock not otherwise exempt from the rules, to
deliver a standardized risk disclosure document prescribed by the
Commission that provides information about penny stocks and the nature and
level of risks in the penny stock market. The broker-dealer also must
provide the customer with current bid and offer quotations for the penny
stock, the compensation of the broker-dealer and its salesperson in the
transaction, and monthly account statements showing the market value of
each penny stock held in the customer's account. The bid and offer
quotations and the broker-dealer and salesperson compensation information
must be given to the customer orally or in writing before or with the
customer's confirmation. In addition, the penny stock rules require that
prior to a transaction in a penny stock not otherwise exempt from such
rules, the broker-dealer must make a special written determination that the
penny stock is a suitable investment for the purchaser and receive the
purchaser's written agreement to the transaction. These disclosure
requirements may have the effect of reducing the level of trading activity
in the secondary market for a stock that becomes subject to the penny stock
rules. The Company believes that the penny stock rules discourage investor
interest in, and limit the marketability of, the common stock of the
Company.
The penny stock rules would not be applicable to the Company's common stock
if the common stock were trading at a price of at least $5 per share, if
the Company's net tangible assets were at least $2 million, if the Company
had average annual revenue of at least $6 million for a three-year period,
or if the Company's common stock were listed on the NASDAQ Stock Market.
The Company intends to attempt to make its common stock exempt from the
penny stock rules, but it may not be able to qualify for an exemption.
Item 2. Properties
The Company is the tenant in a three year lease through May 15, 2000 on
5,100 square feet of office space and 17,500 square feet of production space in
Wheat Ridge, Colorado at a cost of approximately $15,600 per month. The Company
also is obligated to pay for all utilities, taxes and insurance on the
production space. The property is in good condition.
8
Item 3. Legal Proceedings
On February 9, 1998, Mega Circuits, Inc. 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 that the Company was forced to recall in 1996. In its answer, the Company
denied any liability to Mega Circuits, asserted a number of defenses based on
Mega Circuits' failure to deliver proper products ordered by the Company, and
asserted a counter claim for damages resulting from, among other things, the
recall of several thousand of the Company's passive repeater antennas in fiscal
1996. The Company and Mega Circuits agreed to settle this lawsuit upon the
payment by the Company to Mega Circuits of $17,500. This amount was paid during
the fourth quarter of 1998.
On August 6, 1997, the Company filed a lawsuit against Terk
Technologies Corporation, Neil Terk, Tom Jensen & Associates, Tom Jensen, and
Robert A. Hodge, Jr. for false and/or misleading representations regarding the
Company's local TV antennas. Terk Technologies Corporation is a competitor of
the Company. 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 tortuous interference with prospective economic advantage, unfair
competition and trade disparagement under Illinois common law. The lawsuit
relates to a report which the Company alleges 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.
In May 1998, Terk Technologies Corporation filed a counterclaim against
the Company alleging that the Company engaged in false and/or misleading
representations in violation of the Lanham Act, a federal law concerning patents
and trademarks, and in consumer fraud in violation of the Illinois Consumer
Fraud and Deceptive Trade Practices Act. The counterclaim seeks unspecified
damages, including costs and punitive damages. The counterclaim also requests
that the Company withdraw and correct alleged deceptive statements attributed to
the Company. The Company filed an answer to the counterclaim denying the
allegations and denying that the Company was responsible for the statements
attributed to the Company.
In October 1998, the Court dismissed the action while allowing the
Company to file a pretrial order with the Court setting forth the basis for
trying the case. In January 1999, the case was reinstated. The Company is now
proceeding with the discovery process from the defendants in this case.
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
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.
9
Trading in the Company's securities is very limited and 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.
Common Stock
------------
Bid
---
Quarter Ended High Low
- - ------------- ---- ---
March 31, 1997 ............ .20 .06
June 30, 1997 ............. .06 .04
September 30, 1997 ........ .12 .03
December 31, 1997 ......... .09 .04
March 31, 1998 ............ .165 .05
June 30, 1998 ............. .125 .075
September 30, 1998 ........ .10 .04
December 31, 1998 ......... .045 .0175
On March 23, 1999, the closing bid and asked prices for the Company's
common stock were $.07 and $.09 respectively. On December 31, 1998, the number
of Shareholders of record of the Company was 337. The Company has not declared
or paid any cash dividends on its common stock since its formation and does not
presently anticipate paying any cash dividends on its common stock in the
foreseeable future.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Liquidity and Capital Resources
December 31,
------------
1998 1997
--------- ---------
Components of Working Capital (Deficit)
Cash ...................................... $ 17,555 $ 61,642
Accounts Receivable ....................... 336,732 327,685
Inventory ................................. 300,366 508,554
Other Current Assets ...................... 21,938 72,469
Accounts Payable .......................... (351,793) (415,377)
Notes Payable and Capital Lease Obligations (370,348) (504,535)
Notes Payable - Officers .................. (33,274) -0-
Other Current Liabilities ................. (77,548) (29,642)
Total Working Capital (Deficit) ........... (156,372) 20,796
The $177,168 decrease in working capital was primarily due to a
decrease in inventory reflecting a $60,000 inventory write-off, $30,000
inventory reserve and better inventory management resulting in more inventory
turns. Better inventory management also led to a decrease in accounts payable.
Also contributing to the decrease in working capital were a decrease in cash and
other current assets which were offset by the reclassification of $113,000 of
liabilities from current to long term.
10
The Company had total assets of $1,480,905 as of December 31, 1998 as
compared with $1,627,071 as of December 31, 1997, or a 9.0% decrease from the
prior year. Total liabilities were $1,126,283 as of December 31, 1998 as
compared with $1,147,114 as of December 31, 1997, or a 1.8% decrease. The
decrease in total assets is primarily due to the inventory write off of $60,000
and inventory reserve of $30,000; more inventory turns resulting in less
inventory at the end of the period; and a decrease in cash.
