UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
(Mark One)
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition period from to
SPECIAL FINANCIAL REPORT FILED PURSUANT TO SECTION 15D-2
OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
THIS REPORT CONTAINS ONLY FINANCIAL STATEMENTS
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
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, including area code (801) 575-6600
Securities registered under section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None
Securities registered under section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 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 _______
<PAGE>
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not 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-K or any
amendment to this Form 10-K. ______ Not applicable
As of April 23, 1998, there were 11,072,186 shares of the Issuer's common
stock, par value $0.001, issued and outstanding. The aggregate market value of
the Issuer's voting stock held by nonaffiliates of the Issuer was approximately
$38,974,573, computed at the closing quotation for the Issuer's common stock
of $5.50 as of April 23, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and
the part of the Form 10-K (e.g. Part I, Part II, etc.) into which the document
is incorporated: (1) any annual report to security holders; (2) any proxy or
information statement; and (3) any prospectus filed pursuant to Rule 424(b) or
(c) under the Securities Act of 1933. The listed documents should be clearly
described for identification purposes. None.
PART II
ITEM 8. Financial Statements and Supplementary Data
Financial Statements are filed as part of this report on pages F-1
through F-19
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Index to financial statements and Supplemental Schedules
Title of Documents
Page No.
Report of Independent Certified Public Accountants F-1
Consolidated Balance Sheets - December 31, 1997 and 1996 F-2
Consolidated Statements of Operations for the Years Ended
December 31, 1997 and 1996, and for the Period from April
10, 1995 (Date of Inception) through December 31, 1995 F-3
Consolidated Statements of Comprehensive Loss for the
Years Ended December 31, 1997 and 1996, and for the
Period from April 10, 1995 (Date of Inception) through
December 31, 1995 F-3
Consolidated Statements of Stockholders' Equity for the
Period from April 10, 1995 (Date of Inception) through
December 31, 1995, and for the Years Ended December 31,
1996 and 1997 F-4
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1997 and 1996, and for the Period
from April 10, 1995 (Date of Inception) through December
31, 1995 F-5
Notes to Consolidated Financial Statements F-6
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Company has caused this report to be
signed on its behalf by the undersigned, hereunto duly authorized.
WORLD WIRELESS COMMUNICATIONS, INC.
Dated: October 30, 1998 By: /S/ David D. Singer
--------------------------------
David D. Singer, Chairman of the
Board (President and Chief Executive
Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
Dated: October 30, 1998 By: /S/ David D. Singer
---------------------------------
David D. Singer, President, Chief
Executive Officer, and Director
Dated: October 30, 1998 By: /S/ James L. O'Callaghan
---------------------------------
James L. O'Callaghan,
Chief Financial Officer
Dated: November 3, 1998 By: /S/ Brian W. Pettersen
---------------------------------
Brian W. Pettersen, Director
Dated: By____________________________
George Denney, Director
Dated: October 30, 1998 By: /S/ Philip A. Bunker
------------------------------
Philip A. Bunker, Director
<PAGE>
WORLD WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Page
Report of Independent Certified Public Accountants F-1
Consolidated Balance Sheets - December 31, 1997 and 1996 F-2
Consolidated Statements of Operations for the Years Ended
December 31, 1997 and 1996, and for the Period from April
10, 1995 (Date of Inception) through December 31, 1995 F-3
Consolidated Statements of Comprehensive Loss for the
Years Ended December 31, 1997 and 1996, and for the
Period from April 10, 1995 (Date of Inception) through
December 31, 1995 F-3
Consolidated Statements of Stockholders' Equity for the
Period from April 10, 1995 (Date of Inception) through
December 31, 1995, and for the Years Ended December 31,
1996 and 1997 F-4
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1997 and 1996, and for the Period
from April 10, 1995 (Date of Inception) through December
31, 1995 F-5
Notes to Consolidated Financial Statements F-6
HANSEN, BARNETT & MAXWELL
A Professional Corporation
CERTIFIED PUBLIC ACCOUNTANTS
(801) 532-2200
Member of AICPA Division of Firms Fax (801) 532-7944
Member of SECPS 345 East Broadway, Suite 200
Member of Summit International Associates Salt Lake City, Utah 84111-2693
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
World Wireless Communications, Inc.
We have audited the accompanying consolidated balance sheets of World Wireless
Communications, Inc. and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of operations, comprehensive loss,
stockholders' equity, and cash flows for the years ended December 31, 1997 and
1996, and for the period from April 10, 1995 (date of inception) through
December 31, 1995. 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 generally accepted auditing
standards. 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of World Wireless
Communications, Inc. and subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for the years ended December
31, 1997 and 1996, and for the period from April 10, 1995 (date of inception)
through December 31, 1995, in conformity with generally accepted accounting
principles.
