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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[ x ] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
For the fiscal year ended December 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from ________________ to _________________
Commission file 333-38567
WORLD WIRELESS COMMUNICATIONS, INC.
-----------------------------------
(Name of registrant in its charter)
Nevada 87-0549700
------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5670 Greenwood Plaza Blvd., Suite 340, Englewood, Colorado 80111
---------------------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number (303) 221-1944
Securities registered under Section 12(g) of the Exchange Act:
None
__________________________________________
(Title of Class)
Check whether the issuer (1) filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act
during the past 12 months (or for such shorter period that the
registrant was required to file such reports), and (2)has been
subject to such filing requirements for the past 90 days.
Yes [ X ] No [ ]
Check if there is no disclosure of delinquent filers
in response to Item 405 of Regulation S-K, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K.
[ ] Not applicable.
The aggregate market value of the voting stock held by
non-affiliates of the registrant computed by reference to the price
at which the stock was sold, or the average bid and asked prices of
such stock, as of March 28, 2000 was $104,323,309.
As of March 28, 2000 there were 29,817,705 shares of
the registrant's common stock issued and outstanding.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
BUSINESS
Overview
- - --------
World Wireless Communications, Inc. (the "Company",
"we" or "us") is a leading developer of wireless telemetry and
communications systems and components of spread spectrum digital
radios. By leveraging our extensive experience in developing
low-cost, reliable communications systems we have developed the
latest generation in web-enabling technology - X-traWeb (TM) .
Our X-traWeb solutions and services allow data from
a remote wireless radio frequency system to be accessed via a
secure, encrypted Internet connection using a standard web browser
located anywhere. Our technology has applications across a broad
range of industries, for which it can substantially improve the
efficiency and cost of access and manipulation of important data
from widely dispersed equipment.
By integrating system options that use several of
our proprietary wireless technologies, we have capitalized on
approximately two years of development resources to substantially
abbreviate our total time-to-market. Through this period, our
management has been engaged principally in developing product
positioning strategies, strategic planning and final development and
testing of our integrated "total technology solution."
Current Status
- - --------------
We have completed development and testing of the
core components of our web-enabled supervisory control and data
acquisition ("SCADA") solution, and are currently launching the
first phase of our near-term plan - introduction of our technology
solution to selected customers in major target markets to establish
beta installation testing for a variety of commercial and industrial
applications and the commencement of product sales.
Industry
- - --------
Commercialization of the Internet began in the
mid-1980s, with e-mail providing the primary means of communication.
However, it was the Internet's World Wide Web, which provided a
means to link text and pictures, which led to the blossoming of
e-commerce and sparked the explosive growth of the Internet in the
1990s. Today, millions of people around the world send and receive
information, and purchase products and services through the
Internet. The potential of such a large and still-growing market has
led many business analysts to consider e-commerce as the supreme
opportunity of the times.
According to Forrester Research, a leading market
research firm, Internet-related products and services are estimated
to generate $354.2 billion in revenue in 2001, of which
business-to-business applications will account for $186 billion;
infrastructure (hardware, software and development services) will
account for $58.9 billion; Internet Service Provider ("ISP") fees
and hosting services will garner $48 billion; and content, retail
and financial services will reap the remaining $61.3 billion.
The enormous growth of the Internet is being driven by:
. The increasing familiarity, acceptance, and use of
the Internet by governments, businesses, and consumers;
. The large and growing number of personal computers
("PCS") installed in homes and offices;
. The decreasing cost of PCS and related peripherals;
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. The growth and development of web-enabling technologies;
. The proliferation of Internet content;
. Easier, faster, and less expensive access to the Internet; and
. Significant improvements in network infrastructure and bandwidth.
Corporate investment in web-enabling technology is
widely expected to continue to grow both in the U.S. and abroad for
the foreseeable future. A recent report from International Data
Corp. states that domestic spending on web-enabling technologies is
expected to reach $174 billion, representing 57 percent of the
global total, which is expected to amount to $305 billion for 1999.
According to the study, by 2003, companies will spend $1.5 trillion
worldwide.
The X-traWeb "Total Technology Solution"
We are a leading developer of wireless
telemetry and communications systems, technology and
products. We also develop components for spread
spectrum digital radios in the 900 MHZ and 2.4 GHz
bands, as well as SCADA and automatic meter reading
("AMR") systems. We have extensive experience in
developing low-cost, reliable communications systems.
Through key alliances with companies such as
Panasonic, Motorola Inc. (and previously with Williams
Wireless, Inc. dba Williams Telemetry Services), we
have created unique solutions to implement
communications and telemetry services in applications
that were previously cost-prohibitive. By leveraging
this experience, we have developed the latest
generation in web-enabling technology - X-traWeb(TM) .
Our X-traWeb solutions and services enable
commercial and industrial customers to monitor and
control remote equipment, via the Internet, using a
standard web browser. Our technology has applications
across a broad range of industries, for which it can
substantially improve the efficiency and cost of
access and manipulation of important data from widely
dispersed equipment.
At the heart of X-traWeb's competitive
strategy is this "total technology solution" concept.
While there are several companies designing systems
that integrate some of the elements of our
technologies, to management's knowledge, we are alone
in successfully combining all of the technologies into
a functional package that not only collects and
transmits data and provides control from remote
locations, but also enables customers to use an
ordinary browser to access the data-gathering and
remote-control functions from anywhere in the world
through the Internet.
Constituting the "first mile" portion of our
proprietary total technology solution is our rugged
"X-Node(TM)". The X-Node is a miniature web server
compacted into a one square inch embeddable board, or
available as firmware requiring less than 2 KB of
memory. This miniature web server collects information
from a remote piece of equipment (e.g., vending
machine, gas meter, and the like) and makes that
information available via the Internet.
A critical element in implementing our
technology for large-scale installations is our
X-traWeb proprietary "X-Gate(TM)". X-Gate is an
Internet gateway that can collect information from a
wired or wireless network of up to 255 X-Nodes (e.g.,
an array of vending machines), and transmit the
information to an information repository via the
Internet. The X-Gate offers distinct advantages over
the more commonly used gateway - the PC - in that it
requires no human intervention and incorporates
advanced technologies to ensure performance and
reliability.
Completing the "last mile" portion of our
total technology solution is our business-to-business
web site. This database-driven site collects the
operations and transactional data which has been
transmitted from the customers' remote equipment, then
stores it securely for delivery to authorized customer
personnel in raw form, or processed and formatted into
standard or customized reports.
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Competitive Advantages
----------------------
Our technologies offer customers a number of
advantages, including, without limitation,
Open architecture solutions that do not use
proprietary protocols, and components that are fully
TCP/IP compatible;
Use of a standard web browser and Internet tools (such
as Java) to monitor and control remote equipment and
functions from any Internet-accessible location;
Wireless technology option that eliminates the need
for additional (and generally costly) electrical,
telephone, or other "hardwired" systems at remote
locations;
Highly durable components that can operate in a wide
range of environmental conditions;
Ease of installing, configuring, bringing online, and
maintaining or replacing components;
Firmware-based technology that allows customized
configuration of equipment already possessing embedded
microcontrollers; and
Firmware-based technology that allows automatic
updating of microcontroller functions from a remote
location to reflect changes in customer needs and
specifications.
Competitive Adaptability
------------------------
Our open architecture solutions do not use proprietary
protocols. As a result, our X-traWeb components are
fully TCP/IP compatible and meet current and emerging
international Internet communications standards,
providing important benefits when compared to closed,
proprietary solutions.
We are at the forefront in developing wireless
telemetry and communications systems, technology and
products. The result is that we are consistently
positioned to provide the most up-to-date technical
solutions to customers with remote monitoring and
control needs.
We are aware of the rapid changes anticipated
to occur in wireless, SCADA, and web-enabling
technologies, and intend to migrate our products and
services to a web-based platform in response to them.
As part of our migration, we expect to evolve into an
industry-specialized, customer-only Internet Service
Provider.
Strategic Growth Plan
---------------------
We plan to develop and sell our products and
services in three separate, but at times overlapping
phases.
Phase One. During Phase One, we intend to debut our
unique combination of wireless, SCADA, and
web-enabling technologies through providing selected
Fortune 1000 and other customers with a "total
technology solution" package of products and services.
During this phase, we will focus on selling the
wide-ranging capabilities of our unique technological
approach by working with our customers to design and
configure the X-traWeb Networks that address their
specific industrial and web-based service needs, while
building a database of standardized technology
configurations that can be used or easily adapted for
a variety of applications. Throughout the process, we
will seek to establish ourselves as a recognized
"brand" for innovative, technologically advanced
products and services.
Phase Two. During Phase Two, we intend to leverage
our brand recognition and the contents of our database
to expand our market for products and services by
offering mix-and-match packages for applications in a
variety of industries. The X-Node and X-Gate
components will be designed to simply plug in and be
ready for use or, if necessary, they can be easily
configured - even by customers. During this phase, we
plan to develop new applications for our technologies,
along with a selection of value-added web-based
services, to strengthen our ties with our established
customers and extend our reach into new markets.
5
Phase Three. During Phase Three, we expect to evolve
into an industry-specialized, customer-only Internet
Service Provider. We envision such a step as a
natural and necessary extension of our "total
technology solution" in order to ensure uninterrupted
24-hour access to operations-critical remote equipment
by our customers - something that traditional,
consumer-oriented ISPs are not geared for, and to
provide connectivity in those remote areas that are
not served by traditional ISPs.
Products and Services
---------------------
Our product strategy is to utilize our existing
technologies to develop innovative solutions that
enable users of SCADA technologies to leverage the
power of the Internet in order to greatly enhance the
efficiency and cost of controlling and monitoring
remotely located equipment.
Our X-traWeb solutions allow standard web browsers,
rather than customized host system software packages,
to monitor and control equipment from anywhere in the
world using industry-standard Internet tools and
X-traWeb technology. The result is that, from any
Internet-accessible location, customers in a variety
of industries have real-time comprehensive,
cost-efficient information available that helps them
better manage their SCADA requirements.
X-traWeb Products
-----------------
The X-Node(TM)
Our web-enabling solutions rely on the use of our
X-Node technology. The X-Node is a small
(approximately 1 inch by 1 inch and less than 2 KB of
memory), fully functional embedded microcontroller and
wireless Internet gateway. In effect, the X-Node is
the smallest Web server in the world. X-Nodes are
extremely durable in most environmental conditions,
have low manufacturing costs, and can be attached
easily to a wide variety of existing equipment for the
purposes of remotely monitoring and controlling the
equipment over the Internet.
Each X-Node has two serial ports and incorporates AVR
Series microcontrollers from Atmel Corporation. These
microcontrollers allow in-circuit programmability and
near 1 MIPS instruction execution speed.
The in-circuit programmability permits the
installation of X-Node firmware to be done
automatically during the manufacturing process. The
firmware then allows automated customization of
X-Nodes to meet specific customer application
requirements as part of the manufacturing process,
eliminating human error. The in-circuit
programmability also allows us, from a remote
location, to quickly, easily, and inexpensively update
the functions of an X-Node to respond to changes in
customer needs. X-Node capability is also available as
a firmware license for use in equipment with an
existing embedded controller installed.
X-Nodes can be used singly by connecting one to a
piece of equipment and adding a modem for Internet
connection. In situations with multiple devices,
where more than one X-Node is required, customers can
use our X-Gate to link the X-Nodes into an X-traWeb
Network and manage the network. Up to 255 X-Nodes may
be networked on a wired or wireless basis to a single
X-Gate.
The X-Gate(TM)
Our X-Gate is a small, rugged, proprietary Internet
Gateway device that replaces the more common gateway:
the PC. In general, the PC is not a suitable gateway
for use in X-traWeb solutions because of its cost and
the need for regular human intervention. The X-Gate
has been developed using decades of experience in the
remote control of critical facilities such as
pipelines and offshore production facilities.
Each X-Gate has a microcontroller and four serial
ports, allowing it to communicate with up to 255
X-Nodes on a single X-traWeb Network and collect and
send their data through either dial-up or Local Area
Network ("LAN") connections to the Internet. In the
event of a power outage or brownout, the unit will
automatically reboot and continue operation without
human interference.
6
While our current X-Gate model requires the addition
of a modem or terminal server, the model we are
developing and plan to market will have these
incorporated into the X-Gate device, lowering overall
costs and broadening the range of Internet services we
can provide our customers.
X-traWeb Internet Access Servers
--------------------------------
The X-traWeb Internet Access Servers, dedicated to
remote monitoring and control applications, are
available, thus bypassing normal ISP services whose
focus is on the more typical Internet traffic. Our
Internet Access Servers incorporate over 20 years of
experience in providing monitoring and control systems
for critical facilities such as pipelines. This item
is not an ISP; it is an industrial strength Internet
Access Server.
X-Cam
------
The X-Cam is the first true web camera. It is based
on X-Node technology and captures video images
directly and transmits them to a standard browser
without use of a personal computer.
Connectivity
------------
The connection between the X-Nodes and X-Gate can be
either wireless or wired. Equipment that is
concentrated in a single location can be hardwired
directly to the X-Gate. In situations where the
equipment is impractical to hardwire or spread out
over a wide area, X-Nodes can be linked together and
to an X-Gate through our wireless technologies.
Wireless - Spread Spectrum Technology
-------------------------------------
Spread spectrum radio technology has been around since
the 1940s, limited mostly to military applications.
Recently, an increased interest in spread spectrum
modulation and its advantages have emerged,
particularly concerning low-power, high-density
personal communication devices. Because they are
unlicensed, spread spectrum systems usually cost much
less to install and troubleshoot than narrow band
systems. In addition, spread spectrum modulation has
the advantages of low probability of intercept, low
probability of detection, low probability of
interference and resistance to jamming.
There are two methods for employing spread spectrum,
frequency hopping and direct sequence. In frequency
hopping systems, the carrier frequency of the
transmitter abruptly changes (or "hops") in accordance
with an apparently random pattern. This pattern is in
fact a pseudo-random code sequence, with the order of
the frequencies taken from a predetermined set as
dictated by the code sequence. The receiver employs
the same pseudo-random code sequence and, once the
transmitter and receiver are synchronized, the
communication is essentially narrow-band on each
frequency in the sequence.
In direct sequence systems, the carrier phase of the
transmitter abruptly changes in accordance with a
pseudo-random code sequence. This process is generally
achieved by multiplying the digital information signal
with a spreading code, also known as a chip sequence.
The chip sequence has a much faster data rate than the
information signal and so expands or spreads the
signal bandwidth beyond the original bandwidth
occupied by just the information signal. The term
chips are used to distinguish the shorter coded bits
from the longer uncoded bits of the information
signal. At the receiver, the information signal is
recovered by remultiplying with a locally generated
replica of the spreading code. By doing so, the
receiver effectively compresses the spread signal back
to its original unspread bandwidth.
World Wireless Radios
---------------------
Our line of 900 MHZ spread spectrum radios includes
the 900 SS Hopper, an award-winning frequency hopping
spread spectrum radio that offers reliable
communications in a variety of environments. The
Hopper features transmission speeds of up to 56 Kbps
and a range of up to 25 miles, line of sight,
depending upon conditions and antenna selection.
7
In addition, the 900 SS MicroHopper - a miniature
version of the Hopper - offers a smaller form-factor
and lower power-consumption for short range
applications. Measuring just 2 1/2 inches by 1 3/4
inches, the MicroHopper is ideal for applications
where size and cost are important considerations.
Both frequency hopping spread spectrum radios employ
our proprietary Secure-Sync(TM) technology. This
coding technology is a major innovation in wireless
communications, dramatically reducing the overhead
inherent in other coding methods. It adds security,
increases throughput efficiency and provides faster
effective communications speeds at a much lower cost.
We also offer the 900 SS Direct - a robust direct
sequence transceiver with RS-232 connectors, capable
of transmitting data up to 40 kilometers, line of
sight - and the 2.4G SS MicroHopper - a 2.4 GHz
frequency hopping radio for international applications
that transmits data at up to 800 Kbps.
Customer Support and Services
-----------------------------
We support our customers with a range of services
designed to help integrate our products into our
customers' systems. This support includes engineering
consultation with every developer kit purchase,
customer satisfaction and quality control programs,
and in some cases complete turn-key solutions for
large projects.
Sales and Marketing
-------------------
We believe we are positioned to capitalize on trends
in many targeted segments of the SCADA market through
our unique ability to penetrate and establish a market
presence with products and services designed to meet
industry-specific needs. Our marketing strategy hinges
on our establishing a strong reputation as a provider
of reliable and technologically superior wireless
Internet-based SCADA services to a diverse customer
base. To achieve our goals of substantial growth and
penetration of our target markets, we have developed a
strategic marketing plan that provides for the
development and expansion of long-term sales channels
through which we can sell our X-traWeb solutions well
into the future.
Our marketing strategy involves a combination of
in-house sales and marketing experts, authorized
agents, strategic marketing alliances, joint-ventures
and direct sales. These will be enhanced and supported
by secondary direct marketing, advertising, promotions
and public relations efforts.
