-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DDCssNxwjG6upVdCAUST0l2QPhFagFjLYaEs4GwjwvP4LLo7feX7gIj7A7Oo364T YufklDtgDNKDVgwoGVSjTw== /in/edgar/work/20000811/0000950134-00-006760/0000950134-00-006760.txt : 20000921 0000950134-00-006760.hdr.sgml : 20000921 ACCESSION NUMBER: 0000950134-00-006760 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000811 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WORLD WIRELESS COMMUNICATIONS INC CENTRAL INDEX KEY: 0001031744 STANDARD INDUSTRIAL CLASSIFICATION: [4899 ] STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-15837 FILM NUMBER: 693143 BUSINESS ADDRESS: STREET 1: 5670 GREENWOOD PLAZA BLVD STREET 2: SUITE 340 CITY: ENGLEWOOD STATE: CO ZIP: 80111 BUSINESS PHONE: 8015756600 MAIL ADDRESS: STREET 1: 5670 GREENWOOD PLAZA BLVD STREET 2: SUITE 340 CITY: ENGLEWOOD STATE: CO ZIP: 80111 10-Q 1 e10-q.txt FORM 10-Q FOR QUARTER ENDED JUNE 30, 2000 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q --------------------- QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED JUNE 30, 2000 Commission file number 333-38567 ---------------------------------- WORLD WIRELESS COMMUNICATIONS, INC. ----------------------------------- (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) Nevada 87-0549700 ------------------------------- ------------------ (State of other jurisdiction of (I.R.S. employer incorporation or organization) identification No.) 5670 Greenwood Plaza Blvd. Suite 340 Englewood, CO 80111 -------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number (303) 221-1944 -------------- Indicate by check mark whether registrant (1) filed all reports required to be filed by Section 13 or 15 (d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No __. As of July 31, 2000 there were 31,208,847 shares of the Registrant's Common Stock, par value $0.001, issued and outstanding. 2 TABLE OF CONTENTS PART I. Financial Information Item 1. Financial Statements: Statement Regarding Forward-Looking Disclosure.........................1 Condensed Consolidated Balance Sheets (Unaudited) - as of June 30, 2000 and December 31, 1999....................................2 Condensed Consolidated Statements of Operations - (Unaudited) for the Three Months Ended June 30, 2000 and June 30, 1999 and for the Six Months Ended June 30, 2000 and June 30, 1999...........4 Condensed Consolidated Statements of Cash Flow (Unaudited) - for the Six Months Ended June 30, 2000 and June 30, 1999..............5 Notes to Condensed Consolidated Financial Statements (Unaudited).......7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation..............................................12 PART II. Other Information Item 1. Legal Proceedings.....................................................17 Item 2. Changes in Securities.................................................18 Item 6. Exhibits and Reports on Form 8-K......................................18 Signatures............................................................22
3 PART I - FINANCIAL INFORMATION 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 X-traWeb (TM) 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 elsewhere herein, are forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from the Company's expectations ("Cautionary Statements") are disclosed in this Report, including without limitation, in connection with the forward-looking statements included in this report. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the Cautionary Statements. -1- 4 ITEM 1. FINANCIAL STATEMENTS WORLD WIRELESS COMMUNICATIONS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) ASSETS
JUNE 30, DECEMBER 31, 2000 1999 ---------- ----------- CURRENT ASSETS Cash and cash equivalents $7,089,012 $ 893,849 Investment in securities available-for-sale 107,748 130,403 Trade receivables, net of allowance for doubtful accounts 457,038 723,355 Other receivables 96,482 584 Inventory 215,568 201,815 Prepaid expenses 48,930 10,924 ---------- ---------- TOTAL CURRENT ASSETS 8,014,778 1,960,930 ---------- ---------- EQUIPMENT, NET OF ACCUMULATED DEPRECIATION AND IMPAIRMENTS 176,577 192,252 ---------- ---------- GOODWILL, NET OF ACCUMULATED AMORTIZATION 300,002 385,718 ---------- ---------- OTHER ASSETS, NET OF ACCUMULATED AMORTIZATION 25,159 39,314 ---------- ---------- TOTAL ASSETS $8,516,516 $2,578,214 ========== ==========
(CONTINUED) The accompanying notes are an integral part of these condensed consolidated financial statements. -2- 5 WORLD WIRELESS COMMUNICATIONS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED) (UNAUDITED) LIABILITIES AND STOCKHOLDERS' EQUITY
JUNE 30, DECEMBER 31, 2000 1999 ------------ ------------ CURRENT LIABILITIES Trade accounts payable $ 270,734 $ 547,978 Accrued liabilities 226,980 338,112 Accrued lease obligation on abandoned office and manufacturing facility -- 1,756,924 Notes payable 32,830 3,324,827 Obligation under capital leases - current portion 84,540 119,226 ------------ ------------ TOTAL CURRENT LIABILITIES 615,084 6,087,067 ------------ ------------ LONG-TERM OBLIGATION UNDER CAPITAL LEASES -- 21,459 ------------ ------------ MANDATORILY REDEEMABLE 10% PREFERRED STOCK, $0.001 par value; 1,000,000 shares authorized; 950 shares designated mandatorily redeemable; 0 and 950 shares issued and outstanding; liquidation preference of $1,000,658 -- 950,000 ------------ ------------ STOCKHOLDERS' EQUITY (DEFICIT) Common stock - $0.001 par value; 50,000,000 shares authorized; issued and outstanding: 31,208,847 shares at June 30, 2000 and 21,250,015 shares at December 31, 1999 31,192 21,250 Additional paid-in capital 48,750,562 35,242,864 Unrealized gain on marketable equity securities 48,813 55,403 Unearned compensation (32,183) (48,294) Receivable from shareholder -- (66,828) Accumulated deficit (40,896,952) (39,684,707) ------------ ------------ TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 7,901,432 (4,480,312) ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,516,516 $ 2,578,214 ============ ============
The accompanying notes are an integral part of these condensed consolidated financial statements. -3- 6 WORLD WIRELESS COMMUNICATIONS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS FOR THE SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, 2000 1999 2000 1999 ------------ ------------ ------------ ------------ SALES $ 455,425 $ 639,624 $ 966,239 $ 1,672,999 COST OF SALES 269,971 559,586 702,916 1,381,271 ------------ ------------ ------------ ------------ GROSS PROFIT 185,454 80,038 263,323 291,728 ------------ ------------ ------------ ------------ EXPENSES Research and development expense 367,564 428,805 605,306 670,070 General and administrative expenses 1,470,510 1,196,978 2,543,671 2,329,736 Manufacturing activity exit costs (1,677,668) -- (1,677,668) -- Amortization of goodwill 42,858 50,099 85,716 100,198 ------------ ------------ ------------ ------------ TOTAL EXPENSES 203,264 1,675,882 1,557,025 3,100,004 ------------ ------------ ------------ ------------ LOSS FROM OPERATIONS (17,810) (1,595,844) (1,293,702) (2,808,276) OTHER INCOME/(EXPENSE): Interest income 112,151 5,924 188,123 10,606 Interest expense (5,243) (617,292) (112,731) (1,092,086) Other income 3,405 -- 12,785 -- ------------ ------------ ------------ ------------ NET INCOME/(LOSS) $ 92,503 $ (2,207,212) $ (1,205,525) $ (3,889,756) Preferred Stock Dividend -- 650,000 -- 650,000 ------------ ------------ ------------ ------------ NET INCOME/(LOSS) APPLICABLE TO COMMON STOCKHOLDERS $ 92,503 $ (2,857,212) $ (1,205,525) $ (4,539,756) ============ ============ ============ ============ Basic and Diluted Income/(Loss) Per Common Share $ 0.003 $ (0.17) $ (.04) (0.28) ------------ ------------ ------------ ------------ WEIGHTED AVERAGE NUMBER OF COMMON SHARES USED IN PER SHARE CALCULATION 32,582,416 17,135,024 27,666,774 16,081,399 ============ ============ ============ ============
The accompanying notes are an integral part of these condensed consolidated financial statements. -4- 7 WORLD WIRELESS COMMUNICATIONS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, ----------------------------- 2000 1999 ----------- ----------- CASH FLOW FROM OPERATING ACTIVITIES Net Loss $(1,205,525) $(3,889,756) Adjustments to reconcile net loss to net cash used by operating activities: Amortization of goodwill 85,716 100,198 Depreciation 86,431 497,926 Amortization of debt discount -- 325,448 Amortization of unearned compensation 16,111 57,936 Compensation for stock options -- 21,540 Stock issued for interest -- 93,698 Stock issued for services -- 231,616 Valuation allowance on inventory (72,624) -- Provision for doubtful accounts receivable 93,304 -- Changes in operating assets and liabilities: Accounts receivable 77,115 117,126 Inventory 58,871 (76,338) Prepaid expenses/other assets 3,323 (1,675) Accounts payable (277,244) (490,629) Accrued liabilities (1,734,505) 117,916 ----------- ----------- NET CASH AND CASH EQUIVALENTS USED BY OPERATING ACTIVITIES (2,869,027) (2,894,994) ----------- ----------- CASH FLOW FROM INVESTING ACTIVITIES Payments for the purchase of property and equipment (68,092) (67,105) Proceeds from sale of property and equipment 18,912 -- ----------- ----------- NET CASH AND CASH EQUIVALENTS PROVIDED BY (USED BY) INVESTING ACTIVITIES (49,180) (67,105) ----------- -----------
