-----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, C0I2x9aiZ1U2YgmqHw7ID9WjM8iu0OXICyjMFjFd676I4ZYB6+BDkoUtqvqEI+AC aKhk6vDu3qUBajag1OvnBA== 0001050234-99-000081.txt : 19991103 0001050234-99-000081.hdr.sgml : 19991103 ACCESSION NUMBER: 0001050234-99-000081 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19991102 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WORLD WIRELESS COMMUNICATIONS INC CENTRAL INDEX KEY: 0001031744 STANDARD INDUSTRIAL CLASSIFICATION: COMMUNICATION SERVICES, NEC [4899] STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 333-38567 FILM NUMBER: 99739010 BUSINESS ADDRESS: STREET 1: 150 WRIGHT BROS DR STREET 2: # 570 CITY: SALT LAKE CITY STATE: UT ZIP: 84116 BUSINESS PHONE: 8015756600 MAIL ADDRESS: STREET 1: 150 WRIGHT BROTHERS DR SUITE 570 CITY: SALT LAKE CITY STATE: UT ZIP: 84116 10-Q/A 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q/A AMENDMENT NO. 2 QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended June 30, 1998 Commission file Number 333-38567 WORLD WIRELESS COMMUNICATIONS, INC. (Exact name of registrant as specified in its charter) Nevada 87-0549700 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2441 South 3850 West, West Valley City, Utah 84120 (Address of principal executive offices) (Zip Code) Registrant's telephone number (801) 575-6600 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 30, 1998, there were 11,237,144 shares of the registrant's Common Stock, par value $0.001, issued and outstanding. TABLE OF CONTENTS PAGE PART I. Financial Information Item 1. Financial Statements: Condensed Consolidated Balance Sheets (Unaudited) - June 30, 1998 and December 31, 1997. . . . . . . . . . . . . . 1 Condensed Consolidated Statements of Operations (Unaudited) - for the Six Months ended June 30, 1998 and 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Condensed Consolidated Statements of Cash Flows (Unaudited) - for the Six Months ended June 30, 1998 and 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Notes to Condensed Consolidated Financial Statements (Unaudited). . . . . . . . . . . . . . . . . . . . . . . . . . 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . . . . . . . . . . . 8 PART II. Other Information Item 2 Changes in Securities and Use of Proceeds. . . . . . . . . . . 11 Item 5 Other Information. . . . . . . . . . . . . . . . . . . . . . . 12 Item 6 Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . 12 Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . 14 PART I. FINANCIAL INFORMATION Item 1. Financial Statements WORLD WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) ASSETS June 30, December 31, 1998 1997 ----------- ----------- Current Assets Cash and cash equivalents $ 1,151,201 $ 218,234 Investment in securities available for sale 170,242 188,354 Trade receivables, net allowance 607,584 345,433 Other receivables 119,371 49,208 Inventory 490,658 496,432 Prepaid expenses 232,143 232,143 ----------- ----------- Total Current Assets 2,771,199 1,529,804 ----------- ----------- Equipment 2,620,749 1,589,248 Less accumulated depreciation (823,939) (455,985) ----------- ----------- Net Equipment 1,796,810 1,133,263 ----------- ----------- Goodwill, net of accumulated amortization 6,131,813 6,934,803 ----------- ----------- Other Assets, net of accumulated amortization 444,083 535,154 ----------- ----------- Total Assets $11,143,905 $10,133,024 =========== =========== The accompanying notes are an integral part of these condensed financial statements. 1 WORLD WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED) (UNAUDITED) LIABILITIES AND STOCKHOLDERS' EQUITY June 30, December 31, 1998 1997 ----------- ------------ Current Liabilities Trade accounts payable $ 487,038 $ 524,093 Accrued liabilities 660,804 466,183 Notes payable - current portion 2,557,523 814,925 Capital lease obligation - current portion 381,917 - ----------- ----------- Total Current Liabilities 4,087,282 1,805,201 ----------- ----------- Long-Term Liabilities Notes payable 7,041 34,977 Capital lease obligation 433,018 - ----------- ----------- Total Liabilities 4,527,341 1,840,178 ----------- ----------- 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: 11,235,186 shares at June 30, 1998 and 10,225,260 shares at December 31, 1997 11,300 10,225 Additional paid-in capital 22,373,489 20,915,068 Unearned compensation - (1,410,509) Receivable from shareholder (57,097) (18,409) Accumulated deficit (15,806,370) (11,316,883) Accumulated other comprehensive income 95,242 113,354 ----------- ----------- Total Stockholders' Equity 6,616,564 8,292,846 ----------- ----------- Total Liabilities and Stockholders' Equity $11,143,905 $10,133,024 =========== =========== The accompanying notes are an integral part of these condensed financial statements. 