-----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, TkgTfnWLOSu+ePty9lf9SCyePvU5TGu1lhKU20jgJs9RChsgmHEFXPE9Er8T/lFO CK9yVt4b9NKs8/qEzqfmtw== 0001050234-99-000085.txt : 19991109 0001050234-99-000085.hdr.sgml : 19991109 ACCESSION NUMBER: 0001050234-99-000085 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19991108 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: 99743106 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. 1 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended March 31, 1999 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.) 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 May 3, 1999 there were 16,950,855 shares of the Registrant's Common Stock, par value $0.001, issued and outstanding. TABLE OF CONTENTS Page PART 1. Financial Information Item 1. Financial Statements: Condensed Consolidated Balance Sheets (Unaudited)- March 31, 1999 and December 31, 1998 . . . . . . . . . . 1 Condensed Consolidated Statements of Operations (Unaudited) for the Three Months Ended March 31, 1999 and 1998 . . . 3 Condensed Consolidated Statements of Cash Flows (Unaudited) -for the Three Months Ended March 31, 1999 and 1998. . . 4 Notes to Condensed Consolidated Financial Statements (Unaudited) . . . . . . . . . . . . . . . . . . . . . . 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation . . . . . . . . . . . . . . . . 8 PART II. Other Information Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . 15 Item 2. Changes in Securities and Use of Proceeds . . . . . . . 15 Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . 16 Item 4. Submission of Matters to a Vote of Security Holders. . . 16 Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . 16 Signatures . . . . . . . . . . . . . . . . . . . . . . . 18 PART I FINANCIAL INFORMATION Item 1. Financial Statements WORLD WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) ASSETS March 31, December 31, 1999 1998 ___________ ___________ Current Assets Cash and cash equivalents $ 861,297 $ 614,897 Investment in securities available-for-sale 137,648 137,648 Trade receivables, net of allowance of $65,000 515,805 327,387 Other receivables 107,163 77,005 Inventory 477,000 550,239 Prepaid expenses 22,265 18,594 ___________ ___________ Total Current Assets 2,121,178 1,725,770 ___________ ___________ Equipment 2,093,308 2,085,930 Less accumulated depreciation (1,276,527) (1,047,285) ___________ ___________ Net Equipment 816,781 1,038,645 ----------- ----------- Goodwill, net of accumulated amortization 907,695 957,794 Other Assets, net of accumulated amortization 395,775 414,381 ___________ ___________ Total Assets $ 4,241,429 $ 4,136,590 =========== =========== (CONTINUED) 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) March 31, December 31, 1999 1998 ----------- ----------- Current Liabilities Trade accounts payable $ 478,373 $ 982,506 Accrued liabilities 895,084 880,638 Notes payable 2,301,124 2,992,858 Obligations under capital lease - current portion 185,732 197,626 ----------- ----------- Total Current Liabilities 3,860,313 5,053,628 ----------- ----------- Long-Term Obligations Under Capital Lease 62,476 84,968 ----------- ----------- 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: 16,950,855 shares at March 31, 1999 and 13,920,400 shares at December 31, 1998 16,950 13,920 Additional paid-in capital 28,406,418 25,419,026 Unearned compensation (57,750) (70,518) Receivable from shareholder (66,828) (66,828) Accumulated deficit (28,042,798) (26,360,254) Accumulated other comprehensive income 62,648 62,648 ----------- ----------- Total Stockholders' Equity (Deficit) 318,640 (1,002,006) ----------- ----------- Total Liabilities and Stockholders' Equity (Deficit) $ 4,241,429 $ 4,136,590 =========== =========== 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 Ended March 31, ------------------------- 1999 1998 ----------- ----------- Sales $ 1,033,375 $ 1,308,883 Cost of Sales 821,685 656,448 ----------- ----------- Gross Profit 211,690 652,435 ----------- ----------- Expenses Research and development expense 241,265 663,749 General and administrative expenses 1,132,758 1,385,096 Amortization of goodwill 50,099 401,495 Interest expense 474,794 24,581 ----------- ----------- Total Expenses 1,898,916 2,474,921 ----------- ----------- Loss From Operations (1,687,226) (1,822,486) Interest Income 4,682 - Other Income - 319,528 ----------- ----------- Net Loss $(1,682,544) $(1,502,958) =========== =========== Basic and Diluted Loss Per Common Share $ (0.11) $ (0.14) =========== =========== Weighted Average Number of Common Shares Used in Per Share Calculation 15,023,002 10,468,831 =========== =========== 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 Three Months Ended March 31, ------------------------- 1999 1998 ----------- ----------- Cash Flows From Operating Activities Net Loss $(1,682,544) $(1,502,958) Adjustments to reconcile net loss to net cash used by operating activities: Amortization of goodwill 50,099 401,495 Depreciation and amortization 247,848 166,497 Amortization of debt discount 216,963 - Amortization of unearned compensation 38,686 - Stock issued for interest 93,698 - Stock issued for services 172,466 - Compensation from stock options granted 21,540 412,005 Gain on sale of business - (319,528) Changes in operating assets and liabilities: Accounts receivable (218,576) (148,973) Inventory 73,239 37,621 Prepaid expenses (3,671) (2,256) Accounts payable (504,133) 99,845 Accrued liabilities 14,446 (4,849) ----------- ----------- Net Cash and Cash Equivalents Used By Operating Activities (1,479,939) (861,101) ----------- ----------- Cash Flows From Investing