-----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, FfDX7HZLMsIwL5SAby35TJ7k0eKilVW6cAXRaRJalO1Rqaf6MtUboH6or+Jz6oRU p9ouZX7xQoocG4otReAvTQ== 0001050234-99-000082.txt : 19991103 0001050234-99-000082.hdr.sgml : 19991103 ACCESSION NUMBER: 0001050234-99-000082 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 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: 99739036 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 QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended September 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 150 Wright Brothers Drive, Suite 560, Salt Lake City, Utah 84116 ---------------------------------------------------------------- (Former address, if changed since last report) 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 November 11, 1998, there were 11,290,643 shares of the registrant's Common Stock, par value $0.001, issued and outstanding. TABLE OF CONTENTS PART I. Financial Information Item 1. Financial Statement: Condensed Consolidated Balance Sheets (Unaudited) - September 30, 1998 and December 31, 1997 . . . . . . . . . . . . . .1 Condensed Consolidated Statements of Operations (Unaudited) - for the Three and Nine Months Ended September 30, 1998 and 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 Condensed Consolidated Statements of Cash Flows (Unaudited) - for the Nine Months Ended September 30, 1998 and 1997. . . . . . .4 Notes to Condensed Consolidated Financial Statements (Unaudited) . .5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation . . . . . . . . . . . . . . . . . . . . . .8 PART II. Other Information Item 5 Other Information. . . . . . . . . . . . . . . . . . . . . . . . . 11 Item 6 Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . 11 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 PART I. FINANCIAL INFORMATION Item 1. Financial Statements WORLD WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) ASSETS September 30, December 31, 1998 1997 ---------- ----------- Current Assets Cash and cash equivalents . . . . . . . . . . . . . .$ 128,510 $ 218,234 Investment in securities available for sale . . . . . 130,399 188,354 Trade receivables, net of allowance for doubtful accounts. . . . . . . . . . . . . . . . . . . . . . 610,775 345,433 Other receivables . . . . . . . . . . . . . . . . . . 123,468 49,208 Inventory . . . . . . . . . . . . . . . . . . . . . . 570,318 496,432 Prepaid expenses. . . . . . . . . . . . . . . . . . . - 232,143 ---------- ----------- Total Current Assets . . . . . . . . . . . . . . . 1,563,470 1,529,804 ---------- ----------- Equipment . . . . . . . . . . . . . . . . . . . . . . 2,666,619 1,589,248 Less accumulated depreciation . . . . . . . . . . . .(1,056,148) (455,985) ---------- ----------- Net Equipment. . . . . . . . . . . . . . . . . . . 1,610,471 1,133,263 ---------- ----------- Goodwill, net of accumulated amortization. . . . . . . 1,007,889 7,214,066 ---------- ----------- Other Assets, net of accumulated amortization. . . . . 478,841 535,154 ---------- ----------- Total Assets . . . . . . . . . . . . . . . . . . . . .$4,660,671 $10,412,287 The accompanying notes are an integral part of these condensed consolidated financial statements. -1- WORLD WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED) (UNAUDITED) LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) September 30, December 31, 1998 1997 ----------- ------------ Current Liabilities Trade accounts payable. . . . . . . . . . . . . . . $ 935,558 $ 524,093 Accrued liabilities . . . . . . . . . . . . . . . . 492,133 466,183 Notes payable - current portion . . . . . . . . . 2,775,895 814,925 Capital lease obligation - current portion . . . . 455,317 - ----------- ----------- Total Current Liabilities. . . . . . . . . . . . . 4,658,903 1,805,201 ----------- ----------- Long-Term Liabilities Notes payable . . . . . . . . . . . . . . . . . . . 4,224 34,977 Capital lease obligation. . . . . . . . . . . . . . 398,601 - ----------- ----------- Total Long-Term Liabilities . . . . . . . . . . . 402,825 34,977 ----------- ----------- Stockholders' Equity (Deficit) 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: 11,237,144 shares at September 30, 1998 and 10,225,260 shares at December 31, 1997 . . . 11,237 10,225 Additional paid-in capital. . . . . . . . . . . . . 22,562,218 20,915,068 Unearned compensation . . . . . . . . . . . . . . . - (1,410,509) Receivable from shareholder . . . . . . . . . . . . (59,078) (18,409) Accumulated deficit . . . . . . . . . . . . . . . . (22,970,833) (11,037,620) Accumulated other comprehensive income. . . . . . . 