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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended_________________________________
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition period from ___________________ to ____________
SPECIAL FINANCIAL REPORT FILED PURSUANT TO SECTION 15D-2
OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
THIS REPORT CONTAINS ONLY FINANCIAL STATEMENTS
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
Commission file number 333-38567
World Wireless Communications, Inc.
(Exact name of registrant as specified in its charter)
Nevada 87-0549700
_____________________________ ________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
150 Wright Brothers Drive,
Suite 560, Salt Lake City, Utah 84116
__________________________________ _________________
(Address of principal executive offices (Zip Code)
Registrant's telephone number, including area code (801) 575-6600
Securities registered under section 12(b) of the Act:
Title of each class Name of each exchange on which registered
______________________ _______________________________________
None
Securities registered under section 12(g) of the Act:
None
_____________________________________________________________________
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 [ ] No [X]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not 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
As of April 23, 1998, there were 11,072,186 shares of the Issuer's common
stock, par value $0.001, issued and outstanding. The aggregate market value of
the Issuer's voting stock held by nonaffiliates of the Issuer was approximately
$38,974,573, computed at the closing quotation for the Issuer's common stock of
$5.50 as of April 23, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and
the part of the Form 10-K (e.g. Part I, Part II, etc.) into which the document
is incorporated: (1) any annual report to security holders; (2) any proxy or
information statement; and (3) any prospectus filed pursuant to Rule 424(b) or
(c) under the Securities Act of 1933. The listed documents should be clearly
described for identification purposes. None.
_____________________________________________________________________
SIGNATURES
_____________________________________________________________________
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Company has caused this report to be
signed on its behalf by the undersigned, hereunto duly authorized.
WORLD WIRELESS CORPORATION, INC.
Dated: April 27, 1998 By: /S/ David D. Singer
David D. Singer, Chairman of the
Board (President and Chief Executive
Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
Dated: April 27, 1998 By: /S/ David D. Singer
David D. Singer, President, Chief
Executive Officer, Acting Chief
Financial Officer and Director
Dated: By:
Brian W. Pettersen, Director
Dated: April 27, 1998 By: /S/ George Denny
George Denney, Director
Dated: April 27, 1998 By: /S/ Thomas E. Sawyer
Thomas E. Sawyer, Ph.D, Director
Dated: April 27, 1998 By: /S/ Philip A. Bunker
Philip A. Bunker, Director
WORLD WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Page
Report of Independent Certified Public Accountants F-1
Consolidated Balance Sheets - December 31, 1997 and 1996 F-2
Consolidated Statements of Operations for the Years Ended
December 31, 1997 and 1996, and for the Period from
April 10, 1995 (Date of Inception) through December
31, 1995 F-3
Consolidated Statements of Comprehensive Loss for the
Years Ended December 31, 1997 and 1996, and for the
Period from April 10, 1995 (Date of Inception) through
December 31, 1995 F-3
Consolidated Statements of Stockholders' Equity for
the Period from April 10, 1995 (Date of Inception)
through December 31, 1995, and for the Years Ended
December 31, 1996 and 1997 F-4
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1997 and 1996, and for the Period
from April 10, 1995 (Date of Inception) through
December 31, 1995 F-5
Notes to Consolidated Financial Statements F-6
HANSEN, BARNETT & MAXWELL
A Professional Corporation
CERTIFIED PUBLIC ACCOUNTANTS
(801) 532-2200
Member of AICPA Division of Firms Fax (801) 532-7944
Member of SECPS 345 East Broadway, Suite 200
Member of Summit International Associates Salt Lake City, Utah 84111-2693
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
World Wireless Communications, Inc.
We have audited the accompanying consolidated balance sheets of World Wireless
Communications, Inc. and subsidiaries as of December 31, 1997 and 1996, and
the related consolidated statements of operations, comprehensive loss, stock-
holders' equity, and cash flows for the years ended December 31, 1997 and
1996, and for the period from April 10, 1995 (date of inception) through
December 31, 1995. 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, 1997 and
1996, and the results of their operations and their cash flows for the years
ended December 31, 1997 and 1996, and for the period from April 10, 1995
(date of inception) through December 31, 1995, in conformity with generally
accepted accounting principles.
