UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended 30 September 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _______________________ to _____________
Commission file number 0-28002
WideBand Corporation
(Name of small business issuer in its charter)
Nevada
(State or other jurisdiction of incorporation or organization)
87-0363656
(I.R.S. Employer Identification No.)
401 West Grand, Gallatin, MO
(Address of principal executive offices)
64640
(Zip Code)
Issuer's telephone number (660) 663-3000
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock $.01 par value
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. [X] Yes [ ] No
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year.
For the year ended September 30, 2000, WideBand Corporation gross revenues
were $396,241.
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked price of such common equity, as of a
specified date within the past 60 days. (See definition of affiliate in Rule
12b-2 of the Exchange Act.)
As of 4 October 2000, the aggregate market value of voting common equity
(there are no non-voting shares) held by non-affiliates of WideBand Corporation
was $28,368,648, as determined by the average per/share price of the equity sold
on that day.
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
As of 8 December 2000, WideBand Corporation had 13,122,345 shares of Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy material sent to shareholders and to the Securities and Exchange
Commission pursuant to the Annual Meeting of Shareholders held 15 November 2000
is incorporated by reference in Part III - Items 10 & 11.
Transitional Small Business Disclosure Format (Check one): Yes ___; No _X_
<PAGE>
TABLE OF CONTENTS
PART I.
Item 1. Description of Business..................................... 4
Item 2. Description of Property..................................... 5
Item 3. Legal Proceedings........................................... 6
Item 4. Submission of Matters to a Vote of Security Holders......... 6
PART II.
Item 5. Market for Common Equity and Related Stockholder Matters.... 6
Item 6. Management's Discussion and Analysis or Plan of Operation... 7
Item 7. Financial Statements........................................ 8
Item 8. Changes In and Disagreements With Accountants............... 8
PART III.
Item 9. Directors, Executive Officers Compliance With Section 16(a)
of the Exchange Act......................................... 8
Item 10. Executive Compensation...................................... 8
Item 11. Security Ownership of Certain Beneficial Owners & Management 9
Item 12. Certain Relationships and Related Transactions.............. 9
Item 13. Exhibits and Reports on Form 8-K............................ 9
<PAGE>
PART I
Item 1. Description of Business.
Form & Year of Organization
WideBand Corporation was formed in 1994 as a Missouri Corporation. On 1
March 2000 WideBand merged with Vis Viva Corporation, a Nevada reporting company
that was formed in 1980 and registered with the Securities and Exchange
Commission in 1996. The reverse merger, in which Vis Viva was the surviving
entity, called for a 7-to-1 split of Vis Viva shares, and the adoption of the
WideBand Corporation name and business.
Material Reclassification, Merger, Purchase or Sale of Assets
During the month of March 2000, WideBand Corporation conducted a private
placement of 80,000 shares of its common stock at a price of $12.50 per share.
This private placement brought $1 million dollars into the Company.
Principal Products and their Markets
WideBand Corporation is a manufacturer and marketer of high-performance
networking products for education. These products are based on the WideBand and
eEthernet (pronounced Enhanced Ethernet) networking technologies, whose features
are designed to support education's demand for an affordable way to send
multiple feeds of high-quality video over their networks.
WideBand's Gigabit networking technology was designed with a unique
combination of features including Gigabit speed, dual network capability,
Buffered Packet Synchronization, the ability to use the existing infrastructure,
straightforward management, and a robust physical layer.
eEthernet is a WideBand technology that is designed to improve network
performance by eliminating many of the physical layer problems of Fast Ethernet
segments and by providing access to the WideBand backbone through a WideBand
Accelerator and a simple connector-type converter. eEthernet is 100
Megabit-per-second Fast Ethernet operating full duplex (transmitting and
receiving at the same time) over cable pairs 12 and 78, without data collisions,
and with power provided on the unused pairs for direct connected devices.
WideBand and eEthernet products include adapters, concentrators, switches,
accelerators, and high performance networking accessories.
The WideBand and eEthernet technologies are open standards supported and
managed by the 100-member WideBand Gigabit Networking Alliance (WGNA), which
ensures interoperability within the standard and compatibility with existing
legacy equipment and infrastructures.
Distribution Methods
WideBand has been shipping its product for over three years and has been
marketing through a single-tier reseller network of dealers worldwide. In
addition, the Company has begun to license its technologies to other companies
to manufacture and market WideBand products.
Targeted Market Segments
While the technological features of WideBand provide opportunity for
penetration into a number of market segments, Management has identified the
educational market as an ideal match for WideBand networking technology. The
educational market will be the primary focus of WideBand's initial marketing
program.
Competitive Position
WideBand's competitors are those companies that currently produce and sell
computer networking adapters, hubs and switches. Some of these companies are
firmly entrenched in the market, with good name recognition and a track record
of providing quality products. WideBand's advantage in this arena will come
from offering a quality product with more bandwidth at a comparable price.
