UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 1998
Commission file Number 333-38567
WORLD WIRELESS COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
Nevada 87-0549700
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2441 South 3850 West West Valley City, Utah 84120
(Address of principal executive offices) (Zip Code)
Registrant's telephone number (801) 575-6600
Indicate by check mark whether registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12
months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes X NO.
As of May 14, 1998, there were 11,077,110 shares of the registrant's Common
Stock, par value $0.001, issued and outstanding.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
WORLD WIRELESS COMMUNICATIONS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
March 31, December 31,
1998 1997
----------- ----------
Current Assets
Cash and cash equivalents $ 673,313 $ 218,234
Investment in securities available for sale 188,354 188,354
Trade receivables, net allowance 525,651 345,433
Other receivables 17,963 49,208
Inventory 403,436 496,432
Prepaid expenses 307,143 232,143
----------- ----------
Total Current Assets 2,115,860 1,529,804
----------- ----------
Equipment 2,341,879 1,589,248
Less accumulated depreciation (598,671) (455,985)
----------- ----------
Net Equipment 1,743,208 1,133,263
----------- ----------
Goodwill, net of accumulated amortization 7,091,834 7,214,066
----------- ----------
Other Assets, net of accumulated amortization 523,264 535,154
----------- ----------
Total Assets $11,474,166 $10,412,287
=========== ===========
The accompanying notes are an integral part of these condensed
financial statements.
WORLD WIRELESS COMMUNICATIONS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
Marach 31, December 31,
1998 1997
----------- ----------
Current Liabilities
Trade accounts payable $ 623,938 $ 524,093
Accrued liabilities 448,930 466,183
Notes payable - current portion 853,965 814,925
Capital lease obligation - current portion 316,083 -
----------- ----------
Total Current Liabilities 2,242,916 1,805,201
----------- ----------
Long-Term Liabilities
Notes payable 12,673 34,977
Capital lease obligation 388,757 -
----------- ----------
Total Liabilities 2,644,346 1,840,178
----------- -----------
Stockholders' Equity
Preferred stock - $0.001 par value; 1,000,000
shares authorized; no shares issued - -
Common stock - $0.001 par value; 50,000,000
shares authorized; issued and outstanding:
10,994,186 shares at March 31, 1998 and
10,225,260 shares at December 31, 1997 10,994 10,225
Additional paid-in capital 22,022,388 20,915,068
Unearned compensation (998,504) (1,410,509)
Receivable from shareholder (57,097) (18,409)
Accumulated deficit
(12,261,315) (11,037,620)
Accumulated other comprehensive income 113,354 113,354
----------- -----------
Total Stockholders' Equity 8,829,820 8,572,109
----------- -----------
Total Liabilities and Stockholders' Equity $11,474,166 $10,412,287
=========== ===========
The accompanying notes are an integral part of these condensed
financial statements.
WORLD WIRELESS COMMUNICATIONS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months
Ended March 31,
--------------------------
1998 1997
------------ -----------
Sales $ 1,308,883 $ 692,327
Cost of Sales 656,448 443,648
------------ -----------
Gross Profit 652,435 248,679
------------ -----------
Expenses
Research and development expense 663,749 1,422,521
General and administrative expenses 1,385,096 684,586
Amortization of goodwill 122,232 206,514
Interest expense 24,581 8,991
------------ -----------
Total Expenses 2,195,658 2,322,612
------------ -----------
Gain from Sale of SecuriKey Business 319,528 -
------------ -----------
Net Loss
$ (1,223,695) $(2,073,933)
============ ===========
Basic and Diluted Loss Per Common Share $ (0.12) $ (0.28)
Weighted Average Number of Common Shares
Used in Per Share Calculation 10,468,831 7,471,580
============ ============
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED)
For the Three Months
Ended March 31,
---------------------------
1998 1997
------------ ------------
Net Loss
$ (1,223,695) (2,073,933)
Other Comprehensive Income
Unrealized gains in investments in securities
available for sale - -
------------ -----------
Comprehensive Loss $ (1,223,695) $(2,073,933)
============= ===========
The accompanying notes are an integral part of these condensed
financial statements.