HANSEN, BARNETT & MAXWELL
Salt Lake City, Utah
February 27, 1998
WORLD WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31,
1997 1996
----------- ----------
Current Assets
Cash and cash equivalents . . . . . . . $ 218,234 $ 37,278
Investment in securities available for sale 188,354 -
Trade receivables, net of allowance . . 345,433 131,392
Other receivables . . . . . . . . . . . 49,208 -
Inventory . . . . . . . . . . . . . . . 496,432 159,881
Prepaid expenses. . . . . . . . . . . . 232,143 -
----------- ----------
Total Current Assets . . . . . . . 1,529,804 328,551
----------- ----------
Equipment. . . . . . . . . . . . . . . . . . 1,589,248 448,237
Less accumulated depreciation . . . . . (455,985) (121,215)
----------- ----------
Net Equipment. . . . . . . . . . . 1,133,263 327,022
----------- ----------
Goodwill, net of accumulated amortization. . 7,214,066 -
----------- ----------
Other Assets, net of accumulated amortization. 535,154 7,469
----------- ----------
Total Assets . . . . . . . . . . . . . . . . $10,412,287 $ 663,042
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31,
1997 1996
----------- -----------
Current Liabilities
Trade accounts payable. . . . . . . . . $ 524,093 $ 61,997
Accrued liabilities . . . . . . . . . . 466,183 55,788
Notes payable . . . . . . . . . . . . . 814,925 85,566
----------- -----------
Total Current Liabilities. . . . . 1,805,201 203,351
----------- -----------
Long-Term Liabilities
Notes payable . . . . . . . . . . . . . 34,977 44,808
----------- -----------
Stockholders' Equity
Preferred stock - $0.001 par
value; 1,000,000 shares authorized;
no shares issued . . . . . . . . . . . - -
Common stock - $0.001 par value;
50,000,000 shares authorized;
10,225,260 shares in 1997 and
5,663,000 shares in 1996 issued
and outstanding . . . . . . . . . . . 10,225 5,663
Additional paid-in capital. . . . . . . 20,915,068 3,916,613
Unearned compensation . . . . . . . . . (1,410,509) -
Shareholder receivable. . . . . . . . . (18,409) -
Accumulated deficit . . . . . . . . . . (11,037,620) (3,507,393)
Accumulated other comprehensive
income . . . . . . . . . . . . . . . . 113,354 -
----------- -----------
Total Stockholders' Equity . . . . 8,572,109 414,883
----------- -----------
Total Liabilities and Stockholders'
Equity . . . . . . . . . . . . . . . . . $10,412,287 $ 663,042
=========== ===========
The accompanying notes are an integral part of these financial statements.
WORLD WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Period
April 10,1995
For the Years (Date of Inception)
Ended December 31, Through
1997 1996 December 31, 1995
----------- ----------- -----------
Sales. . . . . . . . . . . . . . .$ 2,913,429 $ 618,505 $ 426,825
Cost of Sales. . . . . . . . . . 2,116,934 662,184 237,356
----------- ----------- -----------
Gross Profit (Loss). . . . . . . 796,495 (43,679) 189,469
----------- ----------- -----------
Expenses
Research and development . . . 2,943,404 92,932 -
General and administrative . . 4,222,067 1,789,904 386,612
Amortization of goodwill . . . 1,117,472 - -
Interest . . . . . . . . . . . 43,779 1,310,142 73,593
----------- ----------- -----------
Total Expenses. . . . . . . 8,326,722 3,192,978 460,205
----------- ----------- -----------
Net Loss . . . . . . . . . . . . $(7,530,227) $(3,236,657) $ (270,736)
=========== =========== ===========
Basic and Diluted Loss Per
Common Share. . . . . . . . . . $ (0.82) $ (1.03) $ (0.26)
=========== =========== ===========
Weighted Average Number of
Common Shares Used in Per
Share Calculation. . . . . . . . 9,217,158 3,141,613 1,049,679
=========== =========== ===========
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
For the Period
April 10,1995
For the Years (Date of Inception)
Ended December 31, Through
1997 1996 December 31, 1995
----------- ----------- -----------
Net Loss . . . . . . . . . . . . $(7,530,227) $(3,236,657) $ (270,736)
Other Comprehensive Income
Unrealized gains on investment
in securities available for
sale. . . . . . . . . . . . . 113,354 - -
----------- ----------- -----------
Comprehensive Loss . . . . . . . $(7,416,873) $(3,236,657) $ (270,736)
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
WORLD WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Additional Total
Common Stock Paid-in Accumulated Equity Stockholders'
Shares Amount Capital Deficit Adjustments Equity
----------- ----------- ----------- ------------ ------------ -----------
BALANCE - APRIL
10, 1995 (Date
of Inception) - $ - $ - $ - $ - $ -
Shares issued for
cash 1,189,394 1,189 394,811 - - 396,000
Shares issued for
services 425,758 426 140,074 - - 140,500
Issuance for financing
fees 116,988 117 38,489 - - 38,606
Redemption of shares (600,000) (600) (268,400) - - (269,000)
Beneficial conversion
feature of convertible
debt - - 69,974 - - 69,974
Net Loss - - - (270,736) - (270,736)
----------- ----------- ----------- ------------ ------------ -----------
BALANCE - DECEMBER
31, 1995 1,132,140 1,132 374,948 (270,736) - 105,344
Beneficial conversion
feature of convertible
debt - - 719,781 - - 719,781
Conversion of notes
payable 3,092,860 3,093 811,907 - - 815,000
Shares issued for
cash 900,000 900 776,797 - - 777,697
Shares issued for
services 527,000 527 787,061 - - 787,588
Shares issued for
interest due on
convertible notes 11,000 11 4,939 - - 4,950
Compensation related
to grant of stock
options - - 441,180 - - 441,180
Net loss - - - (3,236,657) - (3,236,657)
----------- ----------- ----------- ------------ ------------ -----------
BALANCE - DECEMBER
31, 1996 5,663,000 5,663 3,916,613 (3,507,393) - 414,883
Compensation related
to grant of stock
options - - 2,373,849 - (2,373,849) -
Shares and warrants
issued for cash 2,557,857 2,558 4,192,692 - - 4,195,250
Issuance upon exercise
of options 25,098 25 29,836 - (18,409) 11,452
Conversion of note
payable 5,630 6 1,964 - - 1,970
Shares issued and
201,900 stock options
granted in acqui-
sition of Digital
Radio Communications
Corporation 1,798,100 1,798 8,672,264 - - 8,674,062
Shares issued in
acquisition of TWC 101,200 101 1,048,331 - - 1,048,432
Shares issued in
acquisition of XARC 10,000 10 102,990 - - 103,000
Shares issued in settle-
ment of lawsuit 40,000 40 323,416 - - 323,456
Issuance for financing
fees 24,375 24 253,113 - - 253,137
Amortization of unearned
compensation - - - - 963,340 963,340
Unrealized gain on
securities - - - - 113,354 113,354
Net loss - - - (7,530,227) - (7,530,227)
----------- ----------- ----------- ------------ ------------ -----------
BALANCE - DECEMBER
31, 1997 10,225,260 $ 10,225 $20,915,068 $(11,037,620) $ (1,315,564) $ 8,572,109
=========== =========== =========== ============ ============ ===========
The accompanying notes are an integral part of these financial statements.