4
<PAGE>
Sources and Availability of raw materials; Names of principal suppliers
Raw materials for WideBand products are available from a variety of
suppliers. WideBand currently utilizes Cypress Semiconductor to supply several
key electronic devices that are used in WideBand products. This relationship
will continue until the functions performed by these devices are incorporated
into the Application Specific Integrated Circuits (ASICs).
Significant Customers
WideBand sells to many customers involved in various industries (e.g.
government and education). Several high dollar customers represent sales by
WideBand in the aggregate amount of 10% or more of the consolidated revenues of
WideBand. However, these customers do not represent a risk to WideBand as new
high dollar customers are gained each year.
Patents, Trademarks, Licenses, etc.
WideBand networking technology, on which WideBand's products are based, is
protected by several patents and patents pending. The patents are held by Dr.
Roger E. Billings, WideBand founder and President and the inventor of the
technology. WideBand Corporation has an exclusive license to manufacture,
market, and sub-license the technology of Dr. Billings' patents and patents
pending. Under the terms of the license agreement, WideBand is to pay a royalty
equal to 1.5% of gross sales to Dr. Billings. The duration of the agreement is
not limited.
The Company has entered into a licensing agreement with JMKS International
Marketing & Finance Limited giving WideBand the right to incorporate JMKS
educational programs as an integrated component of WideBand fs-ix servers for
marketing throughout the United States. The Company pays a royalty for each
topic integrated. The Company has also entered into a licensing agreement with
SMC Networks, granting SMC non-exclusive rights to make, use, and sell products
using the Company's proprietary technology. Under the terms of the agreement,
SMC is required to pay a per-port royalty on its sales of products using
WideBand technology.
Regulation
WideBand is subject to regulation by the Federal Communications Commission
regarding radiation emissions from its computer hardware products. WideBand has
contracted with an FCC registered laboratory to have emissions tests conducted.
These tests have concluded that WideBand networking products fall within the
guidelines required by the FCC for the office and professional environment.
Research and Development
WideBand incurred fairly substantial research and development costs during
periods ended September 30, 2000 and 1999 ($147,696 and $229,968 respectively),
as the Company developed products during its start-up phase. Development of the
first set of products is nearing completion, however, work is already underway
on the next generation of products. This is evidence of WideBand's commitment
to the research and development of new products to keep the Company vital.
Employees
WideBand personnel currently consists of 11 employees.
Item 2. Description of Property.
WideBand Corporation owns a 15,000 square foot structure located in
Gallatin, Missouri, which houses WideBand's corporate headquarters and its
manufacturing operations. The Corporation has also purchased 20 acres of land
in the newly developed Gallatin Industrial Park. WideBand intends to use this
land for future expansion, moving its headquarters to the new facility to enable
manufacturing to expand within the current facility.
5
<PAGE>
Management has not set a target date nor made definitive plans on the
building of its new headquarters.
WideBand's current headquarters has a federal tax basis of $300,000, and is
depreciated by the GDS Straight Line method over 39 years. The unimproved real
estate in the Gallatin Business Park has a federal tax basis of $71,540 and is
not depreciated.
Item 3. Legal Proceedings.
WideBand Corporation is not involved in any legal proceedings which are
material to its business or operations or to the duties and obligations of any
of its officers and directors.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to a vote of Security Holders during the
fourth quarter of WideBand Corporation's fiscal year ended September 30, 2000.
PART II
Item 5. Market for Common Equity and Related Stockholders Matters.
WideBand shares are quoted on the NASDAQ over-the-counter Bulletin Board
market under the symbol "ZWBC". The following table sets forth the high and low
bid price for each quarter within the last two fiscal years. The prices were
obtained from quotations published by the National Quotation Bureau LLC, and
Commodity Systems, Inc.
Bid prices prior to December 31, 1999 reflect prices for equity shares of
Vis Viva Corporation, into which WideBand merged in the first quarter of 2000.
<TABLE>
<CAPTION>
Quarter Ending High Bid Low Bid
<S> <C> <C> <C>
30 Sep 1998 1/4 1/4
31 Dec 1998 1/4 1/8
31 Mar 1999 1/8 1/8
30 Jun 1999 1/8 1/8
30 Sep 1999 1/8 1/8
31 Dec 1999 1/8 1/8
31 Mar 2000 22 1
30 Jun 2000 16 8
30 Sep 2000 9 1/2 7 1/2
</TABLE>
The quotations reflect inter-dealer prices without retail markup, markdown
or commission, and may not reflect actual transactions.
As of September 30, 2000, there were approximately 270 WideBand
shareholders of record.