(CONTINUED) The accompanying notes are an integral part of these condensed consolidated financial statements. -5- 8 WORLD WIRELESS COMMUNICATIONS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, ------------------------------- 2000 1999 ------------ ------------ CASH FLOW FROM FINANCING ACTIVITIES Net proceeds from issuance of common stock $ 12,169,217 $ 2,356,083 Proceeds from exercise of warrants 1,348,423 -- Proceeds from the issuance of preferred stock -- 400,000 Redemption of preferred stock (950,000) -- Proceeds from borrowings, net of discounts -- 1,600,000 Principal payments on notes payable (3,340,747) (1,258,449) Principal payments on obligation under capital lease (56,145) (74,516) Payment of preferred dividends (57,378) -- ------------ ------------ NET CASH AND CASH EQUIVALENTS PROVIDED BY FINANCING ACTIVITIES 9,113,370 3,023,118 ------------ ------------ NET INCREASE IN CASH AND CASH EQUIVALENTS 6,195,163 61,019 CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 893,849 614,897 ------------ ------------ CASH AND CASH EQUIVALENTS - END OF PERIOD $ 7,089,012 $ 675,916 ============ ============ SUPPLEMENTAL CASH FLOW INFORMATION - Cash paid for interest was $188,575 and $472,890. NON-CASH INVESTING AND FINANCING ACTIVITIES - NOTES 3 AND 5
The accompanying notes are an integral part of these condensed consolidated financial statements. -6- 9 WORLD WIRELESS COMMUNICATIONS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - The accompanying condensed consolidated financial statements are unaudited. In the opinion of management, all necessary adjustments (which include only normal recurring adjustments) have been made to present fairly the financial position, results of operations and cash flows for the periods presented. Certain information and note disclosure normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the December 31, 1999 annual report on Form 10-K. The results of operations for the six month period ended June 30, 2000 are not necessarily indicative of the operating results to be expected for the full year. PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the accounts of World Wireless Communications, Inc. and its wholly owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. USE OF ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts in these financial statements and accompanying notes. Actual results could differ from those estimates. CONCENTRATION OF RISK AND SEGMENT INFORMATION - The Company operates solely in the electronics industry and has assets primarily within the United States. The Company opened a new office in Milan, Italy during June, 2000. The concentration of business in one industry subjects the Company to a concentration of credit risk relating to trade accounts receivable. The Company generally does not require collateral from its customers with respect to trade receivables. FINANCIAL INSTRUMENTS - The Company has a concentration of risk from cash in banks in excess of insured limits. The amounts reported as cash, investments in securities available-for-sale, other receivables, trade accounts payable, accrued liabilities, notes payable and obligations under capital lease are considered to be reasonable approximations of their fair values. The fair value estimates presented herein were based on market information available to management at the time of the preparation of the financial statements. TRADE ACCOUNTS RECEIVABLE AND MAJOR CUSTOMERS - Sales to major customers are defined as sales to any one customer which exceeded 10% of total sales in any of the two reporting periods. Sales to the major customers during each of the three months ended June 30, 2000 and 1999 are as follows: Customer "A" represented 44.3% and 0% of sales, respectively; Customer "B" represented 0% and 22.6% of sales respectively; Customer "C" represented 0% and 21.5%, respectively; and Customer "D" represented 0% an 11.8%, respectively. For the six months ended June 30, 2000 and 1999 sales to major customers were: Customer "A" represented 42.9% and 0% of sales, respectively; Customer "B" represented 0% and 21.8% of sales respectively; Customer "C" represented 0% and 24.6% of sales, respectively; and Customer "D" -7- 10 WORLD WIRELESS COMMUNICATIONS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) represented 0% and 11.9% of sales, respectively. 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 June 30, 2000 and December 31, 1999, an allowance for doubtful accounts of $16,086 and $190,328, respectively, was provided against trade and other receivables. The Company recorded net recoveries of $7,400 for the three months ended June 30, 2000 with net charge offs of $267,546 for the six months ended June 30, 2000. The charge offs were in settlement of outstanding issues that had been evaluated in determining the allowance for doubtful accounts as of December 31, 1999. Provisions for doubtful accounts charged to expense for the three months ended March 31, 2000 and 1999 were $93,304 and $0, respectively. For the six months ended June 30, 2000 and 1999, provisions for doubtful accounts charged to expense totaled $93,304 and $0, respectively. Trade receivables and the allowance for doubtful accounts are reviewed periodically and adjusted, accordingly. INVENTORY - Inventory is stated at the lower of cost or market. Cost is determined using the first-in, first-out method. In connection with the exit from contract and in-house manufacturing, the Company recognized a write-down of inventory of $405,466 to its liquidation value that was charged to operations as of December 31, 1999. Reserves for inventory valuation are periodically reviewed for adequacy and adjusted, accordingly. RESEARCH AND DEVELOPMENT EXPENSE - Current operations are charged with all research, engineering and product development expenses. GOODWILL AND LONG-LIVED ASSETS - Goodwill and other long-lived assets are evaluated periodically for impairment when indicators of impairment are present and undiscounted cash flows estimated to be generated by those assets are less than their carrying amounts. Goodwill is included along with other assets acquired as a group when evaluating their recoverability. Impairment losses are recognized to the extent estimated discounted net future cash flows expected to be generated from those assets are less than their carrying amounts. Goodwill is further evaluated separately and impairment losses are recognized for the excess of the carrying amount of goodwill over management's estimation of the value and future benefits expected to be realized from the goodwill. The Company evaluated the recoverability of the long-lived assets and goodwill for all acquisition during the fourth quarter of 1999, and determined that circumstances indicate an inability to recover their carrying amount. Accordingly, an impairment loss of $641,679 was recognized during 1999 to adjust the carrying amount of the long-lived assets and goodwill to their estimated expected discounted net future cash flows. The remaining balance of goodwill is being amortized over a 5-year period from the original acquisition dates, 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 $52,150 and $228,000, for of the three -8- 11 WORLD WIRELESS COMMUNICATIONS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) months ended June 30, 2000 and 1999, respectively and $64,854 and $456,344 for the six months ended June 30, 2000 and 1999, respectively. Maintenance and repair of equipment are charged to operations and major improvements are capitalized. The cost of equipment was reduced, as of December 31, 1999, by a $359,822 write-down reserve attributable to the exit from manufacturing activities. During the three months ended June 30, 2000, the Company recorded a total of $79,326 as write- down recoveries income related to the 1999 reserve established and the sale of excess furniture and equipment during 2000. INVESTMENTS - At June 30, 2000, investment in securities consisted of common stock of customers classified as available-for-sale and stated at quoted fair value of $107,748. The cost of the securities was $58,935. The unrealized gain as of June 30, 2000 was $48,813 which is shown as a separate component of stockholders' deficit. The change in net unrealized gains on securities during the three months ended June 30, 2000 and 1999, was a decrease in the holding gain of $71,792 and $0, respectively. For the six months ended June 30, 2000 and 1999, the unrealized holding loss totaled $6,590 and $0, respectively. SALES RECOGNITION - Sales are recognized upon delivery of products or services and acceptance by