55,399 113,354 ----------- ----------- Total Stockholders' Equity (Deficit) . . . . . . . (401,057) 8,572,109 ----------- ----------- Total Liabilities and Stockholders' Equity (Deficit). . . . . . . . . . . . . . . . . . $ 4,660,671 $10,412,287 =========== =========== The accompanying notes are an integral part of these condensed consolidated financial statements. -2- WORLD WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the Three Months For the Nine Months Ended September 30, Ended September 30, ------------------------- -------------------------- 1998 1997 1998 1997 ----------- ----------- ------------ ----------- Sales. $ 1,184,759 $ 496,125 $ 3,551,716 $ 2,371,619 Cost of Sales. . . . . . . . . . . . 1,184,174 788,072 2,740,751 1,858,169 ----------- ----------- ------------ ----------- Gross Profit . . . . . . . . . . . . 585 (291,947) 810,965 513,450 ----------- ----------- ------------ ----------- Expenses Research and development . . . . . 544,105 392,205 2,480,617 2,239,143 Selling, general and administrative 973,414 829,555 3,627,650 2,210,395 Amortization of goodwill . . . . . 122,232 382,638 366,696 985,634 Impairment of goodwill. . . . . . 5,839,481 - 5,839,481 - Interest expense . . . . . . . . . 523,606 11,829 749,262 34,426 ----------- ----------- ------------ ----------- Total Expenses. . . . . . . . . 8,002,838 1,616,227 13,063,706 5,469,598 Gain from Sale of SecuriKey Business . . . . . . . . . . . - - 319,528 - ----------- ----------- ------------ ----------- Net Loss . . . . . . . . . . . . $(8,002,253) $(1,908,174) $(11,933,213) $(4,956,148) =========== =========== ============ =========== Basic and Diluted Loss Per Common Share . . . . . . . . . $ (0.72) $ (0.20) $ (1.06) $ (0.52) =========== =========== ============ =========== Weighted Average Number of Common Shares Used in Per Share Calculation. . . . . . . 11,141,692 9,398,213 11,236,703 9,513,177 ============ =========== ============ =========== The accompanying notes are an integral part of these condensed consolidated financial statements.
-3- WORLD WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) For the Nine Months Ended September 30, ---------------------------- 1998 1997 ------------- ------------ Cash Flows From Operating Activities Net loss . . . . . . . . . . . . . . . . $ (11,933,213) $ (4,956,148) Adjustments to reconcile net loss to net cash used by operating activities: Amortization of goodwill . . . . . . . . . . 366,696 985,634 Impairment of goodwill . . . . . . . . . . . . 5,839,481 - Depreciation and amortization of other assets and debt discount . . . . . . . . . . . . . . 661,594 212,149 Purchased research and development. . . . . . . 300,000 1,258,000 Compensation from stock options granted. . . . 322,140 265,500 Interest paid with stock options . . . . . . . 184,750 - Stock issued for acquisition of contract . . . 75,000 - Gain on sale of SecuriKey business . . . . . . (319,528) - Changes in operating assets and liabilities, net of effects of business acquired: Accounts receivable . . . . . . . . . . . . (286,011) 148,666 Inventory . . . . . . . . . . . . . . . . . (73,886) (16,694) Other assets. . . . . . . . . . . . . . . . 614,028 3,170 Accounts payable. . . . . . . . . . . . . . 411,465 (186,415) Accrued liabilities . . . . . . . . . . . . 123,354 (402,257) ------------- ------------ Net Cash and Cash Equivalents Used By Operating Activities. . . . . . . . . . . . . . (3,714,130) (2,688,395) ------------- ------------ Cash Flows From Investing Activities Payments for the purchase of property and equipment. . . . . . . . . . . . . . . . . . . (187,101) (566,705) Proceeds from sale of property and equipment . . - 10,754 Proceeds from sale of SecuriKey business . . . . 372,499 - Advance payments to affiliates to be acquired. . - (224,764) Loan to an affiliate. . . . . . . . . . . . . . (43,591) - Proceeds from receivable from shareholder . . . 10,000 - ------------- ------------ Net Cash and Cash Equivalents Provided By (Used By) Investing Activities. . . . . . . . 151,807 (780,715) ------------- ------------ Cash Flows From Financing Activities Proceeds from issuance of common stock . . . . . 1,051,323 4,196,218 Proceeds from borrowings, net of discount. . . . 2,900,000 103,678 Principal payments on notes payable. . . . . . . (391,073) (144,601) Principal payments on capital lease obligation . (87,651) - ------------- ------------ Net Cash and Cash Equivalents Provided By Financing Activities. . . . . . . . . . . . . . 3,472,599 4,155,295 ------------- ------------ Net Increase (Decrease) In Cash and Cash Equivalents . . . . . . . . . . . . . . . . (89,724) 686,185 Cash and Cash Equivalents- Beginning of Period . . 218,234 37,278 ------------- ------------ Cash and Cash Equivalents - End of Period. . . . .