WORLD WIRELESS COMMUNICATIONS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Three Months
Ended March 31,
---------------------------
1998 1997
------------ ------------
Cash Flows From Operating Activities
Net loss $ (1,223,695) $ (2,073,933)
Adjustments to reconcile net loss
to net cash used by operating activities:
Amortization of goodwill 122,232 206,514
Depreciation and amortization of
other assets 166,497 40,764
Purchased research and development - 1,258,000
Compensation from stock options granted 412,005 265,500
Gain on sale of SecuriKey business (319,528) -
Changes in operating assets and
liabilities, net of effects of
business acquired:
Accounts receivable, net of allowance
for doubtful accounts (148,973) (130,459)
Inventory 37,621 (131,725)
Other assets (2,256) 1,296
Accounts payable 99,845 (143,091)
Accrued liabilities (4,849) (457,499)
------------ ------------
Net Cash and Cash Equivalents Used By
Operating Activities (861,101) (1,164,633)
------------ ------------
Cash Flows From Investing Activities
Payments for the purchase of
property and equipment (51,437) (213,655)
Proceeds from sale of SecuriKey business 372,499 -
Advance payments to affiliates to be acquired - (118,764)
Proceeds from receivable from shareholder 10,000 -
------------ ------------
Net Cash and Cash Equivalents Used By
Investing Activities 331,062 (332,419)
Cash Flows From Financing Activities
Proceeds from issuance of common stock 957,267 2,195,251
Proceeds from exercise of stock options 27,970 -
Proceeds from borrowings, net of discount 414,246 -
Principal payments on notes payable (361,211) (12,544)
Principal payments on capital lease obligation (53,154) -
------------ -------------
Net Cash and Cash Equivalents Provided By
Financing Activities 985,118 2,182,707
------------ --------------
Net Increase In Cash and Cash Equivalents 455,079 685,655
Cash and Cash Equivalents- Beginning of Period 218,234 37,278
------------ --------------
Cash and Cash Equivalents - End of Period $ 673,313 $ 722,933
============ ==============
WORLD WIRELESS COMMUNICATIONS, INC
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
Supplemental Cash Flow Information -
For the Three Months
Ended March 31,
-----------------------
1998 1997
---------- ----------
Interest Paid $ 17,839 $ 8,991
Noncash Investing and Financing Activities -
During the three months ended March 31, 1997, $1,970 in long-term debt was
converted into 5,630 shares of common stock at $0.35 per share. The Company
issued 1,798,100 shares of common stock and 201,900 stock options in
exchange for all of the issued and outstanding common stock of Digital
Radio. In January and February 1997, which was prior to the effective date
of the merger, the Company advanced $118,764 to Digital Radio. In
conjunction with the merger, liabilities were assumed as follows:
Fair value of assets acquired $1,112,399
Purchased research and development 1,258,000
Goodwill 7,885,075
Common stock issued and stock
options granted (8,674,062)
----------
Liabilities Assumed $1,581,412
==========
During the first quarter of 1998, the Company leased equipment under capital
leases valued at $721,695. Options to purchase 256,926 common shares were
exercised in exchange for a receivable from a shareholder of $47,852. The
Company issued 10,000 common shares, valued at $75,000, or $7.50 per share,
as a preliminary cost of obtaining a manufacturing contract.
WORLD WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - INTERIM CONDENSED FINANCIAL STATEMENTS
The accompanying condensed consolidated financial statements are unaudited.
In the opinion of management, all necessary adjustments (which include only
normal recurring adjustments) have been made to present fairly the financial
position, results of operations and cash flows for the periods presented.
Certain information and note disclosure normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these
condensed consolidated financial statements be read in conjunction with the
financial statements and notes thereto included in the December 31, 1997
annual financial statements of the Company. The results of operations for
the three month period ended March 31, 1998 are not necessarily indicative
of the operating results to be expected for the full year.