the customer. As a result of design and technology contracts, the Company has a right to receive royalties which will be recognized upon the related sales by customers. STOCK-BASED COMPENSATION - Stock-based compensation to employees is measured by the intrinsic value method. This method recognizes compensation expense related to stock options granted to employees based on the difference between the fair value of the underlying common stock and the exercise price of the stock option on the date granted. Stock-based compensation to non-employees, including directors after 1998, is measured by the fair value of the stock options and warrants on the grant date as determined by the Black-Scholes option pricing model. LOSS PER SHARE - Basic loss per common share is computed by dividing net loss by the weighted- average number of common shares outstanding during the period. Diluted loss per share reflects potential dilution which could occur if all potentially issuable common shares from stock purchase warrants and options or convertible notes payable and preferred stock resulted in the issuance of common stock. In the present position, diluted loss per share is the same as basic loss per share because the inclusion of potentially issuable common shares at June 30, 2000 and 1999, respectively, would have decreased the loss per share and have been excluded from the calculation. For the three months ended June 30, 2000, the Company recognized net income for the quarter. Accordingly, potentially issuable common shares from stock purchase warrants and options have been included in the weighted average number of shares outstanding for the quarter only. COMPREHENSIVE INCOME/(LOSS) - Comprehensive income/(loss) provides a measure of overall Company performance that includes all changes in equity resulting from transactions and events other than capital transactions. The Company's comprehensive income and loss for the three months ended June 30, 2000 and 1999 and the comprehensive loss six months ended June 30, 2000 and 1999, respectively are as follows: -9- 12 WORLD WIRELESS COMMUNICATIONS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three Months For the Six Months Ended June 30, Ended June 30, ----------------------------- ----------------------------- 2000 1999 2000 1999 ----------- ----------- ----------- ----------- Net Income/(Loss) $ 92,503 $(2,857,212) $(1,205,525) $(4,539,756) Unrealized Gain/(Loss) on Marketable Equity Securities (71,792) -- (6,590) -- ----------- ----------- ----------- ----------- Comprehensive Income/(Loss) for the Period $ 20,711 $(2,857,212) $(1,212,115) $(4,539,756) =========== =========== =========== ===========
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS The Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements on December 3, 1999. This bulletin requires the application of specific criteria in determination of the timing of revenue recognition in financial statements and is effective for all fiscal years beginning after December 16, 1999. The Company has not determined the effect, if any, that this bulletin may have on its financial statements for the current fiscal year ending December 31, 2000.. The Financial Accounting Standards Board issued FASB No. 133-Accounting for Derivative Instruments and Hedging Activities in June, 1998 to be effective for all fiscal years beginning after June 15, 1999. The statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. The implementation of this pronouncement has been deferred to all fiscal quarters of fiscal years beginning after June 15, 2000. The Company has not determined the effect, if any, that this pronouncement may have on its financial statements for the current fiscal year ending December 31, 2000. NOTE 2 -- EXIT FROM MANUFACTURING ACTIVITIES During the fourth quarter of 1999, the Company executed a plan to focus its efforts primarily on enhancing and marketing its X-traWeb (TM) products whereby all contract manufacturing was discontinued, all in-house production would be outsourced and the Company would move its executive offices to Denver, Colorado. The plan also involved liquidating the Company's raw materials and work in process inventory and selling all equipment used in production and contract manufacturing. The Company recognized as exit costs the related non-cancelable obligation under a lease agreement for office and manufacturing facilities in Salt Lake City, Utah through 2005. Future minimum lease payments of $1,756,924 under the lease were charged to operations during the year ended December 31, 1999. -10- 13 WORLD WIRELESS COMMUNICATIONS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) The Company completed its relocation to the Denver, Colorado area in March, 2000. Pursuant to a Lease Termination Agreement, dated May 1, 2000, the Company paid a $75,000 settlement payment and transferred its security deposit in the amount of $27,742 to the benefit of a new tenant in the Salt Lake City Utah manufacturing and office facilities and the lease agreement was terminated as of the May 1, 2000 date. Incident to the lease termination, the settlement funds described above were charged to the outstanding lease liability on the Company's balance sheet resulting in a remaining liability balance of $1,598,342. This balance was reversed and credited to operations as manufacturing exit recoveries income during the three months ended June 30, 2000. NOTE 3 -- STOCKHOLDERS' EQUITY During the first quarter of 2000, the Company issued 4,548,557 common shares for gross cash proceeds of $13,646,000 received from 45 accredited investors in a private placement offering, at $3.00 per share. These securities are exempt from registration under the Act. In connection with the offering, a total of $1,476,783 was incurred as placement costs. During March, 2000, the Company issued a total 5,393,690 common shares related to the exercise of warrants to purchase common stock at $.25 per share. The Company received $401,218 in cash and recorded $947,204 related to the cashless exercise of warrants as a deemed payment of the principal of 1999 Notes, as defined in Note 5 - Notes Payable. The warrants exercised totaled $1,348,422. In March of 2000, the Company issued 16,474 shares of common stock upon the cashless exercise of 18,333 stock options. NOTE 4 -- MANDATORILY REDEEMABLE PREFERRED STOCK On May 14, 1999 the Company authorized 950 shares of senior liquidating mandatorily redeemable 10% preferred stock with a liquidation preference of $1,000 per share and detachable five-year warrants to purchase 4,750,000 common shares at $0.25 per share, and issued such 950 shares of preferred stock and the related warrants between May 15, 1999 and October 5, 1999. By their terms, the preferred shares had to be redeemed within one year at their par value plus accrued dividends. The preferred stock cash dividend requirement was $95,000 annually. The preferred stock was issued for proceeds of $950,000 consisting of $700,000 cash and the deemed payment of $250,000 principal amount of 1998 bridge loan notes. On February 25, 2000, the Company redeemed the mandatorily redeemable preferred stock for cash of $950,000 for the principal balance and $57,378 for the accrued preferred dividends accrued to date. -11- 14 NOTE 5 - NOTES PAYABLE On May 14, 1999 the Company issued $2,600,000 of senior secured 16% notes payable ("the 1999 Notes") which were to mature in one year and bore interest at the rate of 16% annually and payable quarterly. The notes were issued for $2,600,000 consisting of $1,600,000 in cash and the deemed payment of $1,000,000 principal amount of the 1998 bridge loan notes. The 1999 Notes were secured by substantially all the Company's assets. In March, 2000, the Company paid off the 1999 Notes outstanding with cash in the amount of $2,377,623 and with the deemed proceeds from the exercise of warrants to purchase 3,788,813 common shares at $.25 per share. The portion of the 1999 Notes paid by the exercise of warrants was $947,204. The warrants exercised are included in the total warrants issued during the three months ended March 31, 2000 as discussed in Note 3. The Company also paid $35,059 in accrued interest related to the 1999 Notes. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 Form 10-Q. THREE MONTHS ENDED JUNE 30, 2000 AND THREE MONTHS ENDED JUNE 30, 1999 Results of Operations The Company recognized net income of $92,503 for the three months ended June 30, 2000, or $.003 income per share, compared to a net loss of $2,857,212, or $.17 loss per share, for the three months ended June 30, 1999. Sales in the three month period ended June 30, 2000 totaled $455,425 compared to $639,624 during the three month period ended June 30, 1999, or a decrease of 28.8%. During the comparative second quarter of 2000 and 1999, the Company derived its revenue as follows:
For the Three Months Ended June 30, ----------------------------------- Summary of Revenue by Product: 2000 1999 -------- -------- Engineering Services $ -- $195,445 Royalties 201,730 -- Branded Products 224,558 124,328 Contract and Cable Manufacturing 2,004 319,851 XtraWeb 27,133 -- -------- -------- Total Revenue $455,425 $639,624 ======== ========
-12- 15 During the second quarter of 2000, the Company continued to implement its plan to focus its efforts on the X-traWeb (TM) product line and abandon its contract and in-house manufacturing activities. Accordingly, engineering service revenue was $0 in the second quarter of 2000 compared to $195,445 in the second quarter of 1999. In addition, contract and cable manufacturing revenues decreased by $317,847, or 99.4%, for the three months ended June 30, 2000 compared to the three months ended June 30, 1999. The Company's business strategy continues to emphasize (1) the design and sales of X-traWeb (TM) products, which contributed $27,133 in revenues during the three months ended June 30, 2000 compared to $0 for the three months ended June 30, 1999, and (2) the increased marketing of branded products, including radio and antenna sales, which totaled $224,558 in the second quarter of 2000 compared to $124,328 in the second quarter of 1999, an increase of $100,230, or 80.6%. Finally, royalties on products sold during the second quarter of 2000 by a major customer contributed $201,730 during the three months ended June 30, 2000 and are expected to continue throughout the remainder of the fiscal year 2000. Cost of sales for the three months ended June 30, 2000 totaled $269,971 compared to $559,586 for the three months ended June 30, 1999, or a decrease of 51.8%. The gross profits for the comparative quarters were $185,454, or 40.7% of sales, in 2000 compared to $80,038, or 12.5% of sales for 1999. The increase in gross profit percentage for the three months ended June 30, 2000 vs. 1999 was primarily due to reduced cost of sales associated with outsourced manufacturing of products sold in 2000 and the inclusion of $25,000 in X-traWeb design revenue in the second quarter of 2000 with minimal direct costs. Gross profits resulting from ongoing sales activity benefitted from an overall reduction in costs and decreases in personnel and related expenses in the second quarter of 2000. The Company reduced total employees from 80 as of June 30, 1999 to 39 as of June 30, 2000, or a 51.3% reduction. The majority of this employee reduction was directly attributable to the exit from manufacturing activities. The Company incurred research and development costs of $367,564 for the three months ended June 30, 2000 compared to $428,805 for the three months ended June 30, 1999, or a decrease of $61,241, or 14.3%. These costs continue to relate to the ongoing application development of the X- traWeb (Tm) proprietary technology in 2000. The Company's selling, general, and administrative expenses for the three months ended June 30, 2000 totaled $1,470,510 compared to $1,196,978 for the three months ended June 30, 1999, or an increase of $273,532, or 22.9%. The primary reasons for this overall increase consisted of (1) reduction in depreciation from $228,000 for the three months ended June 30, 1999 to $52,150 for the three months ended June 30, 2000, or a decrease of $175,850 (77.1%) due to the write-down of equipment in 1999 incident to the exit from manufacturing activities, (2) decrease in facilities rent -13- 16 from $102,150 for the second quarter ended June 30, 1999 to $43,646 for the second quarter ended June 30, 2000, or a $58,504 (57.3%) savings resulting from Utah facilities rent being charged to the accrued lease liability on the balance sheet for the first four months of 2000, (3) increases in consulting fees and outside services of $50,477, and (4) increases in travel expenses of $180,830 during the three months ended June 30, 2000 vs. June 30, 1999 that were incurred as part of the Company's marketing plan to promote X-traWeb (TM) products and technology solutions and expand its operations to the European marketplace. In addition, the Company substantially increased its advertising and promotional expenses by $186,579 for the three months ended June 30, 2000 vs. June 30, 1999 as part of this business expansion marketing strategy in 2000. The Company recognized a recovery of manufacturing activity exit costs of $1,677,668 during the three months ended June 30, 2000 due to the favorable lease termination settlement of manufacturing and office facilities located in the Salt Lake City area. The lease obligation for the abandoned Salt Lake City facilities had been recorded as a liability and expense during the fiscal year ended December 31, 1999. Interest income increased to $112,151 in the second quarter of 2000 from $5,924 in the second quarter of 1999 due to increased available funds invested in overnight interest bearing accounts provided by the $13.6 million private placement securities issued in the first quarter of 2000. Interest expense decreased to $5,243 in the first quarter of 2000 from a total of $617,292 in the second quarter of 1999 due to the retirement of substantially all debt outstanding in the first quarter of 2000, and the non-recurrence in the second quarter, 2000 of amortization of debt discount and warrant interest expenses of $108,485 incurred during the second quarter of 1999. SIX MONTHS ENDED JUNE 30, 2000 AND SIX MONTHS ENDED JUNE 30, 1999 Results of Operations The Company incurred a net loss of $1,205,525 for the six months ended June 30, 2000, or $.04. loss per share, compared to a net loss of $4,539,756, or $.28 loss per share, for the six months ended June 30, 1999. This represents an improvement in 2000 of $3,334,231, or 86%, over 1999 year-to- date financial results. Sales for the six month period ended June 30, 2000 totaled $966,239 compared to $1,672,999 during the six month period ended June 30, 1999, or a decrease of 42.2%. During the comparative two quarters of 2000 and 1999, the Company derived its revenue as follows:
For the Six Months Ended June 30, --------------------------------- Summary of Revenue by Product: 2000 1999 ---------- ---------- Engineering Services $ -- $ 840,263 Royalties 414,813 -- Branded Products 412,919 238,425 Contract and Cable Manufacturing 73,549 594,311 XtraWeb 64,958 -- ---------- ---------- Total Revenue $ 966,239 $1,672,999 ========== ==========
-14- 17 During the first quarter of 2000, the Company continued to implement its strategic plan to focus its efforts on the X-traWeb (TM) product line and abandon its contract and in-house manufacturing activities. Consequently, the engineering and contract manufacturing revenue declined by $1,361,025, or 94.9% during the six months ended June 30, 2000 compared to the six months ended June 30, 1999. Increased marketing of branded products, included radio and antenna sales, increased by $174,494, or 73.2%, during the first two quarters of 2000 vs. 1999. In addition, the Company has recognized total revenues from the X-traWeb (TM) product line of $64,958 during the first six months of 2000. Finally, royalties contributed $414,813 in revenue during the six months ended June 30, 2000 and is expected to continue for the remainder of the year 2000. During June, 2000, the Company formed a new operating subsidiary, X-traWeb Europe S.p.A., based in Milan, Italy. This subsidiary is responsible for the development and sale of X-traWeb (TM) products through European markets, commencing with the country of Italy. No revenue has been realized as of June 30, 2000. Cost of sales for the six months ended June 30, 2000 compared to 1999 declined to $702,916 in 2000 from a total of $1,381,271 in 1999, or a reduction of $678,355 (49.1%). The resulting gross profit was $263,323, or 27.3% of sales, for the six months ended June 30, 2000 compared to $291,728, or 17.4%, for the six months ended June 30, 1999. This represents an improvement of 56.9% in gross profit margin percentage for the comparable periods and is expected to continue to increase as the Company shifts towards higher profit margin business. Research and development expenses declined by $64,764, or 9.7%, for the comparable six month periods ended June 30, 2000 vs. June 30, 1999. Total selling, general, and administrative expenses amounted to $2,543,671 for the six months ended June 30, 2000 compared to $2,329,736 for the six months ended June 30, 1999, representing an increase of $213,935, or 9.2%. Selling and marketing expenses increased by $249,748, or 49.9%, during the six months ended June 30, 2000 over 1999 and represents a significant increase in advertising, promotion, and sales related travel to market the Company's X-traWeb (TM) products as discussed above. Total general and administrative expenses for the comparable six months periods ended June 30, 2000 and 1999 decreased by $35,813, or 2.0%, and resulted from (1) a decrease in depreciation of $411,495, or 82.6%, and (2) a savings of $123,113, or 59.9%, in facilities rent due to the termination