$ 128,510 $ 723,463 ============= ============ (Continued) WORLD WIRELESS COMMUNICATIONS, INC AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (UNAUDITED) Supplemental Cash Flow Information - For the Nine Months Ended September 30, ---------------------------- 1998 1997 ------------- ------------ Interest Paid . . . . . . . . . . . . . . $ 239,067 $ 34,126 ============= ============ Noncash Investing and Financing Activities - During the nine months ended September 30, 1998, the Company entered into certain capital leases for computer equipment and related software valued at $900,993. The Company issued 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 for a note receivable, and 23,926 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. During the nine months ended September 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, the Company advanced $118,764 to Digital Radio. In conjunction with the acquisition of Digital Radio 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 ========== WORLD WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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 report on Form 10-K. The results of operations for the nine month period ended September 30, 1998 are not necessarily indicative of the operating results to be expected for the full year. NEW ACCOUNTING STANDARDS - In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards 133 (SFAS 133), Accounting for Derivative Instruments and Hedging Activities. SFAS 133 establishes accounting and reporting standards requiring that every derivative instrument, including certain derivative instruments embedded in other contracts, be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS 133 requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. SFAS 133 is effective for the year beginning January 1, 2000, and will not require retroactive restatement of prior period financial statements. The Company has not yet quantified the impact of adopting SFAS 133 on its financial statements, but does not expect the impact to be material. NOTE 2-COMMON STOCK During the third quarter of 1998, the Company issued 1,958 shares on the exercise of options for which the Company received $3,916 in cash, with an average exercise price of $2.00 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 $66,975 to the seller to retire certain business debts. Of this amount, $41,975 was paid in cash and carries interest at 10%. The balance of $25,000 was advanced through the issuance of 5,000 common shares, valued at $5.00 per share, to two creditors of the seller. The seller executed an unsecured promissory note which is due on demand after the earlier of registration by the Company of the 60,000 shares of common stock or June 22, 1999. NOTE 4-BRIDGE LOANS AND WARRANTS 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% per annum, and later the notes were modified, retroactively, to bear interest at 16% per annum. The interest is payable quarterly, commencing on August 15, 1998. The notes are due on May 15, 1999 and are secured by substantially all of the assets of the Company. The notes become due earlier on a pro-rated basis if the Company receives proceeds from issuance of equity securities. Proceeds from the sale of securities to the Company's principal shareholder group are exempt from this requirement. 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. 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 of common stock, exercisable for up to five years at an exercise price of $2.50 per share, payable at the rate of 83,333 shares of common stock for each 90-day period during which the default continues. The Company is obligated to register the underlying shares and bear the cost burden of such registration. The detachable warrants had a fair value of $867,856, or $3.47 per warrant on the date issued, which has been accounted for as a discount of the related notes and a credit to additional paid-in capital. The remaining $1,632,144 of the loan's 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 $510,195 during the three months ended September 30, 1998. NOTE 5-REPURCHASE OF UNVESTED EMPLOYEE STOCK OPTIONS In April 1998, the Board of Directors approved the repurchase of 638,236 unvested employee stock options for $6,382, or $0.01 per share which were granted during the fourth quarter of 1997. The Company has recognized compensation expense, relating to these options, of $412,005 and $94,886 in the first and second quarters, respectively. As a result of the repurchase, the Company eliminated $903,619 of unearned compensation. NOTE 6-LEASE COMMITMENTS Subsequent to June 30, 1998, the company entered into an operating lease agreement to lease a building which allows the Company to bring together its corporate headquarters, manufacturing facilities and its main engineering facilities. The future minimum lease payments for leases as of September 30, 1998 are as follows: For the Year Ending December 31, Capital Operating -------------------- --------- ----------- 1998 $ 41,467 $ 90,831 1999 163,172 362,554 2000 130,605 348,492 2001 16,048 287,064 Thereafter - 946,566 --------- ----------- Total