2 WORLD WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the Three Months For the Six Months Ended June 30, Ended June 30, ------------------------- ------------------------- 1998 1997 1998 1997 ----------- ----------- ----------- ----------- Sales $ 1,058,074 $ 1,183,167 $ 2,366,957 $ 1,875,494 Cost of Sales 900,129 626,449 1,556,577 1,070,097 ----------- ----------- ----------- ----------- Gross Profit 157,945 556,718 810,380 805,397 ----------- ----------- ----------- ----------- Expenses Research and development 1,272,763 424,417 1,936,512 1,846,938 Selling, general & administrative 1,269,140 696,254 2,654,236 1,380,840 Amortization of goodwill 401,495 396,482 802,990 602,996 Interest expense 201,076 13,606 225,657 22,597 ----------- ----------- ----------- ----------- Total Expenses 3,144,474 1,530,759 5,619,395 3,853,371 ----------- ----------- ----------- ----------- Gain from Sale of Business Assets - - 319,528 - ----------- ----------- ----------- ----------- Net Loss $(2,986,529) $ (974,041) $(4,489,487) $(3,047,974) =========== =========== =========== =========== Basic and Diluted Loss Per Common Share $ (0.27) $ (0.10) $ (0.42) $ (0.36) =========== =========== =========== =========== Weighted Average Number of Common Shares Used in Per Share Calculation 11,141,692 9,398,213 10,807,073 8,440,219 =========== =========== =========== ===========
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED)
For the Three Months For the Six Months Ended June 30, Ended June 30, ------------------------- ------------------------- 1998 1997 1998 1997 ----------- ----------- ----------- ----------- Net Loss $(2,986,529) $ (974,041) $(4,489,487) $(3,047,974) Other Comprehensive Income Unrealized loss on investments in securities available- for-sale (18,112) - (18,112) - ----------- ----------- ----------- ----------- Comprehensive Loss $(3,004,641) $ (974,041) $(4,507,599) $(3,047,974) =========== =========== =========== =========== The accompanying notes are an integral part of these financial statements.
3 WORLD WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) For the Six Months Ended June 30, ------------------------ 1998 1997 ----------- ----------- Cash Flows From Operating Activities Net loss $(4,489,487) $(3,047,974) Adjustments to reconcile net loss to net cash used by operating activities: Amortization of goodwill 802,990 413,003 Depreciation and amortization of other assets and debt discount 519,057 91,341 Purchased research and development 300,000 1,258,000 Compensation from stock options granted 506,890 265,500 Valuation allowance on inventory and other assets 239,066 - Gain on sale of business assets (319,528) - Changes in operating assets and liabilities, net of effects of business acquired: Accounts receivable, net of allowance (250,904) (380,126) Inventory (158,647) (5,840) Other assets (2,406) 1,792 Accounts payable (37,055) (92,413) Accrued liabilities 207,025 (405,111) ----------- ----------- Net Cash and Cash Equivalents Used By Operating Activities (2,682,999) (1,901,828) ----------- ----------- Cash Flows From Investing Activities Payments for the purchase of property and equipment (141,231) (404,381) Proceeds from sale of SecuriKey business 372,499 - Advance payments to affiliates to be acquired - (133,764) Loan to a related company (56,410) - Proceeds from receivable from shareholder 10,000 - ----------- ----------- Net Cash and Cash Equivalents Provided By (Used By) Investing Activities 184,858 (538,145) ----------- ----------- Cash Flows From Financing Activities Proceeds from issuance of common stock 1,047,407 3,195,251 Proceeds from borrowings, net of discount 2,900,000 50,000 Principal payments on notes payable (389,665) (135,436) Principal payments on capital lease obligation (126,634) - ----------- ----------- Net Cash and Cash Equivalents Provided By Financing Activities 3,431,108 3,109,815 ----------- ----------- Net Increase In Cash and Cash Equivalents 932,967 669,842 Cash and Cash Equivalents- Beginning of Period 218,234 37,278 ----------- ----------- Cash and Cash Equivalents - End of Period $ 1,151,201 $ 707,120 =========== =========== (Continued) The accompanying notes are an integral part of these condensed financial statements. 4 WORLD WIRELESS COMMUNICATIONS, INC AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (UNAUDITED) Supplemental Cash Flow Information - For the Six Months Ended June 30, ------------------------- 1998 1997 ----------- ----------- Interest Paid $ 35,306 $ 8,186 Noncash Investing and Financing Activities - During the six months ended June 30, 1997, $1,970 in long-term debt was converted into 5,630 shares of common stock at $0.35 per share. 