WideBand has not declared or paid any cash dividends on its shares and it
is not anticipated that cash dividends will be declared in the foreseeable
future. The payment of dividends will depend on future earnings, future capital
needs of WideBand, and other factors deemed pertinent by WideBand's Board of
Directors. Otherwise, there are currently no restrictions that limit the
ability of WideBand to pay dividends on its common shares, and none are likely
to arise in the future.
6
<PAGE>
Item 6. Management's Discussion and Analysis or Plan of Operation.
THE FOLLOWING DISCUSSION OF THE COMPANY'S FINANCIAL CONDITION AND RESULTS OF
OPERATIONS INCLUDES CERTAIN FORWARD-LOOKING STATEMENTS. WHEN USED IN THIS FORM
10-K, THE WORDS "ESTIMATE," "PROJECTION," "INTEND," "ANTICIPATES" AND SIMILAR
TERMS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS THAT RELATE TO THE
COMPANY'S FUTURE PERFORMANCE. SUCH STATEMENTS ARE SUBJECT TO SUBSTANTIAL
UNCERTAINTY. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THE FORWARD-
LOOKING STATEMENTS SET FORTH BELOW. THE COMPANY UNDERTAKES NO OBLIGATION TO
PUBLICLY UPDATE OR REVISE ANY OF THE FORWARD-LOOKING STATEMENTS CONTAINED
HEREIN.
OVERVIEW
WideBand Corporation was formed in 1994 as a manufacturer and marketer of
high-performance networking products. These products are based on the WideBand
and eEthernet (pronounced Enhanced Ethernet) networking technologies, whose
features are designed to support demand for an affordable way to send multiple
feeds of high-quality video over computer networks. The company generates
revenue primarily through the sale of these products to educational
institutions. The company has also started to license its patented technology
to generate royalty income.
On 1 March 2000 WideBand merged with Vis Viva Corporation, a company formed
in 1980 and registered as a Nevada reporting company in 1996. This merger did
not affect the Company's methods of operations, technologies, or customer base.
The Company recognizes revenues upon delivery and acceptance of the
products or services by the customer. Costs associated with the manufacture of
products are capitalized and amortized to cost of goods sold as the respective
revenue is recognized.
COMPARISON OF YEAR ENDED SEPTEMBER 30, 2000 TO THE NINE MONTHS ENDED SEPTEMBER
30, 1999
Sales increased as new product lines were introduced and existing product
lines were promoted. Sales of two new product lines, cable and accelerators,
accounted for $107,388 of total sales for the year ended September 30, 2000.
Three continuing product lines, PCI adapters, concentrators, and kits
experienced sales of $212,074 for the year ended September 30, 2000, an increase
of $141,493 over the prior period.
WideBand experienced a temporary reduction in research and development
expense due to a shift in focus to manufacturing and selling. However, research
and development of new products is continuing, and as such we do not expect
these reductions in cost to continue.
The company is focused on managing expenses in selling and general and
administrative areas. The increase experienced is partly due to increased
expenses for professional services that are required as a result of the
reorganization and change to a publicly held company. These expenses are
expected to continue. The increases experienced in selling and general and
administration are also partly due to $77,000 in common stock that was issued as
compensation to certain finders, agents and consultants in connection with the
reorganization. This is a one-time expense and is not expected to continue.
WideBand remains in the development and early promotion stages. Losses are
expected to continue for the near future.
SOURCES OF CASH
The Company generates cash primarily through the sale of its high-
performance networking products. At this time, the Company is focused on sales
7
<PAGE>
to educational institutions due to the perfect fit of WideBand technology to
meet their requirements to send multiple feeds of high-quality video over their
networks. The Company also markets to government and private industry. In
support of generating sales and licensing leads, WideBand displays its
technology each year at several computer shows including COMDEX.
The fluctuation in cash provided by financing activities to $1,226,118 in
the twelve months ended September 30, 2000 vs. $125,443 in the nine months ended
September 30, 1999, was primarily due to a private placement offering of 80,000
shares of common stock to fund completion of initial research and development
products and broaden market penetration through major marketing campaigns. This
private placement resulted in a $1,000,000 inflow of cash to the Company. The
Company also received $226,118 cash as a result of the merger with Vis Viva
Corporation.
The Company does not have any financing through borrowings and as such does
not have any long-term debt or associated interest expense.
USES OF CASH
Cash is used by operations to cover the cost of manufacturing goods for
sale. Included in these costs are the purchase of raw materials inventory and
the maintenance of manufacturing and testing equipment.
The Company requires funds for continuing research and development. This
requirement will continue as the Company is committed to the research and
development of new products to keep the Company vital.
During the year the Company spent $10,742 on patents covering different
aspects of WideBand's proprietary technology. At this time seven patents have
been issued - one in 1997, three in 1998, three in 2000, and a number of patents
are pending.
Item 7. Financial Statements.