Minimum Payments 351,292 $ 2,035,507 =========== Less amount representing (40,100) --------- Present value of net minimum lease payments $ 311,192 ========= NOTE 7-CONTINGENCIES PURCHASED SOFTWARE RETURNED -The Company leased computer aided design software which did not perform as specified; the software, which cost $550,887, was returned to the seller. The Company has requested a cancellation of the $735,207 debt including a technical support agreement in the amount of $184,320. The seller has retained an attorney in an attempt to collect the debt. The Company is currently negotiating with the attorney to settle the matter. SETTLEMENT OF UNASSERTED CLAIM - Although formal legal action was not initiated, a former officer of the Company threatened litigation against the Company following his resignation as an officer and as a director in October 1997. The resignation was the result of a dispute over compensation involving, among other things, a claim by the former officer and director that the Company had agreed to grant him options to purchase 275,000 shares of the Company's common stock at a price of $2.00 per share in connection with his employment, and had later disaffirmed such obligation. During November 1998, the former officer and the Company agreed to a General Mutual Release (the "Release") wherein the Company agreed to pay $4,000 for accrued salary and other compensation, and to issue the former officer stock options to purchase 55,000 common shares at $6.50 per share expiring in three years from the date of the Release. The options had a fair value of $10,063 on the grant date. NOTE 8-IMPAIRMENT OF GOODWILL As of September 30, 1998, the Company evaluated the recoverability of the Digital Radio goodwill and determined that circumstances now indicate an inability to recover the carrying amount. Accordingly, impairment loss of $5,839,481 has been recognized during the third quarter of 1998 to adjust the carrying amount to its estimated net future cash flows. Based on future expected cash flows from technology acquired from Digital Radio, the value of the asset group, including goodwill, was reduced to approximately $900,000 with goodwill comprising $600,000 of that amount. NOTE 9-COMPREHENSIVE LOSS The Company adopted SFAS No. 130, Reporting of Comprehensive Income, as of the beginning of 1998. SFAS No. 130 establishes standards for the reporting and display of comprehensive income or loss and its components. Other comprehensive income of the Company consists of unrealized losses on investment in securities available-for-sale. SFAS No. 130 does not affect the measurement of the items included in other comprehensive income; it only affects where those items are displayed and how they are described. Comprehensive loss is computed as follows:
For the Three Months For the Nine Months Ended September 30, Ended September 30, ------------------------- -------------------------- 1998 1997 1998 1997 ----------- ----------- ------------ ----------- Net Loss $(8,002,253) $(1,908,174) $(11,933,213) $(4,956,148) Other Comprehensive Income Unrealized loss on investment in securities available-for-sale (39,843) - (57,955) - ----------- ----------- ------------ ----------- Comprehensive Loss $(8,042,096) $(1,908,174) $(11,991,168) $(4,956,148) =========== =========== ============ ===========
NOTE 10-SUBSEQUENT EVENTS Subsequent to September 30, 1998, the Company issued 53,499 shares of common stock upon the exercise of options for which the Company received $40,333 in cash, at an average exercise price of $0.75 per share. Additionally, the Company issued 30,247 shares of common stock in payment of accrued interest of $15,123 or $0.50 per share. 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 September 30, 1998 and September 30,1997 Sales in the three-month period ended September 30, 1998, were $1,184,759 compared to sales of $496,125 during the three-month period ended September 30, 1997. The Company's principal source of revenue for the three-months ended September 30, 1998, was a design and development contract with Williams Telemetry, a Williams company, in the amount of $600,663 and design and development project for Kyushu Matsushita Electric Co. ("KME"), in the amount of $210,975. Other significant revenues include contract manufacturing of $161,036 and sales of the Company's own branded goods of $112,085. Significant revenues for 1997 were derived from an engineering contract with KME in the amount of $432,000. Cost of sales for the three-months ended September 30, 1998, were $1,184,174 compared to cost of sales for the three-month period ended September 30, 1997, of $788,072. Cost of sales as a percentage of sales decreased from 159% to100% in the three-months ended September 30, 1998. The related gross profit for the three-months ended September 30, 1998 was $585 compared to $(291,947)for the three-month period ended September 30, 1997. The Company incurred research and development costs of $544,105 during the three-months ending September 30, 1998, compared to $392,205 during the three-months ending September 30, 1997. These costs relate to the development of proprietary data radio technology. The Company's selling, general and administrative expenses for the three-months ended September 30, 1998 increased to $973,414 from $829,555 for the three-month period ended September 30, 1997. During the three months ended September 30, 1998, the Company reduced its employees by approximately 30%. However, the Company had increased the number of its higher paid employees as a result of acquisitions in 1997. The Company also increased staffing in anticipation of the launch of the Company's proprietary radio products. The increase in costs was also attributable to its maintenance of duplicate administrative facilities and related administrative expenses by virtue of its two business locations in Utah. Management eliminated duplicate administrative efforts by consolidating into one facility during October 1998. The Company's management evaluated the recoverabilty of the goodwill attributable to the acquisition of Digital Radio Communications Corporation and circumstances now indicate the inabilty to recover the carrying amount. Accordingly, impairment of this asset of $5,839,481 has been recognized during the three month period ended September 30, 1998 Interest expense for the three-months ended September 30, 1998, increased to $523,606 from $11,829 for the three-month period ended September 30, 1997, which increase was attributable to the greater amount of the Company's outstanding borrowings during the current period. Of which $401,714 resulted from the amortization of debt discount. The Company's net loss of $8,002,253 for the three-months ended September 30, 1998, represents an increase from the net loss of $1,908,174 for the three-months ended September 30, 1997, as a result of the above items. Nine Months Ended September 30, 1998 and September 30,1997 Sales in the nine-month period ended September 30, 1998, were $3,551,716 compared to sales of $2,371,619 during the nine-month period ended September 30, 1997. The Company's principal source of revenue for the nine-months ended September 30, 1998, was a design and development contract with Williams Telemetry, a Williams company, in the amount of $2,366,736. Other significant revenues include contract manufacturing of $439,108 and sales of the Company's own branded goods of $331,710. Significant revenues for 1997 were derived from an engineering contract with Kyushu Matsushita Electric Co. ("KME") in the amount of $1,296,000 and contract manufacturing services, including sales of SecuriKey products, of $775,619. The SecuriKey business was sold to a prior employee/shareholder and no revenues were recorded in 1998. Cost of sales for the nine-months ended September 30, 1998, were $2,740,751 compared to cost of sales for the nine-month period ended September 30, 1997, of $1,858,169. Cost of sales as a percentage of sales decreased from 78% to77% in the nine-months ended September 30, 1998. The related gross profit for the nine-months ended September 30, 1998 was $810,965 or 23% of sales compared to $513,450 or 22% of sales for the nine-month period ended September 30, 1997. The Company incurred research and development costs of $2,480,617 during the nine-months ending September 30, 1998, relating to the development of proprietary technology. Included in the $2,480,617 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 nine-month period ended September 30, 1998 was greater than the amount spent for the nine-month period ended September 30, 1997 of $2,239,143 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 nine-months ended September 30, 1998 increased to $3,627,650 from $2,210,395 for the nine-month period ended September 30, 1997. Included in the $3,627,650 is $506,891 of non-cash compensation relating to the grant of stock options in December 1997. Such increase also reflected a substantial increase in the average number of employees of the Company to approximately 90 in the current year as compared to an average of approximately 50 employees in the prior year. During the three months ended September 30, 1998, the Company reduced its employees by approximately 30%. However, the Company had increased the number of its higher paid employees as a result of acquisitions in 1997. The Company also increased staffing in anticipation of the launch of the Company's proprietary radio products. The increase in costs was also attributable to its maintenance of duplicate administrative facilities and related administrative expenses by virtue of its two business locations in Utah. Management eliminated