WORLD WIRELESS COMMUNICATIONS INC - 10-K Annual Report

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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K/A
AMENDMENT NO. 1

[ x ] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
For the fiscal year ended December 31, 1998

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]

For the transition period from ________________ to _________________

Commission file 333-38567

WORLD WIRELESS COMMUNICATIONS, INC.
(Name of registrant in its charter)

Nevada 87-549700
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

2441 South 3850 West, West Valley City, Utah 84120
(Address of principal executive offices) (Zip Code)

Registrant's telephone number (801) 575-6600

Securities registered under Section 12(g) of the Exchange Act:

None
__________________________________________
(Title of Class)
__________________________________________
(Title of Class)

Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X
No .

Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-K, and no disclosure will be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ] Not applicable.

The aggregate market value of the voting stock held by non-affiliates of
the registrant computed by reference to the price at which the stock was sold,
or the average bid and asked prices of such stock, as of a specified date
within the past 60 days (i.e., March 31, 1999) was $16,440,918.
As of December 31, 1998 there were 13,920,400 shares of the registrant's
common stock issued and outstanding.

PART I

ITEM 1. DESCRIPTION OF BUSINESS

Background

The Company and its subsidiaries are principally engaged in the design,
development and manufacture of wireless communications technology, systems and
products. The Company also provides contract manufacturing services to the
electronics and wireless communications industry.

Prior to its acquisition of Digital Radio Communications Corporation
("DRCC") in February 1997, a substantial majority of the Company's revenues
were derived from sales of SecuriKey(R), a small hardware device that prevents
the unauthorized use of software protected by a SecuriKey system, and related
software products. At the time of its acquisition by the Company, DRCC was in
the process of developing a number of proprietary wireless communications
products, and provided wireless design, development and manufacturing services
on a contract basis. With the acquisition of DRCC, the Company's business focus
shifted to the design, development and manufacture of wireless communication
technology, systems and products, although the Company continues to provide
contract manufacturing services. Sales of SecuriKey products did not contribute
materially to revenues in 1997 (approximately 5%), and that product line was
sold by the Company in January 1998.

Wireless Communications Products

Electronic communications devices take many forms, including mobile
telephone, broadcast television and radio products. The central problem in
modern communications is developing the means to transmit large volumes of data
over long distances without losing or distorting the information in the most
cost effective manner. Wireless communications, using radio transmission rather
than transmission over a wire or cable, is an increasingly important segment
of the communications industry.

As illustrated below, wireless communication devices fall under various
names (television, radio, cellular, microwave, among others), but all utilize
the electromagnetic spectrum. This spectrum is the range of all electromagnetic
waves differentiated according to the frequency of the particular wave. An
electronic communication device is usually named according to the wave
frequency at which the device operates. Frequency is the number of cycles per
second in a wave and is measured in hertz (Hz). One hertz is one cycle per
second. The radiowave spectrum ranges from a few kilohertz (Khz) to 40
gigahertz (Ghz), or 40,000 megahertz (MHz). Portions of the radiowave spectrum
are dedicated to specific uses, as follows:

Wireless Device Frequency
- - - ---------------- ---------
AM radio 535 - 1635 Khz
Analog cordless phones 44 - 49 MHZ
TV channels (VHF) 54 - 88 MHZ
FM radio 88 - 108 MHZ
TV channels (VHF) 174 - 216 MHZ
TV channels (UHF) 470 - 806 MHZ
RF wireless modems 800 MHZ
Cellular phones 806 - 890 MHZ
Digital cordless phones 900 MHZ
Personal communication services 900 - 929 MHZ
Nationwide rs 929 - 932 MHZ
Two-way rs 932 - 940 MHZ
Satellite phones uplink 1610 - 1626.5 MHZ
Satellite phones downlink 2483.5 - 2500 MHZ
Satellite TV, large dish 4 - 6 GHz
Satellite TV, small dish 11.7 - 12.7 GHz
Wireless "cable" TV 28 - 29 GHz

Existing Products

The Company's wireless communications products are designed to transmit
and receive voice, video and data in applications where a hard-wired system is
cost prohibitive or simply more expensive. The Company's principal line of
existing products is a series of low speed digital radios (LSDRs) and related
devices. These products are suitable for use in a telemetry network which has
been developed by Williams Wireless, Inc., doing business as "Williams
Telemetry Services" (hereinafter "Williams"), a subsidiary of The Williams
Companies, Inc. The initial sales of products in this line were made to
Williams in September 1997.

Description of Existing Products

Products which the Company has developed for use in and have been
purchased for use and testing by Williams include devices called Telemetry
Interface Modules, or TIM(TM)s, which operate at the point of data origination.
For example, in the Williams Telemetry Network the TIM(TM)s units are designed
to be mounted on meters and other devices to be monitored. The function of
these TIM(TM)s is to gather and transmit data to a data collection and
forwarding point called a WinGate(TM) unit, which includes a wireless
receiver/transmitter. The WinGate(TM) unit forwards the data to an operating
center via a wide area network. Once the data arrives at the operating center,
it is recorded and stored in a computer system.

The TIM(TM)s are short range (up to 1200 feet) transmitters which
transfer data at rates up to 9600 bits per second, and function over the entire
industrial temperature range (-40oF to 185oF). The Company has at least two
TIM(TM)s models available, which differ primarily in frequency coverage,
modulation type and power.

The WinGate(TM) units utilize Low Speed Digital Radio ("LSDRs") which are
matched to the TIM(TM)s units from which they receive data. In this context,
"low speed" refers to speed of transmission which, for the Company's LSDRs,
ranges from 1200 to 9600 bits per second ("bps"). The Company presently has a
number of LSDR models available, three of which (the LSDR 100, the 900 MHZ
Hopper Radio and the 900 MHZ Micro - Hopper Radio) have been sold to Williams
for use and/or testing in the Williams Telemetry Network. Like the TIM(TM)s
units, the various LSDR models differ primarily in frequency coverage,
modulation type, range and power.

The Company's LSDRs are designed to provide a wireless communication link
for multiple locations, with a range of up to 35 miles under "unobstructed"
line of sight conditions. The products are intended for use primarily in remote
monitoring systems in which data must be transmitted from multiple locations
and collected at one central location, e.g., to monitor data such as capacity,
temperatures and flow rates from underground or above ground fuel tanks and oil
and gas pipeline meters. Radios can be spread out over numerous locations to
transmit data large distances within a line of sight and the data will be
collected and processed in one central location for processing. Data and power
requirements for the radios are low, allowing the radios to run on battery or
solar energy. LSDR communications do not require a license from the Federal
Communication Commission ("FCC") and there is no FCC restriction on the type
of data being transmitted.

An important feature of certain of the Company's LSDR products involves
the use of spread spectrum (meaning a wide frequency bandwidth) solutions to
facilitate the wireless transmission of data. Spread spectrum wireless devices
are required to modulate and demodulate a signal that is "spread" across a wide
bandwidth to reduce interference and provide enhanced security. "High power"
systems (from 0.10 to 1.0 watts) which operate in the ISM (Industrial,
Scientific and Medical) bands (902 - 928 MHZ, 2400 - 2483.5 MHZ, and 5725 -
5850 MHZ) can only use spread spectrum techniques. Under Part 15 of the FCC
Telecommunications Code, these ISM bands do not require the customer to pursue
costly and time consuming FCC licensing approval and eliminate usage charges
involved with transmitting data via cellular networks. Thus, they are desirable
for many wireless applications, including telemetry systems for use in data
collection, high-speed wireless communication links between buildings on
corporate and other campuses, wireless speaker connections and other peripheral
applications.

During 1998, revenue from the sales of the Company's existing radio
products and SCADA systems (other than antennas) were $51,619.

Williams

The Williams Telemetry Network is a fixed wireless network intended by
Williams principally for use by utility companies to collect gas, water and
electric usage data, and to closely monitor usage on a "real time" basis when
required. A wireless monitoring unit mounted on a meter or other device to be
monitored gathers data and transmits it to a local WinGate(TM) collection
point, which then relays the data to a centralized operating center. While
automated meter reading is the most immediate potential application for the
Williams Telemetry Network, its possible uses also include alarm monitoring,
a reliable back up to telephone reporting and other, similar applications.

As described elsewhere in this Report, the Company's initial sales of
wireless communications products occurred in September 1997, and sales to date
have been extremely limited. A number of the Company's wireless communications
products were introduced as part of the Williams Telemetry Network for the
first time in mid-September 1997 at the Automated Meter Reading Association
Trade Show in Chicago. At the present time, Williams has installed its
telemetry system with a number of national companies for testing under normal
commercial conditions.

In December 1997, the Company received its initial orders for equipment
under a Technical Development and Marketing Alliance Agreement with Williams.
See "Contract Design and Development" below. The orders cover products,
described below, designed and manufactured by the Company and used in the
Williams Telemetry Network. The delivery schedule established by the orders
initially called for shipments of approximately $2.25 million in the first
quarter of 1998, increasing to approximately $3.1 million per quarter in each
of the last three quarters of 1998, and with significant increases in shipments
scheduled during calendar 1999. Total sales under these orders, if completed
in full by the end of 1999, would have amounted to $70 million. However,
quantities and shipping dates in any calendar quarter are subject to adjustment
by Williams upon notice 90-days prior to the first scheduled delivery in the
quarter if customer demand or other factors beyond Williams' control make such
adjustment necessary.

Williams did not implement the orders originally contemplated under the
above agreement during 1998. Instead Williams decided to redesign the
Company's products to meet with Williams' further technical specifications.
In addition, there was a delay in submitting the system to the FCC for
clearance. While FCC certification was obtained prior to the end of 1998, the
system had been submitted to Underwriters Laboratories for approval as of the
end of December, 1998 and such request for approval was pending as of that date
and as of the date hereof.

As of a result of these delays in the fulfillment of orders from
Williams, the Company in 1998 derived revenues from Williams of only
$2,664,000, of which $2,434,000 consisted of engineering services relating to
changing the wireless system products for the Williams Telemetry Network, and
$230,000 from the sale of material and labor to Williams.

Antenna Products:

In November 1997, the Company acquired certain business assets of Austin
Antenna, Ltd., including the name "Austin Antenna", and the outstanding stock
of a corporation related to Austin Antenna which the Company now operates as
a wholly owned subsidiary under the name Austin Antenna, Ltd. The acquired
entities and assets were primarily employed or engaged in the design and
engineering of antenna products for various industries and customers, including
the Company. However, the Company does not intend to continue the antenna
engineering and design activities previously conducted by the acquired
entities. During 1998, revenues from the sales of antennas were $411,303.
Moreover, the Company does not expect antenna products to contribute materially
to its consolidated net sales or income in the foreseeable future.

Proposed Products

The Company currently has a number of products in various stages of
development, the two most significant of which are a High Speed Digital Radio
and a Low Cost Spread Spectrum Radio.

High Speed Digital Radio (HSDR)

The Company has developed a pre-production working prototype High Speed
Digital Radio. HSDR can be used as a wireless link to transmit digitized
information (data, voice or video) to and from locations within a "line of
sight" at high speeds (i.e., up to 2.048Mbps). This transmission rate is faster
than "T1" wired lines at the present time. T1 is a data transmission standard
at which 1.544 megabits are transmitted per second. Furthermore, HSDR is a
private network so users avoid the access delays caused by excessive traffic
and high costs of using T1 lines.

HSDR technology can be adapted to a variety of applications, depending
upon the user's communication requirements. One HSDR application for data
sensitive companies is to set up data links to off-site data storage and
back-up facilities which are capable of handling large volumes of information.
This application provides a user with an inexpensive real time back-up system
in the event of a disaster or other malfunction to the main or primary line of
transmission.

HSDR also can be used as a "short hop" teleconferencing and/or
video-conferencing system. The private network can connect two or more line of
sight locations with telephone service and/or video service allowing unlimited
access and usage with the cost of local and long distance telephone charges.
The installation of a private communication link is very cost effective because
of the low installation cost and lack of additional usage charges. Moreover,
HSDR can be used to establish a wireless Local Access Network (LAN) to
interconnect multiple computers that need to share information.

HSDR operates at frequencies classified under Part 15 of the FCC
Telecommunication Code, and, as a result of this classification, no license is
required nor is there any restriction on the type of data being transmitted.

Low Cost Spread Spectrum Radio (LCSSR)

The Company has developed proprietary technology for a low cost, spread
spectrum radio which the Company believes can be sold in quantity for less than
$20 per radio. As a result, the LCSSR has the potential of substantially
reducing the cost of such consumer products as cordless telephones, wireless
speakers, wireless telephone jack extensions, wireless keyboards, wireless
printer connections, security devices and wireless toys. An LCSSR device was
the principal product involved in the Company's design and development contract
with Kyushu Matsushita Electric Co., discussed below under the caption
"Contract Design and Development". During 1998, the Company completed its
development of two LCSSR (the LSDR 60 and LSDR 100), and is currently working
on the development of two additional LSDRs.

Products for Motorola, Inc.