of the Salt Lake City lease. These expense savings were substantially offset by (1) and increase in corporate travel related expenses of $214,518 for promotion of X- traWeb(TM) products, the opening of the X-traWeb Europe offices, and other international business opportunities, and (2) increases of $87,756 in compensation and benefits, an increase of $69,633 in legal and accounting fees, new stock exchange fees expense for the American Stock Exchange of $35,167, and an increase in the provision for doubtful accounts receivable of $62,954. -15- 18 Interest income for the six months ended June 30, 2000 was $188,123 compared to $10,606 for the six months ended June 30, 1999, with the increase directly attributable to increased available funds in overnight interest bearing accounts provided by the $13.6 million private placement securities issued in the first quarter of 2000. Interest expense declined to $112,731 during the six months ended June 30, 2000 compared to $1,092,086 for the six months ended June 30, 1999, and represents a $979,355 decrease, or 89.7%. This expense reduction is directly related to retirement of substantially all debt, and related debt discount amortization, by the Company in the first quarter of 2000. LIQUIDITY AND CAPITAL RESOURCES The Company's liquidity at June 30, 2000 consisting of cash and cash equivalents was $7,089,012, which represented an increase of $6,195,163 over the Company's cash and cash equivalents of $893,849 as of December 31, 1999. The Company's current assets were $8,014,778 as of June 30, 2000, an increase of $6,053,848 from the Company's current assets of $1,960,930 as of December 31, 1999. During the first quarter of 2000, the Company raised $13,646,000 new capital in private placement transactions from 45 accredited investors at $3.00 per share. The proceeds of this offering, net of $1,398,223 in placement fees, amounted to $12,247,777. The Company also paid a total of $78,560 in placement fees related to 1999 offerings during this period. The net proceeds from issuance of common stock were $12,169,217. In February, 1999, the Company also issued common stock for cash in the amount of $2,040,000 received in a private placement offering. The net proceeds from issuance of common stock were $1,876,800. During the second quarter of 1999, the Company also issued common stock for cash in the amount of $510,000. The net proceeds from the issuance of the common stock was $479,283. In May, 1999, the Company sold 650 shares of the Company's 10% Senior Preferred Stock at a price of $1,000 per share with detachable warrants to purchase 3,250,000 shares of the Company's common stock at an exercise price of $.25 per share, exercisable in whole or in part by the holder at any time on or before May 14, 2004. The net proceeds from issuance of the preferred stock were $400,000 in cash and the deemed payment of $250,000 of principal of the 1998 bridge loan notes outstanding at that time. In May, 1999, the Company issued the 1999 Notes, bearing interest at 16% and maturing on May 14, 1999, with interest payable quarterly. The 1999 Notes were issued for $2,600,000 consisting of $1,600,000 in cash and the deemed payment of $1,000,000 of principal of the 1998 bridge loan notes outstanding at that time. In March, 2000, the Company also issued common stock related to the exercise of 5,393,690 warrants to purchase common stock at $.25 per share. Proceeds of $401,218 were received in cash and $947,204 was recorded as capital related to the cashless exercise of warrants by the deemed payment of principal by reduction of the 1999 Notes. The warrants exercised totaled $1,348,423. With the proceeds of the $13,646,000 private placement, the Company, in the first quarter of 2000, redeemed the mandatorily redeemable 10% preferred stock in the amount of $950,000 plus accrued dividends of $57,378. In addition, the Company paid off the 1999 Notes outstanding with cash in -16- 19 the amount of $2,377,623 and the cashless exercise of warrants by deemed payment of principal in the amount of $947,204, as discussed above, and accrued interest of $35,059 thereby discharging such debt in full. The Company's liquidity decreased due to changes in operating assets and liabilities during the first six months of 2000. For the six months ended June 30, 2000, the net change in operating assets and liabilities utilized net cash flow of $274,098 compared to a net decrease of cash for the six months ended June 30, 1999 of $333,600. The primary reasons for the net decrease in cash flow during the first two quarters of 2000 were increases in both inventory levels of $58,871 and accounts receivable of $77,115, which were offset by cash flow used to reduce accounts payable of $277,244 and other accrued liabilities (net of accrued lease obligation terminated during the six months ended June 30, 2000) of $136,163. For the six months ended June 30, 1999, accounts receivable decreased and accounts payable decreased by $117,126 and $490,629, respectively, resulting in total net cash flow used of $373,503. SUMMARY During the first six months of 2000, the Company has implemented its redirection efforts to focus on the growth of its X-traWeb (TM) business segment and proprietary radio products. Management has raised $13,646,000 million in new equity capital, paid off substantially all outstanding debt, redeemed all mandatorily redeemable preferred stock outstanding, relocated its corporate headquarters to Denver, Colorado, and exited from all in-house manufacturing activities, including termination of its lease obligation for facilities in Utah. Management believes that the potential growth of current products will require additional engineering and marketing personnel for the X- traWeb (TM) business in advance of the receipt of substantial revenues from such source and is actively recruiting such personnel. In addition, management is evaluating the need and availability of additional capital to support its further business expansion in Europe and internationally. While the Company believes that such additional financing can be obtained, there can be no assurance that such financing will be achieved or, if made available, on terms acceptable to the Company. In summary, while management is optimistic about the Company's future, it is fully aware that anticipated revenue increases from sales of X-traWeb (TM) products and its proprietary radios and royalty income are by no means assured. New capital and financing sources and availability may be limited. As a result, there can be no assurance that management's efforts will be successful. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Williams Wireless, Inc. has raised a claim that the Company violated the non-competition provisions of their agreements by allegedly marketing X-traWeb (TM) products in the telemetry and meter -17- 20 reading applications. The company, in turn, claimed that Williams Wireless, Inc. failed to satisfy all of its duties under its various agreements with the Company. While the Company believes that Williams' claim is properly disputable, the parties agreed orally to enter into a settlement agreement and mutual release. On March 8, 2000, before such settlement agreement was concluded, Williams sold substantially all of its assets and business, including its agreements with the Company, to an unrelated party, Internet Telemetry Corp. ("Internet"). After the close of the quarter ended June 30, 2000, the Company and Internet entered into a settlement agreement and mutual release, which contained the following key elements: (a) each party released the other of any claims under the Williams' agreements with the Company, and the parties terminated such agreements in all respects; (b) the Company agreed to grant Internet a perpetual, non-exclusive irrevocable royalty-free worldwide license to manufacture, use and sell the Company's Microhopper radio, as presently configured, as a component of Internet's telemetry systems or products, and to manufacture, use and sell such radio only when incorporated into Internet's telemetry systems or products; (c) each party agreed to allow the other party to resell the other's products pursuant to a standard resellers agreement adopted by such party; and (d) each party agreed to indemnify the other from any claims arising under such agreement. The Company believes that such agreement will have no material adverse effect on its business. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None reported ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (c) The following documents are filed as part of this report: Financial Statements of the Company (unaudited), including Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Operation, Condensed Consolidated Statements of Cash Flow and Notes to Financial Statements as at and for the three months and six months ended June 30, 2000 and the Exhibits which are listed on the Exhibit Index attached hereto.