Activities Payments for the purchase of equipment (7,378) (51,437) Proceeds from sale of business assets and property - 372,499 Proceeds from receivable from shareholder - 10,000 ----------- ----------- Net Cash and Cash Equivalents Provided by (Used by) Investing Activities (7,378) 331,062 ----------- ----------- Cash Flows From Financing Activities Proceeds from issuance of common stock 1,876,800 957,267 Proceeds from exercise of stock options - 27,970 Proceeds from borrowings, net of discounts - 414,246 Principal payments on notes payable (108,697) (361,211) Principal payments on obligation under capital lease (34,386) (53,154) ----------- ----------- Net Cash and Cash Equivalents Provided By Financing Activities 1,733,717 985,118 ----------- ------------ Net Increase In Cash and Cash Equivalents 246,400 455,079 Cash and Cash Equivalents - Beginning of Period 614,897 218,234 ----------- ------------ Cash and Cash Equivalents - End of Period $ 861,297 $ 673,313 =========== ============ (CONTINUED) The accompanying notes are an integral part of these condensed consolidated financial statements. 4 WORLD WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (UNAUDITED) Supplemental Cash Flow Information - Cash paid for interest was $109,932 and $17,839 for the three months ended March 31, 1999 and 1998, respectively. The accompanying notes are an integral part of these condensed consolidated financial statements. 5 WORLD WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES 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, 1998 annual report on Form 10-K/A. The results of operations for the three month period ended March 31, 1999 are not necessarily indicative of the operating results to be expected for the full year. NOTE 2 - COMMON STOCK During February 1999, the Company issued 2,040,000 common shares for cash in the amount of $2,040,000 received in a private placement offering. In connection with the offering, the Company granted options to purchase 200,000 common shares at $1.75 per share within 5 years, and issued 8,000 shares of common stock as finders' fees. The Company also paid $163,200 as finders' fees. During March 1999, noteholders converted two unsecured promissory notes totaling $800,000, together with accrued interest, into 893,698 common shares at $1.00 per share under the terms of a conversion privilege granted to the noteholders in December 1998. During the first quarter of 1999, the Company issued 88,757 restricted common shares for services valued at $172,466, or $1.74 per share. NOTE 3 - MANDATORILY REDEEMABLE PREFERRED STOCK AND WARRANTS On May 14, 1999 the Company offered to issue 650 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 3,250,000 common shares at $0.25 per share, and issued such shares of preferred stock on July 1, 1999. The preferred shares must be redeemed on or before May 14, 2000 at their par value plus accrued dividends. The preferred stock cash dividend requirement is $65,000 annually. The preferred stock was issued for $650,000 consisting of $400,000 cash and the deemed payment of $250,000 principal amount of the 1998 bridge loan notes. The issuance of the preferred stock with warrants was accounted for as the granting of a favorable conversion feature to the preferred stockholders. The value assigned to the warrants was based on their intrinsic value but was limited to the cash proceeds and the amount of the notes converted. Since the warrants were immediately exercisable, the resulting discount to the preferred stock of $650,000 was recognized on the date granted as a preferred dividend. NOTE 4 - NOTES PAYABLE As of March 31, 1999, the Company was carrying $2,395,528 of 1998 Bridge Loan notes payable which were to have matured May 15, 1999. On May 14, 1999 the Company issued $2,600,000 of senior secured 16% notes payable which mature in one year. 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 1998 Bridge Loan notes. The remaining 1998 Bridge Loan notes, after this payment and the payment from the proceeds of the preferred stock, were renewed with terms equivalent to the senior secured 16% notes payable as follows: The notes payable are secured by substantially all the Company's assets. Interest on the notes is payable quarterly. A mandatory pre-payment of principal equal 25% of the gross proceeds from any issuance of the Company's securities is due upon the closing of the issuance. The notes will be in default if the reported loss before interest, depreciation, amortization and taxes exceeds $1,000,000 for the quarter ended June 30, 1999, or if income as computed above is less than $250,000 or $1,000,000 for the quarters ended September 30, 1999 and December 31, 1999, respectively. The Notes will also be in default if the Company fails to make a mandatory pre-payment of principal from the issuance of the Company's securities. If the notes are determined to be in default for a quarter, the Company could be required to issue five-year warrants to purchase 300,000 shares of common stock at $0.25 per share as compensation for the default with respect to such quarter. 