The Company's net worth was $354,622 as of December 31, 1998 as
compared with $479,957 as of December 31, 1997. The issuance of common stock and
options for certain administrative expenses and the exercise of options
increased equity by $119,386 which was offset by the net loss for the period of
$244,726. As a result of past operations, the Company has an income tax
operating loss carryforward of approximately $1,025,000. The Company has
determined the likelihood of profitability for the year ending December 31, 1999
and future years thereafter and has recorded a $335,373 benefit for net
operating loss carryforward as provided for in Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes, that it reasonably expects to
use.
The Company's ability to generate sales revenues is dependent upon its
ability to create new products through the funding of research and development
and to satisfy product orders by paying 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 was a $500,000 revolving loan secured by the
Company's accounts receivable, inventory and equipment. Effective January 31,
1999, this facility was terminated by Norwest Business Credit and on February 1,
1999, the Company entered into an account purchase agreement with another
division of Norwest Business Credit. This agreement allows the Company to be
advanced 85% of certain approved receivables at a cost of 1% of the receivable
for the first 10 days and 1/15 of 1% each day thereafter until the account is
paid in full. The maximum rate charged is 9% of the receivable value. Norwest
Business Credit advances the funds on a non-recourse basis and upon payment by
the customer pays the non-factored amount to the Company, less the factoring
fees. As with the credit facility, the Company is using the proceeds for working
capital, capital expenditures associated with its product development, and for
general corporate purposes.
Effective February 16, 1999, an agreement was entered into with Jasco
Products, the Company's distributor for the Dishmate(TM), Optima(R) and MAX
antennas. Under this agreement, Jasco advanced the Company $200,000 at an
interest rate of 12% until March 1, 2000, and at 14% thereafter, and the Company
granted Jasco options to purchase 500,000 shares of stock at a price of $.03 per
share. The note will be paid back through a reduced price on product and
interest will be paid monthly. The funds advanced by Jasco are being used for
working capital 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, 1998 Compared To Fiscal Year Ended
December 31, 1997
For the year ended December 31, 1998, the Company's total revenues were
$2,926,728 as compared with $3,012,266 for the prior year. The 2.8% decrease in
revenues is primarily attributable to the delay of the Company's planned
introduction of its new line of local TV antennas until the first quarter of
1999, and therefore there was not an increase in sales of local TV antennas for
1998.
11
The Company's net results decreased to a $244,726 net loss from net
income of $134,500 for 1997. The loss was attributable to several factors
including the transition to a new antenna system for one of the Company's
largest OEM customers, the maintenance of production overhead despite the
seasonal lag in sales of the local TV antenna systems, increased marketing
costs, increases in general and administrative expenses incurred to support the
Company's additional infrastructure, and contractual investor relations
consulting fees of $30,000 and certain one-time related costs amounting to an
additional $57,000.
The increase in selling, general and administrative expenses to
$1,301,421 in 1998 from $850,536 in 1997 is attributable to the previously
mentioned contractual investor relations fees, increases in administrative and
sales salaries, additional legal fees associated with a lawsuit against a
competitor, and higher depreciation related to capital additions in 1998 and the
last half of 1997.
Interest expense increased by $11,544 for 1998 over 1997. The increase
is primarily attributable to the costs associated with the capital leases the
Company entered into during 1997 and 1998 for software, manufacturing and office
equipment.
Year 2000 Compliance
Year 2000 compliance is the ability of computer hardware and software
to respond to the problems posed by the fact that computer programs
traditionally have used two digits rather than four digits to define an
applicable year. As a consequence, any of the Company's computer programs or
equipment using internal programs may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in a system failure or
miscalculations causing interruption of operations, including temporary
inability to send invoices or engage in normal business activities or to operate
equipment such as telephone systems, facsimile machines and production
machinery.
To date, the Company has reviewed its financial accounting software and
system and has determined it is fully Year 2000 compliant. The Company has also
been informed by vendors that major pieces of office and production equipment
used by the Company are Year 2000 compliant.
The Company has initiated a review of its relationships with suppliers
and vendors to determine if there will be an impact to the Company's operations
due to a Year 2000 issue with a vendor's or supplier's system. The Company does
not rely on any sole source vendors, and most items can be obtained from
alternate sources if a preferred supplier is not able to meet the Company's
needs. Because this review is not completed, the Company has not yet developed a
contingency plan for any vendors that may not be Year 2000 compliant. The
Company anticipates that its contingency plan will include utilizing alternate
suppliers and vendors. Using alternate vendors may not be efficient for some
products though, due to required set up time for a new vendor. This vendor and
supplier review and a related contingency plan is expected to be completed in
the first half of 1999. Costs to date to become Year 2000 compliant and expected
costs in the future are not anticipated to be significant.
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.
12
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
The Company filed a Form 8-K dated January 6, 1999 reporting the change
in its independent public accountants to Ernst & Young LLP from James E.
Scheifley & Associates, P.C. The information in the 8-K report is incorporated
herein by reference.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons: Compliance
with Section 16(a) of the Exchange Act
Name Age Position with the Company Director Since
------------------------ --- --------------------------------------- --------------
Randall P. Marx ........ 46 Chief Executive Officer; Treasurer; and 1990
Director
Kevin O. Shoemaker ..... 44 Chief Scientist and Director 1989
Richard L. Anderson .... 50 Vice President; Secretary; and Director 1994
Julie H. Grimm ......... 32 Chief Financial Officer --
Bruce Morosohk ......... 40 Director 1989
Sigmund A. Balaban ..... 57 Director 1994
Donald A. Huebner ...... 54 Director 1998
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 served as the Chairman of the Board of the Company
from 1989 to March 1999. He also served as Executive Vice President from May
1990 until November 1991 and as President from November 1991 until April 1994.