Direct Sales Organization
-------------------------
During the pre-marketing and early launch stages of
our marketing program, our senior management is
managing and conducting our marketing activities for
our X-traWeb solutions. A target market oriented,
direct sales management organization has been
established to manage separate marketing teams which
have responsibility for specific industry sectors. The
core team will also manage the activities of outside
marketing partners, including value-added resellers
and information technology consultants.
As marketing activities expand, we plan to enlarge our
sales and marketing organization to accommodate the
increased activities, as well as manage and extend our
marketing programs to our target markets. We plan to
hire sales managers who are specialists in their
assigned target markets, and who will be responsible
for generating the projected sales revenue in their
respective areas. As we expand our operations, we plan
to hire additional sales personnel to cover new
markets and augment the services of sales and
marketing personnel in certain larger markets.
8
Strategic Marketing Alliances
-----------------------------
As an integral part of our marketing program, we are
establishing strategic marketing alliances with
outside companies that have strong influence within
the respective target markets for our X-traWeb
solutions. We will seek to align our self with
partners that are capable of substantially
accelerating our penetration of a target market or of
adding material value to our marketing program through
the reduction of costs, managerial infrastructure, and
other economic advantages. We intend to formulate a
sales plan to target and pursue prospective customers
through organizations such as: management consulting
firms, computer networking consultants and value-added
resellers.
Our technology offers these co-marketing partners a
value-added component to the services already being
provided to their existing customers. These
co-marketing partners provide us with a credible
avenue of introduction to other potential customers
for our products and services.
Advertising and Promotions
--------------------------
An integral part of our long-term marketing plan is
the generation of awareness within the target markets
for our products and services. We allocate a portion
of our gross revenues toward ongoing advertising,
promotions, and public relations activities, including
direct mail, trade print media advertising, trade show
participation and sales personnel incentives. To reach
an even wider audience as we continue to develop
widespread awareness of our portal and proprietary
SCADA solutions, we plan to implement an advertising
and promotional support program designed to:
* Establish X-traWeb as a recognized "brand
name" that is especially familiar to decision-makers
within our target markets, and synonymous with
premier-quality technology and products, highly
effective services and tangible cost efficiencies;
* Enhance our branding efforts through the use
of industry experts to promote our product and services;
* Position our technological
capabilities, management, products, services and level
of support as an industry standard.
We also plan to implement advertising in trade
publications on a regular basis.
We have appointed a public relations firm, which
extensive expertise in the information technology
industry, to assist us in the development and
execution of periodic public relations campaigns,
including campaigns coordinated with new product
introductions in existing markets and expanded
introductions to new markets. We also will aim to
highlight our activities through editorial inclusion
in trade publications and national business
newspapers.
We have also allocated promotional funds in our
advertising budget for our participation in regional,
national and international trade shows that are
conducted for industries that comprise our target
markets, including SCADA and Internet technology
industry trade shows. We intend to maintain a regular
presence at key trade shows throughout our
development, and use its presence to not only attract
"typical" customers, but also generate follow-on
marketing opportunities.
Research and Development
------------------------
We invest significantly in research and development
activities. These activities consist of proprietary
development on our spread spectrum radios and X-traWeb
solutions.
We will continue to engage in research and development
activities for our own products. Current and future
projects include new spread spectrum transceivers in
the 2.4GHz band, improving X-traWeb to enable
plug-and-play developer kits, improved X-traWeb
components such as the X-Cam, and similar projects.
Manufacturing
-------------
Until December 31, 1999, we also performed
manufacturing services for other manufacturers and
vendors of medical, communications, computer graphics
and consumer electronic products at our Salt Lake City
manufacturing facility, and sold antennas from our
Gonic, New Hampshire facility.
9
We discontinued our direct manufacturing operations
effective as of December 31, 1999, and now conduct our
manufacturing activities for our own products through
third parties (except antennas which we manufacture
directly).
Contract Design and Development
-------------------------------
General
-------
At the present time, we are not seeking design and
development service contracts except in "partnering"
situations in which we would have an ownership
interest in the products and/or technology which are
the subject of the contract and which promote the sale
of our proprietary products, such as our X-traWeb
products. For example, we may have to provide certain
engineering services for the application of our
X-traWeb products for use in a specific application or
applications desired by a vending machine manufacturer
or a telephone manufacturer or for installation in the
monitoring of a gas pipeline or the control system in
a refrigeration storage unit or office management
system.
Formerly, we were engaged in providing engineering,
design and development services to client
specifications on a fee for services basis. Under one
significant contract, we developed a low-cost spread
spectrum technology for use in certain products sold
by Kyushu Matsushita Electric Co., Ltd. ("KME," which
is also known as Panasonic) which is more fully
described below. We also developed devices for use in
the automatic meter reading field for Williams
Wireless, Inc., a wholly owned subsidiary of the
Williams Companies. During 1999, we also engaged in
development work on an asset tracking system for Eagle
Eye Technologies, a privately-held California based
corporation, a point-of-sale device for supermarkets
for Klever Marketing, Inc., a Salt Lake City based
publicly held corporation and a remote-controlled spa
for Len Gordon, Inc.
Kyushu Matsushia Electric Co. Ltd. (Panasonic)
Contract
----------------------------------------------
In April 1997, we acquired a corporation (by merger in
1997), which entered into a contract with Kyushu
Matsushita Electric Co., Ltd. to develop low cost
spread spectrum radio technology for use in certain
Panasonic products. As part of our development
contract with KME, we granted KME a world-wide,
non-exclusive license to use or authorize the use of
any patents, copyrights, technical know-how and other
intellectual property rights embodied in our LCSSR
technology in the manufacture of KME products, and
agreed not to license others to use technology which
is developed under our contract with KME in connection
with any telephone-related products for a period of
two years from the first shipment of KME products
using the technology. In consideration for these
rights and our services, KME agreed to pay royalties
to us on sales of KME products using the technology
above a prescribed minimum amount of sales for a
period of two years from the initial shipments of any
such products. No royalty is paid on sales of the
first 600,000 units of product using the technology. A
royalty of $1.00 per unit of product sold is payable
on sales of units 600,001 through 1,000,000.
Thereafter, the royalty is $.50 per unit on all units
sold until the second anniversary of the date of the
first sale of products using the technology.
During 1999, we received $540,075 of royalties under
this contract. We are unable to predict the amount of
the royalties, if any, which we may receive under this
license in 2000, or whether the contract will be
renewed on the expiration thereof in September, 2000
or if so, the terms thereof.
In 1998, we also entered into an agreement with KME to
develop a key wireless RF transmitter/receiver
utilized in KME's new 5.7GHz MicroCast(TM). The
MicroCast is a convergence appliance that allows home
personal computers to distribute and control personal
computer - based interactive media and Internet
content using a standard TV set. The MicroCast
enables consumers to control their personal computer
remotely using a keyboard, joystick, and/or mouse from
other rooms in the home. Two of the three-piece
system use our designs for the video and audio
baseband and the 5.7GHz RF technology, the newest and
highest performance RF technology available to
consumers today.
Under our MicroCast contract with KME, we received a
development fee of $50,000, of which the entire amount
was paid in 1998, and will receive royalty payments
for a two-year period commencing on the first
shipment, which has not yet occurred. A royalty of
$1.50 per unit of product sold is payable on each unit
sold. We are unable to predict the amount of the
royalties, if any, we may receive under this
agreement.
10
Competition
-----------
We have a number of current competitors in all aspects
of our business, many of which have substantially
greater financial, marketing and technological
resources than us, and which include such industrial
giants as Panasonic, Motorola, Sony and AT&T. We
intend to compete in our industry by concentrating on
certain product or service niches within the overall
market. However, most of our competitors offer
products which have one or more features or functions
similar to those offered by us, and many have the
resources available to develop products with features
and functions, competitive with or superior to those
offered by us. We cannot assure you that such
competitors will not develop superior features or
functions in their products or that the we will be
able to maintain a lower cost advantage for our
products.
A key element of our competitive strategy is to align
our self with major manufacturers by developing
proprietary products or technology that can be
incorporated into its "partner manufacturers"
products. We believe that our agreements with KME
(i.e., Panasonic), and Motorola, illustrate the manner
in which we can "partner" with much larger,
established companies to access mass markets for our
proprietary wireless communications products and
technology.
Our management has identified three primary
competitors offering either SCADA-related products and
services or web-enabled technologies:
* Spyglass, Inc. which develops
software and firmware, including web-enabling firmware
for embedded microcontrollers;
* emWare, a provider of distributed
embedded device networking software that provides
Internet connectivity for any device that scales from
8-bit microcontrollers to 32-bit microprocessors; and
* Connect One, a developer and
manufacturer of Internet connectivity solutions that
enable devices to connect to the Internet without
requiring a PC.
While each of these companies offers products
and/or services that have some parallels to those
provided by X-traWeb, none currently provides the type
of cost-effective, total solution approach that we do.
In addition, we are the only company that combines
all of the technical elements with the additional
capability for wireless system integration and
communications.
Employees
---------
As of December 31, 1999 we had 35 employees. Of these
employees, 3 were classified as executive, 7 as
administrative personnel, 4 engineering, 15
production, and 6 sales and marketing. Our employees
do not belong to a collective bargaining unit, and we
are not aware of any labor union organizing activity.
Patents and Intellectual Property
---------------------------------
We believe that reliance upon trade secrets,
copyrights and unpatented proprietary know-how in
conjunction with the development of new products is at
least as important as patent protection in our
business since most patents provide fairly narrow
protection, and are of limited value in areas of rapid
technological change. Further, patents require public
disclosure of information which may otherwise be
subject to trade secret protection. We presently own
two United States patents covering antenna technology,
and have a United States patent which covers "spread
spectrum" demodulation technology. "Spread spectrum"
communication is a method for transmitting and
receiving coded information which is resistant to
interference due to the fact that the transmission is
spread over a large bandwidth. This method requires,
however, that both the transmitter and the receiver
have the same spreading code (i.e., a pre-determined,
fixed pattern) used to spread the information over the
larger bandwidth. The purpose of the technology
covered by our spreadsheet patent is to recover and
remove the spreading code from a transmission signal,
and thus obtain the original information, in a
simpler, less expensive manner.
12
In addition, during 1998 we filed a United States
patent application for each of two separate software
codes.
Under the terms of a litigation settlement entered
into with a former co-venturer, we agreed that our
former co-venturer is entitled to full and equal
ownership with us, of the spread spectrum demodulation
technology covered by the patent application,
including the right to incorporate, develop, utilize
and exploit the technology. Any uses or products
developed or derived from such technology, however,
shall be the sole property of the party which develops
or derives such uses or products. In addition, if one
of the parties elects to prosecute the patent
application prior to final acceptance or rejection by
the U.S. Patent Office, failure by the other party to
contribute equally to the costs of prosecuting the
application will result in the loss of its rights to
the technology. At this time, we do not have any plans
to prosecute this patent application, and are unaware
of any plans by our former co-venturer to prosecute
the application.
Furthermore, during 2000, we plan to file at least
four U.S. patent applications on various operating
aspects of the X-traWeb system, although we cannot
assure you that such filings will occur or the results
thereof.
We have not filed any patent applications in foreign
countries.
History
-------
For a description of the history of the Company, its
subsidiaries, and predecessors, see the prospectus
dated February 18, 1998, which is incorporated herein
by reference. The Company formed X-traWeb Inc. as its
wholly-owned Delaware subsidiary in May 1999.
ITEM 2. PROPERTIES
--------------------
As of December 31, 1999, the Company's executive
offices and principal administrative offices and
manufacturing facilities are located in approximately
34,000 square feet of space at 2441 South 3850 West,
West Valley City, Utah which is leased at a monthly
cost of $27,322 for base rental and allocable common
area maintenance charges. The Company also pays for
certain utility expenses. The seven-year lease for
these premises expires on November 30, 2005.
In February, 2000 the Company moved its headquarters
to Englewood, Colorado, where it leases approximately
7,000 square feet at a monthly cost of $10,228 for
base rental (and allocable common area maintenance
charges).
The Company closed its Salt Lake City facility in
March 2000, but continues to be liable under the lease
through November 30, 2005. The Company expects to
sublease its Salt Lake City office and has retained a
broker for such purpose, although to date it has not
been successful in finding a lessee.
The Company also maintains small leased offices in
Overland Park, Kansas of approximately 2,850 square
feet at a monthly rent of $3,444 and in Gonic, New
Hampshire of approximately 5,000 square feet at a
monthly rent of $1,700.
Except for the excess facility in Salt Lake City, the
Company believes that its facilities are satisfactory
for its present scale of operations.
As of February 29, 2000, the Company sold most of its
manufacturing equipment, and obligations under
remaining equipment leases are not material.
12
ITEM 3. LEGAL PROCEEDINGS
The Company received an oral request in 1998 from Mr.
and Mrs. Richard Austin to rescind the Company's
purchase of the assets of Austin Antenna Ltd., which
closed in 1998. In addition, Mr. Austin requested that
the Company bear the cost of (I) the legal fees and
expenses in a litigation commenced against Mr. Austin
in a state court in Massachusetts brought by Charles
Rich seeking damages for non-payment of commissions
arising out of the Company's purchase of Austin Antenna
Ltd. and (ii) an unpaid finder's fee that is the subject
of the Massachusetts litigation. The Company, in turn,
has advised Mr. and Mrs. Austin that Austin Antenna Ltd.
has breached its agreement with the Company. It
appears Mr. Austin has reached a settlement with
respect to the Massachusetts action against him.
Although the Company believes that its claim against
Austin Antenna Ltd. and the claims of Mr. and Mrs.
Austin will be amicably resolved, there can be no
assurance as to the outcome thereof.
Williams Wireless Inc. raised a claim in 1999 that the
Company violated the non-competition provisions of
their agreements by allegedly marketing X-traWeb
products in the telemetry and meter reading
applications. The Company, in turn, claimed that
Williams Wireless Inc. failed to satisfy all of its
duties under its various agreements with the Company.
While the Company believes that Williams' claims is
properly disputable, the parties agreed orally to
enter into a settlement agreement and mutual release.
While Williams Wireless, Inc. paid the sum due under
the draft settlement agreement to the Company and the
Company delivered to Williams Wireless Inc. all
inventory of products for which it made payment to the
Company, the settlement agreement has not yet been
signed. Under the draft agreement the Company had
agreed also to grant William Wireless, Inc. a
perpetual non-exclusive royalty-free license to use
one of the Company's radios as a component in the
Williams' telemetry systems or products. In the
interim, the Company believes that an unrelated party
acquired the assets or stock of Williams Wireless,
Inc. While the Company expects that such settlement
agreement will be signed by such new owner in the
foreseeable future, there can be no assurance of such
result.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
The Company held its annual meeting of shareholders in
February, 1999. At such meeting, the shareholders by
the majority vote of those present in person or by
proxy approved (a) the election of David D. Singer,
Philip A. Bunker, Brian W. Pettersen and George Denney
as directors and (b) approved the Company's engagement
of Hansen, Barnett & Maxwell as the Company's
independent auditors for calendar year 1999, and (c)
ratified the 1998 Employee Incentive Stock Option Plan
and the 1998 Non-Qualified Stock Option Plan.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
Common Stock
------------
The Company's Common Stock is traded on the National
Association of Securities Dealers, Inc. Electronic
Bulletin Board under the Symbol "WWWC". The high and
low per share price of the Company's Common Stock and
the dividends that were paid thereon for 1998 and 1999
were as follows:
1998 1999
------------------------- --------------------------
Quarter High Low Dividend High Low Dividend
------- ---- ----- -------- ---- ---- --------
1st 12.13 10.50 $0 2.06 1.75 $0
2nd 7.00 3.56 0 1.88 1.50 0
3rd 5.25 1.19 0 1.69 1.00 0
4th 2.13 1.25 0 4.31 1.44 0
These quotations reflect interdealer prices, without
retail mark-up, markdown or commissions and may not
necessarily represent actual transactions.
At December 31, 1999 the Company had approximately 250
beneficial owners of its Common Stock.
13
Dividend Policy
---------------
The Company has not paid any dividends on its Common
Stock to date and does not anticipate paying any
dividends in the foreseeable future.
Sale of Securities by the Company
The Company made various sales of shares of its Common
Stock during the fourth quarter of 1999 as listed
below which are exempt from registration under the
Securities Act of 1933, as amended (the "Act"), as set
forth below:
1. In October, 1999 the Company issued 250,000
shares of its Common Stock to RUSP Holding S.A., at a
price of $1.00 per share, in cash. The shares were
issued in reliance upon Section 4(2) of the Securities
Act of 1933, as amended (the "Act") and Rule 506 of
Regulation D promulgated thereunder. The Company
believes that RUSP Holding S.A. is an accredited
investor.
2. In October, 1999, the Company issued for cash
37,500 shares of its Common Stock to Kathryn
Braithwaite upon the exercise of certain warrants at a
price of $0.25 per share. The shares of Common Stock
were issued in reliance upon Section 4(2) of the Act
and Rule 506 of Regulation D promulgated thereunder.
The Company believes that Kathryn Braithwaite is an
accredited investor.