6 WORLD WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 5 - COMMITMENTS AND CONTINGENCIES Legal Proceedings - 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 software vendor, Mentor Graphics, Inc., commenced a lawsuit against the Company seeking damages of approximately $485,000 plus interest, legal fees and expenses arising out of the Company's alleged breach of contract for the purchase of software and related items. The Company believes that it has adequate defenses against the claim and plans to defend the action, although there can be no assurance as to the outcome thereof. The Company has made adequate provision in the financial statements for any anticipated outcome. An investment banking firm commenced a lawsuit against the Company seeking to recover damages of $231,129, plus legal fees and expenses. In this case, the Company asserted a counterclaim seeking damages of approximately $250,000. While the Company believes that it has adequate defenses to the claim and that its counterclaim similarly has merit, there can be no assurance as to the outcome of the litigation. Unasserted Claim - The Company received an oral request in 1998 from Mr. and Mrs. Richard Austin to rescind the Company's purchase of the stock of Austin Antenna Ltd., which closed in 1997. In addition, Mr. Austin requested that the Company bear the cost of (i) the legal fees and expenses in a litigation commenced against Mr. Austin in a state court in Massachusetts brought by Charles Rich seeking damages of approximately $50,000 for non-payment of commissions arising out of the Company's purchase of Austin Antenna Ltd. and (ii) the unpaid finder's fee that is the subject of the litigation. The Company, in turn, has advised Mr. and Mrs. Austin that Austin Antenna Ltd. has breached its agreement with the Company by, among other things, failing to furnish it with proprietary engineering drawings and related data that would enable the Company to manufacture the antennas now produced by Austin Antennas Ltd., but such data has not yet been completely provided to the Company. Although the Company believes that its claim against Austin Antenna Ltd. and the claims of Mr. and Mrs. Austin will be amicably resolved, there can be no assurance as to the outcome thereof. 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/A. Three Months Ended March 31, 1999 and Three Months Ended March 31, 1998 Sales in the three-month period ended March 31, 1999 were $1,033,375 compared to $1,308,883 during the three-month period ended March 31, 1998. During the first quarter of 1999 the Company derived its revenue as follows: engineering services, $644,818, wireless products, $28,109, antenna, $85,988 and contract and cable manufacturing, $274,460. During the first quarter of 1998 the Company derived its revenue from engineering services $1,104,934, and contract and cable manufacturing, $203,949. Gross profit in the three-month period ended March 31, 1999 was $211,690 compared to $652,435 during the comparable period during 1998. This decrease is primarily due to two factors: during the first quarter of 1998, 84% of the Company's revenues were derived from the more profitable business engineering services segment compared to 62% in the first quarter of 1999. Also, in the first quarter of 1998, the Company met certain design and development contract milestones for efforts and costs incurred over several preceding periods. The Company reduced its research and development costs and its general and administrative expenses by $674,822 from $2,048,845 in the first quarter in 1998 to $1,374,023 in the first quarter in 1999. This reduction was primarily due to the reduction of employees from 90 employees in the first quarter of 1998 to 54 in the first quarter of 1999. The amortization of goodwill decreased $351,396 from $401,495 for the three-months ending March 31, 1998 to $50,099 for the three-months ending March 31, 1999. This decrease is due to the impairment of goodwill the Company recognized in the third quarter of 1998. Interest expense increased $450,213 from $24,581 for the three-months ending March 31, 1998 to $474,794 for the three-months ending March 31, 1999. This increase is due to two factors: (1) the increased debt from average quarterly debt of $1,210,690 in the first quarter of 1998 to average quarterly debt of $2,912,392 in the first quarter of 1999 and (2) in May 1998, the Company executed certain bridge loans, in the amount of $2,500,000. The bridge loans have detachable warrants, which has been accounted for as a discount of the related notes and is amortized to interest expense over the life of the note. The amortization of this debt discount was approximately $216,000 in the first quarter of 1999, while the Company had no such discount expense in the first quarter of 1999. 9 During January 1998, the Company sold its SecuriKey business assets and property including customer lists, technology, equipment and related products to a shareholder/employee for $372,499. The sale resulted in a gain of $319,528. During the first quarter of 1999 the Company earned $4,682 of interest income. Liquidity and Capital Resources The Company's liquidity at March 31, 1999 increased compared to December 31, 1998. Current assets increased by $395,408 although short-term borrowings decreased by $1,193,315. In order to sustain operations, the Company borrowed $2,500,000 pursuant to an offering of units consisting of (a) its Senior Secured Notes, maturing on May 15, 1999 and bearing simple interest at the rate of 16% per annum, payable quarterly (the "Notes") and (b) warrants to purchase 250,000 shares of the Common Stock exercisable for up to five years from the date of issuance at an exercise price of $0.75 per share (subject to adjustment under certain circumstances, such as stock splits). Moreover, in the event the Company fails to pay the Notes at their maturity date, the Company can be required to issue warrants to purchase up to an additional 333,333 shares of the Company's common stock exercisable for up to five years at an exercise price of $2.50 per share (subject to adjustment under certain circumstances) payable at the rate of 83,333 shares of common stock for each 90-day period thereafter during which such default continues. Such offering was made in a private placement transaction exempt from registration under the Securities Act of 1933, as amended. The Notes are mandatorily prepaid in the event that the Company closes an offering of its securities, whether through one or more private placements or secondary public offerings, in accordance with the formula described below under "Risk of Default with Debtholders." Subsequent to the first quarter of 1999, the above 1998 Bridge Loans were paid in full when on May 14 the Company issued $2,600,000 of senior secured 16% notes payable which mature in one year. 