No. Description 3.1 Articles of Incorporation of the Company and all amendment thereto * 3.2 Bylaws of the Company*
-18- 21 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*
-19- 22 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 Registrant's Confidential Private Placement Memorandum dated September 9, 1998, as amended* 10.23 Employment Agreement between the Registrant and James O' Callaghan dated May 20, 1998*+ 10.24 Lease agreement between the Registrant and NP#2 dated as of July 29, 1998 relating to the premises at 2441 South 3850 West, West Valley City, Utah 84120* 10.25 Agreement between KME and the Registrant dated October 19, 1998 relating to the Registrant's providing of technical assistance and development relating to the Giarange telephone* 10.26 Agreement between KME and the Registrant dated as of March 1, 1998 relating to the Panasonic MicroCast System* 10.27 General and Mutual Release Agreement between the Registrant and Phil Acton dated November 2, 1998*+ 10.28 Agreement and Waiver Agreement by and among the Registrant and the Bridge Noteholders dated November 25, 1998* 10.29 1998 Employee Incentive Stock Option Plan*+ 10.30 1998 Non-qualified Stock Option Plan*+ 10.31 Amendment of Agreement by and among the Registrant and the Bridge Noteholders dated as of March 26, 1999* 10.32 Loan Agreement by and among the Registrant and the Senior Secured Noteholders dated as of May 14, 1999, together with the Notes, Pledge/Security Agreement, Pledgee Representative Agreement, Subordination and Registration Rights Agreement* 10.33 Two separate Agreements by and among the Registrant and the 1999 Bridge Noteholders dated August 19, 1999* 10.34 Waiver Agreement by and among the Registrant and the Bridge Noteholders dated as of December 7, 1999*
-20- 23 10.35 Registration Rights Agreement by and among the Registrant and the purchasers of common stock issued pursuant to the Registrant's Confidential Private Placement Memorandum dated January 12, 2000 as amended.* 10.36 Settlement Agreement and Mutual Release between Internet Telemetry Corp. and the Registrant, dated as of August 7, 2000.** 27 Financial Data Schedules**
- --------------- ** Filed herewith * Filed previously + Management contract or compensatory plan or arrangement filed previously (b) The following reports on Form 8-K were filed by the Registrant during the quarter ended June 30, 2000: (4) Form 8K, dated April 27, 2000, Item #5 - Other Events: Filing of the Company's unaudited balance sheet as of March 31, 2000 incident to the Company's application for listing on the American Stock Exchange was filed on April 27, 2000. (5) Form 8K, dated May 1, 2000, Item #4 - Change in Registrant's Certifying Accountant was filed on May 8, 2000. (6) Form 8K, dated May 2, 2000, Item #5 - Other Events: Listing of the Company's common stock on the American Stock Exchange was filed on May 3, 2000. -21- 24 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. DATE: August 11, 2000 WORLD WIRELESS COMMUNICATIONS, INC. By: /s/ David D. Singer ---------------------------------- David D. Singer President, Chief Executive Officer By: /s/ Roger D. Leclerc ---------------------------------- Roger D. Leclerc Vice President of Finance Principal Financial Officer -22- 25 EXHIBIT INDEX
Exhibit Number Description - ------- ----------- 3.1 Articles of Incorporation of the Company and all amendment 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*
26 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 Registrant's Confidential Private Placement Memorandum dated September 9, 1998, as amended* 10.23 Employment Agreement between the Registrant and James O' Callaghan dated May 20, 1998*+ 10.24 Lease agreement between the Registrant and NP#2 dated as of July 29, 1998 relating to the premises at 2441 South 3850 West, West Valley City, Utah 84120* 10.25 Agreement between KME and the Registrant dated October 19, 1998 relating to the Registrant's providing of technical assistance and development relating to the Giarange telephone* 10.26 Agreement between KME and the Registrant dated as of March 1, 1998 relating to the Panasonic MicroCast System* 10.27 General and Mutual Release Agreement between the Registrant and Phil Acton dated November 2, 1998*+ 10.28 Agreement and Waiver Agreement by and among the Registrant and the Bridge Noteholders dated November 25, 1998* 10.29 1998 Employee Incentive Stock Option Plan*+ 10.30 1998 Non-qualified Stock Option Plan*+ 10.31 Amendment of Agreement by and among the Registrant and the Bridge Noteholders dated as of March 26, 1999* 10.32 Loan Agreement by and among the Registrant and the Senior Secured Noteholders dated as of May 14, 1999, together with the Notes, Pledge/Security Agreement, Pledgee Representative Agreement, Subordination and Registration Rights Agreement* 10.33 Two separate Agreements by and among the Registrant and the 1999 Bridge Noteholders dated August 19, 1999* 10.34 Waiver Agreement by and among the Registrant and the Bridge Noteholders dated as of December 7, 1999* 10.35 Registration Rights Agreement by and among the Registrant and the purchasers of common stock issued pursuant to the Registrant's Confidential Private Placement Memorandum dated January 12, 2000 as amended.* 10.36 Settlement Agreement and Mutual Release between Internet Telemetry Corp. and the Registrant, dated as of August 7, 2000.** 27 Financial Data Schedules**
- --------------- ** Filed herewith * Filed previously + Management contract or compensatory plan or arrangement filed previously EX-10.36 2 ex10-36.txt SETTLEMENT AGREEMENT 1 EXHIBIT 10.36 SETTLEMENT AGREEMENT AND MUTUAL RELEASE BETWEEN INTERNET TELEMETRY CORP. AND WORLD WIRELESS COMMUNICATIONS, INC. This Agreement is made and entered into as of this 7th day of August, 2000, by and between Internet Telemetry Corp. an Oklahoma corporation with offices at 403 S. Cheyenne, Tulsa, Oklahoma 74103 ("ITC") and World Wireless Communication, Inc., a Nevada Corporation with offices at 5670 Greenwood Plaza Blvd., Ste 340, Englewood, Colorado 80111 ("WWC") for the benefit of the parties and their respective parents and subsidiaries, all of whom shall be deemed to be direct or (unless and to the extent specifically and clearly stated otherwise) express third-party beneficiaries of this Agreement. RECITALS A. Williams Wireless, Inc., dba Williams Telemetry (WT), a wholly-owned subsidiary of Williams Communications, Inc. and WWC heretofore entered into and were parties to various agreements, including but not limited to: a "Technical Development and Marketing Alliance Agreement" ("TDMA") dated September 26, 1997, and as thereafter amended and restated, and various, separate, "Commercial Services Agreements" ("CSAs") for engineering and/or manufacturing services, under which each party had or maintained certain rights or obligations relative to the other, in connection with WWC's development and manufacture of certain product or products for WT , and WT agreement to purchase said products and other WWC products and services. Such agreements contained certain provisions barring or restricting competitive activities between the parties. B. On March 8, 2000, ITC acquired substantially all of the assets and business of WT and as part of the transaction the TDMA and the CSA's between WT and WWC were assigned and transferred to ITC. C. ITC believes and has claimed that WWC, directly or through its subsidiary, X-tra Web, Inc., is promoting or marketing technology, products or services in areas or telemetry markets in which ITC claims that WWC and its subsidiaries are restricted by prior agreements from conducting business or otherwise competing with ITC, which claims are denied by WWC and are thus disputed. D. The parties find it to be in their mutual best interest to resolve the disagreements and disputes between them and to dissolve all prior contractual