NOTE 2-COMMON STOCK
During the first quarter of 1998, the Company issued 502,000 restricted
common shares in a private placement to the major shareholders of the
Company for cash in the amount of $907,767, net of $96,233 in accumulated
offering costs, or $2.00 per share before offering costs. There were no
unstated rights or privileges received with respect to this issuance. The
Company also issued 256,926 common shares from the exercise of options for
$77,470 cash and a receivable from a shareholder of $47,852. The Company
issued 10,000 common shares in conjunction with the execution of a
manufacturing contract during February 1998. The shares were valued at
$75,000 or $7.50 per share, which was the quoted market trading price on the
date of issuance and was considered a preliminary cost of obtaining the
contract. The cost will be amortized over the fulfillment of the contract.
NOTE 3-SALE OF SECURIKEY BUSINESS
During January 1998, the Company sold its SecuriKey business, including
customer lists, technology, equipment and related products to a
shareholder/employee for $372,499. The sale resulted in a gain of $319,528.
NOTE 4-SUBSEQUENT EVENTS
Subsequent to March 31, 1998, the Company issued 80,000 common shares from
the exercise of options for $28,000.
The Company has entered into an agreement to lease equipment and software
which has not yet been placed into service. The agreements have future
minimum lease payments of approximately $375,000 payable over periods
ranging from two to three years.
During April 1998, the board of Directors approved the repurchase of
unvested employee stock options at a price of $0.01 per share. The options,
which were granted during the fourth quarter of 1997, represent
approximately 525,000 common shares. As a result, the Company will recognize
$94,886 as compensation expense in April 1998 and will eliminate the balance
of the unrecognized deferred compensation of $903,618, for the unvested
options.
Item 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
---------------------
When used in this discussion, the words "expect(s)", "feel(s)",
"believe(s)", "will", "may", "anticipate(s)" and similar expressions are
intended to identify forward-looking statements. Such statements are
subject to certain risks and uncertainties, which could cause actual results
to differ materially from those projected. Readers are cautioned not to
place undue reliance on these forward-looking statements, and are urged to
carefully review and consider the various disclosures elsewhere in this Form
10-Q.
Three Months Ended March 31, 1998 and Three Months Ended March 31, 1997
- -----------------------------------------------------------------------
Sales in the three-month period ended March 31, 1998 were $1,308,883
compared to sales of $692,327 during the three-month period ended March 31,
1997. The change resulted from an increase in revenues from contract design
and development services of $804,934 ($1,104,934 in the current quarter
compared to $300,000 in the three-month period ended March 31, 1997) and a
decrease in contract manufacturing and assembly services of $37,813
($203,949 in the current quarter compared to $241,762 in the three-month
period ended March 31, 1997). During January, the SecuriKey business was
sold to a former employee/shareholder. As a result, no SecuriKey sales were
recorded during the first quarter of 1998. SecuriKey sales during the three
months ended March 31, 1997 were $285,150. Design and development service
revenues in the three months ended March 31, 1998 arose under two single
contracts, one with Williams Telemetry, a Williams company, in the amount of
$1,001,934 and another with Kyushu Matsushita Electric Co., Ltd. ("KMW") in
the amount of $103,000.
Cost of sales for the three months ended March 31, 1998 were $656,448
compared to cost of sales for the three-month period ended March 31, 1997 of
$443,648. However, cost of sales as a percentage of sales decreased from 64%
to 50% in the current quarter. The related gross profit for the three months
ended March 31, 1998 was $652,435 or 50% of sales compared to $248,679 or
36% of sales for the three-month period ended March 31, 1997. The
improvement in gross profit was the result principally of meeting certain
design and development contract milestones during the current quarter for
efforts and costs incurred over several preceding periods.
The Company incurred research and development costs of $663,749 during the
three months ending March 31, 1998, relating to the further development of
existing proprietary technology that Management believes it will be able to
sell to its customers. Included in the $663,749 is $61,801 of non-cash
compensation relating to the grant of stock options as discussed below. This
amount was lower than total research and development for the three month
period ended March 31, 1997, which consisted of the sum of (a) the purchased
research and development expense of $1,258,000 arising out of the
acquisition of the Digital Radio Communications Corporation in February
1997, and (b) $164,521 spent on developing the Company's own products. Other
than the purchased research and development expense, research and
development expenses of the Company increased by $499,228 during the quarter
ended March 31, 1998.