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 1998 Bridge Loan notes. The notes payable are secured by substantially all the Company's assets. Interest on the notes is payable quarterly. A mandatory pre-payment of principal equal to 25% of the gross proceeds form any issuance of the Company's securities is due upon the closing of the issuance. The notes will be in default if the reported loss before interest, depreciation, amortization and taxes exceeds $1,000,000 for the quarter ended June 30, 1999, or if income as computed above is less than $250,000 or $1,000,000 for the quarters ended September 30, 1999 and December 31, 1999, respectively. The Notes will also be in default if the Company fails to make a mandatory pre-payment of principal from the issuance of the Company's securities. If the notes are determined to be in default for a quarter, the Company could be required to issue five-year warrants to purchasse 300,000 shares of common stock at $0.25 per share as compensation for the default with respect to such quarter. Subsequent to the first quarter of 1999, on May 14, 1999 the Company also offered to issue 650 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 3,250,000 common shares at $0.25 per share, and issued such shares of preferred stock on July 1, 1999. The preferred shares must be redeemed on or before May 14, 2000 at their par value plus accrued dividends. The preferred stock cash dividend requirement is $65,000 annually. The preferred stock was issued for $650,000 consisting of $400,000 cash and the deemed payment of $250,000 principal amount of 1998 bridge loan notes. Nevertheless, in management's opinion, the Company will not be able to satisfy its needs for additional capital through borrowing, but will be able to meet these needs only by issuing additional equity securities. Thus, after May 1998, the Company decided to secure additional financing of up to at least $5,000,000 through the further sale of its equity securities. As part of this plan, pursuant to certain private placements during the Fall of 1998, the Company raised a total of $1,463,000 through the sale of its Common Stock. In addition, pursuant to its Confidential Private Placement Memorandum dated January 24, 1999, as amended (the "Offering"), the Company raised additional equity financing in the first quarter of 1999. However, there can be no assurance that the Company will be able to obtain any additional capital or, if so, on terms acceptable to it. The Company granted the right to two $400,000 note holders on December 10, 1998, to convert their notes, together with accrued interest, into shares of common stock at $1.00 per share. Since the fair value of the common shares was $1.42 per share at that date, the conversion feature was valued at $374,171, which was recognized as interest expense on the date granted. The debt and accrued interest was converted into 893,698 common shares on March 4, 1999. 10 Risk of Default with Debtholders As stated above, on May 15, 1998, the Company closed an offering consisting of $2,500,000 of its Senior Secured Notes (the "Notes") and warrants to purchase 250,000 shares of its common stock (individually a "Warrant" and collectively the "Warrants") (the "Debt Offering"). The Notes originally bore interest at the rate of 10% per annum payable quarterly commencing on August 15, 1998, mature on May 15, 1999 and are secured by substantially all of the assets of the Company. Pursuant to the terms of the Debt Offering, the Company gave the holders of the Notes a first security interest in all of the Company's machinery, equipment, automobiles, fixtures, furniture, accounts receivable and general intangibles, including any stock in any subsidiary, under the Pledge/Security Agreement. The Company would have been in default under the Pledge/Security Agreement on August 15, 1998 because the Company had revenues of less than 70% of that projected for the quarter ended June 30, 1998, which failure would have constituted an event of default under the Loan Agreement between the parties. In addition, the Company would have been in default under the Pledge/Security Agreement on November 19, 1998 because the Company had revenues of less than 70% of that projected for the quarter ended September 30, 1998, which failure would have constituted an event of default under the Loan Agreement between the parties. Upon the occurrence of an event of default, the holders of the Notes have the right, among other things, to accelerate the due date of the Notes to the date of the default and to sell the assets of the Company's securing the debt as means of repaying the debt. The Company obtained separate waivers of the default for the quarters ended June 30, 1998 and September 30, 1998 from each of the holders of the Notes. As a condition thereto, the Company agreed (a) to increase the interest rate of the Notes from 10% to 16%, (b) to change the exercise price of each Warrant from $3.00 per share to $0.25 per