WORLD WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Period
April 10, 1995
For the Years Ended (Date of Inception)
December 31, Through
1997 1996 December 31, 1995
----------- ----------- -----------
Cash Flows From Operating Activities
Net loss. . . . . . . . . . . . . . $(7,530,227) $(3,236,657) $ (270,736)
Adjustments to reconcile net
loss to net cash used
by operating activities:
Amortization of goodwill. . . . . 1,117,472 - -
Depreciation and amortization
of other assets. . . . . . . . . 349,587 83,094 38,853
Purchased research and development 1,561,000 - -
Financing fees and amortization
of debt discount . . . . . . . . 154,200 1,284,415 34,987
Stock issued for services . . . . 111,370 787,588 179,106
Compensation from stock options
granted. . . . . . . . . . . . . 963,340 441,180 -
Changes in operating assets and
liabilities, net of effects of
businesses acquired:
Accounts receivable, net
of allowance for doubtful
accounts. . . . . . . . . . . 7,622 (100,688) (30,621)
Inventory. . . . . . . . . . . (41,105) (99,225) (14,799)
Accounts payable . . . . . . . 41,546 30,741 31,256
Accrued liabilities. . . . . . (86,981) 54,965 827
Other assets . . . . . . . . . (237,312) (4,143) -
----------- ----------- -----------
Net Cash and Cash Equivalents Used
By Operating Activities. . . . . . (3,589,488) (758,730) (31,127)
----------- ----------- -----------
Cash Flows From Investing Activities
Payments for the purchase of
property and equipment. . . . . . . (663,707) (90,544) (49,691)
Proceeds from sale of property
and equipment. . . . . . . . . . . 10,754 - -
Cash paid for subsidiaries,
net of cash received . . . . . . . (248,736) - (340,000)
----------- ----------- -----------
Net Cash and Cash Equivalents
Used By Investing Activities . . . (901,689) (90,544) (389,691)
----------- ----------- -----------
Cash Flows From Financing Activities
Payment to redeem common stock. . . - - (19,000)
Proceeds from issuance of common
stock. . . . . . . . . . . . . . . 4,206,700 777,697 350,000
Proceeds from borrowings, net of
discount . . . . . . . . . . . . 775,000 (417,008) 77,847
Proceeds from issuance of
beneficial debt conversion
feature. . . . . . . . . . . . . - 719,781 41,653
Principal payments on notes
payable . . . . . . . . . . . . . (309,567) (223,600) -
----------- ----------- -----------
Net Cash and Cash Equivalents
Provided By Financing Activities 4,672,133 856,870 450,500
----------- ----------- -----------
Net Increase In Cash and Cash
Equivalents . . . . . . . . . . . . . 180,956 7,596 29,682
Cash and Cash Equivalents -
Beginning of Period . . . . . . . . . 37,278 29,682 -
----------- ----------- -----------
Cash and Cash Equivalents -
End of Period . . . . . . . . . . . . $ 218,234 $ 37,278 $ 29,682
=========== =========== ===========
Supplemental cash flow information and noncash investing and financing
activities - Note 7
The accompanying notes are an integral part of these financial statements.
WORLD WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION -- On April 10, 1995 a group of investors contributed $340,000
in cash to form a joint venture (the Joint Venture). On the same day, the
Joint Venture acquired substantially all of the assets and operations of
Micro Security Systems, Inc. for $340,000 cash. The acquisition was accounted
for by the purchase method of accounting. The purchase price was allocated
to the assets acquired based upon their fair value: $45,857 to current assets
and $294,143 to equipment and other long-term assets. The operations of the
acquired business are included in the accompanying financial statements from
the date of acquisition.
Data Security Corporation (Data Security) was formed on November 15, 1995
under the laws of the State of Nevada. The Joint Venture was reorganized
into Data Security in November 1995 by Data Security issuing 787,140 shares
of common stock and agreeing to pay $269,000 to one of the owners of the
Joint Venture. The transfer of the net assets and operations to Data Security
was a transfer between enterprises under common control and has been accounted
for at historical cost. The accompanying financial statements have been
restated to reflect the common stock equivalents which would have been issued
and redeemed from the dates of the original transactions with the owners of
the Joint Venture based upon the shares exchanged in the transfer.