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 six months ended June 30, 1998, the Company entered into certain capital leases for computer equipment and related software valued at $900,993. The Company issued a total of 98,926 shares of common stock of which 10,000 shares, valued at $75,000, or $7.50 per share, were issued as a preliminary cost towards obtaining a manufacturing contract, 60,000 shares, valued at $300,000, or $5.00 per share, were issued as payment for radio technology, 5,000 shares, valued at $25,000, or $5.00 per share, were issued in exchange for a note receivable, and 256,926 shares were issued on the exercise of stock options by an employee, for which the Company received a note in the amount of $47,852. The accompanying notes are an integral part of these condensed financial statements. 5 WORLD WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 - INTERIM CONDENSED 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, 1997 annual financial statements of the Company. The results of operations for the six month period ended June 30, 1998 are not necessarily indicative of the operating results to be expected for the full year. NOTE 2-COMMON STOCK During the second quarter of 1998, the Company issued 176,000 shares on the exercise of options for which the Company received $62,170 in cash, with an average exercise price of $0.35 per share. NOTE 3-ACQUISITION OF PURCHASED RESEARCH & DEVELOPMENT In May 1998, the Company acquired proprietary and 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 other radio products. 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 $66,450 to the seller to retire certain business debts. Of this amount, $41,450 was paid in cash and carries simple 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 on demand after the earlier of (1) registration by the Company of the 60,000 shares of common stock or (2) June 22, 1999. NOTE 4-RESTATEMENT The Company corrected the amortization period for goodwill associated with the acqusition of Digital Radio from 15 to 5 years. As a result of the change in the amortization period, amortization of goodwill for the three and six months ended June 31, 1998 increased $279,263 and $558,526, respectively. As a result of this change, net loss for the three months ended June 30, 1998 increased $279,263, or $0.03 per share, and net loss for the six-months ended June 30, 1998 increased $558,526 or $0.06 per share. NOTE 5-BRIDGE LOANS In May 1998, the Company executed certain bridge loans, in the amount of $2,500,000. The notes were initially issued with interest at 10%, and later the notes were modified, retroactively, to bear interest at 16%. 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. Proceeds from additional issuances to the Company's principal shareholders are exempt from this requirement. The notes may be voluntarily prepaid, without penalty or premium, in whole or in part, at any time. Any prepayment must include all accrued interest on the principal being prepaid, through the date of prepayment. 6 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, which was later reduced to $0.75 per share. The warrants expire on May 15, 2003. The quantity of warrants are subject to adjustment under certain circumstances, such as stock splits. In the event the Company fails to repay the notes at their maturity, the Company can be required to issue warrants to purchase up to an additional 333,333 shares 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. 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 was credit to additional paid-in capital. The remaining $1,632,144 of the proceeds was allocated to notes payable. The fair value of the warrants was estimated on the date issued using the Black-Scholes option-pricing model with the following assumptions: dividend yield of 0.0%, expected volatility of 64.0%, risk-free interest rate of 5.0% and expected life of the warrants of 5 years. Interest expense from the amortization of the discount on the notes payable was $108,482 during the three months ended June 30, 1998. NOTE 6-REPURCHASE OF UNVESTED EMPLOYEE STOCK OPTIONS In April 1998, the Board of Directors approved the repurchase of 638,236 unvested employee stock options which were for $6,382, or $0.01 per share granted during the fourth quarter of 1997. The Company has recognized compensation expense, relating to these options, of $412,005 in the first quarter of 1998 and $94,886 in April 1998. As a result of the repurchase, the Company eliminated $903,619 of unrecognized deferred compensation. NOTE 7-SUBSEQUENT EVENTS In July 1998, the Company entered into a building lease and will bring together, its corporate headquarters, manufacturing facilities and its main engineering facilities. The Company anticipates moving into these new facilities in October 1998. The lease is for a period of seven years with a monthly lease payment of $23,922 and annual increases of 2.5%. Total future minimum lease payments are $2,166,588. 