The Company's selling, general and administrative expenses for the quarter
ended March 31, 1998 increased by 102% to $1,385,096 from $684,586 for the
three-month period ended March 31, 1997. Included in the $1,385,096 is
$350,204 of non-cash compensation relating to the grant of stock options as
discussed below. Such increase reflected the substantial increase in the
number of employees of the Company to approximately 90 in the current
quarter from approximately 50 during the three-month period ended March 31,
1997. In addition, the Company increased the number of its higher paid
employees, including, the hiring of a Vice President of Manufacturing, a
Director of Logistics for purchasing inventory and a Director of quality
control. The increase in costs was also attributable to its maintenance of
administrative personnel and facilities in two locations and related
administrative expenses by virtue of its two business locations in Utah.
Management anticipates combining the administrative offices during 1998.
Interest expense for the quarter ended March 31, 1998 increased to $24,581
from $8,991 for the three-month period ended March 31, 1997 which was
attributable to the greater amount of the Company's outstanding borrowings
during the current quarter.
The Company's net loss of $1,223,695 for the three months ended March 31,
1998 represents a reduction from the net loss of $2,073,933 for the quarter
ended March 31, 1997, as follows: (a) an increase in sales of 89%; (b) an
increase in gross profit margins from 36% to 50%; (c) the one-time increase
in earnings arising out of the sale of the SecuriKey product line; and (d)
the absence during the current quarter of a significant one-time charge of
$1,258,000 for purchased research and development, connected with the
acquisition of Digital Radio during the quarter ended March 31, 1997.
During April 1998, the Board of Directors approved the repurchase of
unvested employee stock options at a price of $0.01 per share. The options,
which were granted during the fourth quarter of 1997, represent
approximately 525,000 common shares.
Liquidity and Capital Resources
- -------------------------------
The Company's financial condition at March 31, 1998, improved from its
financial condition at December 31, 1997. The improvement is a result of
the Company's increase in sales of $616,556, proceeds of $372,499 from the
sale of the SecuriKey business and net proceeds of $985,237 from the
issuance of common stock, during the three months ended March 31, 1998.
However, through March 31, 1998, the Company's sales and gross profitability
were not at a level necessary to fund its operations and capital
expenditures that will be required to support substantial increases in the
scope of the Company's operations. Substantially all cash on hand at March
31, 1998 has been used in operations, including $1,004,000 raised through
the sale of 502,000 shares of its Common Stock in a private placement to a
large shareholder at $2.00 per share in March, 1998. Accordingly, in order
to sustain operations, the Company intends to borrow up to $2,500,000
pursuant to an offering of units consisting of (a) its Senior Secured Notes,
maturing on or around May 15, 1999 and bearing simple interest at the rate
of 10% 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 $3.00 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 $3.00 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 is being made in a private placement transaction which will be
exempt from registration under the Securities Act of 1933, as amended.
Nevertheless, in management's opinion, the Company will not be able to
satisfy its needs for additional capital through borrowing, but will be able
to meet these needs only by issuing additional equity securities. Thus, the
Company anticipates obtaining additional financing of at least $5,000,000
through the sale of its equity securities but no such financing has been
consummated. Moreover, there can be no assurance that the Company will be
able to obtain any additional capital or, if so, on terms acceptable to it.
On December 19, 1997, the Company received initial orders for equipment from
Williams Telemetry, a Williams company. The orders cover a variety of
products, such as the WinGate(TM), radio transmitters and receivers and
spread spectrum transceivers. These radio products were designed by, and
with the WinGate, will be manufactured by the Company and will be used by
Williams Telemetry through its information gathering system. The delivery
schedule established by the orders calls for initial shipments to begin in
1998 and increase significantly during calendar 1999. Total shipments under
the contract are expected to be completed in full by the end of the year
2000. If all expectations are met, sales under the orders would potentially
reach $70 million. Order quantities and shipping dates, however, are subject
to adjustment by Williams upon 90-day notice prior to the scheduled delivery
date, if its customers or other factors beyond its control make such
adjustment necessary. At the present time, therefore, the orders can be
considered "firm" as to quantities and delivery dates only with respect to
units scheduled for shipment in the second quarter of 1998.