HANSEN, BARNETT & MAXWELL
Salt Lake City, Utah
February 27, 1998
<PAGE>
F-1
WORLD WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31,
1997 1996
------------ -----------
Current Assets
Cash and cash equivalents $ 218,234 $ 37,278
Investment in securities available
for sale 188,354 -
Trade receivables, net of allowance 345,433 131,392
Other receivables 49,208 -
Inventory 496,432 159,881
Prepaid expenses 232,143 -
------------ -----------
Total Current Assets 1,529,804 328,551
------------ -----------
Equipment 1,589,248 448,237
Less accumulated depreciation (455,985) (121,215)
------------ -----------
Net Equipment 1,133,263 327,022
------------ -----------
Goodwill, net of accumulated amortization 7,214,066 -
------------ -----------
Other Assets, net of accumulated amortization 535,154 7,469
------------ -----------
Total Assets $ 10,412,287 $ 663,042
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31,
1997 1996
----------- ----------
Current Liabilities
Trade accounts payable $ 524,093 $ 61,997
Accrued liabilities 466,183 55,788
Notes payable - current portion 814,925 85,566
----------- ----------
Total Current Liabilities 1,805,201 203,351
----------- ----------
Long-Term Liabilities
Notes payable 34,977 44,808
----------- ----------
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; 10,225,260
shares in 1997 and 5,663,000 shares in 1996
issued and outstanding 10,225 5,663
Additional paid-in capital 20,915,068 3,916,613
Unearned compensation (1,410,509) -
Shareholder receivable (18,409) -
Accumulated deficit (11,037,620) (3,507,393)
Accumulated other comprehensive income 113,354 -
----------- ----------
Total Stockholders' Equity 8,572,109 414,883
----------- ----------
Total Liabilities and Stockholders' Equity $10,412,287 $ 663,042
=========== ==========
The accompanying notes are an integral part of these financial statements.
<PAGE>
F-2
WORLD WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Period
April 10,1995
For the Years (Date of Inception)
December 31, Through
________________________ December 31,
1997 1996 1995
----------- ----------- -----------
<S>. <C> <C> <C>
Sales $ 2,913,429 $ 618,505 $ 426,825
Cost of Sales 2,116,934 662,184 237,356
----------- ----------- -----------
Gross Profit (Loss) 796,495 (43,679) 189,469
----------- ----------- -----------
Expenses
Research and development 2,943,404 92,932 -
General and administrative 4,234,087 1,789,904 386,612
Amortization of goodwill 1,105,452 - -
Interest 43,779 1,310,142 73,593
----------- ----------- -----------
Total Expenses 8,326,722 3,192,978 460,205
----------- ----------- -----------
Net Loss $(7,530,227) $(3,236,657) $ (270,736)
=========== =========== ===========
Basic and Diluted Loss Per
Common Share $ (0.82) $ (1.03) $ (0.26)
=========== =========== ===========
Weighted Average Number of
Common Shares Used in Per
Share Calculation 9,217,158 3,141,613 1,049,679
=========== =========== ===========
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
For the Period
April 10,1995
For the Years (Date of Inception)
Ended December 31, Through
------------------------ December 31,
1997 1996 1995
----------- ----------- -----------
Net Loss $(7,530,227) $(3,236,657) $ (270,736)
Other Comprehensive Income
Unrealized gains on investment in
securities available for sale 113,354 - -
----------- ----------- -----------
Comprehensive Loss $(7,416,873) $(3,236,657) $ (270,736)
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
<PAGE>
F-3
WORLD WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
</TABLE>
<TABLE>
<CAPTION>
Common Stock Additional Total
----------------------- Paid-in Accumulated Equity Stockholders'
Shares Amount Capital Deficit Adjustments Equity
---------- ----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance - April 10, 1995
(Date of Inception) - $ - $ - $ - $ - $ -
Shares issued for cash 1,189,394 1,189 394,811 - - 396,000
Shares issued for services 425,758 426 140,074 - - 140,500
Issuance for financing fees 116,988 117 38,489 - - 38,606
Redemption of shares (600,000) (600) (268,400) - - (269,000)
Beneficial conversion feature
of convertible debt - - 69,974 - - 69,974
Net Loss - - - (270,736) - (270,736)
---------- ----------- ----------- ------------ ----------- -----------
Balance - December 31, 1995 1,132,140 1,132 374,948 (270,736) - 105,344
Beneficial conversion feature
of convertible debt - - 719,781 - - 719,781
Conversion of notes payable 3,092,860 3,093 811,907 - - 815,000
Shares issued for cash 900,000 900 776,797 - - 777,697
Shares issued for services 527,000 527 787,061 - - 787,588
Shares issued for interest due
on convertible notes 11,000 11 4,939 - - 4,950