In December, 1998, the Company entered into a Value Added Reseller
agreement with Motorola's Inc. Under the agreement, the Company will sell and
incorporate Motorola's MOSCAD Remote Terminal Units, along with the Company's
complimentary line of HART interface devices, legacy SCADA (Supervisory
control and Data Acquisition) protocol converters and VSAT interface products
for SCADA and Telemetry applications. MOSCAD is the Motorola line of products
specifically designed to the requirements of fixed data applications. It
provides the features of both a Remote Terminal Unit (RTU) and a Programmable
Logic Controller (PLC). This combination allows the Company provide RTUs with
hardware and software for monitoring and control in the oil/gas,
water/wastewater, irrigation and electric industries. The Company derived no
revenues under this agreement in 1998.

Xtra-Web Products

In early 1999, the Company successfully implemented its proprietary Xtra-
Web network for integrating wireless solutions with Internet technologies.
The Company's Xtra-Web network allows data from a remote wireless radio
frequency (RF) system to be accessed via a secure, encrypted Internet
connection using a standard Web browser. The data is available to any
Internet-accessible remote location to simplify the control, access and
monitoring of those devices. Currently, Xtra-Web is used to monitor, via the
Internet, data on energy use from an automatic meter reading (AMR) system with
Modesto Irrigation District in Modesto, California.

Applications for Xtra-Web in addition to AMR include remote monitoring
and control of wireless supervisory control and data acquisition (SCADA)
implementations in the oil and gas pipeline; environmental control; water and
wastewater management; and heating, ventilation and air conditioning (HVAC)
industries. Other applications include data access and monitoring for vending
machines, medical devices, and security systems.

Contract Design and Development

The Company's business has included providing engineering, design and
development services to client specifications on a fee for services basis. At
the present time, the Company is not seeking design and development service
contracts except in "partnering" situations in which the Company would have an
ownership interest in the products and/or technology which are the subject of
the contract. The two most significant such contracts, entered into in 1997 and
continued in 1998 with Kyushu Matsushita Electric Co. and Williams Wireless,
Inc., are described below.

Kyushu Matsushita Electric Co. (Panasonic) Contract

In April 1997, DRCC entered into a contract with Kyushu Matsushita
Electric Co., Ltd. ("KME" which is also known as Panasonic) to develop low cost
spread spectrum radio technology for use in certain KME products. Under the
terms of the contract, KME agreed to pay the Company $1,296,000 for its
services in three installments of $432,000, subject to the Company's
satisfaction of certain performance goals. The Company received the initial
installment in May 1997, and the second installment and one-half of the third
installment in September 1997, following KME's evaluation of certain prototypes
furnished by the Company. The Company received all of such balance by the end
of 1998, following KME's evaluation of final working samples.

As part of its development contract with KME, the Company granted KME a
world-wide, non-exclusive license to use or authorize the use of any patents,
copyrights, technical know-how and other intellectual property rights embodied
in the Company's LCSSR technology in the manufacture of KME products, and
agreed not to license others to use technology which is developed under its
contract with KME in connection with any telephone-related products for a
period of two years from the first shipment of KME products using the
technology. In consideration for these rights and the Company's services, KME
agreed to pay royalties to the Company on sales of KME products using the
technology above a prescribed minimum amount of sales for a period of two years
from the initial shipments of any such products. No royalty is paid on sales
of the first 600,000 units of product using the technology. A royalty of $1.00
per unit of product sold is payable on sales of units 600,001 through
1,000,000. Thereafter, the royalty is $.50 per unit on all units sold until the
second anniversary of the date of the first sale of products using the
technology. The Company is unable to predict the amount of any royalties which
it may receive under this license, or whether it will receive any royalties.

In 1998, the Company entered into an agreement with KME to develop a key
wireless RF transmitter/receiver utilized in KME's new 5.7GHz MicroCast . The
MicroCast is a convergence appliance that allows home personal computers to
distribute and control personal computer - based interactive media and Internet
content using a standard TV set. The MicroCast enables consumers to control
their personal computer remotely using a keyboard, joystick, and/or mouse from
other rooms in the home. Two of the three-piece system use the Company's
designs for the video and audio baseband and the 5.7GHz RF technology, the
newest and highest performance RF technology available to consumers today.

Under its MicroCast contract with KME, World received a development fee
of $50,000, of which the entire amount was paid in 1998, and will receive
royalty payments for a two-year period commencing on the first shipment,
currently scheduled for introduction in 1999. A royalty of $1.50 per unit of
product sold is payable on each unit sold. The Company is unable to predict
the amount of any royalties it may receive under this Agreement.

In addition, the Company entered into a second technical development
agreement with KME in October, 1998 to provide additional technical services
relating to KME's existing Gigarange telephone. Under this agreement, the
Company was to be paid a development fee of $400,000 for services rendered, of
which $200,000 was paid in 1998 and the balance of which is expected to be paid
during the first half of 1999.

Williams Wireless, Inc. Contract

In September 1997, the Company entered into a Technical Development and
Marketing Alliance Agreement (the "TDMA Agreement") with Williams Wireless,
Inc., pursuant to which the Company has agreed to assist and cooperate with
Williams in developing and manufacturing "Telemetry Radio Products", which are
generally defined in the agreement as wireless radios for transmitting and/or
receiving data as part of the Williams Telemetry Network. The TDMA Agreement,
which followed a letter of understanding entered into by the parties in June
1997 and a relationship between the companies which pre-dated the letter of
understanding in the course of which the Company developed a "proof of concept"
radio for use in Williams' information gathering network, was amended and
restated in December 1997 in connection with Williams' issuance of its initial
orders for equipment under the Agreement, as described under the caption
"Existing Products" above.

Under the TDMA Agreement, as amended and restated in December 1997,
Williams may, but is not required to, contract with the Company for specific
system engineering and design services to create Telemetry Radio Products. The
Company would have the exclusive right to manufacture any Telemetry Radio
Products which were designed exclusively for use in Williams' network, so long
as the Company met prescribed quality and other performance criteria. Williams
would "own" such products, but the technology used in creating the products
(including components that the Company has patented or for which it holds a
copyright, and all drawings, specifications, prototypes and circuit boards
relating thereto) would remain the property of the Company, provided that
Williams would have a royalty-free license to use the technology in its
telemetry network. The Company also has a non-exclusive right to market
Williams' information gathering service on terms mutually agreeable to the
parties, based upon a "standard" Williams marketing agreement which is in the
process of development.

As indicated above under the caption "Existing Products", the Company has
designed and developed a number of LSDR products and related devices that have
been sold to Williams for use in the Williams Telemetry Network. While these
products meet the definitions of "Telemetry Radio Products" used in the TDMA
Agreement, since they were developed outside the Agreement, the Company retains
all property rights to such products, subject to Williams' right to use the
technology associated with the products in its telemetry network. Sales prices
to Williams for existing products were negotiated between the Company and
Williams. Such terms relating to further products which Williams may call upon
the Company to develop under the TDMA Agreement would be negotiated at that
time.

During 1998, the Company redesigned a number of LSDR products and related
devices for use by Williams both in the monitoring of oil and gas pipeline
information and separately for other automatic meter reading purposes.

Other Third Parties

During 1998, the Company engaged in a number of other development
agreements for third parties, including, without limitation, developing a
point-of-sale device for supermarkets for Klever Marketing Inc. and an asset
tracking system for Eagle Eye Technologies.

Contract Manufacture and Assembly

The Company performs assembly and manufacturing services for other
manufacturers and vendors of medical, communications, computer graphics and
consumer electronic products at its Salt Lake City manufacturing facility. In
the current fiscal year, the Company has provided manufacturing and assembly
services for such customers as Williams, Bourns, Klever Kart Inc., Len Gordon,
L-3 Communications, Inc. and Wavephore. During 1998, revenues from contract
manufacturing and assembly services represented approximately 19% of the
Company's total revenues.

Markets and Distribution

The principal markets for the Company's wireless communications products
are original equipment manufacturers ("OEM's") which utilize the Company's
products and technology in their own equipment and products, and value added
resellers and systems integrators ("VAR/Integrators") which use the Company's
products, along with hardware and software from other vendors, in systems which
they design and sell to meet their customers' data processing, transmission,
collection, storage, security and other related needs.

Marketing to OEM's and VAR/Integrators involves establishing and
increasing prospective customers' awareness of the Company's products and
technology. This is accomplished through direct mail and print advertising, and
through promotional activities which include direct contacts with trade journal
editors, industry analysts and other opinion makers. More direct sales activity
includes research to identify specific OEM's and VAR/Integrators whose products
and services make them potential buyers of the Company's products and
technology, and direct sales efforts to introduce the Company to the potential
customers. Early contacts, if successful, are likely to involve very detailed
technical discussions between the Company's and the prospective customer's
engineers and researchers. The Company's objective at this stage is to
demonstrate how its existing products and technology and/or its capacity to
custom design and develop products can benefit the customer. The prospective
customer's objective, of course, is to find sources of such products and
technology.

The Company also markets its wireless products through approximately 15
manufacturer's representatives located in different parts of the United States.
This is a relatively new phenomenon for the Company since it only recently
reached the point at which it has had fully developed products commercially
available. The Company expects to add additional representatives as its
product line expands.

The Company's contract design and development capabilities are an
integral part of its overall product and technology marketing effort. All of
the Company's design and development contract revenues in 1998 (which totaled
$3,009,386) have resulted from contracts in which technology was customized
and/or further developed to meet its client's specific product needs, with the
Company generally retaining ownership or partial ownership of technology
developed under the Contract and the right to manufacture and sell to others
products which employ that technology but which are outside the client's
applications. As indicated above, the Company is not seeking design and
development contracts on a purely "fee for services" basis at the present time.

In addition, the Company became a VAR/Integrator for Motorola's MOSCAD
Remote Terminal Units, as stated earlier in this Report.

The Company's marketing activities as relate to its contract
manufacturing and assembly capabilities have been limited, and consist
primarily of direct selling efforts directed to past and existing customers,
and to prospective customers who contact the Company or are located in the
Company's immediate geographic area. In the foreseeable future, the Company
expects to concentrate its available marketing resources in the marketing of
proprietary products and technology, rather than its contract manufacturing and
assembly service capabilities.

Competition

The Company has a number of current competitors in all aspects of its
business, many of which competitors have substantially greater financial,
marketing and technological resources than the Company, and which include such
industrial giants as Panasonic, Motorola, Sony and AT&T. The Company intends
to compete with these companies by concentrating on certain product or service
niches within the overall market. However, most of the Company's competitors
offer products which have one or more features or functions similar to those
offered by the Company, and many have the resources available to develop
products with features and functions, competitive with or superior to those
offered by the Company. There can be no assurance that such competitors will
not develop superior features or functions in their products or that the
Company will be able to maintain a lower cost advantage for its products.

A key element of the Company's competitive strategy is to align itself
with major manufacturers by developing proprietary products or technology that
can be incorporated into its "partner manufacturers'" products. In addition to
being compensated for its services relative to the development of the partners'
products, the Company would share in the success of products which used the
Company's component or technology through a royalty or similar arrangement. The
Company believes that its agreements with KME Panasonic, Williams and Motorola,
described above under the caption "-- Contract Design and Development" or
"Proposed Products," illustrate the manner in which the Company can "partner"
with much larger, established companies to access mass markets for its
proprietary wireless communications products and technology.

Employees

As of December 31, 1998, the Company had 64 employees, two of whom one
were part-time. Of these employees, 11 were classified as executive or
administrative personnel, 20 engineering, 26 production and manufacturing,
including contract manufacturing, and 7 sales and marketing. The Company's
employees do not belong to a collective bargaining unit, and the Company is not
aware of any labor union organizing activity. The Company considers its
employee relations to be satisfactory.

Patents and Intellectual Property

The Company believes that reliance upon trade secrets, copyrights and
unpatented proprietary know-how in conjunction with the development of new
products is at least as important as patent protection in its business since
most patents provide fairly narrow protection, and are of limited value in
areas of rapid technological change. Further, patents require public disclosure
of information which may otherwise be subject to trade secret protection. The
Company presently owns two United States patents covering antenna technology,
which were acquired in the Austin Antenna acquisition, and has a United States
patent application pending which covers "spread spectrum" demodulation
technology. "Spread spectrum" communication is a method for transmitting and
receiving coded information which is resistant to interference due to the fact
that the transmission is spread over a large bandwidth. This method requires,
however, that both the transmitter and the receiver have the same spreading
code (i.e., a pre-determined, fixed pattern) used to spread the information
over the larger bandwidth. The purpose of the technology covered by the
Company's patent application is to recover and remove the spreading code from
a transmission signal, and thus obtain the original information, in a simpler,
less expensive manner.

In addition, during 1998 the Company filed a United States patent
application for each of two separate software codes.

Under the terms of a litigation settlement entered into with a former
co-venturer, the Company has agreed that its former co-venturer is entitled to
full and equal ownership with the Company, of the spread spectrum demodulation
technology covered by the patent application, including the right to
incorporate, develop, utilize and exploit the technology. Any uses or products
developed or derived from such technology, however, shall be the sole property
of the party which develops or derives such uses or products. In addition, if
one of the parties elects to prosecute the patent application prior to final
acceptance or rejection by the U.S. Patent Office, failure by the other party
to contribute equally to the costs of prosecuting the application result in the
loss of its rights to the technology. At this time, the Company does not have
any plans to prosecute this patent application, and is unaware of any plans by
its former co-venturer to prosecute the application.