Mr. Shoemaker's prior employment 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.
13
Richard L. Anderson has served as a director of the Company since
December 1994. From March until December 1995, he served as a part-time
consultant to assist with the general operations of the Company. Since January
1996, Mr. Anderson has served as Vice President of Administration for the
Company, and as of March 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 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.
Julie H. Grimm has been the Chief Financial Officer of the Company
since May 1998. From 1997 to 1998, Ms. Grimm, a Certified Public Accountant, was
the Accounting Manager for Qwest Communications, a telecommunications company
based in Denver. From 1991 to 1997, Ms. Grimm was employed by Harris
Corporation, a Florida-based electronics manufacturing company, as the Financial
Audit Manager. Prior to April 1991, Ms. Grimm was with Ernst & Young LLP, in
Atlanta, Georgia, serving clients in the manufacturing industry.
Bruce Morosohk has served as a director of the Company since 1989. He
also served as Secretary from 1988 until March 1998 and 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 been employed by Fujitsu General America, Inc. of
Fairfield, New Jersey, formerly Teknika Electronics, since 1986 serving as Vice
President, Credit from 1986 to 1992 and as Senior Vice President and General
Manager from 1992 to the present. Fujitsu General America, Inc. is a subsidiary
of Fujitsu General, Ltd., a Japanese multiline manufacturer.
Donald A. Huebner has served as a director of the Company since May
1998. Dr. Huebner has been a Department Staff Engineer of Lockheed Martin
Astronautics in Denver, Colorado since 1986. In this capacity, Dr. Huebner
served as technical consultant for phased array and space craft antennas as well
as other areas concerning antennas and communications. Prior to joining Lockheed
Martin, Dr. Huebner served in various capacities with Ball Communication Systems
and Hughes Aircraft Company. Dr. Huebner also has served as a part-time faculty
member in the electrical engineering departments at the University of Colorado
at Boulder, California State University at Northridge, and University of
California, Los Angeles ("UCLA"). Dr. Huebner also has served as consultant to
various companies, including as a consultant to the Company from 1990 to the
present. Dr. Huebner received his Bachelor of Science in Electrical Engineering
from UCLA in 1966 and his Master's of Science in Electrical Engineering from
UCLA in 1968. Dr. Huebner received his Ph.D. from UCLA in 1972 and a Master's in
Telecommunications from the University of Denver in 1996. Dr. Huebner is a
member of a number of professional societies, including the Antennas And
Propagation Society and Microwave Theory And Technique Society of the Institute
of Electrical and Electronic Engineers.
Each of the Company's officers serves at the pleasure of the Company's
Board of Directors. The only family relationship among the Company's officers
and directors is that Messrs. Shoemaker and Morosohk are brothers-in-law.
14
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of 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,
1998, its officers, directors and holders of more than 10% of the Company's
common stock complied with all Section 16(a) filing requirements. In making
these statements, the Company has relied upon the written representation 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.
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, 1998 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 $100,000 during any of the three successive fiscal years ending
December 31, 1998.
Long Term Compensation
-------------------------------------------------
Annual Compensation Awards Payouts
------------------------------------------- ---------- -------
Restricted
Other Annual Stock LTIP All Other
Fiscal Salary Bonus Compensation Awards Options Payouts Compensation
Name and Principal Position Year ($) (1) ($) (2) ($) (3) ($) (#) ($) (4) ($) (5)
- - -------------------------- -------- --------- -------- --------------- ------------ --------- ---------- --------------
Randall P. Marx 1998 90,000 -0- -0- -0- -0- -0- -0-
Chief Executive Officer,
Treasurer and a Director 1997 75,000 10,100 -0- -0- -0- -0- -0-
1996 75,000 -0- -0- -0- -0- -0- -0-
Kevin O. Shoemaker 1998 64,187 -0- -0- -0- -0- -0- -0-
Chairman of the Board,
Chief Scientist, and a 1997 54,000 -0- -0- -0- -0- -0- -0-
Director
1996 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.
15
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
qualifying for beneficial tax treatment for the recipient or they may be
non-qualified options. The Plan is administered by an option committee that
determines the terms of the options subject to the requirements of the Plan,
except that the option committee shall not administer the Plan with respect to
automatic grants of options to directors of the Company who are not also
employees of the Company ("Outside Directors"). The option committee may be the
entire Board or a committee of the Board.
At the time of their election, Outside Directors automatically receive
non-exercisable options to purchase 250,000 shares pursuant to the Plan. Options
to purchase 50,000 shares become exercisable for each meeting of the Board of
Directors attended by each Outside Director on or after 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 after 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.
Mr. Balaban, the sole Outside Director on November 19, 1997, received
options to purchase 250,000 shares, at an exercise price of $.08 per share,
pursuant to the Plan on November 19, 1997. All of these options are exercisable
until November 19, 2002. Mr. Balaban then received options to purchase an
additional 250,000 shares at an exercise price of $.095 per share on June 24,
1998. Of this grant, 150,000 shares were exercisable at December 31, 1998. Mr.
Huebner received options to purchase 250,000 shares at an exercise price of
$.085 per share on May 15, 1998. Of this amount, 200,000 had become exercisable
at December 31, 1998.
Compensation Of Outside Directors. In addition to the stock options
described in the preceding paragraphs, 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, Chief Executive Officer 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.