3. In October, 1999, the Company issued for cash
23,077 shares of its Common Stock to Sterling
Technology Partners upon the exercise of certain
warrants at a price of $0.25 per share. The shares of
Common Stock were issued in reliance upon Section 4(2)
of the Act and Rule 506 of Regulation D promulgated
thereunder. The Company believes that Sterling
Technology Partners is an accredited investor.
4. In October, 1999, the Company sold $400,000
principal amount of its 16% Senior Secured Notes
maturing on May 14, 2000 to Lancer Offshore Inc. for
$400,000 in cash. The Notes were issued in reliance
upon Section 4(2) of the Act and Rule 506 of
Regulation D promulgated thereunder. The Company
believes that Lancer Offshore Inc. is an accredited
investor.
5. In October, 1999, the Company sold 100 shares of
its Senior Preferred Stock, and detachable warrants to
purchase 500,000 shares of its Common Stock at an
exercise price of $0.25 per share expiring on October
5, 2004, to Lancer Offshsore Inc. for $100,000 in
cash. The shares of Senior Preferred Stock and
Warrants were issued in reliance upon Section 4(2) of
the Act and Rule 506 of Regulation D promulgated
thereunder. The Company believes that Lancer Offshore
Inc. is an accredited investor.
6. In October, 1999, the Company sold 30 shares
of its Senior Preferred Stock and
detachable warrants to purchase 250,000 shares of its
Common Stock at an exercise price of $0.25 per share
expiring on October 5, 2004, to Capital Research Ltd.
for $30,000 in cash. The shares of Common Stock and
Warrants were issued in reliance upon Section 4(2) of
the Act and Rule 506 of Regulation D promulgated
thereunder. The Company believes that Capital
Research Ltd. is an accredited investor.
7. In October 1999, the Company sold 250,000
shares of its common stock to RUSP Holding S.A. for
$250,000. The shares were issued in reliance upon
Section 4(2) of the Act and Rule 506 of Regulation D
promulgated thereunder. The Company believes that RUSP
Holding S.A. is an accredited investor.
8. In November, 1999, the Company sold 500,000
shares of its Common Stock to RUSP Holding S.A., at a
price of $1.00 per share, in cash. The shares were
issued in reliance upon Section 4(2) of the Act and
Rule 506 of Regulation D promulgated thereunder. The
Company believes that RUSP Holding S.A. is an
accredited investor.
9. In December, 1999, the Company sold 1,000,000
shares of its Common Stock to RUSP Holding S.A. at a
price of $1.00 per share, in cash. The shares were
issued in reliance upon Section 4(2) of the Act and
Rule 506 of Regulation D promulgated thereunder. The
Company believes that RUSP Holding is an accredited
investor.
10. In December 1999, the Company sold 428,000
shares of its Common Stock to two investors at a price
of $1.00 per share, in cash. The shares were issued in
reliance upon Section 4(2) of the Act and Rule 506 of
Regulation D promulgated thereunder. The Company
believes that each of the investors is an accredited
investor.
14
ITEM 6. SELECTED FINANCIAL AND OTHER DATA
The following table sets forth unaudited selected financial and other
data of the Company and should be read in conjunction with the more detailed
financial statements included elsewhere in this Report. See "Management's
Discussion and Analysis of Results of Operations and Financial Condition."
For the Years Ended December 31,
----------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ------------ ----------- ----------- -----------
Current Assets $ 1,960,930 $ 1,725,770 $ 1,529,804 $ 328,551 $ 120,959
Net Equipment 192,252 1,038,645 1,133,263 327,022 300,840
Other Assets 425,032 1,372,175 7,469,957 7,469 4,141
----------- ------------ ----------- ----------- -----------
Total Assets $ 2,578,214 $ 4,136,590 $10,133,024 $ 663,042 $ 425,940
=========== ============ =========== =========== ===========
Current Liabilities $ 6,087,067 $ 5,053,628 $ 1,815,903 $ 203,351 $ 276,096
Long-Term Liabilities 21,459 84,968 24,275 44,808 44,500
Mandatorily Redeemable
Preferred Stock 950,000 - - - -
Stockholders' Equity
(Deficit) (4,480,312) (1,002,006) 8,292,846 414,883 105,344
----------- ------------ ----------- ----------- ------------
Total Liabilities and
Stockholders' Equity
(Deficit) $ 2,578,214 $ 4,136,590 $10,133,024 $ 663,042 $ 425,940
=========== ============ =========== =========== ============
For the Years Ended December 31,
-----------------------------------------------------------------
1999 1998 1997 1996 1995
------------ ------------ ----------- ----------- -----------
Sales $ 3,566,307 $ 4,309,691 $ 2,913,429 $ 618,505 $ 426,825
Cost of Sales 2,926,459 3,751,607 2,116,934 662,184 237,356
------------ ------------ ----------- ----------- -----------
Gross Profit (Loss) 639,848 558,084 796,495 (43,679) 189,469
------------ ------------ ----------- ----------- -----------
Total Operating Expenses 9,434,208 14,131,872 8,571,898 1,882,836 386,612
------------ ------------ ----------- ----------- -----------
Net Loss From Operations (8,794,360) (13,573,788) (7,775,403) (1,926,515) (197,143)
Other Income (Expense)
Interest expense (3,556,097) (1,813,208) (43,779) (1,310,142) 73,593
Other income 26,662 343,625 9,692 - -
------------ ------------ ----------- ----------- -----------
Net Loss (12,323,795) (15,043,371) (7,809,490) (3,236,657) (270,736)
Preferred Dividends 1,000,658 - - - -
------------ ------------ ----------- ----------- -----------
Net Loss Applicable to
Common Shareholders $(13,324,453 $(15,043,371) $(7,809,490) $(3,236,657) $ (270,756)
============ ============ =========== =========== ===========
Basic and Diluted Loss
Per Common Share $ (0.77) $ (1.34) $ (0.85) $ (1.03) $ (0.26)
=========== =========== =========== =========== ===========
Weighted Average
Number of Common
Shares Used in Per
Share Calculation 17,308,258 11,189,603 9,217,158 3,141,613 1,049,679
=========== =========== =========== =========== ===========
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
When used in this discussion, the words "expect(s)",
"feel(s)", "believe(s)", "will", "may", "anticipate(s)" and similar
expressions are intended to identify forward-looking statements. Such
statements are subject to certain risks and uncertainties, which could cause
actual results to differ materially from those projected. Readers are
cautioned not to place undue reliance on these forward-looking statements,
and are urged to carefully review and consider the various disclosures
elsewhere in this Report which discuss factors which affect the Company's
business, including the discussion under the caption "Risk of Default with
Debtholders".
The following discussion should be read in conjunction with
the Company's Consolidated Financial Statements and respective notes
thereto, Selected Consolidated Pro Forma and Historical Financial Data,
Unaudited Condensed Pro Forma Consolidated Statements of Operations and
respective notes thereto, which are set forth elsewhere in this Report.
RESULTS OF OPERATIONS
1999 Compared to 1998
Sales in the twelve-month period ending December 31,1999 were
$3,566,307 compared to $4,309,691 during the twelve-month period ending
December 31, 1998. During 1999 the Company derived its revenue as follows:
engineering services, $867,451; royalties $540,075 branded products,
$789,167; and contract and cable manufacturing, $1,369,614. The Company's
principal source of revenue for the twelve-months ended December 31, 1998
was a design and development contract with Williams Telemetry, a Williams
company, in the amount of $2,664,000. Other significant revenues include
contract manufacturing of $531,000 and sales of the Company's own branded
goods of $586,000.
Gross profit in the twelve months period ending December 31,
1999 was $639,848 compared to $558,084 during the comparable period during
1998, which represents 18% and 13% of sales respectively.
The Company reduced its research and development costs by
$1,860,594 from $3,179,557 in the twelve month period ending December 31,
1998 to $1,318,963 in the twelve month period ending December 31, 1999,
primarily by reducing the number of its employees and related expenses.
During the 4th quarter of 1999, the Company executed a plan
to focus its efforts on the X-traWeb (TM) product line and abandon its
contract and in-house manufacturing activities. As a result of this
decision, the Company recognized $2,615,489 in manufacturing activity exit
costs. These costs consist of the impairment of all assets used in the
manufacturing process and the remaining rent obligation of the abandoned
Salt Lake facility. In addition, the related patents and goodwill associated
with the manufacturing activities of the company were impaired. Although the
Company is actively seeking a lessee for such facility and has retained a
broker, it has not found a tenant at present.
The amortization of goodwill including the impairment of
goodwill decreased $5,776,611 from $134,932 for the twelve month period
ending December 31, 1998 to $842,076 for the twelve months ending December
31, 1998. The decrease was due to the $4,722,425 impairment of goodwill the
Company recognized in the third quarter of 1998.
The increased interest expense was due primarily to the
issuance of the warrants and common stock in connection with the obtaining
of the waivers of defaults on the notes payable.
Interest income resulted from the Company's investing
available cash in overnight interest bearing accounts.
During the twelve months ending December 31,1999, the Company
issued 950 shares of senior liquidating mandatorily redeemable 10% preferred
stock with a liquidation preference of $1,000 per share and detachable
five-year warrants to purchase 4,750,000 common shares at $0.25. The
issuance of preferred stock with warrants has been accounted for as the
granting of a favorable conversion feature to the preferred stockholders.
The value assigned to the warrants was based on the their intrinsic value
but limited to the cash proceeds and the amount of the notes converted.
Since the warrants were immediately exercisable, the resulting discount to
the preferred stock of $950,000 was immediately recognized as a preferred
dividend. Additionally, dividends in the amount of $50,658 were accrued as of
December 31, 1999.
Fiscal Year 1998 Compared to Fiscal Year 1997
Sales in the twelve-month period ended December 31, 1998 were
$4,309,691 compared to sales of $2,913,429 during the twelve-month period
ended December 31, 1997. The Company's principal source of revenue for the
twelve-months ended December 31, 1998 was a design and development contract
with Williams Telemetry, a Williams company, in the amount of $2,664,000.
Other significant revenues include contract manufacturing of $531,000 and
sales of the Company's own branded goods of $586,000. Significant revenues
for 1997 were derived from an engineering contract with Kyushu Matsushita
Electric Co. ("KME") in the amount of $1,596,000. Sales relating to the
SecuriKey business were insignificant during 1997 and the line was sold to a
prior employee/shareholder with no revenues were recorded in 1998.
Cost of sales for the twelve-months ended December 31, 1998
were $3,751,607 compared to cost of sales for the twelve-month period ended
December 31, 1997 of $2,116,934. Cost of sales as a percentage of sales
decreased from 73% to 87% in the twelve-months ended December 31, 1998. The
related gross profit for the twelve-months ended December 31, 1998 was
$558,084 or 13% of sales compared to $796,495 or 27% of sales for the
twelve-month period ended December 31, 1997.
The Company incurred research and development costs of
$3,179,557 during the twelve-months ending December 31, 1998, relating to
the development of proprietary technology. Included in the $3,179,557 is
$305,651 of purchased research and development expense arising out of the
acquisition of radio technology in May 1998. The amount spent on research
and development for the twelve-month period ended December 31, 1998 was
greater than the amount spent for the twelve-month period ended December 31,
1997 of $2,943,404 of which $1,258,000 was for purchased research and
development expense arising out of the acquisition of Digital Radio in
February 1997.
The Company's selling, general and administrative expenses
for the twelve-months ended December 31, 1998 increased to $4,975,307 from
$4,243,779 for the twelve-month period ended December 31, 1997. Included in
the $4,975,307 is $1,024,000 of non-cash compensation relating to the grant
of stock options in December 1997. Such increase also reflected a
substantial increase in the average number of employees of the Company to
approximately 90 in the current year as compared to an average of
approximately 50 employees in the prior year. During the three months ended
December 31, 1998, the Company reduced its employees by approximately 30%.
However, the Company had increased the number of its higher paid employees
as a result of acquisitions in 1997. The Company also increased staffing in
anticipation of the launch of the Company's proprietary radio products. The
increase in costs was also attributable to its maintenance of duplicate
administrative facilities and related administrative expenses by virtue of
its two business locations in Utah. Management eliminated duplicate
administrative efforts by consolidating into one facility during October
1998.
Interest expense for the twelve-months ended December 31,
1998 increased to $1,813,208 from $43,779 for the twelve-month period ended
December 31, 1997, which increase was attributable to the greater amount of
the Company's outstanding borrowings during the current year of which
$874,000 resulted from the amortization of debt discount.
The Company's net loss of $15,043,371 for the twelve-months
ended December 31, 1998, represents an increase from the net loss of
$7,809,490 for the twelve-months ended December 31, 1997, as a result of the
above items.
During April 1998, the Board of Directors approved the
repurchase of unvested employee stock options at a price of $0.01 per share.
These options were granted during the fourth quarter of 1997. The repurchase
enables the Company to discontinue charging the difference between fair
market value in the stock at the time of option grant and the option
exercise price to operations.
Impairment of Goodwill
The Company's management evaluated the recoverability of the
goodwill recognized from the acquisition of Digital Radio Communications
Corporation ("Digital Radio"). The Williams contracts, including Commercial
Service Agreements, (i.e. purchase orders from Williams) and a Technical
Development and Marketing Agreement (the "TDMA") were finalized during
December 1997 and were the primary feature of interest to the Company in
acquiring Digital Radio in February 1997. This fact is evidenced by Digital
Radio representing in the Acquisition Agreement that it was completing a
contract with Williams and by the existence of a significant condition to
that agreement that the Williams contract be signed prior to the closing of
the Digital Radio acquisition. That condition was satisfied by Williams and
the Company entering into their first TDMA by July 1997. The TDMA was a
framework for future Commercial Service Agreements and an agreement whereby
Williams agreed to purchase radios from the Company. The TDMA was
subsequently amended in September 1997 and again in November 1997; however,
management of World Wireless considered the original TDMA to be sufficient
to meet the condition that the Williams contracts had been signed, and
proceeded to close the acquisition. The Williams contract was considered by
the Company to exist at the date of the acquisition of Digital Radio and was
the principal intangible item of interest to the Company in acquiring
Digital Radio. The Williams contracts were also the primary factor in
establishing the number of shares issued in the acquisition of Digital
Radio. Accordingly, when anticipated revenue from radio sales never
materialized, the goodwill became impaired.
The Digital Radio goodwill was not considered impaired prior
to receipt of the TDMA nor the Commercial Service Agreements in 1997, nor
was it considered impaired until the third quarter of 1998 when it became
apparent to management that the engineering team at Digital Radio was unable
to complete the working radio technology promised under the Williams
contracts. In addition, Williams decided to redesign the Company's product
and there was a delay in submitting the system to the FCC for clearance. As
a result, Williams was unwilling to enter into significant Commercial
Service Agreements for the purchase of radios from the Company. It was
therefore clear in the third quarter of 1998 that future cash flows to be
generated through the efforts of the engineering staff at Digital Radio, and
from the Digital Radio technology would not be sufficient to recover the
carrying amount of the unamortized assets acquired - primarily goodwill. The
engineering team at Digital Radio was disbanded through termination of the
employment of all Digital Radio engineers by August 1998. Therefore, the
carrying value of the Digital Radio goodwill, which primarily related to the
engineering team and the Digital Radio technology, was written down by
$4,722,425 during the third quarter 1998, to management's estimate of the
discounted expected net future cash flows of $600,000.
The Company evaluated the recoverability of the goodwill
recognized in connection with the TWC Ltd. acquisition during the fourth
quarter of 1999, and determined that circumstances indicate an inability to
recover their carrying amount. Accordingly, an impairment loss of $641,679
was recognized during 1999 to adjust the carrying amount of the goodwill to
its estimated expected discounted net future cash flows. The goodwill was
reduced to zero.
Liquidity and Capital Resources
The Company's liquidity at December 31, 1999 consisting of
cash and cash equivalents was $893,849, which represented an increase of
$278,952 over the Company's cash and cash equivalents of $614,897 as of
December 31, 1998. The Company's current assets were $1,960,930 as of
December 31, 1999, an increase of $235,160 from the Company's current assets
of $1,725,770 as of December 31, 1998
In order to pay off the Company's Senior Secured Notes, which
had a maturity date of May 15, 1999 (the "1998 Notes"), the Company raised
financing in May 1999. Such financing involved the sale of separate units
consisting of $2,600,000 principal amount of the Company's Senior Secured
Notes, bearing interest at 16% per annum, payable quarterly and maturing on
May 14, 1999 (the "1999 Notes"). The 1999 Notes were secured by a first
security interest in substantially all of the Company's assets, including
its machinery, equipment, automobiles, fixtures, furniture's, accounts
receivable and general intangibles, including any stock in any subsidiary.
Also, during May, August and October 1999, the Company had
sold separate units consisting of 950 shares of the Company's 10% Mandatorily
Redeemable Preferred Stock and detachable warrants to purchase 4,750,000
shares of the Company's Common Stock at an exercise price of $0.25 per share,
exercisable in whole or in part by the holder at any time on or before May
14, 2004 in the case of 3,250,000 shares, August 27, 2004 in the case of
850,000 shares, and October 5, 2004 in the case of 650,000 shares. Such
sales by the Company occurred in a private placement transaction exempt
from registration made by the Act.