share, (c) to grant the holders of the Notes additional warrants to purchase 83,333 shares of the Company's Common Stock at an exercise price of $0.25 per share, and (d) to use the proceeds of any offering of its securities to prepay the holders of the Notes on a pro rata basis (excluding any funds provided therein by Lancer Partners L.P., Lancer Offshore L. P., Michael Lauer and their affiliates), in accordance with a formula set forth in the revised Notes, thereby eliminating the prior $5,000,000 threshold for the mandatory prepayment of the Notes, effective in each instance as of May 15, 1998. Thus, during the period from November 25, 1998 through January 27, 1999, each Note would have been prepayable as follows: (a) 25% of the first $1,000,000 of gross proceeds in the case of any such transaction occurring between November 25, 1998 and January 27, 1999, and 50% of the first $1,000,000 of such proceeds raised thereafter; (b) 50% of the next $2,000,000 of gross proceeds; and (c) 100% of the gross proceeds in excess of $3,000,000 so raised until each Note is paid in full. 11 In addition, the holders of the Notes agreed to waive any rights under the anti-dilution clause under the Warrants arising from the Offering, except in the case of sale of any securities of the Company at any price less than $0.25 per share, in which event the exercise price of each of the Warrants will be changed to such price. Thus, the Company believes that such defaults will not have any material adverse effect on the financial condition or business of the Company. The holders of the Notes and the Company agreed to further changes in the mandatory prepayment terms of the Notes pursuant to an Amendment of Agreements dated March 25, 1999 in accordance with the revised prepayment terms set forth below: (a) 25% of the first $3,000,000 of gross proceeds in the case of any such transaction described above occurring between January 27, 1999 and May 15, 1999. (b) 35% of the next $2,000,000 of gross proceeds so raised; and (c) 50% of the gross proceeds in excess of $5,000,000 so raised until May 15, 1999 excluding in any case any funds raised from Lancer Partners L.P., Lancer Offshore L.P., Michael Lauer and their affiliates. Thus, this revised mandatory prepayment formula would apply to funds raised pursuant to the Company's offering of 5,000,000 shares of its Common Stock at $1 per share pursuant to its Confidential Private Placement Memorandum dated January 24, 1999. In consideration for such amendment, the Company issued an additional 100,000 warrants at an exercise price of $0.25 per share which expire on May 15, 2003. The Company was in default under the Pledge/Security Agreement on April 15, 1999 because the Company had revenues of less than 70% of that projected for the quarter ended December 31, 1998, which default would constitute an event of default under the Loan Agreement between the parties. The company has not received any notice of default relating to such item. However, the Company raised financing of $3,250,000 on May 14, 1999, which consisted of borrowing $2,600,000 through senior secured 16% notes maturing in one year, issuance of shares of preferred stock, mandatorily redeemable in one year, for $650,000 and five year detachable warrants to purchase 3,250,000 shares of the Company's common stock. The notes are secured by substantially all of the assets of the Company. Since the Company will use such funds to pay off the principal amount of the Notes of $2,395,528 outstanding and accrued interest of $74,556 in full on or immediately after the maturity date of the Notes of May 15, 1999, the Notes will have paid in full. Accordingly, the Company believes that it will satisfy its remaining obligations under the Notes in full and does not anticipate any further claim with respect thereto, although there can be no assurance as to the latter point. Moreover, there can be no assurance that the Company will not commit a default under the 1999 Debt/Equity Offering in the future. In the event that the debtholders sell the Company's assets securing the Notes following a current or future default, such sale would materially and adversely affect the Company's business and financial condition. Outlook The statements contained in this Outlook are based on current expectations. These statements are forward looking and actual results may differ materially. The Company commenced the shifting of its strategic direction during the first quarter of 1999. In early 1999, the Company successfully implemented its proprietary X-traWeb network for integrating wireless solutions with Internet technologies. The Company's X-traWeb network allows data from a remote wireless radio frequency (RF) system to be accessed via a secure, encrypted remote location to simplify the control, access and monitoring of those devices. Currently, X-traWeb is used to monitor, via the Internet, data on energy use from an automatic meter reading (AMR) system with Modesto Irrigation District in Modesto, California. The Company first received orders for the sale of certain of its X-traWeb products during the second quarter of 1999. Applications for X-traWeb in addition to AMR include remote monitoring and control of wireless supervisory control and data acquisition (SCADA) implementations in the oil and gas pipeline; environmental control; water and wastewater management; and heating, ventilation and air conditioning (HVAC) industries. Other applications include data access and monitoring for vending machines, medical devices and security systems. 