Prior to the adoption of the Plan in November 1997, the Company granted
options ("Outside Director Options") and shares ("Outside Director Shares") to
the Outside Directors commencing in January 1995. On January 3, 1995, Outside
Directors Options to purchase 250,000 shares at an exercise price of $.05 per
share were granted to each of Sigmund A. Balaban and Richard L. Anderson, who
both were Outside Directors at the time. The closing bid price for the common
stock was $.001 per share on January 3, 1995. All options granted to Mr. Balaban
have now become exercisable. Of the options granted to Mr. Anderson, 150,000
became exercisable when Mr. Anderson was an Outside Director and the remaining
100,000 cannot become exercisable as long as Mr. Anderson is an officer and
employee of the Company. These options expire on January 3, 2000.
16
Also prior to adoption of the Plan, Outside Director Options to
purchase an additional 250,000 shares were issued to Mr. Balaban on December 26,
1996 at an exercise price of $.0475 per share, which was the closing bid price
on the date of grant. These options have become exercisable and expire on
December 26, 2001.
For the period from January 1995 through the adoption of the Plan in
November 1997, Outside Directors were allowed to receive their meeting
attendance fees in the form of common stock based on the fair market value of
the common stock on the date of the meeting. The Outside Director Options and
the Outside Director Shares granted prior to May 15, 1998 were subject to
shareholder approval. As of December 31, 1998, a total of 83,796 shares of stock
had been granted to the Outside Directors in lieu of meeting fees.
Option Grants. In addition to the automatic grant of options to the
Outside Directors described above under "1997 Stock Option And Compensation
Plan", stock options have been granted pursuant to the Company's Plan on two
occasions. On November 19, 1997, each of three employees was 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. On
April 14, 1998, options to purchase 50,000 shares at an exercise price of $.12
per share were issued to an employee of the Company. These options also were to
become exercisable upon certain corporate goals being. As of December 31, 1998,
the corporate goals were not met and these options expired. Also on April 14,
1998, the Board of Directors approved the issuance of options to purchase up to
300,000 shares of common stock at an exercise price of $.105 to Julie H. Grimm,
the Company's Chief Financial Officer. Of these options, options to purchase
100,000 shares became exercisable on July 27, 1998 and the remaining options to
purchase 200,000 shares will become exercisable on April 28, 1999. The
respective options terminate two years after they first become exercisable.
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 Chief Scientist of the Company and an 8.5
percent stockholder. The Employment Agreement provides for a term ending
December 31, 1999 at an annual salary rate of not less than $66,000 per year.
Mr. Shoemaker's annual salary rate pursuant to the Employment Agreement will
increase to $70,000 if Mr. Shoemaker meets the criteria for receiving a bonus
pursuant to the Employment Agreement. Mr. Shoemaker is eligible to receive a
bonus for a particular fiscal year during the term of the Employment Agreement
if the Company has net profits of at least $300,000 for that fiscal year and if
Mr. Shoemaker contributes a reasonable amount of finished products to the
Company's assortment of existing products for that fiscal year. If these
criteria are met, Mr. Shoemaker will receive a bonus in 1999 ranging from
$10,000 if the Company has net profits in the applicable fiscal year of at least
$300,000 up to a bonus of $30,000 if the Company has net profits in the
applicable fiscal year of at least $900,000. In connection with the Employment
Agreement, Mr. Shoemaker agreed not to sell or otherwise dispose of any shares
of common stock prior to December 31, 1999 without the prior written consent of
the Company.
The Company entered into a written employment agreement with Randall P.
Marx, the Company's Chief Executive Officer and Treasurer on October 1, 1998
with an effective date of September 1, 1998. Mr. Marx is the beneficial owner of
8.6 percent of the Company's stock. The agreement is for a period of two years
with an annual salary rate of $115,000. Mr. Marx is eligible for a bonus of five
percent of the income from operations of the Company per fiscal year for each
fiscal year during the term. As a part of this agreement, Mr. Marx has agreed
not to compete with the Company for a period of two years following his
termination as an employee of the Company.
17
The Company entered into an employment agreement with Richard L.
Anderson, Vice President, Administration and Secretary, on October 1, 1998. The
term of the agreement is 23 months and provides for an annual salary rate of not
less than $57,500. The agreement provides that options to purchase 150,000
shares will become exercisable if the Company has net operating income ("NOI"),
determined after subtracting interest expense but before adding any income
related to forgiveness of indebtedness owed by the Company, of between $300,000
and $599,000 in 1998, options to purchase 300,000 shares will become exercisable
if 1998 NOI is between $600,000 and $899,999, and options to purchase 500,000
shares will become exercisable if 1998 NOI is at least $900,000. Options to
purchase an additional 150,000 shares will become exercisable if 1999 NOI is
between $400,000 and $699,999, options to purchase 300,000 shares will become
exercisable if 1999 NOI is between $700,000 and $999,999, and options to
purchase 500,000 shares will become exercisable if 1999 NOI is at least
$1,000,000. These options will become exercisable upon the determination of the
respective NOI and expire two years after becoming exercisable. The options for
1998 did not become exercisable based on the results of operations of the
Company. The exercise price for the options that could have become exercisable
based on 1998 results was $.135 per share and the exercise price of the options
that could become exercisable based on 1999 results is $.135 per share.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table summarizes certain information as of March 23, 1999
with respect to the beneficial ownership of the Company's common stock by each
director, by all executive officers and directors as a group, and by each other
person known by the Company to be the beneficial owner of more than five percent
of the Company's common stock:
Number of Shares
Name and Address of 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 1,062,209 (2) 1.4
10 Grecian Street
Parsippany, NJ 07054
Randall P. Marx 6,520,000 (3) 8.6
Antennas America Inc.
4860 Robb Street, Suite 101
Wheat Ridge, CO 80033
Bruce Morosohk 5,491,117 (4) 7.3
Antennas America Inc.