7 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, 1998 and 1997 ----------------------------------------- Sales in the six-month period ended June 30, 1998, were $2,366,957 compared to sales of $1,875,494 during the six-month period ended June 30, 1997. The Company's principal source of revenue for the six months ended June 30, 1998, was a design and development contract with Williams Telemetry, a Williams company, in the amount of $1,766,073. Other significant revenues include contract manufacturing of $283,660 and sales of the Company's own branded goods of $219,625. Significant revenues for 1997 were derived from an engineering contract with Kyushu Matsushita Electric Co. ("KME") in the amount of $1,164,000 and contract manufacturing services, including sales of SecuriKey products, of $711,494. The SecuriKey business was sold to a prior employee/shareholder and no revenues were recorded in 1998. Cost of sales for the six months ended June 30, 1998, were $1,556,577 compared to cost of sales for the six-month period ended June 30, 1997, of $1,070,097. Cost of sales as a percentage of sales increased from 57% to 66% in the current period. The related gross profit for the six months ended June 30, 1998 was $810,380 or 34% of sales compared to $805,397 or 43% of sales for the six-month period ended June 30, 1997. The decline in gross profit resulted from a change in the mix of revenues (fee for services versus contract manufacturing) and costs charged to engineering contracts that were not billable. The Company incurred research and development costs of $1,936,512 during the six months ending June 30, 1998, relating to the development of existing proprietary technology that the Company believes it will be able to sell to existing customers and subsequently modify at the customers' expense. Additionally, resources were expended for the development of the Company's proprietary radios. Included in the $1,936,512 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 current period was greater than the amount spent for the six month period ended June 30, 1997 of $1,846,938, 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 six months ended June 30, 1998 increased to $2,654,236 from $1,380,840 for the six-month period ended June 30, 1997. Included in the $2,654,236 is $410,582 of non-cash compensation relating to the grant of stock options in December 1997. Such increase also reflected a substantial increase in the number of employees of the Company to approximately 90 in the current year as compared to approximately 50 employees at June 30, 1997. Subsequent to June 30, 1998, the Company reduced its employees by approximately 20%. In addition, the Company 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 anticipates the elimination of duplicate administrative efforts by consolidating into one facility during October 1998. Interest expense for the six months ended June 30, 1998, increased to $225,657 from $22,597 for the six-month period ended June 30, 1997, which increase was attributable to the greater amount of the Company's outstanding borrowings during the current year. The Company's net loss of $4,489,487 for the six months ended June 30, 1998, represents an increase from the net loss of $3,047,974 for the six months ended June 30, 1997, as a result of the above items. 8 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. Liquidity and Capital Resources ------------------------------- The Company's liquidity at June 30, 1998 decreased compared to June 30, 1997. Current assets increased by $815,901, although, short term borrowings increased by $3,284,583. 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 or around 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 exercise price of $2.50 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. 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, the Company anticipates obtaining additional financing of at least $5,000,000 through the sale of its equity securities but no such financing has been consummated. Moreover, there can be no assurance that the Company will be able to obtain any additional capital or, if so, on terms acceptable to it. On December 19, 1997, the Company received initial orders for equipment from Williams Telemetry, a Williams company. The orders cover a variety of products, such as the WinGate(TM), radio transmitters and receivers and spread spectrum transceivers. These radio products were designed by, and with the WinGate, will be manufactured by the Company and will be used by Williams Telemetry through its information gathering system. Initial shipments began during July, 1998 and are anticipated to increase significantly during calendar 1999. Total shipments under the contract are expected to be completed in full by the end of the year 2000. If all expectations are met, sales under the orders would potentially reach $70 million. Order quantities and shipping dates, however, are subject to adjustment by Williams upon 90-day notice prior to the scheduled delivery date, if its customers or other factors beyond its control make such adjustment necessary. At the present time, therefore, orders can be considered "firm" as to quantities and delivery dates only with respect to units scheduled for shipment in the following quarter. The Company also contracted with Williams for project management and engineering design and support services relative to the Williams Telemetry network on a fee-for-service basis. Outlook ------- The statements contained in this Outlook are based on current expectations. These statements are forward looking and actual results may differ materially. 