12 The Company also began the sale of a series of low speed digital radios (LSDR's) and related devices to third parties in addition to those sold to Williams Wireless Inc., a subsidiary of the Williams Companies, Inc. The Company presently has a number of LSDR models available, three of which (the LSDR 100, the 900 MHz Hopper Radio and the 900 MHz Micro-Hopper Radio) have been sold to Williams for use and/or testing in the Williams Telemetry Network. The Company is focusing its resources on promoting the sale of X-traWeb products and believes it will achieve significant sales from this source during 1999, although there can be no assurance of such a result. In addition, the Company believes it will also derive significant revenue from its sale of its proprietary LSDR's in 1999, although there can be no assurance of such a result. Furthermore, the Company believes that it will continue to derive revenue from its contract design and development service and manufacturing services, although there can be no assurance of the amounts to be derived therefrom. In addition, management believes that as deregulation of natural gas and other utilities continues, multiple utility suppliers will be serving a given city, neighborhood, or industrial park. Consequently, it will become more difficult and time consuming for utility companies to read meters as they will generally not be the provider to every user in the city or neighborhood which will increase the cost effectiveness of reading utility meters remotely. Management believes that the Williams Telemetry Network, described in detail in the Prospectus dated February 17, 1998, is a viable alternative to the current practice of manually reading meters. Additionally, management believes that William's position as an affiliate of a major transporter of natural gas in the United States positions it to successfully market its telemetry network, which currently is designed to use collector and repeater radios supplied by the Company to gather and transmit data. Slower than anticipated market adoption of the Williams AMRS has diminished projected revenues from the original estimates of $70 million over the years 1998-2000. However, the Company continues to develop and improve AMRS products under contract with Williams to develop principally two systems: an Automatic Meter Reading System (AMRS) and a wireless pipeline Supervisory Control and Data Acquisition Systems (SCADA). Although there are current negotiations in progress for firm commitments from Williams for AMRS products at this time, there can be no assurance as to the outcome thereof. SCADA Management believes that deregulation of utilities will also increase the need for petroleum transporters to monitor and control the distribution of their product. Management believes that wireless data collection and transmission systems are optimal solutions for energy transporters whose pipelines often traverse remote locations not economically served by traditional communicating systems such as telephones. The Company has delivered initial quantities of SCADA systems to Williams, and anticipates receiving orders from Williams for several million dollars that will be shipped during 1999. Management believes that the completion of development of AMRS and SCADA systems, along with completion of proprietary radio products, may result in significant increases in sales. However, that may lead to working capital requirements which would not be provided for from funds generated by the initial sales of the products. The Company is currently pursuing a private placement to raise equity financing and is investigating ultimately a secondary public offering to meet its working capital and operating needs. However, there is no assurance that sufficient capital or any capital will be raised from such endeavors. On October 15, 1998, the Company entered into a seven-year lease for a 34,000 square foot facility in West Valley City, Utah. The Company consolidated its American Fork and Salt Lake City, Utah operations and staff into the new facility. Management expects the new facility to provide sufficient manufacturing and office space for the foreseeable future. However, if additional capacity were required, management would consider out-sourcing a portion of the manufacturing overload. If a portion of manufacturing is out-sourced, the Company may lose some control over the following areas: cost, timeliness of deliveries and quality. However, by out-sourcing a portion of its manufacturing, the Company could avoid delays and costs associated with the expansion of its own facilities. The magnitude of any expansion of the Company's manufacturing capabilities that is required would be a direct function of the sales increase and manufacturing overload, both of which are unknown at this time. 13 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 Kyushu Matsushita Electric Co., Ltd. (KME, which is also known as Panasonic) that calls for royalty payments upon shipment of certain KME products. Shipments of KME products containing the Company's technology began during the third quarter of 1998. Management believes royalty payments from the contract were earned during the fourth quarter of 1998, but were subject to recoupment by KME up to the first $600,000 of royalties. Management further believes that the Company may become entitled to royalty payments with respect to the first quarter of 1999 (which may be paid during the second quarter of 1999), although there can be no assurance of such result. Additionally, the Company entered into follow-on fixed fee contracts with KME during 1998. It is management's intent that the fees received will cover the Company's costs. However, these fixed fee arrangements may