4860 Robb Street, Suite 101
Wheat Ridge, CO 80033
18
Number of Shares
Name and Address of Beneficial Owner Beneficially Owned Percent of Class
- - -------------------------------------------------------------------- -------------------------- --------------------
Kevin O. Shoemaker 6,434,474 (5) 8.5
Antennas America Inc.
4860 Robb Street, Suite 101
Wheat Ridge, CO 80033
Donald A. Huebner 267,697 (6) *
6305 W. Apache Drive
Larkspur, CO 80118
Julie H. Grimm 300,000 (7) *
Antennas America Inc.
4860 Robb Street, Suite 101
Wheat Ridge, CO 80033
All Officers and Directors as a group (seven persons) 21,556,497 28.0
(1)(2)(6)(7)
Rocky Mountain Gastroenterology P.C. Profit Sharing Trust 4,750,000 6.2
6550 West 38th Avenue, Suite 300
Wheat Ridge, CO 80033
* Less than one percent.
(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; and options
under the Plan to purchase 150,000 shares for $.05 per share that expire on
January 3, 2000; does not include options to purchase 500,000 shares that
could become exercisable during fiscal year 2000 if certain performance
criteria are met during 1999. See above, "Employment Contracts And
Termination Of Employment And Change-In-Control Arrangements".
(2) Includes 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 250,000 shares at $.08 per share until November 19, 2002,
all of which currently are exercisable, and options under the Plan to
purchase 250,000 shares at $.095 per share until June 24, 2003, 200,000 of
which currently are exercisable.
(3) Includes 435,000 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 Outside Director Options under the Plan to purchase 250,000
shares at $.085 per share until May 15, 2003 all of which are currently
exercisable.
(7) Consists of options under the Plan to purchase 100,000 shares of common
stock for $.105 per share, which expire on July 27, 2000, and options to
purchase 200,000 shares to become exercisable on April 28, 1999 and to
expire on April 28, 2001.
19
Item 12. Certain Relationships and Related Transactions
Not applicable.
Item 13. Exhibits and Reports on Form 8-K
(a) Financial Statements
Reports of Independent Auditors..................................F-1
Balance Sheet at December 31, 1998...............................F-3
Statements of Operations for the Years Ended
December 31, 1998 and 1997................................F-4
Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 1998 and 1997............F-5
Statements of Cash Flows for the Years Ended
December 31, 1998 and 1997................................F-6
Notes to Financial Statements....................................F-7
(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 Amendments of the Company dated January 26,
1988 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).
3.1c Articles of 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 10, 1998 between the Company
and Five K Investments (1) 10.1b Renewal and Extension of
Lease dated April 10, 1998 between the Company and Five K
Investments (1)
20
10.1c Renewal and Extension of Lease dated April 10, 1998 between
the Company and Five K Investments (1)
10.1d Renewal and Extension of Lease dated April 10, 1998 between
the Company and Five K Investments (1)
10.2a Employment Agreement dated as of October 1, 1998 between
the Company and Randall P. Marx
10.2b Employment Agreement dated as of October 1, 1998 between
the Company and Richard L. Anderson
10.2c Employment Agreement dated as of March 31, 1998 between the
Company and Kevin O. Shoemaker incorporated herein by
reference from the Company's Form 10-KSB Annual Report
dated March 31, 1998 (File No. 000-18122)
27.1 Financial Data Schedule
(1) Incorporated by reference from the Company's Form SB-2 Registration
Statement dated June 8, 1998 (File No. 333-53453)
(b) Reports on Form 8-K. Just subsequent to the last quarter of the fiscal
year ended December 31, 1998, the Company filed one report on Form 8-K
for an event occurring on December 7, 1998.
21
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 31, 1999 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 by the
following persons on behalf of the registrant in the capacities and on the dates
indicated.
Date Signatures
-------------- -----------------------------
March 31, 1999 /s/ Richard L. Anderson
-----------------------------
Richard L. Anderson, Director
March 31, 1999 /s/ Sigmund A. Balaban
-----------------------------
Sigmund A. Balaban, Director
March 31, 1999 /s/ Randall P. Marx
-----------------------------
Randall P. Marx, Director
March 31, 1999 /s/ Bruce Morosohk
-----------------------------
Bruce Morosohk, Director
March 31, 1999 /s/ Kevin O. Shoemaker
-----------------------
Kevin O. Shoemaker, Director
March 31, 1999 /s/ Donald A. Huebner
-----------------------------
Donald A. Huebner, Director
22
Report of Independent Auditors
The Board of Directors and Stockholders
Antennas America, Inc.
We have audited the accompanying balance sheet of Antennas America, Inc. as of
December 31, 1998, and the related statements of operations, changes in
stockholders' equity, and cash flows for the year 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Antennas America, Inc. at
December 31, 1998, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
/s/Ernst & Young, LLP
Denver, Colorado
March 12, 1999
F-1
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 the year 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 audit.
We conducted our audit 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 audit provides 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 the year then ended, in conformity with generally accepted accounting
principles.
James E. Scheifley & Associates, P.C.
Certified Public Accountants
Englewood, Colorado
March 6, 1998
F-2
Antennas America, Inc.