By shareholder action on January 15, 1997, the Company's name was changed
from Data Security Corporation to World Wireless Communications, Inc.
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements include
the accounts of World Wireless Communications, Inc. and it's wholly owned
subsidiaries, ECA Electronic Contract Assembly, Inc. (ECA), TWC, Inc. (TWC),
and Digital Radio Communications Corporation (Digital Radio) which has
subsidiaries, from the dates of their acquisitions. Intercompany accounts
and transactions have been eliminated in consolidation. The consolidated
entities are collectively referred to herein as the Company. On December 31,
1997, Digital Radio Communications Corporation and its subsidiaries, and ECA,
effected a plan of liquidation into World Wireless Communications, Inc. and
were dissolved.
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.
NATURE OF BUSINESS -- The Company and its subsidiaries design, develop and
manufacture wired and wireless communications technology, systems and products,
and provide contract manufacturing services to the electronics and wireless
communications industry.
Prior to the acquisition of Digital Radio and TWC, the primary operations of the
Company were centered around the design and manufacture of computer security
products, which constituted most of the Company's sales for 1996 and 1995. Sales
of these products were insignificant during 1997. As further described in Note
12, the computer security product line was sold to an employee/shareholder in
January 1998.
BUSINESS CONDITION -- Since the acquisition of Digital Radio in February 1997,
the Company no longer is considered in the development stage, having reached
planned operations. However, it has not had sales sufficient to meet its
operating expenses and to generate income. It has sustained operating losses
for the years ended December 31, 1997 and 1996 and for the period from April
10, 1995 through December 31, 1995, and may require additional capital to
continue operations. Management intends to obtain additional capital
through issuance of common stock. Management anticipates sales from contracts
currently in force will eventually generate profitable operations. However,
there is no assurance that profitable operations can be obtained or sustained.
LONG-LIVED ASSETS --Impairment losses are recorded when indicators of
impairment are present and undiscounted cash flows estimated to be generated
by those assets are less than the carrying amounts of the related assets.
No impairment losses were required to be recognized in the accompanying
financial statements.
SEGMENT INFORMATION AND CONCENTRATION OF RISK --The Company operates solely
in the electronics industry and, prior to 1997, its sales were primarily to
customers in the western United States. Accordingly, segment information
relating to operations in different industries or geographic areas is not
presented in these financial statements. Beginning in 1997, the Company
expanded its operations to include significant sales nationally and
internationally. Export sales during the year ended December 31, 1997 were
$1,661,752. 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 considers all highly-liquid debt
instruments purchased with a maturity of three months or less to be cash
equivalents. Cash and cash equivalents in excess of insured limits was
approximately $81,953 at December 31, 1997. The amounts reported as cash
and cash equivalents, accounts receivable, other receivables, accounts
payable and notes payable 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 -- For the year ended December
31, 1997, 69% of sales, or $2,009,512, were to two customers under contracts
which subject the Company to the risk that the Company may not be able to
continue the current level of sales if there was a loss of either of these
contracts. Seventeen percent of sales in 1996, or $102,578, were to one
customer. At December 31, 1997, an allowance for doubtful accounts of
$30,000 was provided.
INVENTORY -- Inventory is stated at the lower of cost or market. Cost is
determined using the first-in, first-out method.
RESEARCH AND DEVELOPMENT EXPENSE -- Current operations are charged with all
research, engineering and product development expenses.
GOODWILL -- Goodwill arose from the acquisitions of Digital Radio and TWC and
is being amortized on a straight-line method over the periods it is expected
to benefit. The carrying value of goodwill is evaluated periodically in
relation to the operating performance and future undiscounted cash flows of
the underlying businesses. Adjustments for impairment are made if the sum of
expected future net cash flows is less than book value. During the fourth
quarter of 1997, management evaluated the amortization period for goodwill
and determined to change the periods that will be benefitted from five years
to 15 years. The change in the number of years benefitted resulted in a
decrease in net loss of $239,637 during 1997.
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.
Depreciation expense was $338,043, $82,362 and $38,853 for the years ended
December 31, 1997 and 1996 and for the period from April 10, 1995 through
December 31, 1995, respectively. Maintenance and repairs of equipment are
charged to operations and major improvements are capitalized. Upon retirement,
sale, or other disposition of equipment, the cost and accumulated depreciation
are eliminated from the accounts and gain or loss is included in operations.
INVESTMENTS --At December 31, 1997, investment in marketable securities
consisted of common stock of customers classified as available for sale
and are stated at fair market value of $188,354. The cost of the marketable
securities was $75,000. The unrealized gain as of December 31, 1997 was
$113,354 which was also the change in net unrealized gains on marketable
securities included as a separate component of stockholders' equity in the
accompanying balance sheet.
SALES RECOGNITION -- Sales are recognized upon delivery of products or
services and acceptance by the customer. Sales revenue from technology
development contracts is recognized as pre-defined benchmarks are reached
and accepted 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.