Furthermore, during 1999, the Company is planning to file a U.S. patent
application on certain proprietary software relating to its Xtra-Web products.

Generally, the Company enters into confidentiality and invention
assignment agreements with its employees, and includes provisions in contracts
with its development contract customers intended to protect its proprietary
technology, "know how" and other trade secrets. The Company also claims
copyright protection for its circuit boards and software. However, there can
be no assurance that the Company's proprietary technology will be protected or
remain a trade secret, or that others will not develop or propose similar
technology.

The Company does not presently own any trademarks. It intends to pursue
registration on trademarks associated with key products in the future.

ITEM 2. PROPERTIES

The Company's executive offices and principal administrative offices and
manufacturing facilities are located in approximately 34,000 square feet of
space at 2441 South 3850 West, West Valley City, Utah which is leased at a
monthly cost of $27,322 for base rental and allocable common area maintenance
charges. The Company also pays for certain utility expenses. The seven-year
lease for these premises expires on November 30, 2005.

The Company closed its principal engineering facility located in the Utah
Valley Business Park, American Fork in November, 1998 and moved the engineers
to its principal office.

The Company also maintains small leased offices in Overland Park, Kansas
of approximately 2,850 square feet at a monthly rent of $3,444 and in Gonic,
New Hampshire of approximately 5,000 square feet at a monthly rent of $1,700.

The Company believes that its facilities are satisfactory for its present
scale of operations.

The Company owns most of its manufacturing equipment, and obligations
under existing equipment leases are not material.

ITEM 3. LEGAL PROCEEDINGS

Mentor Graphics, Inc. commenced a lawsuit against the Company in the
United States District Court for the District of Utah in 1998, seeking damages
of approximately $485,000 plus interest, legal fees and expenses arising out
of the Company's alleged breach of contract for the purchase of software and
related items. The Company believes that it has meritorious defenses against
the plaintiff's claim, although there can be no assurance as to the outcome
thereof.

PaineWebber Incorporated commenced a lawsuit against the Company in the
United States District Court for the Southern District of New York in which the
plaintiff seeks to recover damages of approximately $231,000, plus legal fees
and expenses of its counsel in such action. In this case, the Company asserted
a counterclaim seeking damages of approximately $250,000. Plaintiff will
file a motion for summary judgment in the case on or before April 22, 1999, and
the Company will file a reply thereto on or before May 22, 1999. While the
Company believes that it has meritorious defenses to plaintiff's claim and that
its counterclaim similarly has merit, there can be no assurance as to the
outcome of the litigation.
The Company received a oral request in 1998 from Mr. and Mrs. Richard
Austin to rescind the Company's purchase of the stock of Austin Antenna Ltd.
which closed in 1997. In addition, Mr. Austin requested that the Company bear
the cost of (i) the legal fees and expenses in a litigation commenced against
Mr. Austin in a state court in Massachusetts brought by Charles Rich seeking
damages of approximately $50,000 for non-payment of commissions arising out of
the Company's purchase of Austin Antenna Ltd. and (ii) the unpaid finder's fee
that is the subject of the litigation. The Company, in turn, has advised Mr.
and Mrs. Austin that Austin Antenna Ltd. has breached its agreement with the
Company by, among other things, failing to furnish it with proprietary
engineering drawings and related data that would enable the Company to
manufacture the antennas now produced by Austin Antennas Ltd., but such data
has not yet been completely provided to the Company's satisfaction. Although
the Company believes that its claim against Austin Antenna Ltd. and the claims
of Mr. and Mrs. Austin will be amicably resolved, there can be no assurance as
to the outcome thereof.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Company held its annual meeting of shareholders in February, 1998.
At such meeting, the shareholders by the majority vote of those present in
person or by proxy approved (a) the election of David D. Singer, Philip A.
Bunker, Brian W. Pettersen, Thomas E. Sawyer and George Denney as directors and
(b) approved the Company's engagement of Hansen Barnett & Maxwell as the
Company's independent auditors for calendar year 1998.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

Common Stock

The Company's Common Stock is traded on the National Association of
Securities Dealers, Inc. Electronic Bulletin Board under the Symbol "WWWC".
The high and low per share price of the Company's Common Stock and the
dividends that were paid thereon for 1997 and 1998 were as follows:

1997 1998
--------------------------- -------------------------
Quarter High Low Dividend High Low Dividend

1st 11.00 2.00 0 12.13 10.50 0
2nd 11.00 9.00 0 7.00 3.56 0
3rd 12.25 8.13 0 5.25 1.19 0
4th 12.75 8.75 0 2.13 1.25 0

These quotations reflect interdealer prices, without retail mark-up, markdown
or commissions and may not necessarily represent transactions.

At December 31, 1998 the Company had approximately 525 beneficial owners
of its Common Stock.

Dividend Policy

The Company has not paid any dividends on its Common Stock to date and
does not anticipate paying any dividends in the foreseeable future.

ITEM 6. SELECTED FINANCIAL AND OTHER DATA

The following table sets forth selected financial and other data of the
Company and should be read in conjunction with the more detailed financial
statements included elsewhere in this Report. See "Management's Discussion and
Analysis of Results of Operations and Financial Condition."

December 31,
--------------------------
1998 1997
----------- -----------

Current Assets $ 1,725,770 $ 1,529,804
Net Equipment 1,038,645 1,133,263
Total Assets 4,167,905 10,412,287
Current Liabilities 5,053,628 1,805,201
Long-Term Liabilities 84,968 34,977
Stockholders' Equity (Deficit) (970,691) 8,572,109
Total Liabilities and Stockholders' Equity (Deficit) 4,167,905 10,412,287

For the Years Ended December 31,
-------------------------------------
1998 1997 1996
------------ ----------- -----------

Sales $ 4,309,691 $ 2,913,429 $ 618,505
Cost of Sales 3,751,607 2,116,934 662,184
------------ ----------- -----------
Gross Profit (Loss) 558,084 796,495 (43,679)
------------ ----------- -----------
Operating Expenses
Research and development 3,179,557 2,943,404 92,932
General and administrative 5,018,943 4,243,779 1,789,904
Impairment of goodwill 5,839,481 - -
Amortization of goodwill 385,476 1,105,452 -
------------ ------------ -----------
Total Operating Expenses 14,423,457 8,292,635 1,882,836
------------ ------------ -----------
Net Loss From Operations (13,865,373) (7,496,140) (1,926,515)

Other Income (Expense)
Interest expense (1,414,939) (43,779) (1,310,142)
Other income 306,304 9,692 -
------------ ------------ -----------
Net Loss $(14,974,008) $ (7,530,227) $(3,236,657)
============ ============ ===========
Basic and Diluted Loss Per Common Share $ (1.34) $ (0.82) $ (1.03)
============ ============ ===========
Weighted Average Number of Common
Shares Used in Per Share Calculation 11,189,603 9,217,158 3,141,613
============ ============ ===========

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION

When used in this discussion, the words "expect(s)", "feel(s)",
"believe(s)", "will", "may", "anticipate(s)" and similar expressions are
intended to identify forward-looking statements. Such statements are subject
to certain risks and uncertainties, which could cause actual results to differ
materially from those projected. Readers are cautioned not to place undue
reliance on these forward-looking statements, and are urged to carefully review
and consider the various disclosures elsewhere in this Report which discuss
factors which affect the Company's business, including the discussion under the
caption "Risk of Default with Debtholders".

General

The Company was incorporated in November 1995. In March 1996, it
completed the acquisition of the assets of a limited liability company, which
related to a computer hardware device used to prevent unauthorized duplication
or use of software. This device, the SecuriKey(R), and related software
products accounted for substantially all sales of the Company prior to October
1996, and the results of operations of the Company prior to March 1996 include
the results of operations of the limited liability company from which the
Company acquired the SecuriKey(R) assets.

In October 1996, the Company commenced contract manufacturing operations
and, in February 1997, acquired Digital Radio Communications Corporation
("DRCC"). The Company's results of operations for the nine month period ended
September 30, 1997, includes purchased research and development costs and
amortization of goodwill incurred in connection with the acquisition of DRCC,
and the results of contract manufacturing and DRCC operations (from February
12, 1997, in the case of DRCC operations), while prior periods do not.

Pro forma financial information in this discussion and elsewhere in the
Report is presented as if the acquisition of DRCC had been consummated at
January 1, 1996. Thus, the Company's results of operations on and after January
1, 1996, when presented on a pro forma basis, include the operations of DRCC
and exclude nonrecurring expenses incurred by the Company in connection with
the acquisition of DRCC.

In November 1997, the Company acquired certain business assets of Austin
Antenna, Ltd. and acquired a related corporation, and presently operates those
assets in a subsidiary corporation using the name Austin Antenna, Ltd. The
subsidiary is not considered a material subsidiary for accounting purposes.
Purchased research and development costs incurred in connection with the
acquisition are reflected in the Company's results of operations for the fourth
quarter of 1997, and operations of Austin Antenna, Ltd. are be included in the
Company's consolidated results of operations from the date of the acquisition.

The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements and respective notes thereto, Selected
Consolidated Pro Forma and Historical Financial Data, Unaudited Condensed Pro
Forma Consolidated Statements of Operations and respective notes thereto, as
well as the Summary Consolidated Historical and Pro Forma Financial Information
and the Consolidated Financial Statements of Digital Radio Communications
Corporation, and respective notes thereto, which are set forth elsewhere in
this Report.

Results of Operations

1998 Compared to 1997

Sales in the twelve-month period ended December 31, 1998, were $4,350,000
compared to sales of $2,913,000 during the twelve-month period ended December
31, 1997. The Company's principal source of revenue for the twelve-months ended
December 31, 1998, was a design and development contract with Williams
Telemetry, a Williams company, in the amount of $2,664,000. Other significant
revenues include contract manufacturing of $531,000 and sales of the Company's
own branded goods of $586,000. Significant revenues for 1997 were derived from
an engineering contract with Kyushu Matsushita Electric Co. ("KME") in the
amount of $1,596,000. Sales relating to the SecuriKey business were
insignificant during 1997 and the line was sold to a prior employee/shareholder
with no revenues were recorded in 1998.

Cost of sales for the twelve-months ended December 31, 1998, were
$3,751,607 compared to cost of sales for the twelve-month period ended December
31, 1997, of $2,116,934. Cost of sales as a percentage of sales decreased from
73% to 87% in the twelve-months ended December 31, 1998. The related gross
profit for the twelve-months ended December 31, 1998 was $558,084 or 13% of
sales compared to $796,495 or 27% of sales for the twelve-month period ended
December 31, 1997.

The Company incurred research and development costs of $3,179,557, during
the twelve-months ending December 31, 1998, relating to the development of
proprietary technology. Included in the $3,179,557 is $305,651 of purchased
research and development expense arising out of the acquisition of radio
technology in May 1998. The amount spent on research and development for the
twelve-month period ended December 31, 1998 was greater than the amount spent
for the twelve-month period ended December 31, 1997 of $2,943,404 of which
$1,258,000 was for purchased research and development expense arising out of
the acquisition of Digital Radio in February 1997.

The Company's selling, general and administrative expenses for the
twelve-months ended December 31, 1998 increased to $5,018,943 from $4,243,779
for the twelve-month period ended December 31, 1997. Included in the $5,143,000
is $1,024,000 of non-cash compensation relating to the grant of stock options
in December 1997. Such increase also reflected a substantial increase in the
average number of employees of the Company to approximately 90 in the current
year as compared to an average of approximately 50 employees in the prior
year. During the three months ended December 31, 1998, the Company reduced its
employees by approximately 30%. However, the Company had increased the number
of its higher paid employees as a result of acquisitions in 1997. The Company
also increased staffing in anticipation of the launch of the Company's
proprietary radio products. The increase in costs was also attributable to its
maintenance of duplicate administrative facilities and related administrative
expenses by virtue of its two business locations in Utah. Management
eliminated duplicate administrative efforts by consolidating into one facility
during October 1998.

Interest expense for the twelve-months ended December 31, 1998, increased
to $1,414,939 from $43,779 for the twelve-month period ended December 31, 1997,
which increase was attributable to the greater amount of the Company's
outstanding borrowings during the current year of which $874,000 resulted from
the amortization of debt discount.

The Company's net loss of $14,974,008 for the twelve-months ended
December 31, 1998, represents an increase from the net loss of $7,530,227 for
the twelve-months ended December 31, 1997, as a result of the above items.

During April 1998, the Board of Directors approved the repurchase of
unvested employee stock options at a price of $0.01 per share. These options
were granted during the fourth quarter of 1997. The repurchase enables the
Company to discontinue charging the difference between fair market value in the
stock at the time of option grant and the option exercise price to operations.

1997 Compared to 1996

For the twelve months ended December 30, 1997, the Company's sales
increased to $2,913,429 from sales of $618,505 in the twelve month period ended
December 30, 1996. The increase was primarily attributable to the inclusion
of DRCC operations from February 12, 1997 in the 1997 results, and revenues
derived from contract assembly services. 1996 results do not include any
revenues from DRCC. Sales of the SecuriKey device and related software
products were $160,990 in the twelve months ended December 30, 1997 compared
to $618,505 during the comparable twelve month period of 1996. This decrease
was due to the Company's business focus shifting to other products and
services.