Balance Sheet
December 31, 1998
Assets
Current assets:
Cash $ 17,555
Accounts receivable, less allowance for doubtful accounts of $6,465 336,732
Inventory 300,366
Prepaid expenses 21,938
----------------
Total current assets 676,591
Property and equipment, at cost, net of accumulated
depreciation 404,814
Other assets:
Deferred tax asset, noncurrent 335,373
Intangible assets, net of accumulated amortization of $49,419 40,539
Deposits and other long term assets 23,588
----------------
Total assets $1,480,905
================
Liabilities and stockholders' equity
] Current liabilities:
Note payable-bank $ 209,892
Notes payable-others 97,799
Notes payable-officers 33,274
Current portion of capital lease obligations 62,657
Accounts payable 351,793
Accrued expenses 77,548
----------------
Total current liabilities 832,963
Other long-term obligations 6,000
Capital lease obligations, less current portion 60,027
Notes payable-others, less current portion 116,345
Notes payable-officers, less current portion 110,948
----------------
Total liabilities 1,126,283
Commitments
Stockholders' equity:
Common stock, $.0005 par value, 250,000,000 shares
authorized, 75,371,847 shares issued and outstanding 37,686
Additional paid-in capital 937,839
Accumulated deficit (620,903)
----------------
Total stockholders' equity 354,622
----------------
Total liabilities and stockholders' equity $1,480,905
================
See accompanying notes.
F-3
Antennas America, Inc.
Statements of Operations
Year ended December 31,
1998 1997
------------------------------------
Sales, net $2,926,728 $3,012,266
Cost of sales 1,922,522 1,890,657
------------------------------------
Gross profit 1,004,206 1,121,609
Selling, general and administrative expenses 1,301,421 850,536
------------------------------------
Income (loss) from operations (297,215) 271,073
Other income (expense):
Interest expense (83,774) (72,230)
Other income 3,498 3,810
------------------------------------
Total other income (expense) (80,276) (68,420)
------------------------------------
Income (loss) before income taxes (377,491) 202,653
Provision for (benefit from) income taxes (132,765) 68,153
------------------------------------
Net income (loss) $ (244,726) $ 134,500
====================================
Net income (loss) per share $0.00 $0.00
Weighted average shares outstanding 74,676,836 73,189,422
See accompanying notes.
F-4
Antennas America, Inc.
Statements of Changes in Stockholders' Equity
Common Stock Additional
--------------------------- Paid-in Accumulated Stock
Shares Amount Capital Deficit Subscriptions Total
---------------------------------------------------------------------------------------------
Balance, December 31, 1996 73,189,422 $36,595 $801,039 $(510,677) $ 3,500 $330,457
Exercise of stock options - - - - 15,000 15,000
Net income - - - 134,500 - 134,500
---------------------------------------------------------------------------------------------
Balance, December 31, 1997 73,189,422 36,595 801,039 (376,177) 18,500 479,957
Issuance of subscribed shares 650,000 325 18,175 - (18,500) -
Cancellation of common stock (51,371) (26) 26 - - -
Consulting expense related to
issuance of stock options - - 40,000 - - 40,000
Exercise of vendor stock 1,500,000 750 73,691 - - 74,441
options
Common stock issued for 83,796 42 4,908 - - 4,950
directors' fees
Net loss - - - (244,726) - (244,726)
---------------------------------------------------------------------------------------------
Balance, December 31, 1998 75,371,847 $37,686 $937,839 $(620,903) $ - $354,622
=============================================================================================
See accompanying notes.
F-5
Antennas America, Inc.
Statements of Cash Flows
Year ended December 31,
1998 1997
----------------------------------
Operating activities
Net income (loss) $ (244,726) $ 134,500
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 115,372 54,735
Loss on disposal of property and equipment 25,478 -
Noncash expense for issuance of stock and options 44,950 -
Accrued interest on notes payable added to principal 15,974 10,323
Accrued salary added to note payable 7,308 -
Deferred tax expense (benefit) (132,764) 68,153
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (9,047) (161,274)
(Increase) decrease in inventory 208,188 (312,705)
(Increase) decrease in prepaid expenses 53,803 (38,996)
(Increase) decrease in other assets (12,976) 13,500
Increase (decrease) in accounts payable and accrued expenses (3,115) 233,120
----------------------------------
Net cash provided by operating activities 68,445 1,356
Investing activities
Patent acquisition costs (14,665) (12,940)
Acquisition of plant and equipment (73,070) (245,315)
----------------------------------
Net cash used in investing activities (87,735) (258,255)
Financing activities
Proceeds (reductions) from revolving credit line (40,837) 293,330
Repayment of notes and leases payable (84,400) (46,425)
Proceeds from equipment refinancing 32,104 -
Proceeds from exercise of options 69,336 -
Common stock subscriptions - 15,000
Proceeds from officer loan - 9,500
Repayment of officer loans (1,000) (8,500)
----------------------------------
Net cash provided by (used in) financing activities (24,797) 262,905
----------------------------------
Net increase (decrease) in cash (44,087) 6,006
Cash, beginning of year 61,642 55,636
----------------------------------
Cash, end of year $ 17,555 $ 61,642
==================================
Supplemental cash flow information:
Cash paid for interest $ 63,271 $ 61,907
Cash paid for income taxes - -
Noncash investing and financing activities:
Capital lease obligations incurred 53,137 -
Tax benefit related to stock options 5,100 -
See accompanying notes.
F-6
Antennas America, Inc.
Notes to Financial Statements
December 31, 1998
1. Organization and Summary of Significant Accounting Policies
Organization
Antennas America, Inc. (the Company) was incorporated in Colorado on September
6, 1988 and was reorganized as a Utah corporation on April 12, 1989. The Company
manufactures and sells antennas used for various purposes.
Consolidation
The wholly owned subsidiary of the Company, Antennas America Distributing
Company, was dissolved effective December 29, 1998. The results of operations of
this subsidiary have been included in the consolidated results of Antennas
America, Inc. through that date.