relationships and for that reason have entered into this Settlement Agreement and Mutual Release. NOW, THEREFORE, for good and valuable consideration, including the covenants and undertakings herein, the sufficiency of which is expressly acknowledged, the parties agree as follows: 1. GRANT OF LICENSE. WWC grants to ITC, and ITC accepts from WWC, a perpetual, non-exclusive, irrevocable and non-cancellable, royalty-free, world wide license to manufacture, directly or through others, and to use and/or sell, as a component of ITC's telemetry systems or products, WWC's MicroHopper radio, as presently configured ("Licensed Product"), described as follows: a spread spectrum based packet data radio that performs two tasks, (a) it takes data input through a serial port and immediately, with no storage or processing, transmits the data, and (b) it receives radio packet data and outputs it to the serial port, with no storage or processing taking place. In connection therewith, WWC shall furnish to ITC all design and manufacturing data for the Licensed Product, as of the date of this agreement, necessary and adequate for ITC to use and to modify the Licensed Product as described herein. Design and manufacturing data includes, but is not limited to, schematics, bills of materials, software source code, firmware source code and other design documents and engineering documents, parts lists, assembly instructions, test data and users guides. The license granted hereunder is subject to the following limitations and restrictions: a. ITC shall have rights to manufacture, contract for the manufacture, use and sell the Licensed Product to third-party customers, directly or through ITC's distribution system, only with and incorporated into ITC's telemetry systems or products. 1 2 b. ITC shall have no rights to use or sell (by sublicense or otherwise) the Licensed Product as a stand-alone radio module or product or to manufacture or contract for the manufacture of the Licensed Product for such purposes. c. ITC shall have rights to modify, enhance, supplement or redesign the Licensed Product as it may wish or find necessary or appropriate for its telemetry systems business. In exercising its rights herein to modify, improve, enhance, supplement, redesign or change the Licensed Product, ITC may create one or more "substantial modifications" to the Licensed Products. A"substantial modification" shall be deemed to mean, among other things, the addition of electronic components and/or software to add data storage and processing capability to the Licensed Product such that the resulting substantially modified product is capable of performing functions beyond the nature of WWC's unmodified Licensed Product. Any ITC product resulting from or based on these substantial modifications to the unmodified Licensed Product shall thereafter no longer be deemed the Licensed Product and will be owned solely by ITC for their exclusive use and shall not be subject to this Agreement. Any modifications, enhancements and redesigns that do not result in substantial modifications will continue to be deemed the Licensed Product and shall be subject to the license granted hereunder. d. ITC shall also have the right to investigate and analyze the design of the Licensed Product and derive and use, without restriction or cost, any engineering concept, design or function it uncovers as a result. ITC shall also have the right, without restriction and cost, to use any software code, concept, process or algorithm it uncovers in the course of said analysis of the Licensed Product. Any ITC product that uses any information so derived will be the exclusive property of ITC and will not be subject to this agreement or to any other restriction of any form. e. WWC represents and warrants to ITC the following: i) WWC owns all rights in and to the Licensed Product and has the complete power and authority to execute and deliver this Agreement and grant the license and rights hereunder to ITC. ii) The execution and delivery of this Agreement and the grant of the license and other rights hereunder to ITC will not result in a breach of any agreement to which WWC is a party or which covers or effects the Licensed Product. iii) WWC's use and manufacture of the Licensed Product and the granting of rights under this Agreement to ITC and ITC's use of the Licensed Product as authorized in this Agreement does not and will not infringe on or breach the rights of any other party with respect to the Licensed Product, any part thereof or otherwise. iv) Any change in the ownership of or rights in or to the Licensed product shall provide for the continuing validity of this License Agreement v) The design of the Licensed Product, its use as intended hereunder and any technology incorporated into the Licensed Product does not infringe on the rights of any party. f. WWC warrants that the design and manufacturing specifications and data relating to the Licensed Product and furnished to ITC upon the execution hereof are and will be complete and current as of the date of this Agreement. WWC GIVES NO OTHER WARRANTY, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR FUNCTION. g. WWC will provide to ITC, over a period of not longer than one year, up to eight (8) hours of technical instruction and bug fixes in connection with the Licensed Product. WWC shall not provide, nor shall it be required to provide, to ITC, any technical support for the Licensed Product beyond that set forth in this subparagraph. h. ITC shall hold WWC harmless against and in respect to any and all claims, damages, losses, costs, expenses, obligations, liabilities, actions, suits, including interest and penalties, reasonable attorney's fees and costs and all amounts paid in settlement of any claim, action or suit that may be asserted against WWC or that WWC may incur or suffer that arise out of, result from or relate to (a) ITC's breach of any term, condition or restriction of this paragraph 1 hereunder; (b) any claim of any nature whatsoever brought by any customer of ITC or any third person or entity who may suffer damages of any sort as a direct or indirect result of ITC's activities or those of ITC's 2 3 resellers or agents relating to or in connection with the Licensed Product or (d) any claims of infringement that arise out of, result from or relate to any modification, redesign, enhancement or misuse of the Licensed Product or its combination with ITC' products or systems. i. WWC shall and does hereby indemnify and hold ITC harmless against and with respect to any and all claims, damages, losses, costs, expenses, obligations, liabilities, actions, suits, including interest and penalties, reasonable attorney's fees and costs and all amounts paid in settlement of any claim, action or suit that may be asserted against ITC or that ITC may incur or suffer that arise out of, result from or relate to (a) WWC's breach of any term, condition or restriction of this Agreement; (b) any claim of any nature whatsoever brought by any party who may suffer damages of any sort as a result of WWC's execution and delivery of this Agreement; or (c) any claim of infringement that arises out of or results from WWC's development, use, manufacture, license or sale of the Licensed Product or any technology that is a part thereof. j. The license granted to ITC hereunder is and shall be irrevocable and non-cancellable. In any judicial, administrative or arbitration action to enforce the terms of section 1, a or 1,b of this Agreement, or in any other action whereby WWC or any other party seeks to cancel, revoke, terminate or restrict the license granted hereunder, the sole and exclusive remedy shall be injunctive relief to restrict ITC from selling the Licensed Product as a stand-alone radio module or product. 