As a result of such new financing, the Company paid off the
principal amount of the Notes of $2,395,528 outstanding and accrued interest
of $96,355 in full on or immediately after the maturity date of the 1998
Notes. Accordingly, the Company believes that it satisfied all of its
remaining obligations under the 1998 Notes in full and it does not
anticipate any further claim with respect thereto.
In August, 1999 the Company obtained separate waivers of the
potential defaults for the quarter ended June 30, 1999 from the holders of
the 1999 Notes. In addition, the Company obtained a deferral of any payment
of principal on the 1999 Notes until December 31, 1999 regardless of any
financing raised by the Company prior to such date through the sale of its
securities, and made certain other changes in the loan agreements. As a
condition thereto the Company (a) granted the holders of the 1999 Notes
additional warrants to purchase 300,000 shares of the Company's common stock
at an exercise price of $0.25 per share, exercisable in whole or in part at
any time for a period of five years, (b) issued the holders of the 1999
Notes 200,000 shares of the Company's common stock, which shares would be
subject to applicable securities law restrictions, and (c) in the case of
the potential default in the payment of interest for certain of the holders
of the 1999 Notes, issued 50,000 shares of its Common Stock, subject to
applicable securities laws restrictions.
The Company would have been in default under a
Pledge/Security Agreement associated with the 1999 Notes on the date of
filing of its Form 10-Q for the quarter ended September 30, 1999 because the
Company had an operating loss in excess of that projected for such quarter,
which failure would have constituted an event of default under the Loan
Agreement between the Company and the holders of the 1999 Notes. Upon the
occurrence of such an event of default, the holders of the 1999 Notes had as
their exclusive remedy the right to additional warrants to purchase 300,000
share of the Company's common stock at an exercise price of $0.25 per share,
exercisable in whole or in part at any time for a period of five years.
During the first quarter of 2000, the Company raised
approximately $13,736,000 in private placement transactions exempt from
registration made by the Act. Also, warrants of $947,204 were exercised for
the conversion of notes payable. In addition, the Company redeemed the
preferred stock of $950,000 plus accrued dividend of $57,378. The Company
also paid the remaining balance of the 1999 Notes of $3,324,827 with cash
payments of 2,377,623 and the exercise of warrants of $947,204 as discussed
previously, and accrued interest of $35,059 thereby discharging such debt in
full.
Risk of Default with Debtholders
In order to pay off the Company's Senior Secured Notes which
had a maturity date of May 15, 1998 and to provide financing for its
operations, the Company raised financing in May, August and October, 1999.
Such financing involved the sale of separate units consisting of $3,480,000
principal amount of the Company's Senior Secured Notes, bearing interest at
16% per annum, payable quarterly and maturing on May 14, 1999 (the "1999
Notes"). The 1999 Notes were secured by a first security interest in
substantially all the assets of the Company's assets, including its
machinery, equipment, automobiles, fixtures, furniture, accounts receivable
and general intangibles, including any stock in any subsidiary.
Also, in May, August and October, 1999, the Company sold
separate units consisting of 950 shares of the Company's 10% Senior
Preferred Stock and detachable warrants to purchase 4,750,000 shares of
the Company's Common Stock at an exercise price of $0.25 per share,
exercisable in whole or in art by the holder at any time on or before
May 14, 2004 (and August and October, 2004 in the case of some of the
warrants). Such sales by the Company occurred in a private placement
transaction exempt from registration made by the Securities Act of 1933,
as amended.
The Company would have been in default under the
Pledge/Security Agreement associated with the 1999 Notes on the date of
filing of its Form 10-K for the year ended December 31, 1999 because the
Company had a loss in excess of the income projected for such quarter, which
failure would have constituted an event of default under the Loan Agreement
between the Company and the holders of the 1999 Notes. Upon the occurrence
of such an event of default, the holders of the 1999 Notes had as their
exclusive remedy the right to additional warrants to purchase 300,000 shares
of the Company's common stock at an exercise price of $0.25 per share,
exercisable in whole or in part at any time for a period of five years,
which the Company transferred to them. Moreover, the Company obtained a
deferral until February 15, 2000 of the payment of $744,828 of a principal
payment required to be made on December 31, 1999 from five holders of the
1999 Notes (representing the amounts due them), which the Company paid when
due, together with interest due on the 1999 Notes as of such date.
In early March, 2000, the Company satisfied $947,204 of the
principal amount of the 1999 Notes by applying the deemed exercise price
of warrants held by the holders of the 1999 Notes deemed received upon the
exercise of such warrants. In addition, the Company paid the remaining
balance of the 1999 Notes of approximately $1,632,797, and interest
thereon, in March, 2000, thereby discharging the 1999 Notes in full.
Accordingly, the Company believes that it satisfied all of its
remaining obligations under the 1999 Notes in full as of the date hereof.
Outlook
The statements contained in this Outlook are based on current
expectations. These statements are forward looking and actual results may
differ materially.
X-traWeb(TM) Products
During 1999, the Company received no revenues from, and had
no sales of any of, its X-traWeb products. As of December 31, 1999, the
Company had submitted proposals to an Italian telephone manufacturer, an
Italian electrical utility, a California utility and others. In addition,
the Company received a purchase order for the initial installation of an
X-traWeb(TM) network for a vending machine owner and operator in
Pennsylvania and for a test site at a national fast food chain site in
Columbus, Ohio. While the Company believes that its pending proposals will
be accepted in whole or in part from these sources and others, that it will
develop additional sources of sales in the United States, Italy and other
foreign countries and will derive substantial revenues therefrom in 2000 and
thereafter, there cannot be any assurance that any such sales will be made
or the amount thereof, although management anticipates that X-traWeb(TM)
product sales will constitute the bulk of its revenues during the year 2000
and thereafter.
Proprietary Radio Products
The Company only sold a limit quantity of these radio
products to date. The Company believes that it will derive significant
revenues from the sale of its proprietary radio products in the future.
However, there can be no assurance as to the amount of such sales or when
such sales will occur.
Contract Manufacture and Assembly, Antennas, and Royalties
The Company discontinued its manufacturing activities during
the first quarter of 2000 and will outsource manufacture the Company's
X-traWeb and radio products thereafter.
The Company does not expect antenna products to contribute
materially to its consolidated net sales or income in the foreseeable
future.
The Company believes that it will receive additional royalty
income under its Panasonic contract with respect to shipments for the first
three quarters of 2000. However, the Company cannot predict the amount of
such royalties to be received from the future sale of such Panasonic
products, or whether such contract will be renewed after September, 2000,
or, if so, on what terms.
Summary
Management believes that the potential growth of the
Company's X-traWeb(TM) business segment and proprietary radio products
require additional financing to sustain the Company's proposed operations in
these areas. It is anticipated that additional executive and marketing
personnel will be required for the X-traWeb(TM) business in advance of the
receipt of any substantial revenues from such source. There can be no
assurance that the Company will be able to locate and hire qualified
personnel for such functions; moreover, such a task is time-consuming.
Thus, the Company is currently engaged in seeking to raise additional
financing in private placement transactions in the United States and Italy
in implementation of its fund-raising program. The Company raised
approximately $13,736,000 from the sale of shares of its common stock in the
first quarter of 2000, and is using a broker-dealer to raise an additional
$7,500,000 within the second quarter. While the Company believes that such
additional financing can be obtained, there can be no assurance that such
financing will be achieved, or, if made available, on terms acceptable to
the Company.
In summary, while management is optimistic about the
Company's future, it is fully aware that anticipated revenue increases from
sales of X-traWeb(TM) products and its proprietary radios and royalty income
are by no means assured, and that its requirements for capital are
substantial, for which the availability is by no means assured.
Statement Regarding Forward-Looking Disclosure
This report includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act which represent the Company's expectations or beliefs concerning future
events that involve risks and uncertainties, including those associated with
the ability of the Company to obtain financing for its current and future
operations, to manufacture (or arrange for the manufacturing of) its
products, to market and sell its products, and the ability of the Company to
establish and maintain its sales of XtraNet products. All statements other
than statements of historical facts included in this Report including,
without limitation, the statements under "Management's Discussion and
Analysis of Results of Operations and Financial Condition" and "Business"
and elsewhere herein, are forward-looking statements. Although the Company
believes that the expectations reflected in such forward-looking statements
are reasonable, it can give no assurance that such expectations will prove
to have been correct. Important factors that could cause actual results to
differ materially from the Company's expectations ("Cautionary Statements")
are disclosed in this Report, including without limitation, in connection
with the forward-looking statements included in this report. All subsequent
written and oral forward-looking statements attributable to the Company or
persons acting on its behalf are expressly qualified in their entirety by
the Cautionary Statements.
Year 2000
The Company did not suffer any material adverse impace
resulting from the "Year 2000" issue. The Year 2000 problem is the result
of computer programs being written using two digits rather than four to
define the applicable year. The Company incurred approximately $25,000 in
modifying its existing software and converting to new software in addressing
such issue.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements, Page F-1
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNT AND
FINANCIAL DISCLOSURE
None.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers and directors of the Company at
December 31, 1999 were as follows:
Name Age Position
David D. Singer 50 Chairman of the Board of Directors,
President, Chief Executive Officer and
a Director
Donald I. Wallace 55 Executive Vice President--Telemetry and
SCADA Division,
President of X-traWeb, Inc. and a Director
George Denney 61 Director(1)
Charles Taylor 45 Vice President - Sale/Marketing
Malcolm P. Thomas 40 Director
Kevin Childress 40 Vice President - Finance(2)
____________________
1 Mr. Denney resigned as a director in January, 2000.
2 Mr. Childress resigned as an employee and officer in March, 2000.
- - -------------------
David D. Singer - Mr. Singer was appointed President of the
Company in November 1996, and became a Director in February 1997. From 1977
to 1983, Mr. Singer was President of CSL Energy Controls, Inc., a company
specializing in third party energy conservation. From 1983 to 1985, Mr.
Singer was a special consultant to the General President of the Sheetmetal
Workers Association. From 1985 to 1988, Mr. Singer was Vice President First
Municipal Division, Bank One Leasing Corporation. From 1989 to 1994, Mr.
Singer was President of Highland Energy Group. From 1991 to 1996, Mr. Singer
was employed by Navtech Industries, Inc., an electronic assembly company, as
Vice President Sales and Marketing from February 1994 to July 1995, and as
President and Chief Operating Officer from July 1995 to July 1996.
Donald I. Wallace - Mr. Wallace was appointed Executive
Vice President -- Telemetry and SCADA (i.e., Systems Control and Data
Access) Division of the Company in January 1998, became the President of
X-traWeb, Inc., the Company's wholly-owned subsidiary, and was elected a
Director in April, 1999. Prior to his employment by the Company, Mr.
Wallace was employed, from December 1995, as President of PrimeLink, Inc., a
Lenexa, Kansas company which Mr. Wallace founded to engage in the
development and marketing of wireless telemetry products for remote meter
reading. Between September 1991 and November 1995, Mr. Wallace was employed
as the President of Arcom Control Services, Inc., which developed and
marketed computer-based monitoring and control products for the oil and gas
industry.
George Denney - Mr. Denney was elected a director of the
Company in February 1998. Mr. Denny founded Cole-Haan in 1975, and has
served as Chairman of Cole-Haan since its inception. Cole-Haan was acquired
by NIKE, Inc. in 1988. Headquartered in Yarmouth, Maine, Cole-Haan designs
and sells fine dress and casual footwear and accessories.
Charles Taylor - Mr. Taylor was elected one of the
Company's Directors in July, 1999 and was elected as a member of the
Company's Audit, Compensation and Stock Option Committees on November 11,
1999. During the period from 1995 to the present, Mr. Taylor has been a
senior investment advisor with Amerindo Investment Advisors based in New
York City and is a senior member of a team that manages approximately $4
billion in growth portfolios, including the Amerindo Technology Fund. Prior
to such period, Mr. Taylor served as technology analyst with several major
investment banking firms.
Malcolm P. Thomas - Mr. Thomas was elected one of the
Company's Directors effective September 2, 1999 and was elected as a member
of the Company's Audit Committee on November 11, 1999 and of the Company's
Compensation and Stock Option Committees on January 20, 2000. During the
period from 1991 to the present, Mr. Thomas has been the Director of
Operations and Marketing at Fluor Global Services, Inc., a wholly-owned
subsidiary of Fluor Corporation (a New York Stock Exchange company), having
been promoted from Manager of Marketing Services and operation in the
Western United States for his corporation.
Kevin Childress - Mr. Childress joined the Company as its
Controller in November, 1998 and became Vice President - Finance in
December, 1998. Prior to joining the Company, Mr. Childress served as
Director of Finance of American Procurement and Logistics for a subsidiary
of American Stores.
ITEM 11. EXECUTIVE COMPENSATION
The table below sets forth information concerning
compensation paid in 1997, 1998 and 1999 to David D. Singer, the Company's
Chairman, President and Chief Executive Officer, and Donald I. Wallace, the
Company's Executive Vice President Telemetry and SCADA and th President of
X-traWeb, Inc. Except as set forth in the table, no executive officer of
the Company received compensation of $100,000 or more in 1999.
Summary Compensation Table
Annual Compensation Long-Term Compensation
------------------------------- ---------------------------------------
Awards Payouts
-------------------------- -----------
Other Restricted All
Name and Annual Stock Options LTIP Other
Principal Position Year Salary Bonus Compensation Awards ($) /SARs(#) Payouts($) Compensation
- - ------------------ ------ -------- -------- ------------ ----------- ----------- ---------- ------------
David D. Singer(1)(2) 1999 $151,653 - - - 400,000 - -
President 1998 143,530 - - - - - -
1997 120,000 - - - - - -
Donald Wallace(1)(2) 1999 127,993 - - - 220,000 - -
President, X-traWeb, 1998 124,809 - - - - - -
Inc.
______________
(1) Neither Mr. Singer nor Mr. Wallace received
compensation reportable as "Other Annual Compensation"
which exceeded 10% of his salary in 1999.
(2) Mr. Singer is the Chairman and Mr. Wallace is
the President of X-traWeb, Inc., our wholly-owned
Delaware subsidiary formed in 1999.
The following table sets forth certain
information regarding options owned by Messrs. Singer
and Wallace at December 31, 1999:
Aggregated Option\SAR Exercises in Last Fiscal Year and
Options\SAR Values
Number of Securities Underlying
Unexercised Options\SARs at Value of Unexercised In-
Fiscal Year-End The-Money Options/SARs
Shares Acquired (#) At Fiscal Year End (S)
Name on Exercise (#) Value Realized($) Unexercisable Exercisable Unexercisable Exercisable
- - --------------- --------------- ----------------- ------------ ------------- ----------- -------------
David D. Singer - - 400,000(2) 50,000(1) $ 740,000 -
Donald Wallace - - 220,000(3) - $ 441,000 -
For the purpose of computing the value of
"in-the-money" options at December 31, 1999 in the
above table, the fair market value of a share of the
Company's Common Stock at December 31, 1999 is deemed
to be $3.94 per share, which was the average of the
last reported trade of such shares on the NASDAQ OTC
Electronic Bulletin Board on such date.
__________________________
(1) The stock options are exercisable as follows:
all were fully vested as of December 31, 1998.
(2) The stock options are exercisable as
follows: 80,000 shares on January 1, 2000,
80,000 shares on November 11, 2000, 80,000
shares on November 11, 2001, 80,000 shares on
November 11, 2002, and 80,000 shares on
November 11, 2003.
(3) The stock options are exercisable as
follows: 24,000 shares on January 1, 2000,
24,000 shares on November 11, 2000, 24,000
shares on November 11, 2001, 24,000 shares on
November 11, 2002, and 24,000 shares on
November 11, 2003. In addition, another stock
option is exercisable as follows: 33,333 shares
on April 22, 2000; 33,333 on April 22, 2001;
and 33,334 shares on April 22, 2002.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
(a) Set forth below is information as of
December 31, 1999 pertaining to ownership of the
Company's Common Stock, determined in accordance
with Rule 13(d)(3) under the Securities and
Exchange Act of 1934, by persons known to the
Company who own more than 5% of the Company's
Common Stock:
Name and Address of
Beneficial Owner Number of Shares(1) Percent of Class(2)
------------------- ------------------- -------------------
Michael Lauer 7,296,339(3) 24.6%
200 Park Avenue
Suite 3900
New York, NY 10166
Lancer Offshore Inc. 4,642,548(4) 15.9%
200 Park Avenue
Suite 3900
New York, NY 10166
Lancer Partners LLC 500,000(4) 1.8%
200 Park Avenue
Suite 3900
New York, NY 10166
Lancer Partners, LP 1,805,650(4) 6.6%
200 Park Avenue
Suite 3900
New York, NY 10166
Lancer Voyager 238,600(4) *
375 Park Avenue
New York, NY10022
Orbiter Fund Ltd. 109,600(4) *
375 Park Avenue
New York, NY
RUSP Holding S.A. 2,500,000 9.3
Luxembourg
Pensionskassee Der Siemens 2,000,000 7.4
Gesellchaften
c/o Lintheschergasse
Zurich, Switzerland 8001
_______________
* Less than one percent.