LOSS PER SHARE -- In the fourth quarter of 1997, the Company adopted Statement
of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share. Under
SFAS 128, basic loss per common share is computed by dividing net loss
available to common stockholders by the weighted-average number of common
shares outstanding during the period. Diluted loss per share reflects the
potential dilution which could occur if all potentially issuable common shares
from options or convertible notes payable resulted in the issuance of common
stock. In the Company's present position, diluted loss per share is the same
as basic loss per share because potentially issuable common shares would
decrease the loss per share and have been excluded from the calculation. Prior
periods have been restated, where appropriate, to conform to the requirements
of SFAS 128.
NEW ACCOUNTING STANDARDS --The Company adopted SFAS No. 128, Earnings per Share,
and SFAS No. 129, Disclosures of Information About Capital Structure, in 1997.
In accordance with SFAS Nos. 128 and 129, both basic net loss per share and
diluted net loss per share as well as rights and liquidation preferences of
equity securities have been presented in the accompanying consolidated
financial statements.
In June 1997, SFAS No. 130, Reporting Comprehensive Income was issued. The
Company adopted this standard during the fourth quarter of 1997 which requires
the display of comprehensive income and its components in the financial
statements. In the Company's case, comprehensive income includes net loss and
unrealized gains on investment in securities available for sale.
The Financial Standards Board issued SFAS No. 131, "Disclosures About Segments
of an Enterprise and Related Information" and SFAS No. 132, "Employers'
Disclosures About Pensions and Other Postretirement Benefits, an Amendment of
FASB Statements No. 87, 88, and 106" during 1997 and 1998. These statements,
which are effective for fiscal years beginning after December 15, 1997,
expand or modify disclosures and will have no impact on the Company's
consolidated financial position, results of operations, or cash flows.
NOTE 2--BUSINESS COMBINATION AND ACQUISITIONS
ECA Electronic Contract Assembly, Inc. (ECA) was incorporated on October 24,
1996 under the laws of the State of Nevada. ECA had no operations or assets
and had made efforts toward the development of business relating to the
assembly of printed circuit boards and wire/cable harnesses. Effective October
28, 1996, the Company acquired all of ECA's outstanding common stock and
employed two ECA officers by issuing 500,000 shares of common stock. The
business combination was accounted for using the purchase method of accounting.
The purchase price, based upon the fair value of the common shares issued,
was $752,565, or $1.51 per share. The excess of the purchase price over the
fair value of the assets acquired was $752,565, which was allocated to
compensation expense. ECA's operations have been included in the accompanying
financial statements from the date of acquisition.
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.
Thepurchase 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 as if the Digital Radio acquisition had occurred at the beginning
of 1996. 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 1996 as described above or of the results which may occur in
the future.
For the Years Ended
December 31,
1997 1996
---------- -----------
Sales. . . . . . . . . . . . . .$3,048,014 $ 2,004,983
Net Loss . . . . . . . . . . . .(6,827,950) (5,999,903)
Net Loss per Common Share. . . .$ (0.72) $ (1.17)
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
$12,431.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. The patents are being amortized over 6.5 years, their estimated
remaining useful life. The excess of the purchase price over the estimated
fair value of the net assets acquired was $634,443 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, 1997 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 3--INVENTORY
Inventory consisted of the following:
December 31,
1997 1996
--------- ---------
Materials. . . . . . . . . . . $ 378,238 $ 20,935
Work in process. . . . . . . . 118,194 138,946
--------- ---------
Total. . . . . . . . . . . . . $ 496,432 $ 159,881
========= =========
NOTE 4--EQUIPMENT
Equipment consisted of the following:
December 31,
1997 1996
----------- -----------
Computer equipment . . . . . . $ 246,117 $ 68,440
Manufacturing equipment. . . . 1,059,916 308,458
Office furniture . . . . . . . 164,566 71,339
Software . . . . . . . . . . . 118,649 -
----------- -----------
Total. . . . . . . . . . . . . $ 1,589,248 $ 448,237
=========== ===========
NOTE 5--NOTES PAYABLE
December 31,
1997 1996
----------- -----------
10% Notes payable; paid in 1997. . . . . $ - $ 3,404
Payable due to shareholder;
converted to common stock in
January 1997. . . . . . . . . . . . . . - 1,970
Capital lease obligations for
equipment (Note 11) . . . . . . . . . . 40,576 -
15% Note payable to a shareholder;
payable $7,798 monthly through
September 1998; secured by equipment
and personally guaranteed by two
stockholders. . . . . . . . . . . . . . 44,808 125,000
12% Note payable to a shareholder;
guaranteed by an officer and
secured by an officer's common
stock; paid in 1998 . . . . . . . . . . 200,000 -
12% Note payable to shareholder;
due December 31, 1997; unsecured. . . . 125,000 -
10% Note payable to an unrelated
party; due September 30, 1998;
unsecured . . . . . . . . . . . . . . . . 400,000 -
12% Note payable to an employee;
payable $1,408 monthly through
December 31, 1998; unsecured. . . . . . . 39,518 -
----------- -----------
Total Notes Payable. . . . . . . . . . . . 849,902 130,374
Less: Current Portion . . . . . . . . . . (814,925) (85,566)
----------- -----------
Long-Term Notes Payable. . . . . . . . . . $ 34,977 $ 44,808
=========== ===========
From November 1995 through February 1996, the Company issued convertible notes
payable totaling $275,000. The notes bore interest at 6% in addition to the
amortization of the discount (see Note 8) resulting in an effective interest
rate of 463%. The notes were converted into 1,892,860 shares of common stock
in March 1996.