not cover all of the Company's costs incurred in fulfilling any such contract. In anticipation of obtaining additional design and development contracts, management must continually recruit and hire additional RF (radio frequency), software, firmware, digital engineers and sales engineers with RF experience. It is extremely difficult, time-consuming and expensive to find engineers qualified in those fields. There is no assurance the Company will be able to locate and hire such qualified engineers. Associated with the hiring of each engineer, is the need for test and development equipment, software and workstations, which increases the Company's cash requirements. In summary, while management is optimistic about the Company's future, it is fully aware that anticipated revenue increases from product sales, design and development contracts and royalty income are by no means assured, and that if such increases do materialize, the requirements for capital are substantial, for which there is no present commitment. Moreover, there can be no assurance that such capital or other financing will be obtained when needed, or, if so, on terms acceptable to the Company. Statement Regarding Forward-Looking Disclosure This report includes "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act which represent the Company's expectations or beliefs concerning future events that involve risks and uncertainties, including those associated with the ability of the Company to obtain financing for its current and future operations, to manufacture (or arrange for the manufacturing of) its products, to market and sell its products, and the ability of the Company to establish and maintain its sales of XtraWeb products. All statements other than statements of historical facts included in this Report including, without limitation, the statements under "Management's Discussion and Analysis of Results of Operations and Financial Condition" and "Business" and elsewhere herein, are forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from the Company's expectations ("Cautionary Statements") are disclosed in this Report, including without limitation, in conjunction 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 entirely by the Cautionary Statements. 14 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Mentor Graphics, Inc. commenced a lawsuit against the Company in 1998 in a State court in Utah, which was subsequently removed to the United States District Court for the District of Utah, seeking damages of approximately $485,000 plus interest, legal fees and expenses arising out of the Company's alleged breach of contract for the purchase of software and related items. The Company anticipates that such lawsuit will be settled, although there can be no assurance of such result. PaineWebber Incorporated commenced a lawsuit against the Company in the United States District Court for the Southern District of New York in December, 1998 which the plaintiff seeks to recover damages of approximately $231,000 plus legal fees and expenses of its counsel in such action. In this case, the Company asserted a counterclaim seeking damages of approximately $250,000. The Company anticipates that such lawsuit will be settled, although there can be no assurance of such result. The Company received an oral request in 1998 from Mr. and Mrs. Richard Austin to rescind its purchase of the stock of Austin Antenna Ltd. and related assets which closed in 1997. In addition, Mr. Austin requested that the Company bear the cost of (i) the legal fees and expenses in a litigation commenced against Mr. Austin in a state court in Massachusetts brought by Charles Rich seeking damages of approximately $50,000 for non-payment of commissions arising out of the Company's purchase of Austin Antenna Ltd. and related assets and (ii) the unpaid finder's fee that is the subject of the litigation. The Company, in turn, advised Mr. and Mrs. Austin that Austin Antenna Ltd. has breached its agreement with the Company by, among other things, failing to furnish the Company with proprietary engineering drawings and related data that would enable the Company to manufacture the antennas now produced by the Austin Antenna division. The Company is currently negotiating with Mr. and Mrs. Austin and believes that the claims may be resolved amicably, although there can be no assurance as to the outcome thereof. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 1. In January, 1999, the Company issued 2,667 and 5,333 shares of its Common Stock to Joseph R. Huard and James Kelly, respectively, for finder's fees on an equity placement. 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. Huard and Mr. Kelly are accredited investors. 2. In January, 1999, the Company issued 58,003 shares of its Common Stock to Connolly Epstein Chicco Foxman Oxholm & Ewing, Esq. ("Connolly") for services valued at $116,006, or $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. Based on information obtained by the Company in connection with its relationship with the law firm of Connolly, the Company believes that Connolly, through its representatives, has such knowledge on business and financial matters as to be able to evaluate the merits and risks of an investment in the Company. 3. In February, 1999, the Company issued for cash 40,000 shares of its Common Stock to Alan Cohen at a price of $1.00 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. Cohen is an accredited investor. 15 4. In February, 1999, the Company issued 20,754 shares of its Common Stock to Sterling Technology Partners, LLC for services valued at $36,942, or $1.77 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 Sterling Technology Partners, LLC is an accredited investor. 