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. Management believes that the Company's relationship with Williams will result in significant increases in sales of its radio products for use in the Williams Telemetry Network. Significant increases in sales, however, would 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 investigating the prospects of a private placement and 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. 9 The Company entered into a 7-year lease for a 34,000 square foot facility in West Valley City, Utah. Occupancy date is October 15, 1998. The Company will consolidate its American Fork, Utah 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, 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. Management believes shipments of KME products containing the company's technology will begin during the third quarter of 1998, and that royalty payments from the contract will begin during the fourth quarter of 1998. Additionally, management intends to enter into follow-on contracts with KME , whereby the Company receives fees during the early stages of the agreement and is entitled to royalties or gross profit splits based upon its customers' sales of products into which the technology has been incorporated. 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. Royalties or gross profit splits resulting from sales of products using the technology developed under the contract would enhance the Company's profitability if and when received. In anticipation of obtaining additional design and development contracts, management must continually recruit and hire additional RF (radio frequency), software, firmware and digital engineers. 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. Impact of the Year 2000 ----------------------- Many computer systems experience problems handling dates beyond the year 1999. The Company continues to evaluate its computer systems and believes, based upon representations from its software suppliers, that its operating systems are substantially year 2000 compliant. 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. 10 PART II. OTHER INFORMATION Item 2. Changes in Securities and Use of Proceeds 1. In April, 1998, the Company issued for cash 80,000 shares of its Common Stock to Brian Pettersen at a price of $0.35 per share pursuant to his exercise of certain stock options. The shares were issued in reliance upon Section 4(2) of the Securities Act of 1933, as amended (the "Act") and Rule 506 of Regulation D promulgated thereunder. The Company believes that Mr. Pettersen is an accredited investor. 2. In May, 1998, the Company issued for cash 1,000 shares of its Common Stock to Stuart Biddulph at a price of $2.00 per share pursuant to his exercise of certain stock options. The shares were issued in reliance upon Section 4(2) of the Act and Rule 506 of Regulation D promulgated thereunder. The Company believes that Mr. Biddulph, as an officer and employee of the Company, either alone or through a purchaser representative, has such knowledge in business and financial matters at to be able to evaluate the merits and risks of an investment in the Company. 3. In May, 1998, the Company issued for cash 54,000 shares of its Common Stock to Gary Peterson at a price of $0.33 per share pursuant to his exercise of certain stock options. The shares were issued in reliance upon Section 4(2) of the Act and Rule 506 of Regulation D promulgated thereunder. The Company believes that Mr. Peterson, as an officer and employee of the Company, either alone or through a purchaser representative, has such knowledge in business and financial matters as to be able to evaluate the merits and risks of an investment in the Company. 4. In May, 1998, the Company issued 60,000 shares of its Common Stock to Asyst, Inc. valued at $5.00 per share for partial consideration to purchase assets from Asyst, Inc. The shares were issued in reliance upon Section 4(2) of the Act and Rule 506 of Regulation D promulgated thereunder. The Company believes that Asyst, Inc., either alone or through a purchaser representative, has such knowledge in business and financial matters as to be able to evaluate the merits and risks of an investment in the Company. 