(1) Unless otherwise indicated, this column
reflects shares owned beneficially and of record
and as to which the named party has sole voting
power and sole investment power. This column also
includes shares issuable upon the exercise of
options or similar rights which are exercisable
within 60 days after December 31, 1999.
(2) In computing the percentage of shares
beneficially owned by any person, shares which the
person has the right to acquire upon the exercise
of options or other rights held by such person
within 60 days after December 31, 1999 are deemed
outstanding. Such shares are not deemed to be
outstanding in computing the percentage ownership
of any other person.
(3) Of these shares, none is owned by Mr.
Lauer in street name; 2,392,548 are held directly
and of record by Lancer Offshore, Inc., plus
warrants to purchase 2,250,000 shares in such
name; 1,305,650 are held directly and of record by
Lancer Partners, LP, plus warrants to purchase
500,000 shares in such name; 500,000 are held
directly and of record by Lancer Partners LLC;
238,600 are held directly and of record by Lancer
Voyager; and 109,541 are held directly and of
record by The Orbiter Fund Ltd. Mr. Lauer is
believed to control the voting and disposition of
these shares and warrants by virtue of being the
investment manager for these entities. He is also
the general partner of Lancer Partners LP and the
Manager of Lancer Partners LLC.
(4) Michael Lauer is deemed to be an
indirect beneficial owner of these shares.
(b) Set forth below is information as of
December 31, 1999 pertaining to ownership of the
Company's Common Stock by all directors and
executive officers of the Company:
(i) Name and Address of Number of
Beneficial Owner Shares(1) Percent of Class(2)
------------------------- ----------------- --------------------
David D. Singer, President, Chief 517,000(3) 1.9
Executive Officer and Director
World Wireless Communications, Inc.
5670 Greenwood Plaza Boulevard
Suite 340
Englewood, Colorado 80111
Donald I. Wallace, Executive Vice 10,000 *
President --Telemetry and SCADA
4412 Orofino Place
Castle Rock, CO 80104
Charles Taylor 5,000(4) *
World Wireless Communications, Inc.
5670 Greenwood Plaza Boulevard
Suite 340
Englewood, Colorado 80111
Malcolm P. Thomas 5,000(4) *
One Fluor Daniel Drive
Mail Stop A2B
Aliso Viejo, CA 92698
(ii) All Directors and
Executive Officers as
a Group 529,000 2.0
- - --------------
(1) Unless otherwise indicated,
this column reflects shares owned beneficially and
of record and as to which the named party has sole
voting power and sole investment power. This
column also includes shares issuable upon the
exercise of options or similar rights which are
exercisable within 60 days after December 31, 1999.
(2) In computing the percentage of
shares beneficially owned by any person, shares
which the person has the right to acquire upon the
exercise of options or other rights held by such
person within 60 days after December 31, 1999 are
deemed outstanding. Such shares are not deemed to
be outstanding in computing the percentage
ownership of any other person.
(3) Include 50,000 shares issuable
upon a presently exercisable and fully vested
option granted under the Company's 1997 Stock
Option Plan. In addition, the share total
includes the 237,500 shares of the Company's
Common Stock which Mr. Singer transferred to his
wife in 1999.
(4) Includes 5,000 shares issuable
upon the exercise of options granted in January,
2000, in recognition of services as a director.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following consolidated financial statements are
included in Part II, Item 8:
1. Consolidated Financial Statements of World
Wireless Communications, Inc. and Subsidiary:
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets - December 31, 1999 and 1998 F-3
Consolidated Statements of Operations for the
Years Ended December 31, 1999, 1998 and 1997 F-4
Consolidated Statements of Stockholders' Equity (Deficit)
for the Years Ended December 31, 1997, 1998 and 1999 F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997 F-6
Notes to Consolidated Financial Statements F-7
All schedules are omitted because they are not
applicable or the required information is shown in the
consolidated financial statements or notes thereto.
3. (a) Exhibits
The Exhibits which are listed on the Exhibit Index attached
hereto.
4. Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of Section 13 or
15(d) of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its
behalf by the undersigned thereunto duly authorized.
WORLD WIRELESS
COMMUNICATIONS, INC.
(Registrant)
Dated: March 30, 2000 By: /S/David D. Singer
-----------------------------
David D. Singer, Chairman of
the Board of Directors,
President and Chief Executive
Officer
Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
Name Title Date
/S/David D. Singer Chairman of the Board March 30, 2000
---------------------- of Directors, President,
David D. Singer Chief Executive Officer,
Principal Financial Officer,
Principal Accounting Officer
and Director
/S/Charles Taylor Director March 30, 2000
----------------------
Charles Taylor
/S/ Malcolm P. Thomas Director March 30, 2000
-----------------------
Malcolm P. Thomas
/S/ Donald I. Wallace Director March 30, 2000
-----------------------
Donald I. Wallace
EXHIBIT INDEX
No. Description
3.1 Articles of Incorporation of the Company and all
amendments thereto*
3.2 Bylaws of the Company*
4.1 Form of Common Stock Certificate*
4.2 Form of Subscription Agreement used in private
financing providing for registration rights*
5. Opinion of Connolly Epstein Chicco Foxman
Engelmyer & Ewing regarding the legality of
securities being registered*
10.1 1997 Stock Option Plan*
10.2 DRCC Omnibus Stock Option Plan*
10.3 Development and License Agreement dated April 4,
1997, between DRCC and Kyushu Matsushita
Electric Co., Ltd.*
10.4 Amended and restated Technical Development and
Marketing Alliance Agreement dated September 15,
1997, between the Company and Williams Telemetry
Services, Inc.*
10.5 Lease Agreement dated May 17, 1995, between DRCC
and Pracvest Partnership relating to the
Company's American Fork City offices and facility*
10.6 Lease Agreement dated February 12, 1996, between
the Company the Green/Praver, et al., relating
to the Company's Salt Lake City offices*
10.7 Shareholders Agreement dated May 21, 1997
between the Company, DRCC, Philip A. Bunker and
William E. Chipman, Sr.*
10.8 Asset Purchase Agreement dated October 31, 1997,
between the Company and Austin Antenna, Ltd.*
10.9 Stock Exchange Agreement dated October 31, 1997,
between the Company, TWC, Ltd. and the
shareholders of TWC, Ltd.*
10.10 Settlement Agreement, Mutual Waiver and Release
of All Claims dated November 11, 1997 between
Digital Radio Communications Corp. and Digital
Scientific, Inc.*
10.11 Agreement (undated) between the Company, Xarc
Corporation and Donald J. Wallace relating to
the Company's acquisition of Xarc Corporation*
10.12 Promissory Note dated December 4, 1997, by the
Company, payable to William E. Chipman, Sr. in
the principal amount of $125,000*
10.13 Promissory Note dated November 13, 1997, by the
Company, payable to T. Kent Rainey in the
principal amount of $200,000*
10.14 Investment Banking Services Agreement dated
November 19, 1997, between the Company and
PaineWebber Incorporated*
10.15 $400,000 Promissory Note dated December 24, 1997,
payable to Electronic Assembly Corporation*
10.16 $400,000 Promissory Note dated January 8, 1998,
payable to Tiverton Holdings Ltd.*
10.17 Loan Agreement by and among the Registrant and
the Bridge Noteholders *
dated as of May 15, 1998*
10.18 Amendment and Waiver Agreement by and among the
Registrant and the Bridge Noteholders dated
August 7, 1998*
10.19 Amendment and Waiver Agreement by and among the
Registrant and the Bridge Noteholders dated
September 11, 1998*
10.20 Loan Agreement by and among the Registrant and
the Bridge Noteholders dated as of May 15, 1998
(Previously filed), together with the Notes,
Pledge/Security Agreement,
Pledgee/Representative Agreement, Subordination,
and Registration Rights Agreement*
10.21 Separation and Mutual Release Agreement between
the Registrant and William E. Chipman, Sr. dated
as of May 26, 1998*
10.22 Registration Rights Agreement by and among the
Registrant and the purchasers of common stock
issued pursuant to the Registrants Confidential
Private Placement Memorandum dated September 9,
1998, as amended*
10.23 Employment Agreement between the Registrant and
James O'Callaghan dated May 20, 1998*
10.24 Lease agreement between the Registrant and NP#2
dated as of July 29, 1998 relating to the
premises at 2441 South 3850 West, West Valley
City, Utah 84120*
10.25 Agreement between KME and the Registrant dated
October 19, 1998 relating to the Registrant's
providing of technical assistance and
development relating to the Giarange telephone*
10.26 Agreement between KME and the Registrant dated
as of March 1, 1998 relating to the Panasonic
MicroCast System*
10.27 General and Mutual Release Agreement between the
Registrant and Phil Acton dated November 2, 1998*
10.28 Agreement and Waiver Agreement by and among the
Registrant and the Bridge Noteholders dated
November 25, 1998*
10.29 1998 Employee Incentive Stock Option Plan*
10.30 1998 Non-qualified Stock Option Plan*
10.31 Amendment of Agreement by and among the
Registrant and the Bridge Noteholders dated as
of March 26, 1999*
10.32 Loan Agreement by and among the Registrant and
the Senior Secured Noteholders dated as of May
14, 1999, together with the Notes,
Pledge/Security Agreement, Pledgee
Representative Agreement, Subordination and
Registration Rights Agreement*
10.33 Two separate Agreements by and among the
Registrant and the 1999 Bridge Noteholders dated
August 19, 1999*
10.34 Waiver Agreement by and among the Registrant and
the Bridge Noteholders dated as of December 7, 1999**
27 Financial Data Schedules**
-------------
* Filed previously
** Filed herewith.
+ Management contract or compensatory plan or
arrangement filed previously.
WORLD WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets - December 31, 1999 and 1998 F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1999, 1998 and 1997 F-4
Consolidated Statements of Stockholders' Equity (Deficit) for
the Years Ended December 31, 1997, 1998 and 1999 F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997 F-6
Notes to Consolidated Financial Statements F-7
HANSEN, BARNETT & MAXWELL
A Professional Corporation
CERTIFIED PUBLIC ACCOUNTANTS
(801) 532-2200
Member of AICPA Division of Firms Fax (801) 532-7944
Member of SECPS 345 East Broadway, Suite 200
Member of Summit International Associates Salt Lake City, Utah 84111-2693
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and the Stockholders
World Wireless Communications, Inc.
We have audited the accompanying consolidated balance
sheets of World Wireless Communications, Inc. and
subsidiaries ("the Company") as of December 31, 1999 and
1998, and the related consolidated statements of
operations, stockholders' equity (deficit), and cash
flows for each of the three years in the period ended
December 31, 1999. These financial statements are the
responsibility of the Company's management. Our
responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also
includes assessing the accounting principles used and
significant estimates made by management, as well as
evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material
respects, the financial position of World Wireless
Communications, Inc. and subsidiaries as of December 31,
1999 and 1998, and the results of their operations and
their cash flows for each of the three years in the
period ended December 31, 1999, in conformity with
generally accepted accounting principles.
HANSEN, BARNETT & MAXWELL
Salt Lake City, Utah
March 15, 2000
WORLD WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
--------------------------
1999 1998
------------ ------------
ASSETS
Current Assets
Cash $ 893,849 $ 614,897
Investment in securities available for sale 130,403 137,648
Trade receivables, net of allowance for
doubtful accounts 723,355 327,387
Other receivables 584 77,005
Inventory 201,815 550,239
Prepaid expenses 10,924 18,594
------------ ------------
Total Current Assets 1,960,930 1,725,770
------------ ------------
Equipment, net of accumulated depreciation
and impairments 192,252 1,038,645
------------ ------------
Goodwill, net of accumulated amortization 385,718 957,794
------------ ------------
Other Assets, net of accumulated amortization 39,314 414,381
------------ ------------
Total Assets $ 2,578,214 $ 4,136,590
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Trade accounts payable $ 547,978 $ 982,506
Accrued liabilities 338,112 880,638
Accrued lease obligation on abandoned
office and manufacturing facility 1,756,924 -
Notes payable 3,324,827 2,992,858
Obligations under capital lease -
current portion 119,226 197,626
------------ ------------
Total Current Liabilities 6,087,067 5,053,628
------------ ------------
Long-Term Obligations Under Capital Lease 21,459 84,968
------------ ------------
Mandatorily Redeemable 10% Preferred Stock -
$0.001 par value; 1,000,000 shares authorized;
950 shares designated mandatorily redeemable;
950 and 0 shares issued and outstanding;
liquidation preference of $1,000,658 950,000 -
------------ ------------
Stockholders' Deficit
Common stock - $0.001 par value; 50,000,000
shares authorized; issued and outstanding:
21,250,015 shares in 1999 and 13,920,400
shares in 1998 21,250 13,920
Additional paid-in capital 35,242,864 25,419,026
Unearned compensation (48,294) (70,518)
Receivable from shareholders (66,828) (66,828)
Accumulated deficit (39,684,707) (26,360,254)
Unrealized gain on investment in securities 55,403 62,648
------------ ------------
Total Stockholders' Deficit (4,480,312) (1,002,006)
------------ ------------
Total Liabilities and Stockholders' Deficit $ 2,578,214 $ 4,136,590
============ ============
The accompanying notes are an integral part of these financial statements.
F-3
WORLD WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended
December 31,
-----------------------------------------
1998 1997 1996
------------- ------------ ------------
Revenues from Services $ 867,451 $ 3,009,416 $ 1,596,000
Sales of Products 2,698,856 1,300,275 1,317,429
------------- ------------ ------------
Total Sales 3,566,307 4,309,691 2,913,429
Cost of Sales 2,926,459 3,751,607 2,116,934
------------- ------------ ------------
Gross Profit 639,848 558,084 796,495
Operating Expenses
Research and development 1,318,963 3,179,557 2,943,404
General and administrative 4,657,680 4,975,307 4,243,779
Manufacturing activity exit costs 2,615,489 - -
Impairment of goodwill and patents 641,679 4,722,425 -
Amortization of goodwill 200,397 1,254,583 1,384,715
------------- ------------ ------------
Total Operating Expenses 9,434,208 14,131,872 8,571,898
------------- ------------ ------------
Loss From Operations (8,794,360) (13,573,788) (7,775,403)
Other Income (Expense)
Interest expense (3,556,097) (1,813,208) (43,779)
Other income 26,662 343,625 9,692
------------- ------------ ------------
Net Loss (12,323,795) (15,043,371) (7,809,490)
Preferred Dividends 1,000,658 - -
------------- ------------ ------------
Loss Applicable to Common Shares $ (13,324,453) $(15,043,371) $ (7,809,490)
============= ============ ============
Basic and Diluted Loss Per
Common Share $ (0.77) $ (1.34) $ (0.85)
============= ============ ============
Weighted Average Number of Common
Shares Used in Per Share Calculation 17,308,258 11,189,603 9,217,158
============= ============ ============
The accompanying notes are an integral part of these financial statements.
F-4
WORLD WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Unrealized
Unearned Gain on Total
Common Stock Additional Compensation Investment Stockholders'
--------------------- Paid-In and Accumulated in Equity
Shares Amount Capital Receivable Deficit Securities (Deficit)
---------- ---------- ----------- ----------- ------------ ----------- ------------
Balance - December 31, 1996 5,663,000 $ 5,663 $ 3,916,613 $ - $(3,507,393) $ - $ 414,883
------------
Comprehensive Loss
Net loss - - - - (7,809,490) - (7,809,490)
Unrealized gain on investment
in securities - - - - - 113,354 113,354
------------
Comprehensive Loss for the Year (7,696,136)
------------
Compensation related to grant of
stock options - - 2,373,849 (2,373,849) - - -
Amortization of unearned compensation - - - 963,340 - - 963,340
Shares and warrants issued for cash 2,557,857 2,558 4,192,692 - - - 4,195,250
Exercise of stock options for cash and
a promissory note 25,098 25 29,836 (18,409) - - 11,452
Conversion of note payable 5,630 6 1,964 - - - 1,970
Acquisition of Digital Radio 1,798,100 1,798 8,672,264 - - - 8,674,062
Acquisition of TWC 101,200 101 1,048,331 - - - 1,048,432
Acquisition of XARC 10,000 10 102,990 - - - 103,000
Settlement of lawsuit 40,000 40 323,416 - - - 323,456
Financing fees 24,375 24 253,113 - - - 253,137
---------- --------- ----------- ---------- ----------- ---------- -----------
Balance - December 31, 1997 10,225,260 10,225 20,915,068 (1,428,918) (11,316,883) 113,354 8,292,846
-----------
Comprehensive Loss:
Net loss - - - - (15,043,371) - (15,043,371)
Decrease in unrealized gain on securities - - - - - (50,706) (50,706)
-----------
Comprehensive Loss for the Year (15,094,077)
-----------
Compensation related to grant of
stock options - - 463,180 (463,180) - - -
Repurchase of stock options - - (903,619) 903,619 - - -
Amortization of unearned compensation - - - 899,553 - - 899,553
Shares issued for cash 2,721,258 2,721 2,410,353 - - - 2,413,074
Beneficial conversion feature of
notes payable - - 374,172 - - - 374,172
Exercise of stock options for cash and
a promissory note 435,051 435 191,307 (48,420) - - 143,322
Shares issued for services 443,831 444 404,587 - - - 405,031
Acquisition of technology 65,000 65 324,935 - - - 325,000
Shares and warrants issued for interest 30,000 30 1,239,043 - - - 1,239,073
---------- --------- ----------- ---------- ------------ --------- ----------
Balance - December 31, 1998 13,920,400 13,920 25,419,026 (137,346) (26,360,254) 62,648 (1,002,006)
----------
Comprehensive Loss:
Net loss - - - - (12,323,795) - (12,323,795)
Decrease in unrealized gain on securities - - - - - (7,245) (7,245)
-----------
Comprehensive Loss for the Year (12,331,040)
-----------
Compensation relating to the grant of
stock options - - 86,388 22,224 - - 108,612
Shares issued for cash 5,612,000 5,612 5,018,661 - - - 5,024,273
Conversion of note payable and
accrued interest 893,698 894 892,804 - - - 893,698
Beneficial conversion feature of
note payable - - 81,517 - - - 81,517
Shares issued for services 120,841 121 231,265 - - - 231,386
Shares and warrants issued for defaults
and interest on notes payable 450,000 450 2,075,032 - - - 2,075,482
Warrants issued for services - - 425,155 - - - 425,155
Exercise of warrants for cash 253,077 253 63,016 - - - 63,269
Preferred dividends - - - - (1,000,658) - (1,000,658)
Warrants granted on issuance of
preferred stock - - 950,000 - - - 950,000
---------- --------- ----------- ---------- ------------ --------- -----------
Balance - December 31, 1999 21,250,016 $ 21,250 $35,242,864 $ (115,122) $(39,684,707) $ 55,403 $(4,480,312)
========== ========= =========== ========== ============ ========= ===========
The accompanying notes are an integral part of these financial statements.