Compensation related to grant
of stock options - - 441,180 - - 441,180
Net loss - - - (3,236,657) - (3,236,657)
---------- ----------- ----------- ------------ ----------- -----------
Balance - December 31, 1996 5,663,000 5,663 3,916,613 (3,507,393) - 414,883
Compensation related to grant
of stock options - - 2,373,849 - (2,373,849) -
Shares and warrants issued
for cash 2,557,857 2,558 4,192,692 - - 4,195,250
Issuance upon exercise of
options 25,098 25 29,836 - (18,409) 11,452
Conversion of note payable 5,630 6 1,964 - - 1,970
Shares issued and 201,900
stock options granted in
acquisition of Digital Radio
Communications Corporation 1,798,100 1,798 8,672,264 - - 8,674,062
Shares issued in acquisition
of TWC 101,200 101 1,048,331 - - 1,048,432
Shares issued in acquisition
of XARC 10,000 10 102,990 - - 103,000
Shares issued in settlement
of lawsuit 40,000 40 323,416 - - 323,456
Issuance for financing fees 24,375 24 253,113 - - 253,137
Amortization of unearned
compensation - - - - 963,340 963,340
Unrealized gain on
securities - - - - 113,354 113,354
Net loss - - - (7,530,227) - (7,530,227)
---------- ----------- ----------- ------------ ----------- -----------
Balance - December 31, 1997 10,225,260 $ 10,225 $20,915,068 $(11,037,620) $(1,315,564) $ 8,572,109
========== =========== =========== ============ =========== ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
F-4
WORLD WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Period
April 10,1995
(Date of
For the Years Ended Inception)
December 31, Through
------------------------ December 31,
1997 1996 1995
----------- ----------- ----------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net loss $(7,530,227) $(3,236,657) $ (270,736)
Adjustments to reconcile net loss to
net cash used by operating activities:
Amortization of goodwill 1,105,452 - -
Depreciation and amortization of
other assets 361,607 83,094 38,853
Purchased research and development 1,561,000 - -
Financing fees and amortization of
debt discount 154,200 1,284,415 34,987
Stock issued for services 111,370 787,588 179,106
Compensation from stock options granted 963,340 441,180 -
Changes in operating assets and liabilities,
net of effects of businesses acquired:
Accounts receivable, net of allowance
for doubtful accounts 7,622 (100,688) (30,621)
Inventory (41,105) (99,225) (14,799)
Accounts payable 41,546 30,741 31,256
Accrued liabilities (86,981) 54,965 827
Other assets (237,312) (4,143) -
----------- ----------- ----------
Net Cash and Cash Equivalents Used By
Operating Activities (3,589,488) (758,730) (31,127)
----------- ----------- ----------
Cash Flows From Investing Activities
Payments for the purchase of property
and equipment (663,707) (90,544) (49,691)
Proceeds from sale of property
and equipment 10,754 - -
Cash paid for subsidiaries, net of
cash received (248,736) - (340,000)
----------- ----------- ----------
Net Cash and Cash Equivalents Used
By Investing Activities (901,689) (90,544) (389,691)
----------- ----------- ----------
Cash Flows From Financing Activities
Payment to redeem common stock - - (19,000)
Proceeds from issuance of common stock 4,206,700 777,697 350,000
Proceeds from borrowings, net of discount 775,000 (417,008) 77,847
Proceeds from issuance of beneficial
debt conversion feature - 719,781 41,653
Principal payments on notes payable (309,567) (223,600) -
----------- ----------- ----------
Net Cash and Cash Equivalents Provided
By Financing Activities 4,672,133 856,870 450,500
----------- ----------- ----------
Net Increase In Cash and Cash Equivalents 180,956 7,596 29,682
Cash and Cash Equivalents - Beginning
of Period 37,278 29,682 -
----------- ----------- ----------
Cash and Cash Equivalents - End
of Period $ 218,234 $ 37,278 $ 29,682
=========== =========== ==========
Supplemental cash flow information and noncash investing and financing
activities - Note 7
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
F-5
WORLD WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Organization -- On April 10, 1995 a group of investors contributed $340,000 in
cash to form a joint venture (the Joint Venture). On the same day, the Joint
Venture acquired substantially all of the assets and operations of Micro
Security Systems, Inc. for $340,000 cash. The acquisition was accounted for by
the purchase method of accounting. The purchase price was allocated to the
assets acquired based upon their fair value: $45,857 to current assets and
$294,143 to equipment and other long-term assets. The operations of the
acquired business are included in the accompanying financial statements from
the date of acquisition.
