UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended 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.)
150 Wright Brothers Drive, Suite 560, Salt Lake City, Utah 84116
(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 ___ No X .
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 SHEET
(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
March 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 - 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 Long-Term 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;
10,992,186 shares at March 31,
1998 and 10,225,260 shares at
December 31, 1997 issued and
outstanding 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 (45,936) (213,655)
Proceeds from sale of SecuriKey
business 372,499 -
Advance payments to affiliates
to be acquired (5,501) (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 985,237 2,195,251
----------- -----------
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
=========== ===========
The accompanying notes are an integral part of these condensed financial
statements.
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 23,926 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 common
shares in a private placement for $907,767, net of $96,233 in offering
costs, or $2.00 per share, and 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 considered a
preliminary cost of obtaining the contract and will be amortized over
the fulfillment of the contract.
NOTE 3--SALE OF SECURE KEY 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 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 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 of the repurchase the
Company will recognize a reversal of approximately $475,000 compensation
expense during the second quarter of 1998, which expense was originally
recognized during the fourth quarter of 1997 and the first quarter of
1998 relating to the granting of the 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 (Pro Forma)
Sales in the three-month period ended March 31, 1998 were
$1,308,883, compared to pro forma sales of $896,912 during
the three-month period ended March 31, 1997. This increase
is the result of increased revenues from contract design and
development services ($1,004,934 in the current quarter
compared to $300,000 in the three-month period ended March
31, 1997), a decrease in contract manufacturing and assembly
services ($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 ana
prior 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. ("KME") 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 $520,992, on a pro forma
basis. However costs of sales as a percentage of sales
decreased from 63% 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 $305,920 or
37% of pro forma sales for the three-month period ended
March 31, 1997. The improvement in gross profit was the
result principally of the design and development contracts
during the current quarter for which the significant
research and development costs were charged against
operations during prior years.
The Company incurred research and development costs of
$663,749 during the three months ending March 31, 1998,
relating to projects for customers for which there were no
present contracts and additional resources were expended for
the development of World Wireless's own proprietary
technology.Included in the $663,479 is $61,801 of non-cash
compensation relating to the grant of stock options as discussed
below. This amount was lower than the 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. Thus, excluding the
one-time 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 and inventory and a Director of quality control. The
increase in costs was also attributable to its maintenance
of duplicate administrative facilities and related
administrative expenses by virtue of its two business
locations in Utah. Management anticipates the elimination
of duplicated administrative efforts 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. As a result of the
repurchase, the Company will recognize a reversal of approximately
$475,000 compensation expense during the second quarter of 1998, which
expense was originally recognized during the fourth quarter of 1997,
and the first quarter of 1998 relating to the granting of the options.
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 excise
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: May 15, 1998 By: /x/
David D. Singer
President and Acting
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet as of March 31, 1998, and statements of operations for the three months
ended March 31, 1998, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 673,313
<SECURITIES> 188,354
<RECEIVABLES> 573,614
<ALLOWANCES> (30,000)
<INVENTORY> 403,436
<CURRENT-ASSETS> 2,115,860
<PP&E> 2,341,879
<DEPRECIATION> (598,671)
<TOTAL-ASSETS> 11,474,166
<CURRENT-LIABILITIES> 2,242,916
<BONDS> 0
0
0
<COMMON> 10,994
<OTHER-SE> 8,818,826
<TOTAL-LIABILITY-AND-EQUITY> 11,474,166
<SALES> 1,308,883
<TOTAL-REVENUES> 1,628,411
<CGS> 656,448
<TOTAL-COSTS> 2,171,077
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,581
<INCOME-PRETAX> (1,223,695)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,223,695)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,223,695)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> (0.12)
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