F-5
WORLD WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED
DECEMBER 31,
---------------------------------------
1998 1997 1996
------------- ------------ ------------
Cash Flows From Operating Activities
Net loss $ (12,323,795) $(15,043,371) $ (7,809,490)
Adjustments to reconcile net loss to net
cash used by operating activities:
Amortization of goodwill 200,397 1,254,583 1,384,715
Impairment of goodwill and patent 641,679 4,722,425 -
Depreciation and amortization 874,400 686,121 361,607
Manufacturing activity exit costs 2,615,489 - -
Amortization of debt discount and financing - 542,408 154,200
Interest paid with stock and stock warrants 2,582,154 331,827 -
Purchased research and development - 325,000 1,561,000
Stock issued for services 231,386 397,292 111,370
Compensation from stock options granted 108,612 899,552 963,340
Beneficial conversion feature granted - 413,563 -
Gain on sale of business assets - (332,751) -
Changes in operating assets and liabilities:
Accounts receivable (370,612) (36,810) 7,622
Inventory (57,042) (109,182) (41,105)
Accounts payable (434,528) 509,631 41,546
Accrued liabilities (580,008) 467,140 (86,981)
Other 137,070 261,441 (237,312)
------------ ------------- ------------
Net Cash and Cash Equivalents Used By
Operating Activities (6,374,798) (4,711,131) (3,589,488)
------------ ------------- ------------
Cash Flows From Investing Activities
Payments for the purchase of property
and equipment (128,461) (247,457) (663,707)
Proceeds from sale of business assets
and property 4,359 394,499 10,754
Cash paid for acquisitions, net of cash
received - - (248,736)
------------ ------------- ------------
Net Cash and Cash Equivalents Provided
By (Used By) Investing Activities (124,102) 147,042 (901,689)
------------ ------------- ------------
Cash Flows From Financing Activities
Proceeds from issuance of common stock 5,024,273 2,564,137 4,206,700
Proceeds from borrowings, net of discount 2,480,000 2,900,000 775,000
Proceeds from issuance of mandatorily
redeemable Preferred Stock 700,000 - -
Proceeds from exercise of warrants 63,269 - -
Principal payments on obligation under
capital lease (159,909) (108,088) -
Principal payments on notes payable (1,329,781) (395,297) (309,567)
------------ ------------- ------------
Net Cash and Cash Equivalents Provided
By Financing Activities 6,777,852 4,960,752 4,672,133
------------ ------------- ------------
Net Increase In Cash and Cash Equivalents 278,952 396,663 180,956
Cash and Cash Equivalents - Beginning of Year 614,897 218,234 37,278
------------ ------------- ------------
Cash and Cash Equivalents - End of Year $ 893,849 $ 614,897 $ 218,234
============ ============= ============
Supplemental cash flow information and noncash investing and
financing activities - Note 8
The accompanying nots are an integral part of these financial statements.
F-6
WORLD WIRELES COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
ORGANIZATION AND NATURE OF BUSINESS - World Wireless
Communications, Inc. and its subsidiaries (collectively,
"the Company") design and develop wired and wireless
communications technology, systems and products. The
Company has developed a web-enabling technology known as
X-traWeb(TM). The Company's primary efforts are on
marketing and further enhancing X-traWeb. Through March
2000, the Company also provided contract manufacturing
services to the electronics wireless communications
industry, as well as engineering and products related to
supervisory control and data acquisition (commonly known
as SCADA) technologies. During the fourth quarter of
1999 the Company initiated a plan to exit activities
related to contract and in-house manufacturing.
The Company was formed on November 15, 1995 as a Nevada
Corporation. Its name was changed during January 1998,
from Data Security Corporation, to World Wireless
Communications, Inc. During February 1997, the Company
acquired Digital Radio, as described in Note 3 - Business
Combination and Acquisitions, and thereby gained wired
and wireless communication technology engineering,
design, assembly and manufacturing capabilities. The
results of operations for Digital Radio have been
included in the consolidated operations since February
12, 1997. During October and November 1997 the Company
acquired the Delaware company, TWC Ltd., operating under
the name Austin Antenna, and the Kansas company, XARC
Corporation. These two acquisitions brought the Company
technology and sales contacts which compliment the
Company's technology and provided the ability to develop
X-traWeb. Effective January 1, 1998, all of the
subsidiaries of the Company at that date, except TWC
Ltd., were merged into World Wireless Communications,
Inc. During 1998 the Company sold business assets and
products relating to a line of personal computer security
products known as SecuriKey. Sales from the security
products were insignificant during 1998 and 1997.
PRINCIPLES OF CONSOLIDATION - The consolidated financial
statements include the accounts of World Wireless
Communications, Inc. and its wholly owned subsidiaries.
Intercompany accounts and transactions have been
eliminated in consolidation.
USE OF ESTIMATES - The preparation of financial
statements in conformity with generally accepted
accounting principles requires management to make
estimates and assumptions that affect the reported
amounts in these financial statements and accompanying
notes. Actual results could differ from those estimates.
BUSINESS CONDITION - The Company has sustained net losses
of $12,323,795, $15,043,371, and $7,809,490 during each
of the three years in the period ended December 31, 1999.
In addition, operating activities have used cash and cash
equivalents of $6,374,798, $4,711,131 and $3,589,488
during each of the three the years in the period ended
December 31,1999. As of December 31, 1999, the Company
had a working capital deficiency of $4,126,137 and a
capital deficiency of $4,480,312. Management's plans to
improve the Company's financial condition include
obtaining profitable operations in the future by
fulfilling sales contracts which are being pursued,
collecting royalty payments under existing royalty
agreements, obtaining additional equity capital and
converting of a portion of notes payable into common
stock. There is no assurance, however, that these efforts
will result in profitable operations or in the Company's
ability to meet obligations when due. As described in
Note 15 - Subsequent Events, during 2000, the Company has
issued common stock for proceeds of approximately $13.6
million, redeemed its mandatorily redeemable preferred
stock and paid its secured bridge loan debt.
F-7
CONCENTRATION OF RISK AND SEGMENT INFORMATION -The
Company operates solely in the electronics industry and
has assets only within the United States. Export sales
during the years ended December 31, 1999, 1998 and 1997
were $0, $322,387 and $1,661,752, respectively, of which
$0, $322,387 and $1,607,706, respectively, were to
customers in Japan. The concentration of business in one
industry subjects the Company to a concentration of
credit risk relating to trade accounts receivable. The
Company generally does not require collateral from its
customers with respect to trade receivables.
FINANCIAL INSTRUMENTS - The Company has a concentration
of risk from cash in banks in excess of insured limits.
The amounts reported as cash, investments in securities
available-for-sale, other receivables, trade accounts
payable, accrued liabilities, accrued lease obligation on
abandoned office and manufacturing facility, notes
payable and obligations under capital lease are
considered to be reasonable approximations of their fair
values. The fair value estimates presented herein were
based on market information available to management at
the time of the preparation of the financial statements.
TRADE ACCOUNTS RECEIVABLE AND MAJOR CUSTOMERS -Sales to
major customers are defined as sales to any one customer
which exceeded 10% of total sales in any of the three
reporting years. Sales to the four major customers during
each of the years in the period ended December 31, 1999
were as follows: Customer "A" - $463,041, $322,387and
$1,596,000; Customer "B" - $0,$0 and $413,512;
Customer "C" - $601,606,$2,739,375, and $0; and Customer
"D" - $363,120,$0, and $77,667; Customer "E" - $423,090,
$148,765, and $0. Sales to major customers subject the
Company to the risk that the Company may not be able to
continue the current level of sales if there were a loss
of a major customer.
At December 31, 1999 and 1998, an allowance for doubtful
accounts of $190,328 and $65,000, respectively, was
provided against trade and other receivables.
INVENTORY - Inventory is stated at the lower of cost or
market. Cost is determined using the first-in, first-out
method. In connection with the exit from contract and
in-house manufacturing, the Company recognized a
write-down of inventory of $405,466 to its liquidation
value. The write-down was charged to operations during
the year ended December 31, 1999 and is included in
manufacturing activity exit costs.
RESEARCH AND DEVELOPMENT EXPENSE - Current operations are
charged with all research, engineering and product
development expenses.
GOODWILL AND LONG-LIVED ASSETS -Goodwill and other
long-lived assets are evaluated periodically for
impairment when indicators of impairment are present and
undiscounted cash flows estimated to be generated by
those assets are less than their carrying amounts.
Goodwill is included along with other assets acquired as
a group when evaluating their recoverability. Impairment
losses are recognized to the extent estimated discounted
net future cash flows expected to be generated from those
assets are less than their carrying amounts. Goodwill is
further evaluated separately and impairment losses are
recognized for the excess of the carrying amount of
goodwill over management's estimation of the value and
future benefits expected to be realized from the
goodwill. In both of these analyses, significant
management judgement is required to evaluate the capacity
of the assets or the acquired business to perform within
projections.
The original amortization periods for goodwill and other
intangible assets are evaluated periodically to determine
whether later events and circumstances warrant revised
estimates of their useful lives. If estimated useful
lives are changed, the unamortized cost is allocated to
the remaining periods in the revised useful lives. The
Company determines the useful life of goodwill based upon
an analysis of all relevant factors.
F-8
The Company evaluated the recoverability of the
long-lived assets and goodwill recognized in connection
with the Digital Radio acquisition during 1998 and with
the TWC Ltd. acquisition during the fourth quarter of
1999, and determined that circumstances indicate an
inability to recover their carrying amount. Accordingly,
an impairment loss of $641,679 and $4,722,425 was
recognized during 1999 and 1998, respectively, to adjust
the carrying amount of the long-lived assets and goodwill
to their estimated expected discounted net future cash
flows. Based on future expected discounted cash flows
from the technology acquired from Digital Radio, the
value of the asset group, including goodwill, was reduced
at December 31, 1998 to approximately $900,000 with
goodwill comprising $600,000 of that amount. The TWC Ltd.
goodwill was reduced to zero at December 31, 1999.
The remaining balance of goodwill arose from the
acquisitions of Digital Radio, and is being
amortized over a 5-year period from the original
acquisition dates, on a straight-line basis. Amortization
expense was $200,397, $1,254,583 and $1,384,715 during
the years ended December 31, 1999, 1998 and 1997,
respectively.
EQUIPMENT - Equipment is stated at cost. Depreciation,
including amortization of leased assets, is computed
using the straight-line method over the estimated useful
lives of the equipment, which are three to seven years.
Leased equipment is amortized over the shorter of the
useful life of the equipment or the term of the lease.
Depreciation expense was $573,285, $613,240 and
$338,043, for of the years ended December 31, 1999, 1998
and 1997, respectively. Maintenance and repair of
equipment are charged to operations and major
improvements are capitalized. Upon retirement, sale, or
other disposition of equipment, the cost of the equipment
and accumulated depreciation are eliminated from the
accounts and gain or loss is included in operations. The
cost of equipment was reduced by the portion of the
cost to exit the manufacturing activity related to
equipment.
INVESTMENTS -At December 31, 1999, investment in
securities consisted of common stock of customers
classified as available-for-sale and stated at quoted
fair value of $130,403. The cost of the securities was
$75,000. The unrealized gain as of December 31, 1999 was
$55,403 which is shown as a separate component of
stockholders' deficit. The change in net unrealized gains
on securities during 1999 was a decrease in the holding
gain of $7,245.
The changes in net unrealized gains on the securities
during the years ended December 31, 1998 and 1997 was
$(50,706) and $113,354, respectively.
SALES RECOGNITION - Sales are recognized upon delivery of
products or services and acceptance by the customer. As a
result of design and technology contracts, the Company
has a right to receive royalties which will be recognized
upon the related sales by customers.
STOCK-BASED COMPENSATION - Stock-based compensation to
employees is measured by the intrinsic value method. This
method recognizes compensation expense related to stock
options granted to employees based on the difference
between the fair value of the underlying common stock and
the exercise price of the stock option on the date
granted. Stock-based compensation to non-employees,
including directors after 1998, is measured by the fair
value of the stock options and warrants on the grant date
as determined by the Black-Scholes option pricing model.
LOSS PER SHARE - Basic loss per common share is computed
by dividing net loss by the weighted-average number of
common shares outstanding during the period. Diluted loss
per share reflects potential dilution which could occur
if all potentially issuable common shares from stock
purchase warrants and options or convertible notes
payable and preferred stock resulted in the issuance of
common stock. In the present position, diluted loss per
share is the same as basic loss per share because the
inclusion of 7,415,260, 641,922 and 1,521,846
potentially issuable common shares at December 31, 1999,
1998 and 1997, respectively, would have decreased the
loss per share and have been excluded from the calculation.
F-9
FOURTH QUARTER ADJUSTMENTS - During the fourth quarter of
1999, the Company made various adjustments that pertained
to fourth quarter events. The Company accrued items
relating to the exit from manufacturing activities. The
Company evaluated and impaired related goodwill as
described above under Goodwill and Long-Lived Assets, and
impaired a patent with a remaining book value of
$270,000. The Company recorded preferred dividends from
the issuance of preferred stock. The amount of the
dividends recognized was $130,000. The Company granted
warrants to shareholders during the fourth quarter that
resulted in the recognition of $425,155 of interest expense.
NOTE 2--EXIT FROM MANUFACTURING ACTIVITIES
During the fourth quarter of 1999, the Company executed a
plan to focus its efforts primarily on enhancing and
marketing its X-traWeb TM products whereby all contract
manufacturing was discontinued, all in-house production
would be outsourced and the Company would move its
executive offices to Denver, Colorado. The plan also
involved liquidating the Company's raw materials and work
in process inventory and selling all equipment used in
production and contract manufacturing. The Company plans
to complete the relocation of its administrative and
research facilities by the end of March 2000. The Company
recognized as exit costs the related non-cancelable
obligation under a lease agreement for office and
manufacturing facilities in Salt Lake City, Utah through
2005. Future minimum lease payments of $1,756,924 under
the lease were charged to operations during the year
ended December 31, 1999. Other costs relating to the exit
plan include the write-down of inventory to be liquidated
and the impairment of other manufacturing related assets,
totaling $858,565. Concurrent with the exit from
manufacturing activities, the Company evaluated and
impaired related goodwill by $371,679, and a related
patent by $270,000.
NOTE 3--BUSINESS COMBINATION AND ACQUISITIONS
On February 12, 1997, a majority of the shareholders of
Digital Radio Communications Corporation, a Utah
Corporation, accepted an offer from the Company to merge
Digital Radio into a newly-formed subsidiary of the
Company. The Digital Radio shareholders agreed to
exchange each of their common shares for 0.5577349 common
shares of World Wireless, which resulted in the Company
issuing 1,798,100 shares of common stock. In addition,
holders of Digital Radio stock options exchanged each of
their options for 0.5577349 stock options, which resulted
in the Company issuing options to purchase 201,900 shares
of common stock exercisable at a weighted-average price
of $1.90 per share.
The merger has been accounted for using the purchase
method of accounting. The purchase price, based upon the
fair value of the common shares and stock options issued,
was $8,674,062. The fair value of the common shares and
stock options issued was based upon the average market
price of the Company's common stock at the time of the
acquisition, discounted for restrictions on resale and
for trading volume. The excess of the purchase price over
the estimated fair value of the identifiable acquired
assets less liabilities assumed was $7,885,075, which was
recognized as goodwill. The fair value of purchased
research and development amounted to $1,258,000 and was
recognized as an expense at the date of the merger. The
accompanying consolidated financial statements include
the accounts and operations of Digital Radio from
February 12, 1997. The following pro forma information
presents the results of operations for the year ended
December 31, 1997 as if the Digital Radio acquisition had
occurred at the beginning of 1997. The write-off of
purchased research and development was a nonrecurring
charge which resulted directly from the transaction and
therefore has been excluded from the following pro forma
information. The pro forma results have been prepared for
comparative purposes only and do not purport to be
indicative of what would have occurred had the
acquisition been made at the beginning of 1997 as
described above or of the results which may occur in the
future.