The Company's net loss of $7,530,227 in the twelve months ended December
30, 1997 includes a non-recurring charge of $6,780,621 for the write-off of
purchased research and development and represents the excess of the DRCC
acquisition price over the fair value of the acquired assets. General and
administrative expenses for 1997 were $4,234,087 compared to $1,789,904 for
1996. The Company experienced substantial increase in cost of sales and
general and administrative expenses in the twelve months ended December 30,
1997 compared with the year earlier period primarily as a result of the
inclusion of DRCC costs and expenses in the 1997 results.
Liquidity and Capital Resources

The Company's liquidity at December 31, 1998 decreased compared to
December 31, 1997. Current assets increased by $209,366 although short term
borrowings increased by $3,372,693.

In order to sustain operations, the Company borrowed $2,500,000 pursuant
to an offering of units consisting of (a) its Senior Secured Notes, maturing
on May 15, 1999 and bearing simple interest at the rate of 16% per annum,
payable quarterly (the "Notes") and (b) warrants to purchase 250,000 shares of
the Common Stock exercisable for up to five years from the date of issuance at
an excise price of $.75 per share (subject to adjustment under certain
circumstances, such as stock splits). Moreover, in the event the Company fails
to pay the Notes at their maturity date, the Company can be required to issue
warrants to purchase up to an additional 333,333 shares of the Company's common
stock exercisable for up to five years at an exercise price of $2.50 per share
(subject to adjustment under certain circumstances), payable at the rate of
83,333 shares of Common Stock for each 90-day period thereafter during which
such default continues. Such offering was made in a private placement
transaction exempt from registration under the Securities Act of 1933, as
amended. The Notes are mandatorily prepaid in the event that the Company
closes an offering of its securities, whether through one or more private
placement or secondary public offerings, in accordance with the formula
described below under "Risk of Default with Debtholders."

Nevertheless, in management's opinion, the Company will not be able to
satisfy its needs for additional capital through borrowing, but will be able
to meet these needs only by issuing additional equity securities. Thus, after
May, 1998, the Company decided to secure additional financing of up to at least
$5,000,000 through the further sale of its equity securities. As part of this
plan, pursuant to certain private placements during the Fall of 1998, the
Company raised a total of $1,463,000 through the sale of its Common Stock. In
addition, pursuant to its Confidential Private Placement Memorandum dated
January 24, 1999, as amended (the "Offering"), the Company raised additional
equity financing in the first quarter of 1999. However, there can be no
assurance that the Company will be able to obtain any additional capital or,
if so, on terms acceptable to it.

Also, approximately $894,000 of its current notes payable was converted
to stock through March 31, 1999, at the conversion rate of one share of Common
Stock for each $1 of debt.

Risk of Default with Debtholders

As stated above, on May 15, 1998, the Company closed an offering
consisting of $2,500,000 of its Senior Secured Notes (the "Notes") and warrants
to purchase 250,000 share of its common stock (individually a "Warrant" and
collectively the "Warrants) (the "Debt Offering"). The Notes originally bore
interest at the rate of 10% per annum payable quarterly commencing on August
15, 1998, mature on May 15, 1999 and are secured by substantially all of the
assets of the Company. Pursuant to the terms of the Debt Offering, the Company
gave the holders of the Notes a first security interest in all of the Company's
machinery, equipment, automobiles, fixtures, furnitures, accounts receivable
and general intangibles, including any stock in any subsidiary, under the
Pledge/Security Agreement.

The Company would have been in default under the Pledge/Security
Agreement on August 15, 1998 because the Company had revenues of less than 70%
of that projected for the quarter ended June 30, 1998, which failure would have
constituted an event of default under the Loan Agreement between the parties.
In addition, the Company would have been in default under the Pledge/Security
Agreement on November 19, 1998 because the Company had revenues of less than
70% of that projected for the quarter ended September 30, 1998, which failure
would have constituted an event of default under the Loan Agreement between the
parties. Upon the occurrence of an event of default, the holders of the Notes
have the right, among other things, to accelerate the due date of the Notes to
the date of the default and to sell the assets of the Company's securing the
debt as means of repaying the debt.

The Company obtained separate waivers of the default for the quarters
ended June 30, 1998 and September 30, 1998 from each of the holders of the
Notes. As a condition thereto, the Company agreed (a) to increase the interest
rate on the Notes from 10% to 16%, (b) to change the exercise price of each
Warrant from $3.00 per share to $0.25 per share, (c) to grant the holders of
the Notes additional warrants to purchase 83,333 shares of the Company's Common
Stock at an exercise price of $0.25 per share, and (d) to use the proceeds of
any offering of its securities to prepay the holders of the Notes on a pro rata
basis (excluding any funds provided therein by Lancer Partners L.P., Lancer
Offshore L.P., Michael Lauer and their affiliates), in accordance with a
formula set forth in the revised Notes, thereby eliminating the prior
$5,000,000 threshold for the mandatory prepayment of the Notes, effective in
each instance as of May 15, 1998. Thus, during the period from November 25,
1998 through January 27, 1999, each Note would have been prepayable as follows:

(a) 25% of the first $1,000,000 of gross proceeds in the case of
any such transaction occurring between November 25, 1998 and January 27, 1999,
and 50% of the first $1,000,000 of such proceeds raised thereafter;

(b) 50% of the next $2,000,000 of gross proceeds; and

(c) 100% of the gross proceeds in excess of $3,000,000 so raised
until each Note is paid in full.

In addition, the holders of the Notes agreed to waive any rights under the
anti-dilution clause under the Warrants arising from the Offering, except in
the case of sale of any securities of the Company at any price less than $0.25
per share, in which event the exercise price of each of the Warrants will be
changed to such price. Thus, the Company believes that such defaults will not
have any material adverse effect on the financial condition or business of the
Company.

The holders of the Notes and the Company agreed to further changes in the
mandatory prepayment terms of the Notes pursuant to an Amendment of Agreements
dated March 25, 1999 in accordance with the revised prepayment terms set forth
below:

(a) 25% of the first $3,000,000 of gross proceeds in the case of
any such transaction described above occuring between January 27, 1999 and May
15, 1999.

(b) 35% of the next $2,000,000 of gross proceeds so raised; and

(c) 50% of the gross proceeds in excess of $5,000,000 so raised
until May 15, 1999 excluding in any case any funds raised from Lancer Partners
LP, Lancer Offshore L.P., Michael Lauer and their affiliates.

Thus, this revised mandatory prepayment formula would apply to funds raised
pursuant to the Company's offering of 5,000,000 shares of its Common Stock at
$1 per share pursuant to its Confidential Private Placement Memorandum dated
January 24, 1999.

The Company will be in default under the Pledge/Security Agreement
on April 15, 1999 because the Company had revenues of less than 70% of that
projected for the quarter ended December 31, 1998, which default would
constitute an event of default under the Loan Agreement between the parties.
Since the holders of the Notes waived two similar defaults in the past and
recently amended the mandatory prepayment terms of the Note favorably to permit
the Company's use of funds raised for purposes other than prepayment of the
Notes, management believes that it will be able to negotiate a further waiver
of the current default. However, there can be no assurance that the Company
will be able to obtain such waiver, or, if so, on terms acceptable to it.
Moreover, there can be no assurance that the Company will not commit a default
under the Debt Offering in the future. In the event that the debtholders sell
the Company's assets securing the Notes following a current or future default,
such sale would materially and adversely affect the Company's business and
financial condition.

Outlook

The statements contained in this Outlook are based on current
expectations. These statements are forward looking and actual results may
differ materially.

The Company operates under various contracts with the Williams Companies
to develop principally two systems: an Automatic Meter Reading System (AMRS)
and a wireless pipeline Supervisory Control and Data Acquisition Systems
(SCADA), and with other third parties.

Analysis

Management believes that as deregulation of natural gas and other
utilities continues, multiple utility suppliers will be serving a given city,
neighborhood, or industrial park. Consequently, it will become more difficult
and time consuming for utility companies to read meters as they will generally
not be the provider to every user in the city or neighborhood which will
increase the cost effectiveness of reading utility meters remotely. Management
believes that the Williams Telemetry Network, described in detail in the
Prospectus dated February 17, 1998, is a viable alternative to the current
practice of manually reading meters. Additionally, management believes that
William's position as an affiliate of a major transporter of natural gas in the
United States positions it to successfully market its telemetry network, which
currently is designed to use collector and repeater radios supplied by the
Company to gather and transmit data.

Slower than anticipated market adoption of the Williams AMRS has
diminished projected revenues from the original estimates of $70 million over
the years 1998-2000. However, the Company continues to develop and improve
AMRS products under contract with Williams. Although there are current
negotiations in progress for firm commitments from Williams for AMRS products
at this time, there can be no assurance as to the outcome thereof.

SCADA

Management believes that deregulation of utilities will also increase the
need for petroleum transporters to monitor and control the distribution of
their product. Management believes that wireless data collection and
transmission systems are optimal solutions for energy transporters whose
pipelines often traverse remote locations not economically served by
traditional communicating systems such as telephones.

The Company has delivered initial quantities of SCADA systems to
Williams, and anticipates receiving orders from Williams for several million
dollars that will be shipped during 1999.

Management believes that the completion of development of AMRS and SCADA
systems, along with completion of proprietary radio products, may result in
significant increases in sales. However, that may lead to working capital
requirements which would not be provided for from funds generated by the
initial sales of the products. The Company is currently pursuing a private
placement to raise equity financing and is investigating ultimately a secondary
public offering to meet its working capital and operating needs. However, there
is no assurance that sufficient capital or any capital will be raised from such
endeavors.

On October 15, 1998 the Company entered into a seven-year lease for a
34,000 square foot facility in West Valley City, Utah. The Company
consolidated its American Fork and Salt Lake City, Utah operations and staff
into the new facility. Management expects the new facility to provide
sufficient manufacturing and office space for the foreseeable future. However,
if additional capacity were required, management would consider out-sourcing
a portion of the manufacturing overload.

If a portion of manufacturing is out-sourced, the Company may lose some
control over the following areas: cost, timeliness of deliveries and quality.
However, by out-sourcing a portion of its manufacturing, the Company could
avoid delays and costs associated with the expansion of its own facilities. The
magnitude of any expansion of the Company's manufacturing capabilities that is
required would be a direct function of the sales increase and manufacturing
overload, both of which are unknown at this time.

The Company anticipates an increase in revenues from the sale and
manufacturing of the Company's proprietary radio products. The Company will
market a line of radios to OEM that incorporate them into products such as
wireless smoke and security alarm systems, ambulatory patient wireless
monitoring systems, retail point-of-sale systems, and the like. The Company
has begun providing initial sales samples, and believes there is strong
customer interest for the products; however. However, there can be no
assurance that the Company will be able to manufacture or sell sufficient
quantities at adequate gross margins to achieve profitability.

The Company completed development under a contract with KME that calls
for royalty payments upon shipment of certain KME products. Shipments of KME
products containing the Company's technology began during the third quarter of
1998. Management believes royalty payments from the contract were earned
during the fourth quarter of 1998, but were subject to recoupment by KME up to
the first $600,000 of royalties. Management further believes that the Company
may become entitled to royalty payments with respect to the first quarter of
1999 (which may be paid during the second quarter of 1999), although there can
be no assurance of such result. Additionally, the Company entered into follow-
on fixed fee contracts with KME during 1998. It is management's intent that
the fees received will cover the Company's costs. However, these fixed fee
arrangements may not cover all of the Company's costs incurred in fulfilling
any such contract.

In anticipation of obtaining additional design and development contracts,
management must continually recruit and hire additional RF (radio frequency),
software, firmware, digital engineers and sales engineers with RF experience.
It is extremely difficult, time-consuming and expensive to find engineers
qualified in those fields. There is no assurance the Company will be able to
locate and hire such qualified engineers. Associated with the hiring of each
engineer is the need for test and development equipment, software and work
stations, which increases the Company's cash requirements.

In summary, while management is optimistic about the Company's future,
it is fully aware that anticipated revenue increases from product sales, design
and development contracts and royalty income are by no means assured, and that
if such increases do materialize, the requirements for capital are substantial,
for which there is no present commitment. Moreover, there can be no assurance
that such capital or other financing will be obtained when needed, or, if so,
on terms acceptable to the Company.

Statement Regarding Forward-Looking Disclosure

This report includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act which
represent the Company's expectations or beliefs concerning future events that
involve risks and uncertainties, including those associated with the ability
of the Company to obtain financing for its current and future operations, to
manufacture (or arrange for the manufacturing of) its products, to market and
sell its products, and the ability of the Company to establish and maintain its
sales of XtraNet products. All statements other than statements of historical
facts included in this Report including, without limitation, the statements
under "Management's Discussion and Analysis of Results of Operations and
Financial Condition" and "Business" and elsewhere herein, are forward-looking
statements. Although the Company believes that the expectations reflected in
such forward-looking statements are reasonable, it can give no assurance that
such expectations will prove to have been correct. Important factors that
could cause actual results to differ materially from the Company's expectations
("Cautionary Statements") are disclosed in this Report, including without
limitation, in conduction with the forward-looking statements included in this
report. All subsequent written and oral forward-looking statements
attributable to the Company or persons acting on its behalf are expressly
qualified in their entirety by the Cautionary Statements.