Data Security Corporation (Data Security) was formed on November 15, 1995 under
the laws of the State of Nevada. The Joint Venture was reorganized into Data
Security in November 1995 by Data Security issuing 787,140 shares of common
stock and agreeing to pay $269,000 to one of the owners of the Joint Venture.
The transfer of the net assets and operations to Data Security was a transfer
between enterprises under common control and has been accounted for at
historical cost. The accompanying financial statements have been restated to
reflect the common stock equivalents which would have been issued and redeemed
from the dates of the original transactions with the owners of the Joint
Venture based upon the shares exchanged in the transfer.
By shareholder action on January 15, 1997, the Company's name was changed from
Data Security Corporation to World Wireless Communications, Inc.
Principles of Consolidation -- The consolidated financial statements include
the accounts of World Wireless Communications, Inc. and its wholly owned
subsidiaries, ECA Electronic Contract Assembly, Inc. (ECA), TWC, Inc. (TWC),
and Digital Radio Communications Corporation (Digital Radio) which has
subsidiaries, from the dates of their acquisitions. Intercompany accounts and
transactions have been eliminated in consolidation. The consolidated entities
are collectively referred to herein as the Company. On December 31, 1997,
Digital Radio Communications Corporation and its subsidiaries, and ECA,
effected a plan of liquidation into World Wireless Communications, Inc. and
were dissolved.
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.
Nature of Business -- The Company and its subsidiaries design, develop and
manufacture wired and wireless communications technology, systems and products,
and provide contract manufacturing services to the electronics and wireless
communications industry.
Prior to the acquisition of Digital Radio and TWC, the primary operations of
the Company were centered around the design and manufacture of computer
security products, which constituted most of the Company's sales for 1996 and
1995. Sales of these products were insignificant during 1997. As further
described in Note 12, the computer security product line was sold to an
employee/shareholder in January 1998.
Business Condition --Since the acquisition of Digital Radio in February 1997,
the Company no longer is considered in the development stage, having reached
planned operations. However, it has not had sales sufficient to meet its
operating expenses and to generate income. It has sustained operating losses
for the years ended December 31, 1997 and 1996 and for the period from April
10, 1995 through December 31, 1995, and may require additional capital to
continue operations. Although current liabilities exceed current assets at
December 31, 1997, equity sales and debt issuances since December 31, 1997 have
provided working capital necessary to meet obligations. Management also intends
to obtain additional capital through issuance of common stock. Management
anticipates sales from contracts currently in force will eventually generate
profitable operations. However, there is no assurance that profitable
operations can be obtained or sustained.
Segment Information and Concentration of Risk --The Company operates solely in
the electronics industry and, prior to 1997, its sales were primarily to
customers in the western United States. Accordingly, segment information
relating to operations in different industries or geographic areas is not
presented in these financial statements. Beginning in 1997, the Company
expanded its operations to include significant sales nationally and
internationally. Export sales during the year ended December 31, 1997 were
$1,661,752 of which 97% or $1,607,706 were to customers in Japan. The
concentration of business in one industry subjects the Company to a
concentration of credit risk relating to trade accounts receivable. The
Company generally does not require collateral from its customers with respect
to trade receivables.
Financial Instruments -- The Company considers all highly-liquid debt
instruments purchased with a maturity of three months or less to be cash
equivalents. Cash and cash equivalents in excess of insured limits was
approximately $81,953 at December 31, 1997. The amounts reported as cash and
cash equivalents, accounts receivable, other receivables, accounts payable and
notes payable 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.
Trade Accounts Receivable and Major Customers --Sales to major customers
during the years ended December 31, 1997 and 1996 were as follows: Customer
"A" - $1,596,000 and $0, Customer "B" - $413,512 and $0, and Customer "C" -
$77,667 and $102,578, respectively. Sales to major customers subject the
Company to the risk that the Company may not be able to continue the current
level of sales if there were a loss of a major customer. At December 31, 1997
and 1996, an allowance for doubtful accounts of $30,000 and $0, respectively,
was provided.
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 -- Current operations are charged with all
research, engineering and product development expenses.
Goodwill and Long-Lived Assets -- The realizability of goodwill and other
long-lived assets is evaluated periodically when events or circumstances
indicate a possible inability to recover the carrying amount. Goodwill is
included with the group of assets acquired in determining their recoverability.