See the Company's financial statements attached to this 10-KSB report.
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure.
There have been no changes in, nor disagreements with accountants.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
With Section 16(a) of the Exchange Act.
No disclosure is required or furnished.
Item 10. Executive Compensation.
Information on Executive Compensation is contained in the Proxy Material
sent to the Securities and Exchange Commission and to WideBand Shareholders in
conjunction with the Annual Meeting of Shareholders held 15 November 2000, and
is incorporated herein by reference.
8
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management.
Information regarding the Security Ownership of Certain Beneficial Owners
and Managers is contained in the Proxy Material sent to the Securities and
Exchange Commission and to WideBand Shareholders in conjunction with the Annual
Meeting of Shareholders held 15 November 2000.
Item 12. Certain Relationships and Related Transactions.
None.
Item 13. Exhibits and Reports on Form 8-K.
Index of Exhibits:
1. (#20) Proxy material submitted to security holders in conjunction
with the Annual Meeting of Shareholders held 15 November 2000, filed with
the SEC prior to the meeting, and incorporated herein by reference.
2. (#27) Financial Data Schedule
There were no reports filed on Form 8-K during the last quarter of the
fiscal year ended September 30, 2000.
SIGNATURES
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By _____________________/s/________________________
Roger E. Billings, President, CEO, Director
Date ________________12/19/00______________________
* Print the name and title of each signing officer under his signature.
9
<PAGE>
WideBand Corporation
Financial Statements
Table of Contents
Report of Independent Certified Public Accountants....................... F-1
Balance Sheets - September 30, 2000 and 1999............................. F-2
Statements of Operations for the year ended September 30, 2000 and for
the nine months ended September 30, 1999................................. F-3
Statements of Stockholder's Equity for the nine months ended September
30, 1999 and for the year ended September 30, 2000....................... F-4
Statements of Cash Flows for the year ended September 30, 2000 and the
nine months ended September 30, 1999s.................................... F-5
Notes to Financial Statements............................................ F-6
<PAGE>
HANSEN, BARNETT & MAXWELL (801) 532-2200
A Professional Corporation Fax (801) 532-7944
CERTIFIED PUBLIC ACCOUNTANTS 345 East 300 South, Suite 200
Salt Lake City, Utah 84111-2693
Member of AICPA Division of Firms
Member of SECPS
Member of Summit International Associates
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and the Stockholders
WideBand Corporation
We have audited the accompanying balance sheets of WideBand Corporation as of
September 30, 2000 and 1999, and the related statements of operations,
stockholders' equity, and cash flows for the year ended September 30, 2000 and
for the nine months ended September 30, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of WideBand Corporation as of
September 30, 2000 and 1999, and the results of its operations and its cash
flows for the year ended September 30, 2000 and the nine months ended September
30, 1999, in conformity with accounting principles generally accepted in the
United States.
HANSEN, BARNETT & MAXWELL
Salt Lake City, Utah
November 21, 2000
F-1
<PAGE>
WIDEBAND CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
2000 1999
--------------------------------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 988,310 $ 83,902
Trade accounts receivable 1,373 6,626
Inventory 169,267 81,027
Related party receivable - 8,430
Prepaid expenses 66,865 377
-------------- -------------
Total Current Assets 1,225,815 180,362
Property and Equipment 488,388 477,669
Less: accumulated depreciation (88,350) (69,020)
-------------- -------------
Net Property and Equipment 400,038 408,649
Patents, Net of Amortization 69,758 60,285
-------------- -------------
Total Assets $ 1,695,611 $ 649,296
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Trade accounts payable $ 11,670 $ 22,315
Related party payable - 8,873
Accrued liabilities 11,229 2,268
-------------- -------------
Total Current Liabilities 22,899 33,456
-------------- -------------
Stockholders' Equity
Common Stock - $0.01 par value;
20,000,000 shares authorized;
13,122,345 and 12,801,819 shares
outstanding, respectively 131,223 128,018
Additional paid-in capital 4,399,264 3,057,578
Accumulated deficit (2,857,775) (2,569,756)
-------------- -------------
Total Stockholders' Equity 1,672,712 615,840
-------------- -------------
Total Liabilities and Stockholders' Equity $ 1,695,611 $ 649,296
============== =============
</TABLE>
See the accompanying notes to financial statements.
F-2
<PAGE>
WIDEBAND CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the For the nine
year ended months ended
September 30, September 30,
2000 1999
----------------------------------------
<S> <C> <C>
Sales $ 396,241 $ 175,089
Cost Of Sales 245,353 91,239
------------ ------------
Gross Profit 150,888 83,850
Expenses
Research and development 147,696 229,968
Selling and general and administrative 302,927 158,501
------------ ------------
Total Expenses 450,623 388,469
------------ ------------
Loss From Operations (299,735) (304,619)
Interest income 11,716 -
------------ ------------
Net Loss $ (288,019) $ (304,619)
============ ============
Basic and Diluted Loss Per Share $ ( 0.02) $ ( 0.02)
============ ============
Weighted Average Number of Common
Shares Used in Per Share Calculation 12,981,769 12,732,946
============ ============
</TABLE>
See the accompanying notes to financial statements.