5. In May, 1998, the Company issued 5,000 shares of its Common Stock, 2,500 shares each to Gerald Van Mondfrans and Robert Hall valued at $5.00 per share. The shares were issued in connection with the asset purchase from Asyst, Inc., discussed above, and were issued for an unsecured demand note receivable from the two individuals. The shares were issued in reliance upon Section 4(2) of the Act and Rule 506 of Regulation D promulgated thereunder. The Company believes that Mr. Mondfrans and Mr. Hall, either alone or through a purchaser representative, has such knowledge in business and financial matters as to be able to evaluate the merits and risks of an investment in the Company. 6. In May, 1998, the Company executed notes payable of $2,500,000 of its 10% Senior Secured Notes maturing on May 15, 1999 (the "1998 Notes"), and warrants to purchase 250,000 shares of its Common Stock at an exercise price of $3.00 per share expiring on May 15, 2003, to the seven purchasers listed and in the amount set forth below: Principal Amount Number of Shares Name of of of Common Purchaser 1998 Note Stock Subject to Warrants --------------------------------------------------------------------- The McCloskey Trust $ 1,100,000 110,000 DPM Investment Corp. $ 100,000 10,000 Frying Pan Partners, LLC $ 100,000 10,000 CJL Investments, LLC $ 200,000 20,000 Warren Palitz $ 125,000 12,500 Scott Ryan $ 125,000 12,500 K.R. Braithwaite $ 750,000 75,000 11 The 1998 Notes were subsequently modified retroactively to bear a 16% interest rate. The 1998 Notes and the warrants to purchase the Company's Common Stock listed above were issued in reliance upon Section 4(2) of the Act and Rule 506 of Regulation D promulgated thereunder. The Company believes that each of the above purchasers is an accredited investor. 7. In May, 1998, the Company issued for cash 2,000 shares of its Common Stock to Russel Redgate at a price of $2.00 per share. The shares were issued in reliance upon Section 4(2) of the Act and Rule 506 of Regulation D promulgated thereunder. The Company believes that Mr. Redgate is an accredited investor. 8. In June, 1998, the Company issued for cash 41,000 shares of its Common Stock to Brian Pettersen at a price of $0.35 per share pursuant to his exercise of certain stock options. The shares were issued in reliance upon Section 4(2) of the Act and Rule 506 of Regulation D promulgated thereunder. The Company believes that Mr. Pettersen is an accredited investor. Item 5. Other Information During the second quarter James L. O'Callaghan joined the Company as Chief Financial Officer. Item 6. Exhibits and Reports on Form 8-K (a) 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 period ended June 30, 1998. The Exhibits which are listed on the Exhibit Index attached hereto. EXHIBIT INDEX No. 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 Fosman 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 T Elemetry 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 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 (updated) 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 Paine Webber Incorporated* 10.15 $40,000 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 ddated 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 purchases 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 Gigarange telephone* 10.26 Agreement between KME and the Registrant dated as of May 1, 1998 relating to the Panasonic MicroCast System* 10.27 General and Mutual Release Agreement between the Registrant and Phil Acton dated November 8, 1998*+ 10.28 Agreement and Waiver Agreement by and among the Registrant and the Bridge Noteholders dated Novebmer 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* 27 Financial Data Schedules** - -------------- ** Filed herewith * Filed previously + Management contract or compensatory plan or arrangement filed previously (b) No reports on Form 8-K were filed by the Registrant during the quarterly period covered by this report. 13 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. World Wireless Communications Date: October 7, 1999 By: /S/ David D. Singer --------------------------- David D. Singer President, Chief Executive Officer Principal Accounting Officer EX-27 2
5 This schedule is an Amended Financial Data Schedule and contains summary financial information extracted from the balance sheet as of June 30, 1998, and statements of operations for the six months ended June 30, 1998, and is qualified in its entirety by reference to such financial statements. 6-MOS DEC-31-1998 JUN-30-1998 1,151,201 170,242 756,955 (30,000) 490,658 2,771,199 2,620,749 (823,939) 11,143,905 4,087,282 440,059 0 0 11,300 6,605,264 11,143,905 1,058,074 1,058,074 900,129 900,129 2,943,398 0 201,076 (2,986,529) 0 (2,986,529) 0 0 0 (2,986,529) (0.27) (0.27)
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