5. In February, 1999, the Company issued for cash 2,000,000 shares of its Common Stock to Pensionkasse der Siemens-Gesellschaften in der Schwiez ("Pensionkasse") at a price of $1.00 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 Pensionkasse is an accredited investor. 6. In March, 1999, the Company issued 447,671 shares and 446,027 shares of its Common Stock to Electronic Assembly Corp. and Tiverton Holding, respectively upon conversion of notes payable and interest valued at $893,698, or $1.00 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 Electronic Assembly Corp. and Tiverton Holding are accredited investors. 7. In March, 1999, the Company also issued 10,000 shares of its Common Stock to Sterling Technology Partners, LLC for services valued at $19,400, or $1.94 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 Sterling Technology Partners, LLC is an accredited investor. ITEM 3. DEFAULT UPON SENIOR SECURITIES A description of certain of the potential defaults committed by the Company under the Pledge/Security Agreement dated as of May 15, 1998 is set forth on pages 11 and 12 of Part I of this Form 10-Q and is hereby incorporated by reference. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During February, 1999, the shareholders of the Company held their annual meeting at the Company's office at 2441 South 3850 West, West Valley City, Utah, and took the following action: 1. Elected David D. Singer, Philip Bunker, Brian Pettersen and George Denney as directors of the Company; 2. Ratified the adoption by the Board of Directors of the Company of the 1998 Employee Incentive Stock Option Plan and the 1998 Non-qualified Stock Option Plan pursuant to which 1,000,000 shares of the Company's Common Stock were reserved for issuance under each such plan; and 3. Ratified the appointment of Hansen Barnett & Maxwell as the Company's independent auditors with respect to calendar year 1999. 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 of and for the period ended March 31, 1999. The Exhibits which are listed on the Exhibit Index attached hereto. 16 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 Foxman Engelmyer & Ewing regarding the legality of securities being registered* 10.1 1997 Stock Option Plan* 10.2 DRCC Omnibus Stock Option Plan* 10.3 Development and License Agreement dated April 4, 1997, between DRCC and Kyushu Matsushita Electric Co., Ltd.* 10.4 Amended and restated Technical Development and Marketing Alliance Agreement dated September 15, 1997, between the Company and Williams Telemetry Services, Inc.* 10.5 Lease Agreement dated May 17, 1995, between DRCC and Pracvest Partnership relating to the Company's American Fork City offices and facility* 10.6 Lease Agreement dated February 12, 1996, between the Company the Green/Praver, et al., relating to the Company's Salt Lake City offices* 10.7 Shareholders Agreement dated May 21, 1997 between the Company, DRCC, Philip A. Bunker and William E. Chipman, Sr.* 10.8 Asset Purchase Agreement dated October 31, 1997, between the Company and Austin Antenna, Ltd.* 10.9 Stock Exchange Agreement dated October 31, 1997, between the Company, TWC, Ltd. and the shareholders of TWC, Ltd.* 10.10 Settlement Agreement, Mutual Waiver and Release of All Claims dated November 11, 1997 between Digital Radio Communications Corp. and Digital Scientific, Inc.* 10.11 Agreement (undated) between the Company, Xarc Corporation and Donald J. Wallace relating to the Company's acquisition of Xarc Corporation* 10.12 Promissory Note dated December 4, 1997, by the Company, payable to William E. Chipman, Sr. in the principal amount of $125,000* 10.13 Promissory Note dated November 13, 1997, by the Company, payable to T. Kent Rainey in the principal amount of $200,000* 10.14 Investment Banking Services Agreement dated November 19, 1997, between The Company and PaineWebber Incorporated* 10.15 $400,000 Promissory Note dated December 24, 1997, payable to Electronic Assembly Corporation* 10.16 $400,000 Promissory Note dated January 8, 1998, payable to Tiverton Holdings Ltd.* 10.17 Loan Agreement by and among the Registrant and the Bridge Noteholders dated as of May 15, 1998* 10.18 Amendment and Waiver Agreement by and among the Registrant and the Bridge Noteholders dated August 7, 1998* 10.19 Amendment and Waiver Agreement by and among the Registrant and the Bridge Noteholders dated September 11, 1998* 10.20 Loan Agreement by and among the Registrant and the Bridge Noteholders dated as of May 15, 1998 (Previously filed), together with the Notes, Pledge/Security Agreement, Pledgee/Representative Agreement, Subordination, and Registration Rights Agreement* 10.21 Separation and Mutual Release Agreement between the Registrant and William E. Chipman, Sr. dated as of May 26, 1998*+ 10.22 Registration Rights Agreement by and among the Registrant and the purchasers of common stock issued pursuant to the Registrants Confidential Private Placement Memorandum dated September 9, 1998, as amended* 10.23 Employment Agreement between the Registrant and James O'Callaghan dated May 20, 1998*+ 17 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 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* 27 Financial Data Schedules* * 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. 18 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: November 3, 1999 World Wireless Communications, Inc. /s/ David D. Singer ------------------------------- David D. Singer President, Chief Executive Officer and Principal Financial Officer 19 -----END PRIVACY-ENHANCED MESSAGE-----