F-3
<PAGE>
WIDEBAND CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional Total
Common Stock Paid-In Accumulated Stockholders'
Shares Amount Capital Deficit Equity
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance - December 31, 1998 12,688,601 $ 126,886 $ 2,404,578 $ (2,265,137) $ 266,327
Shares issued for cash 25,000 250 124,750 - 125,000
Shares issued for assets 88,218 882 440,208 - 441,090
Services contributed by employees - - 88,042 - 88,042
Net loss for the period (304,619) (304,619)
------------ ------------ -------------- -------------- --------------
Balance - September 30, 1999 12,801,819 128,018 3,057,578 (2,569,756) 615,840
Shares returned for legal expense (11,000) (110) (8,890) - (9,000)
Shares issued for assets of Vis Viva 196,526 1,965 229,241 - 231,206
Shares issued for services 55,000 550 76,450 - 77,000
Shares issued for cash 80,000 800 999,200 - 1,000,000
Services contributed by employees - - 45,685 - 45,685
Net loss for period (288,019) (288,019)
------------ ------------ -------------- -------------- --------------
Balance - September 30,2000 13,122,345 $ 131,223 $ 4,399,264 $ (2,857,775) $ 1,672,712
</TABLE>
See the accompanying notes to financial statements.
F-4
<PAGE>
WIDEBAND CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the For the nine
year ended months ended
September 30, September 30,
2000 1999
-------------- --------------
<S> <C> <C>
Cash Flows From Operating Activities
Net loss $ (288,019) $ (304,619)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 20,599 35,808
Stock issued for services 77,000 -
Common stock received as reimbursement
for legal expense (9,000) -
Services contributed by employees 45,686 88,042
Changes in operating assets and liabilities:
Trade receivables 13,683 (64)
Prepaid assets (66,488) -
Inventory (88,240) 54,382
Accounts payable (19,518) 22,315
Deferred revenue - 400
Accrued liabilities 8,961 -
----------- -----------
Net Cash and Cash Equivalents Used In
Operating Activities (305,336) (103,736)
----------- -----------
Cash Flows From Investing Activities
Proceeds from sale of securities 5,087 -
Payments for patents (10,742) (7,526)
Purchase of equipment (10,719) (1,535)
----------- -----------
Net Cash and Cash Equivalents Used In
Investing Activities (16,374) (9,061)
----------- -----------
Cash Flows From Financing Activities
Common stock issued for cash 1,000,000 125,000
Payments on payable to related party - 443
Net cash received in Vis Viva acquisition 226,118 -
----------- -----------
Cash and Cash Equivalents Provided By
Financing Activities 1,226,118 125,443
----------- -----------
Net Increase in Cash 904,408 12,646
Cash and Cash Equivalents At Beginning of Period 83,902 71,256
----------- -----------
Cash and Cash Equivalents At End of Period $ 988,310 $ 83,902
=========== ===========
</TABLE>
See the accompanying notes to financial statements.
F-5
<PAGE>
WIDEBAND CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1- NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and nature of operations- Wideband Corporation was incorporated on
September 23, 1994 under the laws of the State of Missouri. Wideband is engaged
in developing, manufacturing, and marketing high performance computer networking
products.
On February 28, 2000, Wideband Corporation ('WideBand') entered into a
reorganization agreement with Vis Viva Corporation ('Vis Viva') whereby the
shareholders of WideBand exchanged all of the outstanding WideBand common shares
for 12,801,819 common shares of Vis Viva. The agreement was accounted for as
the reorganization of WideBand, as a stock split of the WideBand common shares
outstanding, and the acquisition of Vis Viva's assets in exchange for 196,526
shares of common stock. Vis Viva did not have any operations and had only
investment assets at the date of the agreement. Accordingly, the common shares
issued were recorded at the fair value of the Vis Viva assets at the time of the
reorganization.
The assets acquired were cash of $226,118 and investments in available-for-sale
securities of $5,088. In addition, Vis Viva changed its name to WideBand
Corporation. As part of the reorganization, the number of authorized shares of
common stock was increased from 15,000,000 to 20,000,000 shares. The financial
statements included herein prior to the reorganization are those of WideBand and
have been restated on a retroactive basis for all periods presented for the
effects of a stock split to reflect this change.
Use of Estimates- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts in these financial statements
and accompanying notes. Actual results could differ from those estimates.