2. ITC'S RIGHTS TO RESELL WWC'S PRODUCTS. WWC hereby grants ITC the right to resell the products developed and sold by WWC and its subsidiary X-Tra Web. ITC agrees to abide by the terms of WWC's standard reseller's agreement which WWC offers other reseller organizations, such terms to include provisions such as adequate and timely marketing and product support, appropriate confidentiality, provisions to guarantee timely product delivery, grants to use copyrights and trademarks, advanced notification of product releases, escrow of software source code and hardware engineering documents. Said resellers agreement will grant ITC the non-exclusive right to resell WWC's or X-traWeb's products worldwide into any market or application and to any customer ITC desires, providing (1) that the customer is not actively already buying, or in the buying cycle, the same products from WWC or X-TraWeb or an authorized WWC or X-TraWeb Reseller; and (2) that WWC or X-TraWeb have not granted exclusive rights to other qualified resellers in that market or application prior to the date of this Agreement. All such exclusions and exceptions shall be identified in the reseller agreement to be executed between the parties. Said resellers agreement will not include any provision requiring ITC to order any minimum quantities of WWC's or X-traWeb's products and will stipulate that ITC is to receive "Most-Favored-Nations" pricing from WWC or X-Tra Web. Said resellers agreement is to be completed within 90 days after execution of this agreement. 3. WWC'S RIGHTS TO RESELL ITC'S PRODUCTS. ITC hereby grants WWC the right to resell its standard product line in accordance with ITC's standard resellers agreement as offered to other resellers. Once WWC and ITC sign ITC's resellers agreement, WWC's rights and obligations as a reseller will be governed by the terms of said agreement. WWC's right to resell ITCs products can be terminated in accordance to the terms of ITC's standard resellers agreement. Said resellers agreement is to be completed within 90 days after execution of this agreement. 4. MUTUAL TERMINATION OF AGREEMENTS. The parties agree that all agreements between them, prior to the date hereof, including all agreements that limit, restrict or may be deemed in any way to limit or restrict the parties' respective rights to compete or sell their respective products or services in any market, shall be deemed to be fully satisfied and mutually terminated. 5. WWC WAIVER AND RELEASE. WWC waives and releases ITC, its stockholders, parent company and all subsidiaries and affiliate companies and their respective officers, directors, employees, agents and attorneys from any and all claims, rights, actions, causes of action which exists or might exist under any facts as of the date hereof, whether or not known or discovered, and other than those rights that arise specifically under this Agreement. 6. ITC WAIVER AND RELEASE. ITC waives and releases WWC and all subsidiaries, including but not limited to X-tra Web, Inc., their officers, directors, employees, agents and attorneys from any and all claims, rights, actions, 3 4 causes of action which exists or might exist under any facts as of the date hereof, whether or not known or discovered, and other than those rights that arise specifically under this Agreement. 7. JURISDICTION AND APPLICABLE LAW. This Agreement will governed by the laws of the State of Oklahoma, and any lawsuit hereunder shall be brought only in a federal or state court of competent jurisdiction in the State of Oklahoma, whichever state is the domicile of the party against whom action is first brought. Both parties hereby submit to the personal jurisdiction of said courts for said purpose. 8. ALTERNATIVE DISPUTE RESOLUTION. The parties will attempt in good faith to resolve any controversy or claim arising out of or relating to this Agreement within sixty (60) days by negotiations between senior executives of the parties who have settlement authority and who do not have direct responsibility for the administration of this Agreement. The disputing party shall give the other party written notice of the dispute in accordance with the notice provision of this Agreement. The other party shall submit a response within twenty (20) days after receiving said notice. The notice and response shall include (a) a summary of the partys position and a summary of the evidence and arguments supporting its position, and (b) the name of the executive who will represent the party. The executives shall meet at a mutually acceptable time and place within thirty (30) days of the disputing partys notice and thereafter as often as they deem reasonably necessary to resolve the dispute. If the matter has not been resolved within sixty (60) days of the disputing partys notice, either party may initiate other means of alternative dispute resolution of the controversy in accordance with the appropriate rules and procedures of the Center for Public Resources or American Arbitration Association or pursue its rights and remedies within a court of competent jurisdiction. 9. This Agreement shall bind and inure to the benefit of each of the parties hereto and their respective successors and assigns. Either party may assign this Agreement and the rights and obligations hereunder at any time without the consent of the other party hereto. 10. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the parties pertaining to the subject matter herein and supersedes all prior proposals, written or oral, and may not be supplemented or modified by any course of dealing or usage of trade. This Agreement may be amended or modified only by a writing signed by each party. 11. SEVERABILITY. If any term, provision, covenant or condition of this Agreement is held invalid or unenforceable for any reason, the remainder of the provisions will continue in full force and effect as if this Agreement had been executed with the invalid portion eliminated. The parties further agree to substitute for the invalid provision a valid provision that most closely approximates the intent and economic effect of the invalid provision. 12. RELATIONSHIP OF PARTIES. Each party is an independent contractor and this Agreement shall not be construed to create a relationship of partners, brokers, employees, servants or agents between the parties. The relationship between WWC and ITC relative to the Licensed Product and any use of that product by ITC is that of Licensor and Licensee. 13. HEADINGS. The headings provided in this Agreement are for convenience only and will not be used in interpreting or construing this Agreement. 14. SCOPE OF AGREEMENT. Each of the parties hereto acknowledges that it has read this Agreement, understands it and agrees to be bound by its terms. The parties further agree that this Agreement is the complete and exclusive statement of agreement regarding the subject matter and supersedes all proposals (oral or written), understandings, representations, conditions, warranties, covenants and all other communications between the parties relating thereto. This Agreement may be amended only by a writing that refers specifically to this Agreement and is signed by both parties. WHEREFORE, the parties have entered into this Agreement as of the date first set forth above. 4 5 INTERNET TELEMETRY CORP. WORLD WIRELESS COMMUNICATIONS, INC By: By: Name: Jim Cunningham Name: Donald I. Wallace Title: President Title: Executive Vice President 5 EX-27 3 ex27.txt FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AS OF JUNE 30, 2000, AND STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2000, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS DEC-31-2000 JUN-30-2000 7,089,012 107,748 457,038 (16,086) 215,568 8,014,778 1,196,252 (1,019,675) 8,516,516 615,084 0 0 0 31,192 7,870,240 8,516,516 455,425 455,425 269,971 203,264 0 0 5,243 92,503 0 92,503 0 0 0 92,503 .003 .003
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