duplicate administrative efforts by consolidating into one facility during October 1998. Interest expense for the nine-months ended September 30, 1998, increased to $749,262 from $34,426 for the nine-month period ended September 30, 1997, which increase was attributable to the greater amount of the Company's outstanding borrowings during the current year. Of which $510,195 resulted from the amortization of debt discount. The Company's net loss of $11,933,213 for the nine-months ended September 30, 1998, represents an increase from the net loss of $4,956,148 for the nine-months ended September 30, 1997, as a result of the above items. During April 1998, the Board of Directors approved the repurchase of unvested employee stock options at a price of $0.01 per share. These options were granted during the fourth quarter of 1997. The repurchase enables the Company to discontinue charging the difference between fair market value in the stock at the time of option grant and the option exercise price to operations. Liquidity and Capital Resources The Company's liquidity at September 30, 1998 decreased compared to December 31, 1997. Current assets increased by $33,666 although, short term borrowings increased by $2,853,702. 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 excise price of $.75 per share (subject to adjustment under certain circumstances, such as stock splits). Moreover, in the event the Company fails to pay the Notes at their maturity date, the Company can be required to issue warrants to purchase up to an additional 333,333 shares of the Company's common stock exercisable for up to five years at an exercise price of $2.50 per share (subject to adjustment under certain circumstances), payable at the rate of 83,333 shares of Common Stock for each 90-day period thereafter during which such default continues. Such offering was made in a private placement transaction exempt from registration under the Securities Act of 1933, as amended. 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 is attempting to secure additional financing of up to at least $5,000,000 through the sale of its equity securities but no such financing has been consummated. The note shall be mandatorily prepaid in the event that the Company closes an offering of its securities, whether through one or more private placement or secondary public offerings in which the Company raises gross proceeds from such transaction or transactions of at least $2,5000,000. 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. Outlook The statements contained in this Outlook are based on current expectations. These statements are forward looking and actual results may differ materially. The company operates under various contracts with the Williams Company's to develop principally two systems; an Automatic Meter Reading System (AMRS) and a wireless pipeline Supervisory Control and Data Acquisition Systems (SCADA) Management believes that as deregulation of natural gas and other utilities continues, multiple utility suppliers will be serving a given city, neighborhood, or industrial park. Consequently, it will become more difficult and time consuming for utility companies to read meters as they will generally not be the provider to every user in the city or neighborhood which will increase the cost effectiveness of reading utility meters remotely. Management believes that the Williams Telemetry Network, described in detail in the Prospectus dated February 17, 1998, is a viable alternative to the current practice of manually reading meters. Additionally, management believes that William's position as an affiliate of a major transporter of natural gas in the United States positions it to successfully market its telemetry network, which currently is designed to use collector and repeater radios supplied by the Company to gather and transmit data. Slower than anticipated market adoption of the Williams AMRS has diminished projected revenues fro the original estimates of $70 million over the years 1998-2000. the company continues to develop and improve AMRS products under contract with Williams, however, there are no firm commitments from Williams for AMRS products at this time. SCADA: Management believes that deregulation of utilities will also increase the need for petroleum transporters to monitor and control the distribution of their product. Management believes that wireless data collection and transmission systems are optimal solutions for energy transporters whose pipelines often traverse remote locations not economically served by traditional communicatin systems such as telephones. The Company has delivered initial quantities of SCADA systems to Williams, and anticipates receiving orders from Williams for several million dollars that will ship during 1999. Management believes that the completion of development