Year 2000

The Company has conducted a comprehensive review of its computer systems
to identify the systems that could be affected by the "Year 2000" issue and is
developing an implementation plan to resolve the issue. The Year 2000 problem
is the result of computer programs being written using two digits rather than
four to define the applicable year. Any of the Company's programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a major system failure or
miscalculations. The Company presently believes that, with modifications to
existing software and converting to new software, which the Company expects to
implement on a timely basis, the Year 2000 problem will not pose significant
operational problems for the Company's computer systems as so modified and
converted. In addition, the Company is implementing validation procedures
designed to evaluate the year 2000 exposure of its significant suppliers, other
vendors and customers whose systems may impact the Company's operations.
However, it is impossible for the Company to monitor the systems of all with
whom it interacts, and there can be no assurance that the failure of their
systems would not have material adverse impacts on the Company's business and
operations. The Company anticipates that its costs associated with this
conversion to be approximately $125,000. However, if such modifications and
conversions are not completed timely, the Year 2000 problem may have a material
adverse impact on the operations of the Company.

Accounting Changes

In March, 1998, the AICPA issued SOP98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. The Company is
currently analyzing the impact of this statement, which is required to be
adopted in 1999, and does expect such statement to have a material impact on
the Company's financial position, results of operations or cash flows.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See Index to Financial Statements, Page F-1

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNT AND
FINANCIAL DISCLOSURE

None.

PART III.

ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The executive officers and directors of the Company at December 31, 1998
were, and at present are, as follows:

Name Age Position

David D. Singer 49 Chairman of the Board of Directors,
President, Chief Executive Officer and
a Director

Philip A. Bunker 47 Chief Technical Officer and Secretary
and a Director

Donald I. Wallace 54 Vice President --Telemetry and SCADA
Division

Eric Lee Williams 34 Vice President --Manufacturing

Brian W. Pettersen 41 Director

George Denney 61 Director

James O'Callaghan 45 Vice President - Sale/Marketing

Kevin Childress 39 Vice President - Finance

David Andrus 47 Vice President - Engineering

David D. Singer - Mr. Singer was appointed President of the Company in
November 1996, and became a Director in February 1997. From 1977 to 1983, Mr.
Singer was President of CSL Energy Controls, Inc., a company specializing in
third party energy conservation. From 1983 to 1985, Mr. Singer was a special
consultant to the General President of the Sheetmetal Workers Association. From
1985 to 1988, Mr. Singer was Vice President First Municipal Division, Bank One
Leasing Corporation. From 1989 to 1994, Mr. Singer was President of Highland
Energy Group. From 1991 to 1996, Mr. Singer was employed by Navtech Industries,
Inc., an electronic assembly company, as Vice President Sales and Marketing
from February 1994 to July 1995, and as President and Chief Operating Officer
from July 1995 to July 1996.

Philip A. Bunker - Mr. Bunker was a co-founder, the President and Chief
Executive Officer, of Digital Radio Communications Corp. ("DRCC"), and has
served as a Director of the Company since its acquisition of DRCC and serves
as its Chief Technical Officer since such merger and became the Secretary in
1998. From 1982 to 1986, Mr. Bunker was Vice President of CAECO, Inc.
("CAECO"), a semiconductor circuit design software company. While at CAECO, Mr.
Bunker and his engineering team developed a computer-aided program used in
advanced integrated circuit design programs such as Motorola's 68020 and 68030
and National's 32000 microprocessors. CAECO was subsequently sold to Mentor
Graphics. From 1986 to 1991, Mr. Bunker was the President of Desert Digital,
a company that was acquired by DRCC in 1992.

Donald I. Wallace - Mr. Wallace was appointed Vice President -- Telemetry
and SCADA (i.e., Systems Control and Data Access) Division of the Company in
January 1998. Prior to his employment by the Company, Mr. Wallace was employed,
from December 1995, as President of PrimeLink, Inc., a Lenexa, Kansas company
which Mr. Wallace founded to engage in the development and marketing of
wireless telemetry products for remote meter reading. Between September 1991
and November 1995, Mr. Wallace was employed as the President of Arcom Control
Services, Inc., which developed and marketed computer-based monitoring and
control products for the oil and gas industry.

Eric Lee Williams - Mr. Williams was appointed Vice President --
Manufacturing of the Company in January 1998. Prior to joining the Company, Mr.
Williams was employed from June 1995 to January 1998 as a Manager of
Manufacturing by 3Com Corp., a broad based supplier of networking systems and
related products, including routers, switches, modems and remote access and
telephony products. Prior to his employment by 3Com, Mr. Williams was employed
as General Manager of Navtech Industries, Inc. from December 1992 to June 1995.

Brian W. Pettersen - Mr. Pettersen has served as a Director of the
Company since February 1996, and was elected a member of the Audit Committee
of the Board in February 1998. Mr. Pettersen served as Executive Vice President
of the Company from February 1996 to December 1997. From 1980 to 1992, Mr.
Pettersen served as Trading Manager for Covey & Co., a retail full service
securities brokerage firm. From 1992 to 1995, Mr. Pettersen served as a
Wholesale Trader for the Paulson Investment Company. From 1995 to the present,
Mr. Pettersen has served as President of Utah Internet Services, a full service
Internet provider.

George Denney - Mr. Denney was elected a director of the Company in
February 1998. Mr. Denny founded Cole-Haan in 1975, and has served as Chairman
of Cole-Haan since its inception. Cole-Haan was acquired by NIKE, Inc. in 1988.
Headquartered in Yarmouth, Maine, Cole-Haan designs and sells fine dress and
casual footwear and accessories.

David Andrus - Mr. Andrus joined the Company has Director of RF
Engineering in April 1997 and became Vice President - Engineering in December,
1998. Prior to joining the Company, Mr. Andrus owned and operated
Innovatronics Engineering, a Radio Frequency and Data Communications Consulting
Firm which he formed in 1987.

Kevin Childress - Mr. Childress joined the Company as its Controller in
November, 1998 and became Vice President - Finance in December, 1998. Prior
to joining the Company, Mr. Childress served as Director of Finance of American
Procurement and Logistics for a subsidiary of American Stores.

James O'Callaghan - Mr. O'Callaghan joined the Company and became its
Vice President - Sales Marketing in December, 1998. Prior to joining the
Company, Mr. O'Callaghan served as Executive Vice President and Co-Founder of
Cirque Corporation, a manufacture of computer periphals.

ITEM 11. EXECUTIVE COMPENSATION

The table below sets forth information concerning compensation paid in
1998 to David D. Singer, the Company's Chairman, President and Chief Executive
Officer, Except as set forth in the table no executive officer of the Company
received compensation of $100,000 or more in 1998.

Restricted Securities
Other Annual Stock Underlying
Name and Compensation LTIP All other
Principal Position Year Salary($) Bonus($) $ Award(s)($) Options/SARs(#) Payouts($) Compensation($)
- - ------------------ ---- -------- -------- ------------ ----------- --------------- ---------- ---------------

David D. Singer 1998 143,533 0 $ 5,833 0 0 0 0
1997 120,000 0 0 0 300,000 (1) 0 0
1996 27,692 0 0 0 0 0 0

(1) 240,000 shares subject to the options were cancelled by the Company in 1998.

The following table sets forth certain information regarding options
owned by Mr. Singer at December 31, 1998:

Aggregated Option\SAR Exercises in Last Fiscal Year and
Options\SAR Values

Number of Securities Underlying
Unexercised Options\SARs at Value of Unexercised In-
Fiscal Year-End The-Money Options/SARs
Shares Acquired (#) 31-Dec-98
Name on Exercise (#) Value Realized($) Exercisable Unexercisable Exercisable Unexercisable
- - --------------- --------------- ----------------- ------------ ------------- ----------- -------------

David D. Singer 0 0 60,000(1) 0 0

(1) The stock options are exercisable as follows: all were fully vested as
of December 31, 1998

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

(a) Set forth below is information as of December 31, 1998
pertaining to ownership of the Company's Common Stock, determined in accordance
with Rule 13(d)(3) under the Securities and Exchange Act of 1934, by persons
known to the Company who own more than 5% of the Company's Common Stock:

Name and Address of Number of
Title of Class Beneficial Owner Shares(1) Percent of Class
- - -------------- ------------------------ -------------- ----------------
Common Stock Michael Lauer 4,258,000(2) 30.9
200 Park Avenue
Suite 3900
New York, NY 10166

Common Stock Lancer Offshore, Inc. 2,213,750 16.1
200 Park Avenue
Suite 3900
New York, NY 10166

Common Stock Lancer Partners LLC 500,000 3.6
200 Park Avenue
Suite 3900
New York, NY 10166

Common Stock Lancer Partners LP 1,305,650 9.6
200 Park Avenue
Suite 3900
New York, NY 10166

Common Stock Lancer Partners LLC 238,600 1.7
200 Park Avenue
Suite 3900
New York, NY 10166

- - ----------
(1) For purposes of this table, a person or group is deemed to have
beneficial ownership of any shares which such person has the right to acquire
within 60 days after December 31, 1998. For purposes of calculating the
percentage of outstanding shares held by each person named herein, any shares
which such person has the right to acquire within 60 days after December 31,
1998 are deemed to be outstanding, but not for the purpose of calculating the
percentage ownership of any other person.

(2) Of these shares, 2,213,750 are held directly and of record by
Lancer Offshore, Inc.; 1,305,650 are held directly and of record by Lancer
Partners, LP; 500,000 are held directly and of record by Lancer Partners, LLC;
and 238,600 are held directly and of record by Lancer Voyager. Mr. Lauer is
believed to control the voting and disposition of these shares by virtue of
being the investment manager for these entities. He is also the general
partner of Lancer Partners LP. None of the shares owned by Mr. Lauer and
held in street name are included in the Shares registered for sale.

(b) Set forth below is information as of December 31, 1998 pertaining
to ownership of the Company's Common Stock by all directors and executive
officers of the Company:

Name and Address of Number Percent
Title of Class Beneficial Owner of Shares(1) of Class
- - ----------------- ------------------------- ------------ --------
(i) Directors and
Executive Officers

Common Stock David D. Singer, President 475,000 3.4%
Chief Executive Officer,
And Director
201 East South Temple #816
Salt Lake City, UT 84111

Common Stock Brian P. Pettersen, Director 292,000 2.1%
2025 East Lincoln Circle
Holladay, UT 84124

Common Stock George Denney 140,000 1.0%
28 Woodside Lane
Freeport, ME 04032

Common Stock Phillip A. Bunker, Secretary 169,100 1.2%
and Director
946 East 880 North
Orem, UT 84057

(ii) All Directors and
Executive Officers as
a Group 1,076,100 7.8%

- - ---------------
(1) For purposes of this table, a person or group is deemed to have
beneficial ownership of any shares which such person has the right to acquire
within 60 days after December 31, 1998. For purposes of calculating the
percentage of outstanding shares held by each person named herein, any shares
which such person has the right to acquire within 60 days after December 31,
1998 are deemed to be outstanding, but not for the purpose of calculating the
percentage ownership of any other person.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Company entered into a Separation and General Release Agreement with
William E. Chipman, Sr. dated as of May 26, 1998. Pursuant to such Agreement,
(a) Mr. Chipman resigned his employment as the Company's Chief Financial
Officer as of March 11, 1998, (b) Mr. Chipman received severance compensation
consisting of his regular compensation for two months, options to purchase
10,000 shares of the Company's Common Stock at an exercise price of $6.50 per
share, and options to purchase 60,000 additional shares of the Company's Common
Stock at an exercise price of $3.40 per share, all of which options expire on
March 11, 2001 and (c) the parties exchanged mutual releases.

In addition, the Company entered into a General Release Agreement with
Phil Acton dated November 2, 1998. Pursuant to such Agreement, (a) Mr. Acton
resigned his employment effective as of October 23, 1997, (b) Mr. Acton
received severance compensation of $4,000 and 55,000 fully vested shares of
Section 144 restricted Common Stock at an exercise price of $6.50 per share for
a three-year period and (c) the parties exchanged mutual releases.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) The following consolidated financial statements are included in Part II,
Item 8:

1. Consolidated Financial Statements of World Wireless Communications, Inc.
and Subsidiary:

Consolidated Balance Sheets, December 31, 1998 and 1997

Consolidated Statements of Operations for each of the three years
in period ended December 31, 1998

Consolidated Statements of Changes in Stockholders' Equity
(Deficit) for the years ended December 31, 1996, 1997 and 1998

Consolidated Statements of Cash Flows for each of the three years
in the period ended December 31, 1998

Notes to Consolidated Financial Statements

All schedules are omitted because they are not applicable or
the required information is shown in the consolidated financial
statements or notes thereto.

3. (a) Exhibits

The Exhibits which are listed on the Exhibit Index attached hereto.

4. Reports on Form 8-K

None.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned thereunto duly authorized.