Business Condition- The accompanying financial statements have been prepared on
a going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the ordinary course of business. As shown in the
financial statements, the Company has sustained losses from operations of
$288,019 and $304,619 during the year and nine months ended September 30, 2000
and 1999, respectively. In addition, operating activities have used cash of
$305,336 and $103,736 during the year and nine months ended September 30, 2000
and 1999, respectively. The Company's ability to continue as a going concern is
dependent upon its ability to generate sufficient cash flows to meet its
obligations on a timely basis, to obtain additional financing as may be
required, and ultimately to attain profitable operations. Management plans to
begin selling its networking products in commercial quantities and has entered
into licensing agreements which allow others to market and sell products
utilizing the Company's technology. There is no assurance, however, that these
efforts will result in profitable operations or in the Company's ability to meet
obligations when due.
Trade Accounts Receivable- Due to subsequent collection of trade accounts
receivable, an allowance for doubtful accounts was not required.
Concentration of Risk and Segment information- The Company operates solely in
the computer networking industry and has assets only within the United States.
However, the Company has sales throughout the world. The concentration of
business in one industry subjects the Company to a concentration of credit risk
relating to trade accounts receivable. Sales to major customers are defined as
sales to any one customer which exceeded 10% of total sales. The risk of loss of
a major customer subjects the Company to the possibility of decreased sales.
F-6
<PAGE>
Cash Equivalents and Fair Value of Financial Instruments- Cash equivalents
include highly liquid investments with original maturity of three months or
less, readily convertible to known amounts of cash. At September 30, 2000, the
Company had cash in excess of federally insured limits of $787,664.
The amounts reported as cash and cash equivalents, trade accounts receivable,
prepaid expenses, trade accounts payable and accrued liabilities are considered
to be reasonable approximations of their fair values. The fair value estimates
presented herein were based on market information available to management at the
time of the preparation of the financial statements. The reported fair values do
not take into consideration potential expenses that would be incurred in an
actual settlement.
Inventory- Inventory is stated at the lower of cost or market. Cost is
determined using the first-in, first-out method.
Research and Development Expense- Costs directly associated with research and
development activities in the computer networking industry are expensed as
incurred. These costs include software development costs included as a component
of the Company's product.
Patents- Legal fees and other direct costs incurred in obtaining patents in the
United States and other countries are capitalized. The patents are amortized on
a straight-line basis over a 15-year period beginning on the date the patents
are issued. Amortization expense was $1,269 and $2,662 during the year and nine
months ended September 30, 2000 and 1999, respectively.
The realization of patents and other long-lived assets is evaluated periodically
when events or circumstances indicate a possible inability to recover the
carrying amount. An impairment loss is recognized for the excess of the
carrying amount over the fair value of the asset or the group of assets. Fair
value is determined based on expected discounted net future cash flows. The
analyses necessarily involve significant management judgement to evaluate the
capacity of an asset to perform within projections.
Property and Equipment- Property and equipment are stated at cost. Depreciation
is computed using straight-line and accelerated methods over the estimated
useful lives, which are five to thirty-nine years. Maintenance and repairs are
charged to operations and major improvements are capitalized. Upon retirement,
sale, or other disposition, the cost and accumulated depreciation are eliminated
from the accounts and a gain or loss is included in operations.
Sales Recognition- Sales are recognized upon delivery and acceptance of the
products or services by the customer.
Advertising Costs- Advertising costs are expensed when incurred. Advertising
expense was $13,065 and $9,712 for the year and nine months ended September 30,
2000 and 1999, respectively.
Income Taxes- The Company recognizes the amount of income taxes payable or
refundable and recognizes deferred tax assets and liabilities for the future tax
consequences attributable to differences between the financial statement amounts
of certain assets and liabilities and their respective tax bases and for
operating loss carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years those
temporary differences are expected to be recovered or settled. Deferred tax
assets are reduced by a valuation allowance to the extent that uncertainty
exists as to whether the deferred tax assets will ultimately be realized.
F-7
<PAGE>
Stock-Based Compensation- Stock-based compensation related to stock options
granted to employees is measured by the intrinsic value method. This method
recognizes compensation expense based on the difference between the fair value
of the underlying common stock and the exercise price of the stock options on
the date granted. Stock-based compensation to non-employees is measured by the
fair value of the stock options and warrants on the grant date as determined by
the Black-Scholes option pricing model.
Basic and Diluted Loss Per Share- Basic loss per common share is computed by
dividing net loss by the weighted-average number of common shares outstanding
during the period. Diluted loss per share reflects potential dilution, which
could occur if all potentially issuable common shares from stock options
resulted in the issuance of common stock. In the present position, diluted loss
per share is the same as basic loss per share because 60,000 and 100,000
potentially issuable common shares at September 30, 2000 and 1999, respectively,
would have decreased diluted loss per share and have been excluded from the
calculation.