of AMRS and SCADA systems, along with completion of proprietary radio products may result in significant increases in sales. However, that may lead to working capital requirements which would not be provided for from funds generated by the initial sales of the products. The Company is currently 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. On October 15, 1998 the Company entered into a 7-year lease for a 34,000 square foot facility in West Valley City, Utah. The Company consolidated its American Fork, and Salt Lake City, Utah operations and staff into the new facility. Management expects the new facility to provide sufficient manufacturing and office space for the foreseeable future. However, if additional capacity were required, management would consider out-sourcing a portion of the manufacturing overload. If a portion of manufacturing is out-sourced, the Company may lose some control over the following areas: cost, timeliness of deliveries and quality. However, by out-sourcing a portion of its manufacturing, the Company could avoid delays and costs associated with the expansion of its own facilities. The magnitude of any expansion of the Company's manufacturing capabilities that is required would be a direct function of the sales increase and manufacturing overload, both of which are unknown at this time. The Company anticipates an increase in revenues from the sale and manufacturing of the Company's proprietary radio products. The Company will market a line of radios to OEM that incorporate them into products such as wireless smoke and security alarm systems, ambulatory patient wireless monitoring systems, retail point-of-sale systems, and the like. The Company has begun providing initial sales samples, and believes there is strong customer interest for the products; however, there can be no assurance that the Company will be able to manufacture or sell sufficient quantities at adequate gross margins to achieve profitability. The Company completed development under a contract with (KME) that calls for royalty payments upon shipment of certain KME products. Shipments of KME products containing the company's technology have began during the third quarter of 1998, and management expects royalty payments from the contract may begin during the fourth quarter of 1998. Additionally, the company entered into follow-on fixed fee contracts with KME. It is management's intent that the fees received will cover the Company's costs. However, these fixed fee arrangements may not cover all of the Company's costs incurred in fulfilling any such contract. In anticipation of obtaining additional design and development contracts, management must continually recruit and hire additional RF (radio frequency), software, firmware, digital engineers and sales engineers with RF experience. It is extremely difficult, time-consuming and expensive to find engineers qualified in those fields. There is no assurance the Company will be able to locate and hire such qualified engineers. Associated with the hiring of each engineer is the need for test and development equipment, software and work stations, which increases the Company's cash requirements. In summary, while management is optimistic about the Company's future, it is fully aware that anticipated revenue increases from product sales, design and development contracts and royalty income are by no means assured, and that if such increases do materialize, the requirements for capital are substantial, for which there is no present commitment. Moreover, there can be no assurance that such capital or other financing will be obtained when needed, or, if so, on terms acceptable to the Company. 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. PART II. OTHER INFORMATION Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K EXHIBITS None REPORTS ON FORM 8-K The Company did not file any reports on Form 8-K during the quarter ended June 30, 1998. 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: November 19, 1998 By: /S/ David D. Singer ------------------------------- David D. Singer President and Chief Executive Officer Date: November 19, 1998 By: /S/ James L. O'Callaghan ------------------------------- James L. O'Callaghan Chief Financial Officer EX-27 2
5 This schedule contains summary financial information extracted from the balance sheet as of September 30, 1998, and statements of operations for the nine months ended September 30, 1998, and is qualified in its entirety by reference to such financial statements. 9-MOS DEC-31-1997 SEP-30-1998 128,510 130,399 734,263 0 570,318 1,563,470 2,666,619 (1,056,148) 4,660,671 4,658,903 402,825 0 0 11,237 (412,294) 4,660,671 3,551,716 3,551,716 2,740,751 2,740,751 12,314,444 0 749,262 (11,933,213) 0 (11,933,213) 0 0 0 (11,933,213) (1.06) (1.06)
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