WORLD WIRELESS COMMUNICATIONS, INC.
(Registrant)

By: /s/ David D. Singer

David Singer, Chairman of the Board,
President and Chief Executive Officer

Dated: April 15, 1999

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

Name Title Date

/s/ David D. Singer Chairman of the Board, President, April 15, 1999
David D. Singer Chief Executive Officer and Director
(Principal Executive Officer)

/s/ Kevin Childress Vice President - Finance
Kevin Childress (Chief Financial Officer) April 15, 1999

/s/ Philip A. Bunker Chief Technical Officer, April 15, 1999
Philip A. Bunker Secretary and Director

/s/ Brian W. Pettersen Director April 15, 1999
Brian W. Pettersen

/s/ George Denney Director April 15, 1999
George Denney

EXHIBIT INDEX

No. Description

3.1 Articles of Incorporation of the Company and all amendments thereto

3.2 Bylaws of the Company

4.1 Form of Common Stock Certificate

4.2 Form of Subscription Agreement used in private financing providing
for registration rights

5. Opinion of Connolly Epstein Chicco Foxman Engelmyer & Ewing
regarding the legality of securities being registered*

10.1 1997 Stock Option Plan

10.2 DRCC Omnibus Stock Option Plan

10.3 Development and License Agreement dated April 4, 1997, between DRCC
and Kyushu Matsushita Electric Co., Ltd.

10.4 Amended and restated Technical Development and Marketing Alliance
Agreement dated September 15, 1997, between the Company and Williams
Telemetry Services, Inc.

10.5 Lease Agreement dated May 17, 1995, between DRCC and Pracvest
Partnership relating to the Company's American Fork City offices and
facility

10.6 Lease Agreement dated February 12, 1996, between the Company the
Green/Praver, et al., relating to the Company's Salt Lake City offices

10.7 Shareholders Agreement dated May 21, 1997 between the Company, DRCC,
Philip A. Bunker and William E. Chipman, Sr.

10.8 Asset Purchase Agreement dated October 31, 1997, between the Company
and Austin Antenna, Ltd.

10.9 Stock Exchange Agreement dated October 31, 1997, between the Company,
TWC, Ltd. and the shareholders of TWC, Ltd.

10.10 Settlement Agreement, Mutual Waiver and Release of All Claims dated
November 11, 1997 between Digital Radio Communications Corp. and
Digital Scientific, Inc.

10.11 Agreement (undated) between the Company, Xarc Corporation and Donald
J. Wallace relating to the Company's acquisition of Xarc Corporation

10.12 Promissory Note dated December 4, 1997, by the Company, payable to
William E. Chipman, Sr. in the principal amount of $125,000

10.13 Promissory Note dated November 13, 1997, by the Company, payable to
T. Kent Rainey in the principal amount of $200,000

10.14 Investment Banking Services Agreement dated November 19, 1997, between
the Company and PaineWebber Incorporated

10.15 $400,000 Promissory Note dated December 24, 1997, payable to Electronic
Assembly Corporation

10.16 $400,000 Promissory Note dated January 8, 1998, payable to Tiverton
Holdings Ltd.

10.17 Loan Agreement by and among the Registrant and the Bridge Noteholders
dated as of May 15, 1998

10.18 Amendment and Waiver Agreement by and among the Registrant and the
Bridge Noteholders dated August 7, 1998

10.19 Amendment and Waiver Agreement by and among the Registrant and the
Bridge Noteholders dated September 11, 1998

10.20 Loan Agreement by and among the Registrant and the Bridge Noteholders
dated as of May 15, 1998 (Previously filed), together with the Notes,
Pledge/Security Agreement, Pledgee/Representative Agreement,
Subordination, and Registration Rights Agreement*

10.21 Separation and Mutual Release Agreement between the Registrant and
William E. Chipman, Sr. dated as of May 26, 1998*+

10.22 Registration Rights Agreement by and among the Registrant and the
purchasers of common stock issued pursuant to the Registrants
Confidential Private Placement Memorandum dated September 9, 1998,
as amended*

10.23 Employment Agreement between the Registrant and James O'Callaghan
dated May 20, 1998*+

10.24 Lease agreement between the Registrant and NP#2 dated as of July 29,
1998 relating to the premises at 2441 South 3850 West, West Valley
City, Utah 84120*

10.25 Agreement between KME and the Registrant dated October 19, 1998
relating to the Registrant's providing of technical assistance and
development relating to the Giarange telephone*

10.26 Agreement between KME and the Registrant dated as of March 1, 1998
relating to the Panasonic MicroCast System*

10.27 General and Mutual Release Agreement between the Registrant and Phil
Acton dated November 2, 1998*+

10.28 Agreement and Waiver Agreement by and among the Registrant and the
Bridge Noteholders dated November 25, 1998*

10.29 1998 Employee Incentive Stock Option Plan*+

10.30 1998 Non-qualified Stock Option Plan*+

10.31 Amendment of Agreement by and among the Registrant and the Bridge
Noteholders dated as of March 26, 1999*

27 Financial Data Schedules*

- - - ------------ -

* Filed herewith.

+ Management contract or compensatory plan or arrangement filed herewith.

All other exhibits were filed previously.

WORLD WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARY

TABLE OF CONTENTS

Page

Report of Independent Certified Public Accountants. . . . . . F-1

Consolidated Balance Sheets - December 31, 1998 and 1997. . . F-2

Consolidated Statements of Operations for Each of the
Three Years in the Period Ended December 31, 1998. . . . . . F-3

Consolidated Statements of Stockholders' Equity (Deficit) for
Each of The Three Years in the Period Ended December 31, 1998 F-4

Consolidated Statements of Cash Flows for each of the
Three Years in the Period Ended December 31, 1998 . . . . . F-5

Notes to Consolidated Financial Statements. . . . . . . . . . F-6

HANSEN, BARNETT & MAXWELL
A Professional Corporation
CERTIFIED PUBLIC ACCOUNTANTS

(801) 532-2200
Member of AICPA Division of Firms Fax (801) 532-7944
Member of SECPS 345 East Broadway, Suite 200
Member of Summit International Associates Salt Lake City, Utah 84111-2693

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders
World Wireless Communications, Inc.

We have audited the accompanying consolidated balance sheets of World
Wireless Communications, Inc. and subsidiary ("the Company") as of
December 31, 1998 and 1997, and the related consolidated statements of
operations, stockholders' equity (deficit), and cash flows for each of
the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements
based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
World Wireless Communications, Inc. and subsidiary as of December 31,
1998 and 1997, and the results of their operations and their cash flows
for each of the three years in the period ended December 31, 1998, and in
conformity with generally accepted accounting principles.

HANSEN, BARNETT & MAXWELL

Salt Lake City, Utah
March 19, 1999

WORLD WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS

ASSETS

December 31,
--------------------
1998 1997
---------- -----------
Current Assets
Cash and cash equivalents . . . . . . . . . . . . $ 614,897 $ 218,234

Investment in securities available-for-sale . . . 137,648 188,354

Trade receivables, net of allowance . . . . . . . 327,387 345,433
Other receivables . . . . . . . . . . . . . . . . 77,005 49,208
Inventory . . . . . . . . . . . . . . . . . . . . 550,239 496,432
Prepaid expenses. . . . . . . . . . . . . . . . . 18,594 232,143
---------- -----------
Total Current Assets. . . . . . . . . . . . . . 1,725,770 1,529,804
---------- -----------
Equipment. . . . . . . . . . . . . . . . . . . . . 2,085,930 1,589,248
Less accumulated depreciation . . . . . . . . . . (1,047,285) (455,985)
---------- -----------
Net Equipment . . . . . . . . . . . . . . . . . 1,038,645 1,133,263
---------- -----------
Goodwill, net of accumulated amortization. . . . . 989,109 7,214,066
---------- -----------
Other Assets, net of accumulated amortization. . . 414,381 535,154
---------- -----------
Total Assets . . . . . . . . . . . . . . . . . . . $4,167,905 $10,412,287
========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

December 31,
-----------------------
1998 1997
---------- -----------
Current Liabilities
Trade accounts payable. . . . . . . . . . . . . . $ 982,506 $ 524,093
Accrued liabilities . . . . . . . . . . . . . . . 880,638 466,183
Notes payable - current portion . . . . . . . . . 2,992,858 809,326
Obligations under capital lease - current portion 197,626 16,301
---------- -----------
Total Current Liabilities . . . . . . . . . . . 4,992,365 1,815,903
---------- -----------

Obligations under capital lease. . . . . . . . . . 84,968 24,275
---------- -----------

Stockholders' Equity
Preferred stock - $0.001 par value; 1,000,000
shares authorized; no shares issued. . . . . . . - -
Common stock - $0.001 par value; 50,000,000 shares
authorized; issued and outstanding: 13,920,400
shares in 1998 and 10,225,260 shares in 1997 . . 13,920 10,225

Additional paid-in capital. . . . . . . . . . . . 25,101,715 20,915,068
Unearned compensation . . . . . . . . . . . . . . (70,518) (1,410,509)
Receivable from shareholder . . . . . . . . . . . (66,828) (18,409)
Accumulated deficit . . . . . . . . . . . . . . .(26,011,628) (11,037,620)
Accumulated other comprehensive income. . . . . . 62,648 113,354
----------- -----------
Total Stockholders' Equity (Deficit). . . . . . (970,691) 8,572,109
----------- -----------
Total Liabilities and Stockholders' Equity . . . .$ 4,167,905 $10,412,287
=========== ===========

The accompanying notes are an integral part of these financial statements.
F-2

WORLD WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS

For the Years Ended
December 31,
--------------------------------------
1998 1997 1996
------------ ----------- -----------

Sales. . . . . . . . . . . . . . . $ 4,309,691 $ 2,913,429 $ 618,505

Cost of Sales. . . . . . . . . . . 3,751,607 2,116,934 662,184
------------ ----------- -----------
Gross Profit (Loss). . . . . . . . 558,084 796,495 (43,679)
------------ ----------- -----------
Operating Expenses
Research and development. . . . 3,179,557 2,943,404 92,932
General and administrative. . . 5,018,943 4,243,779 1,789,904
Impairment of goodwill. . . . . 5,839,481 - -
Amortization of goodwill. . . . 385,476 1,105,452 -
------------ ----------- -----------
Total Operating Expenses . . 14,423,457 8,292,635 1,882,836
------------ ----------- -----------
Net Loss From Operations . . . . . (13,865,373) (7,496,140) (1,926,515)

Other Income (Expense)
Interest expense, . . . . . . (1,414,939) (43,779) (1,310,142)
Other income. . . . . . . . . . . 306,304 9,692 -
------------ ----------- -----------

Net Loss . . . . . . . . . . . . . $(14,974,008) $(7,530,227) $(3,236,657)
============ =========== ===========

Basic and Diluted Loss Per
Common Share. . . . . . . . . . . $ (1.34) $ (0.82) $ (1.03)
============ =========== ===========
Weighted Average Number of
Common Shares Used in Per
Share Calculation . . . . . . . . 11,189,603 9,217,158 3,141,613
============ =========== ===========

The accompanying notes are an integral part of these financial statements.
F-3

WORLD WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Accumulated
Other
Common Stock Additional Unearned Compre- Total
--------------------- Paid-In Compen- Accumulated hesnive Stockholders'
Shares Amount Capital sation Deficit Income Equity
---------- ---------- ----------- ----------- ------------ ----------- -----------

Balance - December 31, 1995. . . . . 1,132,140 $ 1,132 $ 374,948 $ - $ (270,736) $ - $ 105,344
Net loss . . . . . . . . . . . . . . - - - - (3,236,657) - (3,236,657)
Beneficial conversion feature. . . . - - 719,781 - - - 719,781
Conversion of notes payable. . . . . 3,092,860 3,093 811,907 - - - 815,000
Shares issued for cash . . . . . . 900,000 900 776,797 - - - 777,697
Shares issued for services . . . . . 527,000 527 787,061 - - - 787,588
Shares issued for interest . . . . . 11,000 11 4,939 - - - 4,950
Compensation related to grant of
stock options . . . . . . . . . . - - 441,180 - - - 441,180
---------- ---------- ----------- --------- ----------- ---------- -----------
Balance - December 31, 1996. . . . . 5,663,000 5,663 3,916,613 - (3,507,393) - 441,883
Comprehensive loss:
Net loss. . . . . . . . . . . . . . - - - - (7,530,227) - (7,530,227)
Unrealized gain on
securities . . . . . . . . . . . . - - - - - 113,354 113,354
-----------
Comprehensive loss (7,416,873)
-----------
Compensation related
to grant of stock
options . . . . . . . . . . . . . . - - 2,373,849 (2,373,849) - - -
Shares and warrants
issued for cash . . . . . . . . . . 2,557,857 2,558 4,192,692 - - - 4,192,250
Issuance upon exercise
of options for cash
and a promissory
note. . . . . . . . . . . . . . . . 25,098 25 29,836 (18,409) - - 11,452
Conversion of note payable . . . . . 5,630 6 1,964 - - - 1,970
Shares issued and 201,900
stock options granted
in acquisition of
Digital Radio Communications
Corporation . . . . . . . . . . . . 1,798,100 1,798 8,672,264 - - - 8,674,062
Shares issued in acquisition to TWC 101,200 101 1,048,331 - - - 1,048,432
Shares issued in acquisition
of XARC . . . . . . . . . . . . . . 10,000 10 102,990 - - - 103,000
Shares issued in settlement
of lawsuit. . . . . . . . . . . . . 40,000 40 323,416 - - - 323,456
Shares issued for financing
fees. . . . . . . . . . . . . . . . 24,375 24 253,113 - - - 253,137
Amortization of unearned
compensation. . . . . . . . . . . . - - - 963,340 - - 963,340
---------- ----------- ----------- ---------- ----------- ---------- -----------
Balance - December 31,
1997. . . . . . . . . . . . . . . . 10,225,260 10,225 20,915,068 (1,428,918) (11,037,620) 113,354 8,572,109
-----------
Comprehensive loss:
Net loss . . . . . . . . . . . . . - - - - (14,974,008) - (14,974,008)
Unrealized loss on
securities. . . . . . . . . . . . - - - - - (50,706) (50,706)
-----------
Comprehensive loss (15,024,714)
Compensation related -----------
to grant of stock
options . . . . . . . . . . . . . . - - 463,180 (463,180) - - -
Shares issued for
cash. . . . . . . . . . . . . . . . 2,721,258 2,721 2,418,093 - - - 2,420,814
Issuance upon exercise
of options for cash
and note. . . . . . . . . . . . . . 435,051 435 191,307 (48,420) - - 143,322
Shares issued for
services. . . . . . . . . . . . . . 443,831 444 453,708 - - - 454,152
Shares issued in
acquisition of
technology. . . . . . . . . . . . . 65,000 65 324,935 - - - 325,000
Shares issued in lieu
of interest . . . . . . . . . . . . 30,000 30 1,239,043 - - - 1,239,073
Compensation related
to the issuance of stock . . . . . - - - - - - -
Reversal of unamortized
stock option
compensation. . . . . . . . . . . . - - (903,619) 903,619 - - -
Amortization of
unearned
compensation. . . . . . . . . . . . - - - 899,553 - - 899,553
---------- ------------ ---------- ---------- ----------- ---------- -----------
Balance - December
31, 1998. . . . . . . . . . . . . . 13,920,400 $ 13,920 $25,101,715 $ (137,346) $(26,011,628)$ 62,648 $ (970,691)
========== ============ =========== ========== ============ ========== ===========