The Company also contracted with Williams for project management and
engineering design and support services relative to the Williams Telemetry
network on a fee-for-service basis.
Outlook
- -------
The statements contained in this Outlook are based on current expectations.
These statements are forward looking and actual results may differ materially.
Management believes that, as deregulation of natural gas and other utilities
continues, multiple utility suppliers will be serving a given city or
neighborhood. Consequently, it will become more difficult and time consuming
for utility companies to read meters as they will generally not be the
provider to every user in the city or neighborhood which will increase the
cost effectiveness of reading utility meters remotely. Management believes
that the Williams Telemetry Network, described in detail in the Prospectus
dated February 17, 1998, is a viable alternative to the current practice of
manually reading meters. Additionally, management believes that William's
position as an affiliate of a major transporter of natural gas in the United
States positions it to successfully market its telemetry network, which
currently is designed to use collector and repeater radios supplied by the
Company to gather and transmit data.
Management believes that the Company's relationship with Williams will
result in significant increases in sales of its radio products for use in
the Williams Telemetry Network. Significant increases in sales, however,
would lead to working capital requirements which would not be provided for
from funds generated by the initial sales of the products. The Company is
currently investigating the prospects of a private placement and ultimately
a secondary public offering to meet its working capital and operating needs.
However, there is no assurance that sufficient capital or any capital will
be raised from such endeavors.
Additionally, management estimates the Company's current manufacturing
facilities would not be adequate to fulfill substantial increases in demand
for its products. Management is currently looking into two solutions: (1)
out-sourcing a portion of the manufacturing overload or, (2) expanding its
in-house manufacturing capacity through leasing or purchasing additional
building space and equipment. 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 expense 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. However, management estimates that between $2 million
and $5 million may be required for this purpose. At the present time, the
Company does not have any commitment for or source of these funds.
The Company anticipates an increase in revenues from additional contracts
for design and development services. It is management's intent to model such
contracts after the KME contract, whereby the Company receives fees during
the early stages of the agreement and is entitled to royalties or gross
profit splits based upon its customer's sales of products into which the
technology has been incorporated. It is management's intent that the fees
received will cover the Company's costs. However, these fixed fee
arrangements may not cover all of the Company's costs incurred in fulfilling
any such contract. Royalties or gross profit splits resulting from sales of
products using the technology developed under the contract would enhance the
Company's profitability if and when received.
In anticipation of obtaining additional design and development contracts,
management must continually recruit and hire additional RF (radio
frequency), software, firmware and digital engineers. It is extremely
difficult, time-consuming and expensive to find engineers qualified in those
fields. There is no assurance the Company will be able to locate and hire
such qualified engineers. Associated with the hiring of each engineer is the
need for test and development equipment, software and work stations, which
increases the Company's cash requirements.
In summary, while management is optimistic about the Company's future, it is
fully aware that anticipated revenue increases from product sales, design
and development contracts and royalty income are by no means assured, and
that if such increases do materialize, the requirements for capital are
substantial, for which there is no present commitment. Moreover, there can
be no assurance that such capital or other financing will be obtained when
needed, or, if so, on terms acceptable to the Company.
PART II. OTHER INFORMATION
Item 5. Other Information
-----------------
a) During the first quarter Eric Williams, William Gahan, and Robert
Fredere joined the Company as Vice President, Manufacturing,
Director of Logistics, and Director of Quality Control, respectively.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits. None
--------
(b) Reports on Form 8-K. None
-------------------
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
World Wireless Communications
Date: October 30, 1998 By: /S/ David D. Singer
---------------------------
David D. Singer
President Chief Executive Officer
Date: November 2, 1998 By: /S/ James L. O'Callaghan
------------------------------
James L. O'Callaghan
Chief Financial Officer