Reclassification- Certain previously reported amounts have been reclassified to
conform to the September 30, 2000 presentation. These reclassifications had no
effect on previously reported net income.
NOTE 2- STOCKHOLDERS' EQUITY
In April 1999, the Company filed suit against a shareholder for attempting to
utilize the Company's proprietary technology. In May 1999, the court ordered
the shareholder to pay the Company $9,000 for reimbursement of attorneys fees
incurred. In October 1999, the Company and the shareholder entered into a
settlement agreement wherein the shareholder returned 11,000 shares of the
Company's common stock to the Company in satisfaction of the $9,000 receivable
at $0.82 per share. No unstated rights were received or given in connection
with the settlement agreement.
In connection with the reorganization with Vis Viva, the Company issued 55,000
shares of common stock as compensation to certain finders, agents and
consultants in February 2000. The 55,000 shares of common stock were valued at
$77,000, or $1.40 per share. The value per share was the market value of Vis
Viva's common shares on September 6, 1999, the date of an agreement on the
purchase price and the proposed reorganization was announced.
During March 2000, the Company issued 80,000 shares of common stock for
$1,000,000 in cash, or $12.50 per share, in a private placement offering.
During 1997, the Company employed personnel to test-market a preliminary version
of its product. After the test was completed, certain of these employees agreed
to continue employment with the Company without compensation. These individuals
were added to the payroll April 1, 2000. The Company was and is not obligated
to pay these individuals for services rendered from 1997 through March 31, 2000;
however, the Company has recognized expense for these periods and has recognized
an equal amount as contributed capital. The related expense was $45,685 and
$88,042, for the year and nine months ended September 30, 2000 and 1999,
respectively.
In June 1999, the Company issued 88,218 shares of common stock to a director as
detailed in note 4.
NOTE 3- RELATED PARTY TRANSACTIONS
The President of the Company is a member of the board of trustees of the
International Academy of Science. The Academy has a program to give their
students experience in industry and the Company participates in this program.
The Academy also performs research on behalf of the Company under normal
contract arrangements. The Company made payments for research services by the
Academy during the year and nine months ended September 30, 2000 and 1999 of
$31,542 and $56,074, respectively. The Company is a steering committee member
of WGNA which is a special interest group established to administer WideBand
Networking as an industry standard. WGNA is hosted by the International Academy
of Science.
F-8
<PAGE>
The President of the Company owns a controlling interest in fs-ix Corporation.
fs-ix manufactures a line of file server products, most of which utilize
WideBand adapters manufactured by the Company. The Company also markets servers
produced by fs-ix through its dealer organization. Payments to and from fs-ix
during all periods presented were nominal.
See notes 2, 4, and 9 for other related party transactions.
NOTE 4- NONCASH INVESTING AND FINANCING ACTIVITIES
In June 1999, the Company issued 88,218 shares of common stock to a director for
the following: 1) settlement of a $60,550 capital lease obligation related to
equipment, 2) purchase of land for $71,540 and 3) purchase of a building for
$330,000. The total value of the items settled and received was $441,090, or
$5.00 per share.
NOTE 5- STOCK OPTIONS
The Company has issued individual stock options to employees for services. A
summary of the status of the Company's stock options as of September 30, 2000
and 1999, and changes during the year and nine months, respectively, then ended
are as follows:
<TABLE>
<CAPTION>
September 30,
2000 1999
-------------------------------------------------------
Weighted- Weighted-
Average Average
Shares Exercise Price Shares Exercise Price
<S> <C> <C> <C> <C>
Outstanding at beginning of year............ 100,000 $ 5.00 50,000 $ 5.00
Granted..................................... -- -- 50,000 5.00
Expired..................................... (40,000) 5.00 -- --
--------- -------- --------- --------
Outstanding at end of period................ 60,000 5.00 100,000 5.00
========= ======== ========= ========
Options exercisable at period-end........... 60,000 5.00 100,000 5.00
Weighted-average fair value of options
granted during the period................. $ -- $ 3.44
========= =========
</TABLE>
The weighted-average remaining contractual life of the stock options outstanding
at September 30, 2000 was 3.4 years. The Company measures compensation relating
to stock options by the intrinsic value method prescribed in Accounting
Principles Board Opinion 25, Accounting for Stock Issued to Employees, and
related interpretations. No compensation was recognized from stock options
during any period. Had compensation cost from the stock options been determined
based upon Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation, net loss and basic diluted loss per share would have
increased to the pro forma amounts indicated below:
For the For the nine
year ended months ended
September 30, September 30,
2000 1999
-------------- --------------
Net loss:
As reported.............................. $ (288,019) $ (304,619)
Pro forma................................ (288,019) (476,619)
Basic and diluted loss per share:
As reported.............................. $ (0.02) $ (0.02)
Pro forma................................ (0.02) (0.04)
F-9
<PAGE>
The fair value of each option granted was estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1999 respectively: dividend yield of 0.0%;
expected volatility of 82%, risk-free interest rate of 5.1% and expected life of
the options of 5.0 years. There were no grants during 2000.