The accompanying notes are an integral part of these financial statements.

WORLD WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED
DECEMBER 31,
---------------------------------------
1998 1997 1996
------------ ----------- -----------

Cash Flows From Operating Activities
Net loss. . . . . . . . . . . . . . . . . .$(14,974,008) $(7,530,227) $(3,236,657)
Adjustments to reconcile net loss
to net cash used
by operating activities:
Amortization of goodwill. . . . . . . . . 385,476 1,105,452 -
Impairment of goodwill. . . . . . . . . . 5,839,481 - -
Depreciation and amortization . . . . . . 686,121 361,007 83,097
Amortization of debt discount
and financing . . . . . . . . . . . . . 542,408 154,200 284,415
Interest paid with stock options. . . . . 331,827 - -
Purchased research and
development . . . . . . . . . . . . . . 325,000 1,561,000 -
Stock issued for services . . . . . . . . 454,153 111,370 787,588
Compensation from stock
options granted. . . . . . . . . . . . . 899,552 963,340 441,180
Interest paid with stock . . . . . . . . 39,390 - -
Gain on sale of business assets . . . . . (332,751) - -
Changes in operating assets and
liabilities:
Accounts receivable, net of
allowance for doubtful accounts . . . (36,810) 7,622 (100,688)
Inventor. . . . . . . . . . . . . . (109,182) (41,105) (99,225)
Accounts payable . . . . . . . . . . 509,631 41,546 30,741
Accrued liabilities . . . . . . . . . 467,140 (86,981) 54,965
Other assets . . . . . . . . . . . . 261,441 (237,312) (4,143)
----------- ----------- -----------

Net Cash and Cash Equivalents Used By
Operating Activities . . . . . . . . . (4,711,131) (3,589,488) (758,730)
----------- ----------- -----------
Cash Flows From Investing Activities
Payments for the purchase of property
and equipment . . . . . . . . . . . . . . (247,457) (663,707) (90,544)
Proceeds from sale of business assets
and property . . . . . . . . . . . . . . 394,499 10,754 -
Cash paid for subsidiaries, net of
cash received . . . . . . . . . . . . . . - (248,736) -

Net Cash and Cash Equivalents Provided By
(Used By) Investing Activities . . . . 147,042 (901,689) (90,544)
----------- ----------- -----------

Cash Flows From Financing Activities
Proceeds from issuance of common
stock . . . . . . . . . . . . . . . . . . 2,564,137 4,206,700 777,697
Proceeds from borrowings, net
of discount . . . . . . . . . . . . . . 2,900,000 775,000 (417,008)
Proceeds from issuance of beneficial
debt conversion feature . . . . . . . . . - - 719,781
Principal payments or obligation
under capital lease . . . . . . . . . . . (108,088) - -
Principal payments on notes payable . . . (395,297) (309,567) (223,600)

Net Cash and Cash Equivalents Provided
By Financing Activities . . . . . . . . 4,960,752 4,672,133 856,870
----------- ----------- ------------

Net Increase In Cash and Cash Equivalents 396,663 180,956 7,596

Cash and Cash Equivalents -
Beginning of Period . . . . . . . . . . . . 218,234 37,278 29,682
----------- ----------- ------------
Cash and Cash Equivalents -
End of Period . . . . . . . . . . . . . . .$ 614,897 $ 218,234 $ 37,278
=========== =========== ============

Supplemental cash flow information and noncash investing and financing
activities - Note 7

WORLD WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Nature of Business World Wireless Communications, Inc.
and its subsidiary (collectively, "the Company") design, develop and
manufacture wired and wireless communications technology, systems and
products. The Company also provides contract manufacturing services to
the electronics wireless communications industry, as well as engineering
and products related to supervisory control and data acquisition
(commonly knows as SCADA) technologies.

The Company was formed on November 15, 1995 as a Nevada Corporation. Its
name was changed during January 1997, from Data Security Corporation to
World Wireless Communications, Inc. During February 1997, the Company
combined with Digital Radio, as described in Note 2 - Business
Combination and Acquisitions, and thereby gained wired and wireless
communication technology engineering, design, assembly and manufacturing
capabilities. During October and November 1997 the Company acquired the
Delaware company, TWC Ltd., operating under the name Austin Antenna, and
the Kansas company, XARC Corporation. These two acquisitions brought the
Company important product lines, technology, and sales contacts which
compliment the Company's technology and provide the ability to develop
its current product lines. Effective January 1, 1998, all of the subsidiaries
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 1997.

Principles of Consolidation - The consolidated financial statements
include the accounts of World Wireless Communications, Inc. and its
wholly owned subsidiary, TWC, Ltd. 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 losses from operations of
$14,974,008, $7,530,227 and $3,236,657 during each of the three years in the
priod ended December 31, 1998. In addition, operating activities have used
cash of $4,711,131, $3,589,488 and $758,730 during each of the three years
in the priod ended December 31,1998. As of December 31, 1998, the Company had
a working capital deficiency of $3,327,858 and a capital deficiency of
$970,691. The Company obtained additional equity capital of approximately
$2,000,000 during February 1999 and $800,000 of notes payable were converted
into common stock. Management's plans to improve the Company's financial
condition include obtaining profitable operations during 1999 by fulfilling
sales and production contracts which either have been received or are probable
of being received, collecting royalty payments under existing royalty
agreements, obtaining additional equity capital and conversion 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.

Concentration of Risk and Segment information - The Company operates
solely in the electronics industry and has assets only within the United States.
Prior to 1997, sales were primarily to customers in the Western United
States. Export sales during the year ended December 31, 1998 and 1997 were
$322,387 and $1,661,752, respectively, of which $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 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 totaled
$359,623 at December 31, 1998. 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 - Sales to major customers
are defined as sales to any one customer which exceeded 10% of 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,
1998, respectively, were as follows: Customer "A" - $322,387, $1,596,000
and $0; Customer "B" - $0, $413,512, and $0; Customer "C" - $2,739,375,
$0 and $0; and Customer "D" -- $0, $77,667 and $102,578. 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, 1998 and 1997, an allowance for doubtful accounts of $65,000
and $30,000, 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.

Research and Development Expense - Current operations are charged with
all research, engineering and product development expenses.

Goodwill and Long-Lived Assets - The realizability of goodwill and other
long-lived assets is evaluated periodically when events or circumstances
indicate a possible inability to recover the carrying amount. Goodwill
is included with the group of assets acquired in determining their
recoverability. An impairment loss is recognized for the excess of the
carrying amount over the fair value of the asset or the group of assets
including goodwill. Fair value is determined based on estimated expected
net future cash flows or other valuation techniques available in the
circumstances. The analyses necessarily involve significant management
judgement to evaluate the capacity of an asset or an acquired business
to perform within projections.

During 1998 the Company evaluated the recoverability of the long-lived
assets and goodwill recognized in connection with the Digital Radio
acquisition in February 1997 and determined that circumstances indicate
an inability to recover their carrying amount. Accordingly, an impairment
loss of $5,839,481 has been recognized during 1998 to adjust the carrying
amount of the long-lived assets and goodwill to their estimated net
future cash flows. Based on future expected cash flows from the
technology acquired from Digital Radio, the value of the asset group,
including goodwill, was reduced to approximately $900,000 with goodwill
comprising $600,000 of that amount.

Goodwill arose from the acquisitions of Digital Radio and TWC Ltd. and is
being amortized over a 15-year period on a straight-line basis.

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
$613,240, $338,043, and $82,362 for each of the three years in the period
ended December 31, 1998, 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.

Investments - At December 31, 1998, investment in marketable securities
consisted of common stock of customers classified as available for sale,
and are stated at quoted fair market value of $137,648. The cost of the
marketable securities was $75,000. The unrealized gain as of December
31, 1998 was $62,648 which is shown as a separate component of
accumulated other comprehensive income. The change in net unrealized gains
on marketable securities during 1998 was a loss of $50,706.

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 1997, 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 earnings per share during periods of income reflect 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 641,922 and 1,521,846
potentially issuable common shares at December 31, 1998 and 1997, respectively,
would have decreased the loss per share and have been excluded from the
calculation.

New Accounting Standards - In March 1998, the AICPA issued SOP 98-1,
Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use. The Company is currently analyzing the impact of this
statement, which is required to be adopted in 1999, and does not expect
this statement to have a material impact on the Company's financial
position, results of operations or cash flows.

During 1998, the Company adopted Statements of Financial Accounting
Standards (SFAS) No. 130, Reporting Comprehensive Income, and SFAS No.
131, Disclosures about Segments of an Enterprise and Related Information
in 1997. SFAS No. 131 requires certain information to be reported about
operating segments on a basis consistent with management's decision
making process. These statements expanded or modified disclosures and
had no impact on consolidated financial position, results of operations
or cash flows when adopted.

In June 1998, SFAS No.133, Accounting for Derivative Instruments and
Hedging Activities was issued and establishes accounting and reporting
standards requiring that derivative instruments be recorded in the
balance sheet as either an asset or liability measured at their fair value.
SFAS No. 133 is effective for year beginning January 1, 2000 and, is not
expected to have a material impact on the financial condition or results
of operations of the Company.

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
entire purchase price is considered to be a sign up bonus and 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. 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 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 Year 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 $12,432. 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 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 $434,443 which was allocated to goodwill and is being amortized over
15 years on a straight-line basis. 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,
--------------------------
1998 1997
----------- ----------
Materials . . . . . . . . . . $ 358,167 $ 378,238
Work in process . . . . . . . 48,232 118,194
Finished goods . . . . . . . 143,840 -
----------- ----------

Total . . . . . . . . . . . . $ 550,239 $ 496,432
=========== ==========

NOTE 4--EQUIPMENT
Equipment consisted of the following:

December 31,
--------------------------
1998 1997
----------- ----------
Computer equipment. . . . . . $ 336,952 $ 246,117
Work in process . . . . . . . 48,232 118,194
Manufacturing equipment . . . 1,403,438 1,059,916
Office fuirniture . . . . . . 144,977 164,566
Software . . . . . . . . . . 200,563 118,649
----------- ----------

Total . . . . . . . . . . . . $ 2,005,930 $1,589,248
=========== ==========

NOTE 5--NOTES PAYABLE

December 31,
--------------------------
1998 1997
----------- ----------
12 to 15% Notes payable to
shareholders; paid in 1998 . . . . . . $ - $ 369,808
10% Note payable to an unrelated
party; due September 30, 1998;
unsecured; converted into common
stock in 1999 . . . . . . . . . . . . . 800,000 400,000
16% Bridge loan notes payable; interest
only through 1998, due may 15, 1999,
secured by all of the Company's assets,
less unamortized discount of $325,448
from the issuance of related stock
warrants. . . . . . . . . . . . . . . . 2,174,552 -

12% Note payable to an employee;
payable $1,408 monthly
through December 31, 1999; unsecured . . 18,306 39,518
----------- -----------

Total Notes Payable. . . . . . . . . . . 2,992,858 809,326

Less: Current Portion . . . . . . . . . (2,992,888) (809,326)
----------- ------------
Long-Term Notes Payable. . . . . . . . . $ - $ -
=========== ============

In May 1998, the Company executed bridge loans totaling $2,500,000. The
notes were initially issued with interest at 10% per annum. Due to not meeting
certian loan covanents, the notes were modified retroactively to the
date executed to bear interest at 16% per annum. The interest is payable
quarterly, commencing on August 15, 1998. The notes are due on May 15, 1999 and
are secured by substantially all of the assets of the Company. The notes become
due earlier on a pro-rated basis if the Company receives proceeds from
issuance of equity securities.