F-10
Sales. . . . . . . . . . . . . . . . . . . . . . $ 3,048,014
Net Loss . . . . . . . . . . . . . . . . . . . . (6,827,950)
Net Loss per Common Share. . . . . . . . . . . . $ (0.72)
On October 31, 1997, the Company acquired all of the
outstanding common stock of TWC Ltd. (TWC), a Delaware
corporation engaged in the design and manufacture of
antennas for sale to radio and electronics manufacturers,
and acquired substantially all of the assets of Austin
Antenna, Ltd. (Austin Antenna), a New Hampshire
corporation. The Company paid $146,000 in cash by
advancing $106,000 and by paying $40,000
in acquisition costs, and issued 100,000 shares of
restricted common stock valued at $1,036,000 or $10.36
per share. The Company also issued 1,200 shares of stock
to the owners of TWC for services valued at $12,432.The
acquisition was accounted for using the purchase method
of accounting. The net assets acquired were recorded at
their fair value, with $400,000 allocated to patents and
$200,000 allocated to research and development, which was
charged against operations. The excess of the purchase
price over the estimated fair value of the net assets
acquired was $434,443 which was allocated to goodwill.
The results of operations of TWC are included in the
consolidated financial statements from the date of
acquisition. The net assets and operations of TWC are not
significant to the net assets and operations of the
Company; therefore, pro forma financial information is
not presented.
On November 11, 1998 the Company acquired all of the
issued and outstanding stock of XARC Corporation, a
Kansas corporation primarily engaged in development and
sales of wireless technology, by issuing 10,000 shares of
restricted common stock valued at $103,000. XARC had no
assets or liabilities prior to the acquisition. The
acquisition was accounted for under the purchase method
of accounting with the purchase price allocated to
purchased research and development and charged against
operations at the acquisition date. Results of operations
for XARC are included in the consolidated financial
statements from the date of acquisition.
NOTE 4--INVENTORY
Inventory consisted of the following:
December 31,
-------------------------
1999 1998
----------- ----------
Materials $ - $ 336,952
Work in process - 48,232
Finished goods 201,815 143,840
----------- ----------
Total $ 201,815 $ 550,239
=========== ==========
NOTE 5--EQUIPMENT
Equipment consisted of the following:
December 31,
-------------------------
1999 1998
----------- ----------
Computer equipment $ 390,047 $ 336,952
Manufacturing equipment 837,099 1,403,438
Office furniture 204,946 144,977
Software 151,403 200,563
Leasehold improvement 952,360 -
----------- ----------
Total 1,775,855 2,085,930
Accumulated depreciation (1,583,603) (1,047,285)
----------- ----------
Net Equipment $ 192,252 $1,038,645
=========== ==========
F-11
NOTE 6--NOTES PAYABLE
December 31,
-------------------------
1999 1998
----------- ----------
10% Note payable to an unrelated
party; due September 30, 1998;
unsecured; converted into common
stock in 1999 $ - $ 800,000
16% senior secured notes payable;
interest payable quarterly;
due May 14, 2000; secured by all
assets 3,324,827 -
16% 1998 Bridge loan notes payable;
net of unamortized discount
of $325,448; paid May 15, 1999 - 2,174,552
12% Note payable to an employee;
payable $1,408 monthly through
December 31, 1999; unsecured - 18,306
---------- ----------
Total Notes Payable $ 3,324,82 $2,992,858
========== ==========
On December 10, 1998 the Company agreed to a modification
of the terms of $800,000 of notes payable whereby the
notes became convertible, together with accrued interest,
into shares of common stock at $1.00 per share. Since
the fair value of the common shares was $1.42 per share
at that date, the related beneficial conversion feature
was valued at $374,172, or $0.42 per share, and was
recognized as interest expense on the date granted. The
debt and $93,698 of accrued interest were converted into
893,698 common shares on March 4, 1999. In conjunction
with the conversion of these notes payable, the Company
recognized additional interest expense of $81,517 from
the beneficial conversion rate on the date of the
conversion of accrued interest on the notes payable that
was converted to common stock at the rate of $1.00 per
share when the market price of the common stock was $1.88
per share.
In May 1998, the Company executed 1998 bridge loan notes
totaling $2,500,000. The notes were initially issued with
interest at 10% per annum. Due to not meeting certain
loan covenants, the notes were modified retroactively to
the date executed to bear interest at 16% per annum.
Interest was payable quarterly, commencing on August 15,
1998. The notes were due on May 15, 1999 and were secured
by substantially all of the assets of the Company. On
May 14, 1999, the 1998 bridge loan notes were repaid with
cash of $1,250,000, $1,000,000 was rolled into the senior
secured 16% notes payable discussed below and the
remaining $250,000 was converted into preferred stock.
In conjunction with the 1998 bridge loan notes, the
Company issued warrants to purchase 250,000 shares of
common stock at an exercise price of $3.00 per share
("the Warrants"), which exercise price was reduced on
September 11, 1998 to $0.75 per share and was further
reduced to $0.25 per share on November 19, 1998, as
further explained below. The Warrants expire on May 15,
2003.
Under the covenants of the loan agreements, the Company
would have been in default on September 15, 1998 and on
November 19, 1998 because the Company had revenues less
than required for the quarters ended June 30, 1998 and
September 30, 1998, respectively. However, the Company
obtained separate waivers of the default for the quarters
ended June 30, 1998 and September 30, 1998 from each of
the holders of the notes. As a condition thereto, the
Company agreed to increase the interest rate on the notes
retroactive to May 1998, from 10% to 16%, to change the
exercise price of each Warrant from $3.00 per share to
$0.25 per share, to grant the holders of the notes
additional warrants to purchase 83,333 shares of the
Company's common stock at an exercise price of $0.25 per
share, and to use the proceeds of any offering of its
securities to repay the notes on a pro rata basis
(excluding any funds provided therein by Lancer Partners
L.P., Michael Lauer and their affiliates), effective in
each instance retroactively to May 15, 1998. In addition,
the holders of the notes agreed to waive any rights under
the anti-dilution clause under the Warrants arising from
the offering of the Company's securities, except in the
case of any securities with an offering price of less
than $0.25 per share, in which event the exercise price
of each of the warrants will be changed to such price.
F-12
The original Warrants were detachable and had a fair
value of $867,856, or $3.47 per Warrant on the date
issued. The value of the warrants was estimated on the
date issued using the Black-Scholes option-pricing model.
The proceeds were allocated to the Warrants based upon
their fair value and the remainder of the proceeds of
$1,632,144 were allocated to the notes. Interest expense
from amortization of the discount on the notes payable
was $542,408 during the year ended December 31, 1998 and
$325,448 during the year ended December 31, 1999.
Interest expense resulting from the modifications of the
Warrants and from granting additional warrants was
$331,827 during the year ended December 31, 1998.
The Company was also in default under the terms of the
notes at December 31, 1998 and March 31, 1999. On May
14, 1999 the Company issued $2,600,000 of senior secured
16% notes payable which mature in one year. The notes
were issued for $2,600,000 consisting of $1,600,000 in
cash and the deemed payment of $1,000,000 of principal of
the 1998 bridge loan notes. On August 27, 1999, the
Company issued an additional $480,000 of senior secured
16% notes payable for cash in the amount of $480,000, and
on October 11, 1999, the Company issued an additional
$400,000 of senior secured 16% notes payable for cash in
the amount of $400,000. The Company paid $155,173 of the
notes during 1999.
The notes payable are secured by substantially all the
Company's assets. Interest on the notes is payable
quarterly. A mandatory pre-payment of principal equal to
25% of the gross proceeds from any issuance of the
Company's securities is due upon the closing of the
issuance. The terms of the notes state that the notes
would be in default if the reported loss before interest,
depreciation, amortization and taxes exceeded $1,000,000
for the quarter ended June 30, 1999, or if income as
computed above was less than $250,000 or $1,000,000 for
the quarters ended September 30, 1999 or December 31,
1999, respectively. The notes would also be in default if
the Company failed to make a mandatory pre-payment of
principal from the issuance of the Company's securities.
If the notes were determined to be in default for a
quarter the Company could be required to issue five-year
warrants to purchase 300,000 shares of common stock at
$0.25 per share as compensation for the default with
respect to such quarter.
The Company was not in compliance with the terms of the
notes, accordingly, for the quarters ended June 30, and
September 30, 1999, the Company accrued $279,555 and
$397,647 of interest expense respectively, for the
default. The interest accrual was valued based upon the
value of the warrants had they been issued on June 30,
and September 30, 1999, respectively. The Company also
issued 200,000 shares of common stock as compensation to
the holders of the notes as consideration of extending
the interest payment on the notes to December 31, 1999.
The Company recognized $512,000 of interest expense for
the issuance of the 200,000 shares.
NOTE 7--INCOME TAXES
The net loss for all periods presented resulted entirely
from operations within the United States. There was no
provision for or benefit from income tax for any period.
The components of the net deferred tax asset are shown
below:
1999 1998
--------- ----------
Operating loss carryforwards $9,439,391 $5,011,372
Accrued liabilities and other 33,669 92,689
---------- ----------
Total Deferred Tax Assets 9,473,060 5,104,061
Valuation Allowance (9,473,060) (5,104,061)
----------- ----------
Net Deferred Tax Asset $ - $ -
=========== ==========
F-13
For tax reporting purposes, the Company has net operating
loss carryforwards in the amount of $24,630,388 which
will expire beginning in the year 2012. Of this amount,
$1,246,871 was from Digital Radio prior to its
acquisition, and the availability of this amount to
offset future taxable income is limited.
The following is a reconciliation of the amount of tax
(benefit) that would result from applying the federal
statutory rate to pretax loss with the provision for
income taxes.
For the Years Ended
December 31,
-------------------------------------
1999 1998 1997
----------- ----------- -----------
Tax at statutory rate (34%) $(4,190,090) $(5,091,163) $(2,560,277)
Non-deductible expenses 227,776 604,178 645,880
Change in valuation allowance 4,368,999 5,299,083 2,301,134
State tax benefit, net of
federal tax effect (406,685) (494,142) (248,497)
Research and development credit - (317,956) (138,240)
----------- ----------- -----------
Net Income Tax Expense $ $ - $ -
=========== =========== ===========
In connection with the Digital Radio acquisition in 1997,
$1,258,000 of research and development was written-off
before tax. This amount comprises most of the
non-deductible expenses in 1997. The results of the
acquisition was an increase to total deferred tax assets
of $620,647 and a corresponding increase in the valuation
allowance.
NOTE 8--SUPPLEMENTAL CASH FLOW INFORMATION AND NONCASH
INVESTING AND FINANCING ACTIVITIES
SUPPLEMENTAL CASH FLOW INFORMATION -
FOR THE YEARS ENDED DECEMBER 31,
For the Years Ended December 31,
--------------------------------
1999 1998 1997
------- ----------- --------
Interest Paid 424,620 $ 531,247 $ 34,426
NONCASH INVESTING AND FINANCING ACTIVITIES -
The Company acquired equipment and incurred obligations
under capital lease agreements during 1999 for equipment
acquired valued at $18,000. Two notes payable totaling
$800,000 along with $93,698 of accrued interest were
converted into 893,698 shares of common stock.
The Company converted $1,000,000 of the 1998 bridge loan
notes into the 16% senior secured notes payable. In
addition, $250,000 of the 1998 bridge loan notes were
converted into mandatorily redeemable preferred stock.
During 1999, the Company also canceled $8,449 of the
remaining balance of a note issued to an employee, and
returned to the employee the equipment previously purchased
from the employee.
During 1998, the Company issued stock for notes payable
to three individuals. The total of the notes receivable
was $72,852. In conjunction with these notes, interest
expense in the amount of $10,567 was charged on one of
these notes. The Company acquired equipment and incurred
obligations under capital lease agreements during 1998
for equipment valued at $900,993. The Company also
purchased equipment for a note in the amount of $4,278.
During 1998, the Company repurchased stock options from
employees and eliminated $903,619 of unamortized
compensation relating to the repurchased unvested stock
options. The Company also incurred $392,662 in
compensation expense and $70,518 in unearned compensation
by issuing stock options during 1998.
F-14
The Company sold business assets relating to its
SecuriKey products during 1998. The Company realized
proceeds on the sale of $372,499 and recognized a gain of
$319,528. The Company also sold other assets to various
parties during the year. The book value of the assets
sold was $16,940. The Company realized proceeds on the
sale of $8,636 resulting in a loss upon disposal of $13,223.
During the year ended December 31, 1997, $1,970 in
long-term debt was converted into 5,630 shares of common
stock at $0.35 per share. The Company purchased equipment
totaling $54,887 by issuing a note payable in the same
amount. Equipment was sold at no gain or loss in exchange
for assumption by the purchaser of a $54,320 note
payable. The Company issued 1,798,100 shares of common
stock and 201,900 stock options in exchange for all of
the issued and outstanding common stock of Digital Radio.
In January and February 1997, which was prior to the
effective date of the merger, the Company advanced
$118,764 to Digital Radio. In conjunction with the
merger, liabilities were assumed as follows:
Fair value of assets acquired $ 1,112,399
Purchased research and development 1,258,000
Goodwill 7,885,075
Common stock issued and stock options
granted (8,674,062)
----------
Liabilities Assumed $1,581,412
==========
NOTE 9--MANDATORILY REDEEMABLE PREFERRED STOCK AND WARRANTS
On May 14, 1999 the Company authorized 950 shares of
senior liquidating mandatorily redeemable 10% preferred
stock with a liquidation preference of $1,000 per share
and detachable five-year warrants to purchase up to
4,750,000 common shares at $0.25 per share, and issued
950 shares of preferred stock and the related warrants
between May 15, 1999 and October 5, 1999. The preferred
shares must be redeemed within one year at their par
value plus accrued dividends. The preferred stock cash
dividend requirement is $95,000 annually. The preferred
stock was issued for proceeds of $950,000 consisting of
$700,000 cash and the deemed payment of $250,000 of
principal of the 1998 bridge loan notes. The issuance of
the preferred stock with warrants was accounted for as
the granting of a favorable conversion feature to the
preferred stock holders. The value assigned to the
warrants was based on their intrinsic value but limited
to the cash proceeds and the amount of the deemed
principal payments on the 1998 bridge loan notes. Since
the warrants were immediately exercisable, the resulting
discount to the preferred stock of $950,000 was
recognized as preferred dividends on the dates the
preferred shares were issued. Preferred dividends in the
amount of $50,658 were accrued but unpaid at December 31,
1999.
The Mandatorily Redeemable Preferred Stock constitutes the senior
series of any preferred stock the Company may issue and has
a first priority in liquidation of $1,000 per share, plus the
amount of unpaid cumulative dividends after payment of all
claims to creditors. The preferred shares are non-voting and have
a 10% cumulative dividend, and are mandatorily redeemable upon
the earlier of May 14, 2000 or the Company's raising of gross
proceeds of $5,500,000 from the closing of one or more private
placement transactions or secondary offerings of its securities.
The preferred stock is convertible into shares of the Company's
common stock at the conversion rate of 1,000 shares of common
stock for each share of Mandatorily Redeemable Preferred Stock,
or $0.10 per share if all the shares the Company's preferred
stock are not redeemed by May 14, 2000 based on the 950 shares of
the Company's preferred stock which are issued and outstanding.
NOTE 10--STOCKHOLDERS' EQUITY
The Company issued 2,557,857 shares of common stock from
January 1997 through August 1997 in private placement
offerings for $4,195,250 cash. During 1997, the Company
issued 25,098 shares of common stock upon the exercise of
stock options. Proceeds from the issuance were $11,452 of
cash and a promissory note from a shareholder of $18,409.
On November 11, 1997, the Company fulfilled an obligation
totaling $323,456 under a settlement reached with an
otherwise unrelated joint venture partner. The obligation
was settled by the Company issuing 40,000 shares of
restricted common stock valued at $8.09 per share based
upon fair value of the common stock on the date issued.
Under the settlement agreement, the shareholder has an
option to require the Company to redeem the stock at
$4.00 per share through February 28, 1998, but the option
was not exercised by that date and it expired. During
November and December 1997, the Company issued 24,375
shares of common stock for financing fees in the amount
of $253,137.
F-15
During 1998, the Company issued 502,000 restricted common
shares in a private placement to the major shareholders
of the Company for cash in the amount of $907,767, net of
$96,233 in accumulated offering costs, or $2.00 per share
before offering costs. There were no unstated rights or
privileges received with respect to this issuance. The
Company issued 2,219,258 shares of common stock from
October 1998 through December 1998 in private placement
offerings for $1,436,047.