NOTE 6- INVENTORY
Inventory consisted of the following:
September 30,
2000 1999
-----------------------------
Materials................................ $ 147,742 $ 67,181
Work in process.......................... 3,583 8,382
Finished goods........................... 17,942 5,464
------------ ------------
Total.................................... $ 169,267 $ 81,027
============ ============
NOTE 7- PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
September 30,
2000 1999
-----------------------------
Land..................................... $ 71,540 $ 71,540
Building................................. 300,000 300,000
Manufacturing equipment.................. 73,993 73,993
Other equipment.......................... 28,355 17,636
Automobiles.............................. 14,500 14,500
------------ ------------
Total.................................... $ 488,388 $ 477,669
============ ============
In June 1999, the Company acquired equipment under capital lease obligations
from a shareholder/director by issuing common stock, as further described in
Note 4.
Depreciation expense was $19,330 and $22,018 for the year and nine months ended
September 30, 2000 and 1999, respectively.
NOTE 8- INCOME TAXES
The net loss for all periods presented resulted entirely from operations within
the United States. There was no provision for or benefit from income tax for
any period. The components of the net deferred tax asset were as follows:
September 30,
2000 1999
-----------------------------
Depreciation............................ $ 8,925 $ --
Operating loss carryforwards............ 654,801 685,402
Valuation allowance..................... (663,726) (685,402)
------------ ------------
Net Deferred Tax Asset.................. $ -- $ --
============ ============
F-10
<PAGE>
For tax reporting purposes, the Company had operating loss carryforwards of
$1,717,510 at September 30, 2000, which will expire beginning in the year 2007.
The Company had a capital loss carryforward of $436,530 at September 30, 2000,
which will expire in the year 2004.
The following is a reconciliation of the tax benefit that would result from
applying the federal statutory rate to pretax loss with the provision for income
taxes:
September 30,
2000 1999
-----------------------------
Tax at statutory rate (34%).................... $ (95,206) $ (103,570)
Non-deductible expenses........................ 128,433 34,776
Change in valuation allowance.................. (21,676) 81,360
State tax benefit, net of federal tax effect... (11,551) (12,566)
------------ ------------
Net Income Tax Expense......................... $ -- $ --
============ ============
NOTE 9- LICENSING AGREEMENTS
The Company has an exclusive licensing agreement with the Company's president
and majority stockholder relative to patents and patent applications. Under the
terms of the agreement, the Company is required to pay a royalty of 1.5% of
sales to the president. Payments of $2,271 were made during the year ended
September 30, 2000 regarding this licensing agreement.
The Company entered into a licensing agreement on the 4th of February, 2000,
with JMKS International Marketing & Finance Limited. This agreement gives the
Company the right to incorporate and market JMKS educational programs in
conjunction with WideBand fs-ix servers. Under the terms of the agreement,
WideBand is required to pay a royalty for each educational topic sold.
No payments have yet been made under this licensing agreement.
The Company entered into a licensing agreement on the 12th day of May 2000, with
SMC Networks. This agreement grants non-exclusive rights to SMC Networks to
make, use, and sell products using the Company's proprietary technology. Under
the terms of the agreement, SMC Networks is required to pay a per port royalty
to the Company on their sale of any products using this proprietary technology.
No payments have yet been made under this licensing agreement.
NOTE 10- MAJOR CUSTOMERS
Sales to major customers and their percentage of sales are as follows:
<TABLE>
<CAPTION>
For the year ended For the nine months
September 30, ended September 30,
2000 1999
--------------------- ---------------------
<S> <C> <C> <C> <C>
Customer "A"............ $ 67,795 17% ---- ---
Customer "B"............ 52,714 13% ---- ---
Customer "C"............ 41,000 10% ---- ---
Customer "D"............ ---- --- 27,709 16%
Customer "E"............ ---- --- 17,340 10%
</TABLE>
Export sales to customers in various countries were 5% and 3% of sales during
the year and nine months ended September 30, 2000 and 1999, respectively.
F-11
<PAGE>
NOTE 11- SUBSEQUENT EVENTS
In October, 2000 WideBand entered into a licensing agreement with Accton
Technology Corporation, a corporation organized and existing under the laws of
the country of Taiwan, R.O.C. This agreement grants non-exclusive rights to
Accton Technology Corporation to make, use, and sell products using the
Company's proprietary technology. Under the terms of the agreement,
Accton Technology Corporation is required to pay a per port royalty to the
Company on the sale of any products using this proprietary technology. No
payments have yet been made under this licensing agreement.
F-12
<PAGE>