In conjunction with these 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 was reduced on September 11, 1998 to $0.75
per share and further 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%, change the exercise price of each Warrant from $3.00 per share
to $0.25 per share, 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 holders of the notes on a pro rata basis
(excluding any funds provided therein by Lancer partners L.P., Michael
Lauer and their affiliates), in accordance with a formula set forth in
the revised notes, thereby eliminating the prior $5,000,000 threshold for
the mandatory prepayment of the notes, effective in each instance as of
May 15, 1998.

In addition, the holders of the notes agreed to waive any rights under
the antidilution 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.

The Company will be in default under the Pledge/Secruity Agreement on
April 15, 1999 because the Company had revenues of less than 70% of
that projected for the quarter ended December 31, 1998, which
default would constitute an event of default under the Loan Agreement
between the parties. Since the holders of the Notes waived two similar
defaults in the past and recently amended the mandatory prepayment
terms of the Note favorably to permit the Company's use of funds raised
for purposes other than prepayment of the Notes, management believes that
it will be able to negotiate a further waiver of the current default.

The detachable warrants had a fair value of $867,856, or $3.47 per
warrant on the date issued, which has been accounted for as a discount
of the related notes and a credit to additional paid-in capital. The
remaining $1,632,144 of the loan proceeds were allocated to notes
payable. The fair 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. Interest expense from amortization of the
discount on the notes payable was $542,408 during the year ended December
31, 1998. Interest expense resulting from the modifications of the
warrants and from granting additional warrants was $331,827 during the
year ended December 31, 1998.

If the Company is in default in future periods, the Company can be
required to issue warrants to purchase up to an additional 250,000 shares
of common stock exercisable for up to five years at an exercise price of
$2.50 per share, payable at the rate of 83,333 shares of common stock
for each 90-day period during which the default continues. The Company
is obligated to register the underlying shares and bear the cost burden
of such registration.

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:

December 31,
--------------------------
1998 1997
----------- ----------

Operating loss carryforwards . . . . $ 5,011,372 $ 3,684,004
Accrued liabilities and other. . . . 92,689 271,694
----------- -----------
Total Deferred Tax Assets. . . . . . 5,104,061 3,955,698

Valuation Allowance . . . . . . . . (5,104,061) 3,955,698)
----------- -----------
Net Deferred Tax Asset . . . . . . . $ - $ -
=========== ===========

For tax reporting purposes, the Company has net operating loss
carryforwards in the amount of $13,435,314 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.

December 31,
--------------------------
1998 1997
----------- ----------

Tax at statutory rate (34%). . . . . . . $(5,091,163) $(2,560,277)
Non-deductible expenses. . . . . . . . . 604,178 645,880
Change in valuation allowance. . . . . . 5,299,083 2,301,134
State tax benefit, net of federal tax
effect . . . . . . . . . . . . . . . . (494,142) (248,497)
Research and development credit . . . . (317,956) (138,240)
---------- ----------

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. During 1998, non-
deductible expenses consisted primarily of research and develpment
expenses for which a credit was recognized instead of a deduction.

NOTE 7--SUPPLEMENTAL CASH FLOW INFORMATION AND NONCASH INVESTING AND
FINANCING ACTIVITIES

Supplemental Cash Flow Information

For the Years Ended
December 31,
----------------------------
1998 1997 1996
-------- ------- -------
Interest Paid . . . . . . . . . . . . $531,247 $34,426 $30,677

Noncash Investing and Financing Activities

During 1998, the Company issued stock for notes receivable to three
individuals. The total of the notes receivable was $72,852. In
conjunction with these receivables, interest expense was charged on one
of these notes. The interest charged was $10,567. The Company acquired
equipment and incurred obligations under capital
lease agreements during 1998. The value of the equipment acquired was
$900,993. The Company also purchased equipment for a note. The amount of
the note was $4,278. During 1998, the Company repurchased stock options
from employees. The Company reversed $903,619 of unamortized compensation
relating to the repurchased stock options. The Company also incurred $392,662
in compensation expense and $70,518 in unearned compensation by issing
stock options during 1998.

The Company sold business assets relating to its SecuriKey products during
1998. The Company realized proceeds on the sale of $372,499 and recognized
again 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 1998, the Company recognized interest expense of $867,856 relating
to the discount of detachable stock warrants. An additional $331,827 was
recognized as interest expense as a result of modifications to the
detached warrants exercise price and the granting of additional warrants.

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
=============

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.

NOTE 8--STOCKHOLDERS' EQUITY

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.
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.

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.

Unearned compensation arose from stock options granted in 1997 and 1998
which vest through 2001and a receivable from a shareholder who exercised
a stock option in exchange for a promissory note.
NOTE 9-STOCK OPTIONS

NOTE 9--STOCK OPTIONS

The Board of Directors approved The 1997 Stock Option Plan (the 1997 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 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 employee stock options for $6,382, or $0.01 per share which were
granted during the fourth quarter of 1997. The Company has recognized
compensation expense, relating to these options, of $506,891 during 1998.
As a result of the repurchase, the Company eliminated $903,619 of unearned
compensation.

During 1998, the Company adopted the 1998 Employee Incentive Stock Option
Plan and the 1998 Non-Qualified Stock Option Plan. The number of stock
options that may be issued under each plan is 1,000,000 options,
respectively. The Plans are effective December 10, 1998. The Plans must
be ratified by the holders of a majority of the outstanding common stock
of the Company. If the Plans are not approved by the first anniversary
of the Plans, then the Plans shall terminate and any options granted
shall be void.

During 1998, the Company granted additional options under the 1997 Plan
pending approval by the Board of Directors, which approval was obtained
during February 1999. The options become exercisable from the date
granted through February 27, 2001. The unexercised options expire three
to five years from the date of grant. Compensation relating to the
options of $463,180 is being recognized over the period the options vest
of which 392,662 was recognized during 1998.

A summary of the status of the Company's stock options as of December 31,
1998 and 1997, and changes during the years then ended are presented
below:

1998 1997 1996
------------------------ --------------------- -----------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------------- -------- ---------- -------- ------- --------

Outstanding at beginning
of year . . . . . . . 1,521,846 $ 4.33 258,000 $ 0.33 - $ -
Granted . . . . . . . . . 595,678 5.03 1,288,944 5.06 258,000 0.33
Exercised . . . . . . . . (435,051) 0.44 (25,098) 1.19 - -
Forgeited or canceled . . (1,040,551) 6.32 - 0.00 - -
------------- --------- ------- -------
Outstanding at end of year 641,922 4.20 1,521,846 4.33 258,000 0.33
============= ========== =======
Options exercisable at
year-end . . . . . . . 425,994 4.36 792,610 2.32 258,000 0.33
============= ========== =======
Weighted-average fair value
of options granted during
the year . . . . . . . $ 3.86 $ 3.43 $ 1.76
============= ======= =========

The following table summarizes information about stock options
outstanding at December 31, 1998:

Options Outstanding Options Exercisable
-------------------------------------- -------------------------
Average Weighted- Weighted-
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices At 12/31/99 Life Price at 12/31/98 Price
------------- ----------- ----------- ---------- ----------- ----------

$0.09 - $ 0.35 8,366 3.0 years $ 0.09 8,366 $ 0.09
$1.25 - $ 1.81 156,186 4.7 years $ 1.52 61,426 $ 1.56
$2.00 - $ 2.00 80,564 1.2 years $ 2.00 80,564 $ 2.00
$3.40 - $ 4.65 144,483 3.5 years $ 3.64 55,738 $ 3.56
$6.50 - $ 6.50 203,500 3.4 years $ 6.50 194,775 $ 6.50
$7.47 - $12.00 48,825 4.1 years $ 11.23 25,125 $ 11.10
----------- ---------- ----------
$0.09 - $12.00 641,922 3.5 years $ 4.20 425,994 $ 4.36
=========== ==========

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, employees. Stock-based
compensation charged to operations was $899,553, $963,340 and $0 for the
years ended December 31, 1998, 1997 and 1996, 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:

For the Years Ended
December 31,
-----------------------------------
1998 1997
Net loss: ---------------- -------------

As reported. . . . . . . . . . . $ (14,974,008) $ (7,530,227)
Pro forma. . . . . . . . . . . . (17,152,382) (8,060,504)
Basic and diluted loss per share:
As reported. . . . . . . . . . . $ (1.34) $ (0.82)
Pro forma. . . . . . . . . . . . (1.53) (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 1998 and 1997, respectively:
dividend yield of 0.0% for both periods; expected volatility of 105.3%
and 79.2%; risk-free interest rate of 5.2% and 5.3% and expected life of
the options of 4.1 years and 2.0 years.

NOTE 10-RELATED PARTY TRANSACTIONS

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.

NOTE 12-SALE OF SECURIKEY BUSINESS

During January 1998, the Company sold its SecuriKey Business, which was
only the sale of certain business assets, including customer lists,
technology, equipment and related products, to a shareholder/employee for
$372,499. The SecuriKey business was not considered by management to be
a separate business segment; accordingly, the gain on the sale of $319,528
has been included in the results of operations.

NOTE 13--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, 1998 and 1997was $483,456 and $367,301,
respectively. During 1998, the Company entered into an agreement to lease
new facilities with a lease term ending in August 2005. The Company also
leases manufacturing and engineering equipment under capital leases with
interest rates from 9 to 24 percent, with a weighted average interest
rate of 19.7% 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 31,1998:

Capital Operating
Years Ending December 31: Leases Leases
--------- -----------

1999. . . . . . . . . . . . . .$ 222,833 $ 365,544
2000. . . . . . . . . . . . . . 88,989 358,733
2001. . . . . . . . . . . . . . 6,817 304,974
2002. . . . . . . . . . . . . . - 312,352
2003. . . . . . . . . . . . . . - 320,165
Thereafter. . . . . . . . . . . - 468,234
---------- -----------

Total Minimum Lease Payments . . . . . . 318,639 $ 2,130,002
===========
Less amount representing interest. . . . (36,045)
---------
Present Value of Net Minimum
Lease Payments . . . . . . . . . . . . . 282,594
Less Current Portion . . . . . . . . . . 197,626
---------
Capital Lease - Long-Term. . . . . . . .$ 84,968
=========

Software Claim Proceedings The Company leased computer-aided design software
with total future lease payments of $550,887. The Company has
requested a cancellation of the reelated $735,207 lease obligation, which
includes technical a support agreement in the amount of $184,320.

The software vendor commenced a lawsuit against the Company seeking damages
of approximately $485,000 plus interest, legal fees and expenses arising
out of the Company's alleged breach of contract for the purchase of
software and related items. The Company believes that it has adequate
defenses against the claim. Although there can be no
assurance as to the outcome thereof the Company plans to vigorously
defend against the action, and has made adequate provision in the
financial statements for any anticipated outcome.

An investment banker commenced a lawsuit against the Company seeking
to recover damages of $231,129, plus legal fees and
expenses. In this case, the Company asserted a counterclaim seeking
damages of approximately $250,000. While the Company believes that it has
adequate defenses to the claim and that its counterclaim
similarly has merit, there can be no assurance as to the outcome of the
litigation.

Unasserted Claim 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 1997. In addition, Mr. Austin
requested that the Company bear the cost of (i) the legal fees and
expenses in a litigation commenced against Mr. Austin in a state court
in Massachusetts seeking damages of approximately
$50,000 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 by, among other things, failing to furnish it with
proprietary engineering drawings and related data that would enable the
Company to manufacture the antennas now produced by Austin Antennas Ltd., but
such data has not yet been provided to the Company. 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.

Settlement of Unasserted Claim Although formal legal action was not
initiated, a former officer of the Company 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. During November 1998, the former officer and the Company
agreed to a settlement wherein the Company
agreed to pay $4,000 for accrued salary and other compensation, and to
issue the former officer stock options to purchase 55,000 common shares
at $6.50 per share expiring in three years from the date of the settlement.
The options had a fair value of $10,063 on the grant date.

Employment Agreements In October and November 1997, the Company entered
into employment agreements with key members of management. The agreements
require the company to pay these parties a total of $80,000 per year over
a period of three years.

In May 1998, the Company entered into an employment agreement with
another key member of management. The agreement requires payments of
$125,000 per year. In addition, the Company is required to pay six months
salary and benefits in the event of termination of this individual
without cause.

Production Agreement In October 1998, the Company reached an agreement
with an unrelated third party to develop technology for use in certain
products. Under the ongoing Agreement, the Company is to receive
$400,000, of which $200,000 has been billed as of December 31, 1998.

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 13--SUBSEQUENT EVENTS

Subsequent to December 31, 1998, the Company obtained additional equity
financing in exchange for the issuance of common stock. The Company also
issued 88,757 shares in exchange for services.

On March 4, 1999, holders of two unsecured notes payable
totaling $800,000 converted the notes and related accrued interest
into 893,698 common shares at $1.00 per share, which was the fair value of
the common stock issued.