From June through December 1996, the Company issued convertible notes payable
totaling $540,000 in connection with a unit offering of common stock. The
notes bore interest at 6% in addition to the amortization of the discount
which amounted to $1,154,094 (see Note 8). The discount was fully amortized
during the period from the dates the notes were issued through December 31,
1996. The notes payable were converted into 1,200,000 shares of common stock
from October through December 1996.
The annual maturities of notes payable as of December 31, 1997 were as follows:
Years Ending December 31:
1998. . . . . . . . . . . . . . .$810,386
1999. . . . . . . . . . . . . . . 30,103
2000. . . . . . . . . . . . . . . 8,866
2001. . . . . . . . . . . . . . . 547
--------
Total . . . . . . . . . . . . . .$849,902
========
NOTE 6--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:
For the Years Ended December 31,
1997 1996 1995
----------- ----------- ----------
Operating loss carryforwards. . . $ 3,684,004 $ 864,937 $ 95,813
Accrued liabilities and other . . 271,694 168,979 5,169
Total Deferred Tax Assets . . . . 3,955,698 1,033,916 100,982
Valuation Allowance . . . . . . . (3,955,698) (1,033,916) (100,982)
----------- ----------- ----------
Net Deferred Tax Asset. . . . . . $ - $ - $ -
=========== =========== ==========
For tax reporting purposes, the Company has net operating loss carryforwards in
the amount of $9,443,887 which will expire beginning in the year 2011. 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,
1997 1996 1995
----------- ----------- -----------
Tax at statutory rate (34%). . . . . . $(2,560,277) $(1,100,463) $ (92,050)
Non-deductible expenses. . . . . . . . 645,880 283,633 -
Change in valuation allowance. . . . . 2,301,134 932,934 100,982
State tax benefit, net of
federal tax effect. . . . . . . . . . (248,497) (106,811) (8,932)
Research and development credit. . . . (138,240) (9,293) -
----------- ----------- -----------
Net Income Tax Expense . . . . . . . . $ - $ - $ -
=========== =========== ===========
In connection with the Digital Radio acquisition, $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 were an increase to
total deferred tax assets of $620,647 and a corresponding increase in the
valuation allowance.
NOTE 7--SUPPLEMENTAL CASH FLOW INFORMATION AND NONCASH INVESTING AND
FINANCING ACTIVITIES
Supplemental Cash Flow Information--
For the Years Ended December 31,
1997 1996 1995
----------- ----------- -----------
Interest Paid. . . . . . . . $ 34,426 $ 30,677 $ -
Noncash Investing and Financing Activities--
During the period from April 10, 1995 through December 31, 1995 the Company
redeemed 600,000 shares of common stock as follows:
Common stock redeemed . . . . . . . . . . . . $269,000
--------
Payments made by others in exchange
for the following:
139,394 shares of common stock . . . . . 46,000
Notes payable, net of discount . . . . . 16,679
Beneficial debt conversion feature . . . 28,321
Issuance of note payable to former
shareholder. . . . . . . . . . . . . . . . . 159,000
--------
250,000
--------
Cash Paid to Redeem Common Stock. . . . . . . $ 19,000
========
During the period ended December 31, 1995, the Company issued 542,746 shares
of common stock valued at $179,106 for services and financing fees.
During the year ended December 31, 1996, $138,000 of debt was issued to acquire
equipment, of which $120,000 was payable to a stockholder. Notes payable in the
amount of $815,000 were converted to common stock. Common stock valued at
$787,588 was issued for services.
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 8--STOCKHOLDERS' EQUITY
The Company began business on April 10, 1995 as a joint venture. The
accompanying financial statements have been restated to present the capital
transactions of the Joint Venture at their common stock equivalents, based on
787,140 common shares issued upon the reorganization of the Joint Venture into
Data Security Corporation in November 1995. Capital transactions of the Joint
Venture were as follows: Owners of the Joint Venture invested cash in the
amount of $340,000 and $10,000 in April and June 1995, respectively, and paid
another $46,000 on behalf of the Company during this time. In addition, owners
contributed management services valued at $34,900 and were paid financing fees
of $30,356. These capital transactions, totaling $461,256, have been presented
as being equivalent to the issuance of 1,387,140 shares of common stock which
were valued at $0.33 per share, based upon the price shares were issued to
owners in exchange for cash. As described more fully in Note 7, the Company
redeemed one of the owner's interest in the Joint Venture for $269,000 by
paying the owner $19,000, by other owners of the Joint Venture paying the
owner $46,000 (as described above), by a third-party lender paying the owner
$45,000 and by the Company entering into an agreement to pay the owner
$159,000 plus interest thereon at 10% by March 1996. The redemption of the
ownership interest has been presented in the accompanying financial statements
as being equivalent to the redemption of 600,000 shares of common stock at
$0.45 per share. The payments to the owner were not in exchange for any
additional stated or unstated rights or privileges.