Inventory
Inventory is valued at the lower of cost or market using standard costs which
approximate average cost. Inventories are reviewed periodically and items
considered to be slow-moving or obsolete are reduced to estimated net realizable
value through an appropriate reserve. Inventory consists of the following at
December 31, 1998:
Raw materials $161,295
Work in progress 134,034
Finished goods 36,037
------------
331,366
Inventory reserve (31,000)
------------
Net inventory $300,366
============
Property and Equipment
Property and equipment are stated at cost. The Company uses the straight-line
method over estimated useful lives of three to seven years to compute
depreciation for financial reporting purposes and accelerated methods for income
tax purposes. 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.
F-7
Antennas America, Inc.
Notes to Financial Statements (continued)
1. Organization and Summary of Significant Accounting Policies (continued)
Property and equipment consist of the following at December 31, 1998:
Machinery and equipment $439,332
Computer equipment and software 93,897
Furniture and fixtures 62,779
Leasehold improvements 29,204
--------------
625,212
Accumulated depreciation (220,398)
==============
$404,814
==============
Depreciation expense amounted to $106,048 and $49,934 during the years ended
December 31, 1998 and 1997, respectively.
Substantially all of the Company's fixed assets are pledged as collateral for
debt described in Notes 2 and 3.
Patent Costs
Patent costs are stated at cost and amortized over ten years using the
straight-line method. Amortization expense amounted to $9,324 and $8,272 for the
years ended December 31, 1998 and 1997, respectively.
Research and Development
Research and development costs are charged to expense as incurred. Such costs
were not material for the years ended December 31, 1998 and 1997.
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. In 1997, the
Company began retail sales of its product through a distributor. Returns related
to such sales have been immaterial and within management's expectations.
Cash
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash.
F-8
Antennas America, Inc.
Notes to Financial Statements (continued)
1. Organization and Summary of Significant Accounting Policies (continued)
Income (Loss) Per Share
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 128 (SFAS 128), Earnings Per Share. SFAS 128
supersedes and simplifies the existing computational guidelines under Accounting
Principles Board (APB) Opinion No. 15, Earnings Per Share. Among other changes,
SFAS 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 income (loss) per share is computed by dividing the net
income (loss) for the year by the weighted average number of common shares
outstanding for the year. Income (loss) per share is unchanged on a diluted
basis.
Fair Value of Financial Instruments
The Company's short-term financial instruments consist of cash, accounts
receivable, and accounts payable and accrued expenses. The carrying amounts of
these financial instruments approximate 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.
The Company has several major customers (see Note 7), 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.
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.
Advertising Costs
Advertising costs are charged to operations when the advertising is first shown.
Advertising costs charged to operations were $11,841 and $40,940 in 1998 and
1997, respectively.
Reclassifications
Certain amounts in the December 31, 1997 financial statements were reclassified
to conform with the December 31, 1998 presentation.
F-9
Antennas America, Inc.
Notes to Financial Statements (continued)
2. Notes Payable
Notes payable to bank consists of an asset-based revolving credit line having a
maximum borrowing amount of $500,000, of which $209,892 was outstanding at
December 31, 1998. The line bore interest at prime plus 4.5% (13%) through
October 1998 and prime plus 6% thereafter (13.75% at December 31, 1998), and is
collateralized by accounts receivable, inventory and otherwise unencumbered
machinery and equipment. The line has $290,108 of unused credit at December 31,
1998. This line was discontinued by the bank as of January 31, 1999 and the
Company then entered into an account purchase agreement with another division of
the bank on February 1, 1999. All borrowings under the first line were paid
using proceeds from the new agreement. This agreement allows the Company to be
advanced 85% of certain approved receivables at a cost of 1% of the receivable
for the first 10 days and 1/15 of 1% each day thereafter until the account is
paid in full. The maximum rate charged is 9%. The funds are advanced on a
nonrecourse basis.
Notes payable to others at December 31, 1998 consists of uncollateralized
obligations to individuals and vendors and an equipment loan secured by a piece
of equipment as follows:
Amount due vendor, interest at 8% per annum, due January 31, 2000 $116,345
Amount due vendor, interest at 10% per annum, due on demand 86,484
Amount due individual without interest, due on demand 8,155
Amount due for equipment purchase, interest at 9.5% per annum,
paid in full in February 1999 3,160
--------
214,144
Less current portion 97,799
--------
$116,345
========
3. Capital Lease Obligations
During 1997 and 1998 the Company entered into financing type lease transactions
with leasing companies to lease certain manufacturing equipment, office
equipment and software. Most leases have bargain purchase options at the end of
the lease term. Scheduled maturities of the obligations as of December 31, 1998
are as follows:
1999 $ 78,463
2000 59,429
2001 6,324
------------
Minimum future lease payments 144,216
Less interest component (21,532)
------------
Present value of future net minimum lease payments 122,684
Less current portion (62,657)
------------
Due after one year $ 60,027
============
F-10
Antennas America, Inc.
Notes to Financial Statements (continued)
3. Capital Lease Obligations (continued)
Property and equipment include the following amounts for capital leases at
December 31, 1998:
Machinery and equipment $121,643
Software 27,656
Office equipment 19,885
--------------
169,184
Less accumulated amortization (26,366)
--------------
$142,818
==============
4. 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, who accounts for approximately 70% of the balance owed. The advances
accrue no interest. A portion of the balance is a loan to the Company to
purchase its computer network made by another officer. This loan accrues
interest at 8.5%.
5. Stockholders' Equity
In January 1996, the Company authorized a stock bonus to one of its officers for
350,000 shares of restricted common stock with a market value of $3,500. During
the year ended December 31, 1997, the Company accepted stock subscriptions from
an officer for 300,000 shares of its restricted common stock. The market value
of the stock subscribed at the subscription date amounted to $0.05 per share.
These shares were issued during 1998.