The Company issued 10,000 common shares in conjunction
with the execution of a manufacturing contract during
February 1998. The shares were valued at $75,000 or $7.50
per share, which was the quoted market trading price on
the date of issuance and was considered a preliminary
cost of obtaining the contract. The cost will be
amortized over the fulfillment of the contract. The
Company also issued 234,283 shares of common stock for
legal and consulting services. An additional 199,546
shares were issued as finders fees and commissions.
In May 1998, the Company acquired proprietary
intellectual property rights in and to spread spectrum
radio technology which has been accounted for as
purchased research and development. The acquisition of
this technology provides the Company with the ability to
modify and update the technology for use in its radio
products and engineering contracts. The purchase price
was $305,651, of which $300,000 was paid by the issuance
of 60,000 common shares valued at $5.00 per share, with
the balance being paid in cash for closing and related
costs. Additionally, the Company loaned $66,975 to the
seller, $41,975 therefore, was paid in cash and carries
interest at 10%. The balance of $25,000 was advanced
through the issuance of 5,000 common shares, valued at
$5.00 per share, to two creditors of the seller. The
seller executed an unsecured promissory note which is due
the earlier of the date of registration by the Company of
the 60,000 shares of common stock or June 22, 1999.
During 1998, the Company issued 435,051 shares of common
stock upon the exercise of stock options. Proceeds from
the issuance were $143,323 and a promissory note from a
shareholder of $48,419. $10,000 of the note has been
received and the Company has charged the shareholder
interest of $10,567 on the note.
In November 1998, the Company converted $15,123 of
interest to 30,000 shares of common stock. This interest
was converted to shares at a rate that was below the
market value for the stock. An additional $24,267 of
interest expense was recognized on the conversion of the
interest. In association with the bridge loans discussed
in Note 5, $867,856 of interest expense was recognized
and recorded as additional paid-in capital. As a result
of being in default on the bridge loans, additional
warrants were issued and the existing warrants were
repriced. This resulted in an additional $184,720 of
interest that was recognized as additional paid-in
capital. The total amount of interest expense that was
recorded as additional paid-in capital is $1,091,966.
During February 1999, the Company issued 2,040,000 common
shares for cash in the amount of $2,040,000 received in a
private placement offering. In connection with the
offering, the Company granted options to purchase 200,000
common shares at $1.75 per share within 5 years and
issued 8,000 shares of common stock as a finder's fee.
The Company paid $163,200 as a finder's fee in connection
with the private placement. The Company issued 3,538,000
common shares for cash in the amount of $3,538,000
received in other various private placement offerings
throughout the year. In connection with the offerings,
the Company paid $390,527 and issued 26,000 shares of
common stock as finders' fees.
F-16
During March 1999, note holders converted two unsecured
promissory notes totaling $800,000, together with accrued
interest, into 893,698 common shares at $1.00 per share
under the terms of a conversion privilege granted to the
note holders in December 1998. At the date of the
conversion, the Company recognized a beneficial
conversion feature of $81,517 relating to the conversion
of accrued interest into common stock at a favorable
conversion rate.
During 1999, the Company issued 120,841 restricted common
shares for services valued at $231,386, or $1.91 per
share.
During 1999, the Company issued 253,077 common shares
upon exercise of warrants for cash in the amount of
$63,269 or $0.25 per share and, during August 1999, the
Company issued 250,000 common shares to holders of bridge
loan notes in satisfaction of the Company's default on
the notes. The value of the shares issued on the default
of the bridge loan was $250,000, or $1.00 per share.
During November 1999, the Company defaulted on its
obligation to pay interest on the 16% senior secured
notes. The Company issued 200,000 shares of common stock
in satisfaction of the default and the interest payment.
The stock was valued at $512,000 or $2.56 per share.
During 1999, Company issued warrants to the holders of
the 16% senior secured loan notes as satisfaction of
defaults on the notes. The Company issued 300,000
warrants on June 30 and again on September 30, 1999, and
recognized $279,555, and $397,647 of interest expense,
respectively, from the issuance of the warrants.
During April 1999, the Company granted warrants to
purchase 100,000 shares of common stock to the holders of
the 1998 bridge loan notes. The Company recognized
$170,774 of interest expense from the issuance of the
warrants. Also, on October 1, 1999, the Company granted
warrants to purchase 398,000 shares of common stock to two
shareholders for services to the Company. The Company
recognized an expense relating to these services of $425,155
at the date of the grant.
NOTE 11--STOCK OPTIONS
The Company has granted stock options under stock option
plans and has granted other individual options to
employees and directors.
Under the 1997 Stock Option Plan (the 1997 Plan), options
to purchase a maximum of 1,500,000 common shares were
authorized for issuance to officers and employees.
Options to purchase 937,044 common shares were granted
under the 1997 Plan on December 18, 1997 with a
weighted-average exercise price of $6.50 per share. The
options become exercisable from the date granted through
November 10, 1999. The unexercised options were to expire
on December 17, 2002. Compensation relating to the
options of $2,108,349, or $2.25 per share, was to be
recognized over the period the options vest, of which
$697,840 was recognized during the fourth quarter of
1997. In April 1998, the Board of Directors approved the
repurchase of 638,236 unvested options under the 1997
Plan for $6,382, or $0.01 per share. The Company
recognized compensation expense relating to these options
of $506,890 during 1998. The remaining unearned
compensation relative to the options repurchased was
eliminated.
The Company adopted the 1998 Employee Incentive Stock
Option Plan and the 1998 Non-Qualified Stock Option Plan
during December 1998. The plans were ratified by the
shareholders in April 1999. Options to purchase up to
2,000,000 common shares are authorized under the terms of
the plans. Options under the plans may be granted to key
employees of the Company including officers, directors
and employees. Options granted under the 1998 Employee
Incentive Stock Option Plan are exercisable at the fair
value of the common stock on the date granted (110% of
fair value if granted to a shareholder who owns 10% or
more of the total combined voting power of all classes of
stock of the Company). Options may be exercised by
payment of cash or by shares of common stock of the
Company. Options granted under the plans are generally
exercisable over three to five years and expire five
years from the date of grant.
F-17
During 1999, the Company granted 30,000 5-year and 30,000
4-year options to purchase 60,000 shares of common stock
at $1.94 and $2.04 per share, respectively to Directors.
The options were valued according to their fair value,
which was $96,214 on the date of the grant. Compensation
expense of $51,532 was recognized on the issuance of the
options and $44,682 will be recognized over the remaining
vesting period of the options. The Company also issued
150,000 warrants to purchase common stock to holders of
the bridge loan notes for services rendered. Interest
expense of $130,385 was recognized on the issuance of the
warrants.
A summary of the status of the Company's stock options as
of December 31, 1999, 1998 and 1997, and changes during
the years then ended are presented below:
1999 1998 1997
------------------ --------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
--------- --------- ------------ ------- ----------- ------
Outstanding at beginning Of year 641,922 $ 4.22 1,521,846 $ 4.33 258,000 $ 0.33
Granted 837,000 1.98 595,678 5.03 1,288,944 5.06
Exercised - - (435,051) 0.44 (25,098) 1.19
Forfeited or canceled (458,272) 3.08 (1,040,551) 6.32 - -
---------- ----------- ----------
Outstanding at end of year 1,020,650 2.89 641,922 4.22 1,521,846 4.33
========== =========== ==========
Options exercisable at
year-end 352,649 4.52 417,900 4.60 792,610 2.32
========== =========== ==========
Weighted-average fair value
of options granted during
the year $ 1.55 $ 3.86 $ 3.43
========== =========== ==========
The following table summarizes information about stock options outstanding at
December 31, 1999:
Options Outstanding Options Exercisable
----------------------------------- ----------------
Weighted- Weighted-
Average Average Average
Range of Contractual Exercise Exercise
Prices Shares Life Price Shares Price
- - -------------- --------- ---------- -------- ------- -------
$ 1.25 - $1.94 222,000 1.95 years $ 1.65 113,999 $ 1.58
$ 2.09 - $2.09 560,000 1.86 years 2.09 - -
$ 3.40 - $3.50 80,650 1.74 years 3.43 80,650 3.43
$ 6.50 - $6.50 138,000 2.22 years 6.50 138,000 6.50
$12.00 -$12.00 20,000 3.04 years 12.00 20,000 12.00
--------- --------
$1.25 - $12.00 1,020,650 1.94 years 2.89 352,649 4.52
========== ========
The Company measures compensation under
stock-based options and plans using the
intrinsic value method prescribed in Accounting
Principles Board Opinion 25, Accounting for
Stock Issued to Employees, and related
interpretations, for stock options granted to
employees, and determines compensation cost
granted to non-employees based on the fair
value at the grant dates consistent with the
alternative method set forth under Statement of
Financial Accounting Standards No. 123, (SFAS
123) Accounting for Stock-Based Compensation.
Stock-based compensation charged to operations
was $108,612, $899,553 and $963,340 for the
years ended December 31, 1999, 1998 and 1997,
respectively. Had compensation cost for the
Company's options been determined based upon
SFAS 123, net loss and loss per share would
have increased to the pro forma amounts
indicated below:
F-18
For the Years Ended December 31,
-----------------------------------------
1999 1998 1997
------------ ------------ -----------
Net loss:
As reported $(12,323,795) $(15,332,635) $(7,809,490)
Pro forma (12,766,433) (17,506,009) (8,060,504)
Basic and diluted loss
per common share:
As reported $ (0.77) $ (1.34) $ (0.85)
Pro forma (0.80) (1.56) (0.87)
The fair value of each option granted was estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-
average assumptions used for grants in 1999, 1998, and 1997, respectively:
dividend yield of 0.0% for all years; expected volatility of 166%, 105%,
and 79%; risk-free interest rate of 5.6%, 5.2%, and 5.3%; and
expected lives of the options of 2.0 years, 4.1 years, and 2.0 years.
NOTE 12--STOCK WARRANTS
During 1998, the Company issued warrants to purchase 250,000 common
shares of stock at $3.00 per share to holders of the 1998 bridge
loan notes. The warrants were subsequently repriced to $0.25
per share. An additional 83,333 warrants were issued to the
note holders during 1998. The value of the warrants was estimated
on the dates issued and on the dates the warrants were modified using
the Black-Scholes option-pricing model. The Company recognized $1,199,683
of interest expense on the issuance and repricing of the warrants. In
addition, the Company issued 398,000 warrants to purchase common shares at
$1.75 to $5.00 per share as financing fees in connection with the issuance
of the 1998 bridge loan notes. Interest expense of $425,155 was
recognized on the issuance of the warrants.
During 1999, the Company issued warrants to purchase 4,750,000 shares of
common stock to the purchasers of the Company's preferred stock. The warrants
were valued at $950,000.
The Company issued warrants to purchase 1,050,000 common shares to the holders
of the 1998 bridge loan notes and the 16% senior secured notes as satisfaction
for the potential defaults on the notes throughout 1999. The Company recognized
$1,313,195 of interest for the warrants issued.
During the year ended December 31, 1999, 253,077 warrants were exercised
for services rendered to the Company valued at $63,269 or $0.25 per share.
At December 31, 1999, the Company had warrants outstanding to purchase
6,678,260 shares of common stock.
NOTE 13--RELATED PARTY TRANSACTIONS
During 1999, the Company paid $9,857 in cash on a note payable to an employee
of the Company. The employee voluntarily repossessed the equipment in exchange
for the remaining $8,449 of the note payable from the Company. The equipment
had a book value of $16,507 at the time of disposition; the Company recorded a
loss of $8,058 on the return of the equipment to the employee.
During 1998, the Company paid outstanding loans to shareholders. The amount
paid on these loans totaled $369,807. In addition, a shareholder and an employee
of the Company made a short-term loan to the Company for $40,000.
This loan was also repaid in 1998.
During 1997, an officer and shareholder loaned $125,000 to the Company.
The loan carried a 12% interest rate and was due on December 31, 1997.
The Company issued 9,375 shares of common stock valued at $98,938 as a fee
relating to the loan. Two loans to the Company of $400,000 were
guaranteed and secured by common stock held by an officer. Through the
acquisition of Digital Radio, the Company assumed and subsequently
paid a note payable and accrued wages totaling $128,057 to two officers
and shareholders.
F-19
NOTE 14--COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS - The Company leases office and production facilities
under agreements accounted for as operating leases. Lease expense attributable
to the years ended December 31, 1999 and 1998 was $342,051 and $483,456,
respectively. Lease expense recognized during 1999 for abandonment of
property with a non-cancelable lease with a Lease term ending in August 2005,
was $1,756,924. During 1999 the Company entered into an agreement to lease
new facilities in connection with their new location in Denver with the lease
term ending October 2004. The Company also leases engineering and office
equipment under capital leases with interest Rates from 8 to 24 percent,
with a weighted average interest rate of 10.16%. The following is a schedule
by years of the future minimum lease payments required under operating and
capital leases together with the present value Of net minimum lease payments
as of December 31,1999:
Years Ending December 31,: Leases Leases
-------------------------- ------- ---------
2000 132,084 489,214
2001 10,960 439,776
2002 5,076 445,180
2003 5,076 457,035
2004 423 445,538
Thereafter - 194,195
-------- ----------
Total Minimum Lease
Payments 153,619 $2,470,938
==========
Less amount representing interest 12,934
--------
Present Value of Net Minimum Lease
Payments 140,685
Less Current Portion 119,226
---------
Long-Term Obligations Under Capital
Lease $ 21,459
=========
The amortization of the capital leases has been included in depreciation
expense.
Several capital leases exist for office equipment and telephone equipment and
a several capital leases for office equipment were paid in full during 1999.
The following presents the cost and accumulated depreciation of property
under capital leases by major classes:
Telephone Equipment $ 15,897 $ 15,897
Office equipment 389,184 371,184
-------- --------
405,081 387,081
Less accumulated depreciation 274,454 127,745
-------- --------
Net Carrying Value $130,627 $259,336
======== ========
SETTLEMENT OF LEGAL CLAIMS - During 1999 The Company settled a claim from a
software vendor for a $100,000 cash payment. The claim arose when the Company
returned leased software and requested cancellation of the lease and technical
support agreement. During 1999, the Company also settled a lawsuit brought by
an investment banker and paid $145,000 as settlement expense.
UNASSERTED CLAIMS - The Company received an oral request in 1998 from Mr. and
Mrs. Richard Austin to rescind the Company's purchase of the assets of Austin
Antenna Ltd., which closed in 1998. In addition, Mr. Austin requested that
the Company bear the cost of (I) the legal fees and expenses in a litigation
commenced against Mr. Austin in a state court in Massachusetts seeking damages
for non-payment of commissions arising out of the Company's purchase of Austin
Antenna Ltd. and (ii) an unpaid finder's fee that is the subject of the
Massachusetts' litigation. The Company, in turn, has advised Mr. and Mrs.
Austin that Austin Antenna Ltd. has breached its agreement with the Company. It
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appears Mr. Austin has reached a settlement with respect to the action against
him. Although the Company believes that its claim against Austin Antenna Ltd.
and the claims of Mr. and Mrs. Austin will be amicably resolved,
There can be no assurance as to the outcome thereof.
Williams Wireless, Inc. raised a claim in 1999 that the Company violated the
non-competition provisions of their agreements by allegedly marketing X-traWeb
products in the telemetry and meter reading applications. The Company, in
turn, claimed that Williams Wireless, Inc. failed to satisfy all of its duties
under its various agreements with the Company. While the Company believes that
Williams' claims are properly disputable, the parties agreed orally To enter
into a settlement agreement and mutual release. While Williams Wireless,
Inc. paid the sum due under the draft settlement agreement to the Company and
the Company delivered to Williams Wireless, Inc. all inventory of products for
which it made payment to the Company, the settlement agreement has not yet
been signed. Under the draft agreement, the Company had agreed also to grant
Williams Wireless, Inc. a perpetual non-exclusive royalty-free license to use
one of the Company's radios as a component in the Williams' telemetry systems
or products. In the Interim, the Company believes that an unrelated party
acquired the assets or stock of Williams Wireless, Inc. While the Company
expects that such settlement agreement will be signed by such new owner in the
foreseeable future, there can be no assurance of such result.
401K PROFIT SHARING PLAN -The Company sponsors a 401K profit sharing plan but
has no commitment to match employees' contributions to the plan, nor has the
Company made any contributions to the plan to date.
NOTE 15--SUBSEQUENT EVENTS
Subsequent to December 31, 1999, the Company issued 4,548,667 shares of common
stock in a private placement for cash proceeds of $13,646,000. The Company
also paid finders fees of $42,800 in connection with the private placement.
During March 2000, the Company paid off the 1999 bridge loans in existence at
December 31, 1999, with cash in the amount of $2,377,623 and by the exercising
of stock Warrants to purchase 3,788,813 shares at $0.25 per share. The total
amount of the 1999 bridge loans paid by the exercise of the warrants was
$947,204. In addition, the Company issued 273,077 common shares upon the
exercise of warrants in the amount of $67,986, or $0.25 per share.
On February 25, 2000, the Company redeemed the mandatorily redeemable
preferred stock for cash of $950,000 for the principal balance and
$57,378 for the preferred dividends accrued to date.
During March 2000, the Company issued 16,474 shares of common stock upon
the cashless exercise of 18,333 options (uaudited).
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