On November 15, 1995, the Company issued 25,000 shares of common stock as
fees for raising financing for the Company. The shares issued were valued at
$8,250 or $0.33 per share, based upon the price common stock had been issued
for cash. In December 1995, an additional 320,000 shares of common stock were
issued to a director of the Company in payment for management services. The
services and the shares issued were also valued at $0.33 per share and
totaled $105,600.
In November 1995 through February 1996, the Company issued convertible notes
payable in the amount of $275,000, of which notes for $120,000 were issued in
1995. The debt was converted into 1,892,860 shares of common stock in March
1996 at $0.15 per share. The market value of the restricted common shares at
the dates the debt was issued exceeded the rate the debt was converted by an
average of $0.23 per share. This difference was a beneficial conversion
feature of the convertible debt and has been accounted for as a discount on
the debt in the amount of $69,974 in 1995 and $90,384 in 1996. The beneficial
conversion feature was credited to additional paid-in capital on the dates the
convertible notes payable were issued.
The Company issued 300,000 shares of common stock at $0.70 per share during
April and May 1996 for $210,000 in cash and incurred costs in connection
with the offering of $12,000. The Company issued 7,000 shares of common stock
in March 1996 in connection with the termination of the employment of an
employee. The shares issued were valued based upon the $0.70 cash price for
common stock.
Common stock and convertible debt were issued as a unit in an offering from
June through December 1996. The offering resulted in the issuance of 600,000
shares of common stock and $540,000 of notes payable which were convertible
into common stock at $0.45 per share. The gross proceeds from the offering
before $5,000 offering costs were $600,000 and were allocated on the dates
received to (a) the common stock based upon its fair value, (b) to the
beneficial conversion feature of the notes payable based upon the excess of
the fair value of the common stock over the conversion price, and (c) the
remaining amount was allocated to the notes payable, net of a $1,154,094
discount. The excess of the market value of the common stock over the
conversion price at the dates the notes payable were issued ranged from
$0.25 to $0.73 per share and was a beneficial conversion feature of the
convertible debt. The portion of the proceeds from the unit offering allocated
to the beneficial conversion feature was $629,397, which amount was accounted
for as additional paid-in capital on the dates the convertible notes payable
were issued. The notes payable were converted into 1,200,000 shares of common
stock from October through December 1996.
The Company issued 20,000 shares of common stock in November 1996 in
settlement of an employment agreement. The services were valued at $30,123,
or $1.51 per share.
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.
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
expired.
During November and December 1997, the Company issued 24,375 shares of common
stock for financing fees in the amount of $253,137.
NOTE 9--EQUITY ADJUSTMENTS
Equity adjustments include unearned compensation from stock options granted
in 1997 which vest through 1999, a receivable from a shareholder which arose
from the shareholder exercising an option in exchange for a promissory note,
and accumulated other comprehensive income relating to unrealized gain on
investment in securities available for sale. Changes in equity adjustments
for the year ended December 31, 1997 were as follows:
Accumulated
Other
Compre- Total
Unearned Shareholder hensive Equity
Compensation Receivable Income Adjustments
----------- ---------- ---------- -----------
Balance - December 31, 1996. . $ - $ - $ - $ -
Compensation related to grant
of stock options. . . . . . . (2,373,849) - - (2,373,849)
Amortization of unearned
compensation. . . . . . . . . 963,340 - - 963,340
Options exercised for note
receivable from shareholder . - (18,409) - (18,409)
Unrealized gain on investment
in securities available
for sale. . . . . . . . . . . - - 113,354 113,354
----------- ---------- ---------- -----------
Balance - December 31, 1997. . $(1,410,509) $ (18,409) $ 113,354 $(1,315,564)
=========== ========== ========== ===========
NOTE 10--STOCK OPTIONS
In December 1996, the Company granted options to an employee, a former member
of the Board of Directors, and a consultant to purchase a total of 258,000
shares of restricted common stock at $0.33 per share. In January 1997, the
consultant was granted an additional option to purchase 150,000 shares at
$0.35 per share. The options may be exercised from the date granted through
June 30, 1998. The Company recorded compensation expense of $441,180 ($1.71
per share) during 1996 and $265,500 ($1.77 per share) during 1997 from the
difference between the exercise price and the fair value of the common stock
on the dates granted.
In connection with the acquisition of Digital Radio, the Company assumed
Digital Radio's stock option plans and granted options to the former
shareholders and employees of Digital Radio to purchase 201,900 shares of
common stock at a weighted-average price of $1.90 per share through December
20, 2001.
The Board of Directors approved a stock option plan in September 1997 which
authorized options to purchase 1,500,000 shares of common stock. Options to
purchase 937,044 common shares were granted under the Plan on December 18,
1997,with a weighted-average exercise price of $6.50 per share. The Plan was
approved and the options were granted subject to shareholders' approval, which
was obtained on December 18, 1997. The options become exercisable from the
date granted through November 10, 1999. The unexercised options expire on
December 17, 2002. Compensation relating to the options of $2,108,349, or
$2.25 per share, is being recognized over the period the options vest of
which $697,840 was recognized during the fourth quarter of 1997.