During 1998, the Company canceled 51,371 shares of its common stock. The
cancellation relates to the 1998 settlement of a dispute with one of the
Company's original shareholders regarding the actual number of shares issued to
this shareholder. There was no gain or loss recognized related to the
cancellation.
The Company entered into a contract with an investor relations firm effective
December 31, 1997 that granted the firm the option to buy 6,000,000 shares of
stock. The total included 2,000,000 at $0.06; 2,000,000 at $0.10 and 2,000,000
at $0.30. Sales of the shares underlying these options were registered effective
June 8, 1998 and 1,500,000 of the $0.06 options were exercised by the firm on
June 19, 1998. The Company recognized $40,000 of consulting expense in 1998
related to the fair market value of these option grants. These options were
valued by using the Black-Scholes method described below.
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 qualifying for beneficial tax treatment for
F-11
Antennas America, Inc.
Notes to Financial Statements (continued)
5. Stockholders' Equity (continued)
the recipient or they may be nonqualified options. The exercise prices of the
options granted are determined by the stock price on the date of grant and have
varying exercise periods. Certain options were granted under agreements where
certain performance standards were to be met before the options could be
exercised. Failure of the Company to meet these goals would result in the
options expiring. Under this plan, the following amounts of options are
outstanding:
Number of Weighted Average
Shares Exercise Price
---------------------- -----------------------
1997 Activity:
Outstanding at beginning of year 650,000 $0.049
Granted 550,000 0.091
Exercised - -
Forfeited - -
1998 Activity:
Outstanding at beginning of year 1,200,000 0.068
Granted 1,850,000 0.118
Exercised - -
Forfeited or expired 850,000 0.122
Outstanding at end of year 2,200,000 0.089
Exercisable at end of year 1,350,000 0.069
At December 31, 1998, the price range of options that are exercisable is $0.0475
to $0.105. These options expire beginning in 2000 to 2003. The weighted average
grant date fair values of the options granted during 1998 and 1997 were $.083
and $.070, respectively.
The Company has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25), and related interpretations
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FASB Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS
123), requires use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, if the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recognized.
Pro forma recognition regarding net income and earnings per share is required by
SFAS 123, which also requires that the information be determined as if the
Company has accounted for its employee stock options under the fair value method
of SFAS 123. The fair value for these options was estimated at the date of grant
using a Black-Scholes option valuation model with the following assumptions:
risk-free interest rate of 5.5%, a dividend yield of 0%, volatility factors of
the expected market price of the Company's common stock of between 1.395 to
1.781, and an expected life of two to five years.
F-12
Antennas America, Inc.
Notes to Financial Statements (continued)
5. Stockholders' Equity (continued)
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
sensitive assumptions, including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
option, the existing models do not necessarily provide a reliable single measure
of the fair value of its employee stock options.
1998 1997
------------------ ------------------
Net income (loss):
As reported $(244,726) $134,500
Pro forma $(285,756) $125,590
Earnings per share:
As reported $0.00 $0.00
Pro forma $0.00 $0.00
Because the SFAS 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma net results may not be
representative of that to be expected in future years.
6. 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. For the years ended December 31, 1998 and 1997, the
Company made estimates of the future utilization of its net operating loss
carryforward. These estimates account for the deferred tax asset recorded.
Income tax expense (benefit) for the years ended December 31, 1998 and 1997 is
as follows:
1998 1997
-------------- --------------
Current $ - $ -
Deferred (132,765) 68,153
-------------- --------------
Total $(132,765) $68,153
============== ==============
F-13
Antennas America, Inc.
Notes to Financial Statements (continued)
6. Income Taxes (continued)
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.
The components of the net accumulated deferred income tax asset are as follows:
1998 1997
--------------- ----------------
Deferred tax assets:
Net operating loss carryforwards $ 382,353 $221,572
Inventory reserve 11,563 -
Accrued expenses 8,206 -
Bad debt reserves 2,411 -
Other - 2,298
--------------- ----------------
404,533 223,870
Deferred tax liabilities:
Property and equipment (35,174) (26,361)
Other (33,986) -
--------------- ----------------
(69,160) (26,361)
--------------- ----------------
Net deferred tax assets $ 335,373 $197,509
=============== ================
A reconciliation of federal income taxes computed by multiplying pretax net
income by the statutory rate of 34% to the provision for income taxes is as
follows at December 31:
1998 1997
-------------------- --------------------
Tax expense (benefit) computed at
statutory rate $(128,347) $68,902
State income tax (13,268) 6,687
Effect of permanent differences (8,358) -
Other 17,208 (7,436)
-------------------- --------------------
Provision for income taxes (benefit) $(132,765) $68,153
==================== ====================
The Company has determined that profitability for the year ending December 31,
1999 and beyond is reasonably possible and has recorded the benefit of the net
operating loss carryforward as provided for in FAS 109. The Company has a net
operating loss carryforward of approximately $1,025,000 that will expire in
years beginning in 2004 as follows:
2004 $ 39,000
2005 336,000
2006 235,000
2018 415,000
---------------
$1,025,000
===============
F-14
Antennas America, Inc.
Notes to Financial Statements (continued)
7. 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, 1998 to three companies totaling $2,418,732
(83%) and for the year ended December 31, 1997 to two companies aggregating
$2,279,467 (76%). Additionally, the Company had open uncollateralized accounts
receivable from these customers aggregating $275,792 and $144,377 at December
31, 1998 and 1997, respectively.
8. Operating Leases
The Company leases its facilities under operating leases through May 31, 2000.
Minimum future rentals payable under the leases are as follows:
1999 $185,756
2000 70,153
-------------
$255,909
=============
Rent expense amounted to $176,801 and $190,217 for the years ended December 31,
1998 and 1997, respectively.
F-15