A summary of the status of the Company's stock options as of December 31,
1997 and 1996, and changes during the years then ended are presented below:
December 31,
1997 1996
---------------------- ----------------------
Weighted-Average Weighted Average
Shares Exercise Price Shares Exercise Price
---------- ---------- ---------- ----------
Outstanding at beginning
of year . . . . . . . . . 258,000 $ 0.33 - $ -
Granted. . . . . . . . . . 1,288,944 5.06 258,000 0.33
Exercised. . . . . . . . . 25,098 1.19 - -
---------- ----------
Outstanding at end of
year . . . . . . . . . . 1,521,846 4.33 258,000 0.33
========== ==========
Options exercisable at
year-end. . . . . . . . 792,610 2.32 258,000 0.33
========== ==========
Weighted-average fair
value of options granted
during the year . . . . $ 3.43 $ 1.76
========== ==========
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.
Stock-based compensation charged to operations was $963,340 and $441,180 for
the years ended December 31, 1997 and 1996. Had compensation cost for the
Company's options been determined based on the fair value at the grant dates
consistent with the alternative method set forth under Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation", net
loss and loss per share would have increased to the pro forma amounts
indicated below:
For the Years Ended December 31,
1997 1996 1995
----------- ----------- -----------
Net loss:
As reported . . . . . . . . $(7,530,227) $(3,236,657) $ (270,736)
Pro forma. . . . . . . . . (8,060,504) (3,249,557) (270,736)
Basic and diluted loss per share:
As reported. . . . . . . . $ (0.82) $ (1.03) $ (0.26)
Pro forma. . . . . . . . . (0.87) (1.03) (0.26)
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 1997 and 1996, respectively: dividend yield of
0.0% for both periods; expected volatility of 79.2% and 99.6%; risk-free
interest rate of 5.3% and 5.0% and expected life of the options of 2.0 years
and 1.5 years.
Subsequent to December 31, 1997, option holders exercised options to purchase
336,926 shares of common stock at exercise prices from $0.33 to $2.00 per
share.
NOTE 11--COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS -- The Company leases office and production facilities under
agreements accounted for as operating leases. Lease expense for the years
ended December 31, 1997 and 1996 was $367,301 and $123,779, respectively. The
facilities lease terms end in May and June 1998. The Company also assumed lease
commitments in the merger with Digital Radio for three vehicles under operating
lease agreements. 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 31,1997:
Capital Operating
Leases Leases
---------- ----------
Years Ending December 31:
1998 . . . . . . . . . $ 21,448 $ 118,860
1999 . . . . . . . . . 18,081 4,981
2000 . . . . . . . . . 11,246 -
2001 . . . . . . . . . 695 -
---------- ----------
Total Minimum Lease Payments. . 51,470 $ 123,481
Less amount representing ==========
interest . . . . . . . . . . . (10,894)
Present Value of Net Minimum ----------
Lease Payments . . . . . . . . 40,576
Less Current Portion. . . . . . (21,448)
----------
Capital lease - Long-Term . . . $ 19,128
==========
COMMITMENT TO ACQUIRE TECHNOLOGY-- The Company has entered into an agreement
to acquire certain technology from Asyst, Inc., an otherwise unrelated company.
Under the agreement the Company will issue approximately $300,000 in common
stock (not less than 30,000 shares), and will advance $65,000 in cash, in
exchange primarily for Asyst's spectrum technology. Appropriate accounting
treatment of this transaction, should it occur, has not been determined.
UNASSERTED CLAIM -- Although action has not been initiated, a former officer
of the Company has threatened litigation against the Company following his
resignation as an officer and as a director in October 1997. The resignation
was the result of a dispute over compensation involving, among other things,
a claim by the former officer and director that the Company had agreed to
grant him options to purchase 275,000 shares of the Company's common stock at
a price of $2.00 per share in connection with his employment, and had later
disaffirmed such obligation. Because of the number of shares involved in this
unasserted claim, and the difference between the current market price for the
Company's common stock and the exercise price of the options claimed, the
expense to the Company for financial reporting purposes would be material if
the former officer should initiate and prevail in litigation over these claims.
The Company intends to vigorously defend any such action.
401K PROFIT SHARING PLAN -- The Company sponsors a 401K profit sharing plan
but has no commitment to match employee's contributions to the plan, nor has
the Company made any contributions to the plan to date.
NOTE 12--SUBSEQUENT EVENTS
In January 1998, the Company sold its SecuriKey business and related products
to a shareholder/employee for $372,499. The sale resulted in a gain of
approximately $300,000. The results from operations of the SecuriKey business
were not significant during the year ended December 31, 1997.
In January 1998, the Company entered into agreements to lease equipment and
software with future minimum lease payments totaling $1,093,165. The lease
agreements are for periods ranging from two to three years.
On January 8, 1998, the Company issued an unsecured note payable to an
unrelated party in the amount of $400,000. Interest accrues at 10.0% and the
note and related accrued interest are due September 30, 1998.
Between March 17, 1998 and March 30, 1998, the Company issued 500,000 shares
of common stock at $2.00 per share in a private placement offering.
(Unaudited).
Subsequent to December 31, 1997, option holders exercised options to purchase
333,926 shares of common stock at exercise prices from $0.33 to $2.00 per
share. (Unaudited).