An impairment loss is recognized for the excess of the carrying amount over
the fair value of the asset or the group of assets including goodwill.
Fair value is determined based on estimated expected net future cash flows
or other valuation techniques available in the circumstances. The
analyses necessarily involve significant management judgement to evaluate
the capacity of an asset or an acquired business to perform within projections.
Based upon these analyses, no impairment losses were recognized in the
accompanying financial statements.
Goodwill arose from the acquisitions of Digital Radio and TWC and is being
amortized over the period it is expected to benefit. subsequent to year end,
management reevaluated the amortization period for goodwill from the
Digital Radio acquisition and determined, based on the addition of the
technology provided by the XARC acquisition and the estimated future cash
flows from contracts obtained with this combined technology, the period to
be benefitted from the combined goodwill changed from 5 to 15 years, with
this change occurring during the fourth quarter of 1997. The change resulted
in a decrease of goodwill amortization expense of $239,637 from the previously
estimated annual amortization expense.
Equipment -- Equipment is stated at cost. Depreciation, including amortization
of leased assets, is computed using the straight-line method over the estimated
useful lives of the equipment, which are three to seven years. Leased equipment
is amortized over the shorter of the useful life of the equipment or the term
of the lease. Depreciation expense was $338,043, $82,362 and $38,853 for the
years ended December 31, 1997 and 1996 and for the period from April 10, 1995
through December 31, 1995, respectively. Maintenance and repairs of equipment
are charged to operations and major improvements are capitalized. Upon
retirement, sale, or other disposition of equipment, the cost and accumulated
depreciation are eliminated from the accounts and gain or loss is included in
operations.
Investments --At December 31, 1997, investment in marketable securities
consisted of common stock of customers classified as available for sale and are
stated at quoted fair market value of $188,354. The cost of the marketable
securities was $75,000. The unrealized gain as of December 31, 1997 was
$113,354 which was also the change in net unrealized gains on marketable
securities included as a separate component of stockholders' equity in the
accompanying balance sheet.
Sales Recognition -- Sales are recognized upon delivery of products or services
and acceptance by the customer. As a result of design and technology contracts,
the Company has a right to receive royalties which will be recognized upon the
related sales by customers.
Stock-Based Compensation -- Stock-based compensation to employees is measured
by the intrinsic value method. This method recognizes compensation expense
related to stock options granted to employees based on the difference between
the fair value of the underlying common stock and the exercise price of the
stock option on the date granted.
Loss Per Share -- In the fourth quarter of 1997, the Company adopted Statement
of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share. Under
SFAS 128, basic loss per common share is computed by dividing net loss
available to common stockholders by the weighted-average number of common
shares outstanding during the period. Diluted loss per share reflects the
potential dilution which could occur if all potentially issuable common shares
from options or convertible notes payable resulted in the issuance of common
stock. In the Company's present position, diluted loss per share is the same
as basic loss per share because potentially issuable common shares would
decrease the loss per share and have been excluded from the calculation. Prior
periods have been restated, where appropriate, to conform to the requirements
of SFAS 128.
New Accounting Standards--The Company adopted SFAS No. 128, Earnings per Share,
and SFAS No. 129, Disclosures of Information About Capital Structure, in 1997.
In accordance with SFAS Nos. 128 and 129, both basic net loss per share and
diluted net loss per share as well as rights and liquidation preferences of
equity securities have been presented in the accompanying consolidated
financial statements.
In March 1998, the AICPA issued SOP 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use. The Company is currently
analyzing the impact of this statement, which is required to be adopted in
1999, and does not expect this statement to have a material impact on the
Company's financial position, results of operations or cash flows.
In June 1997, SFAS No. 130, Reporting Comprehensive Income was issued. The
Company adopted this standard during the fourth quarter of 1997 which requires
the display of comprehensive income and its components in the financial
statements. In the Company's case, comprehensive income includes net loss and
unrealized gains on investment in securities available for sale.
The Financial Standards Board issued SFAS No. 131, Disclosures About Segments
of an Enterprise and Related Information and SFAS No. 132, Employers'
Disclosures About Pensions and Other Postretirement Benefits, an Amendment of
FASB Statements No. 87, 88, and 106 during 1997 and 1998. These statements,
which are effective for fiscal years beginning after December 15, 1997, expand
or modify disclosures and will have no impact on the Company's consolidated
financial position, results of operations, or cash flows.
NOTE 2--BUSINESS COMBINATION AND ACQUISITIONS
ECA Electronic Contract Assembly, Inc. (ECA) was incorporated on October 24,
1996 under the laws of the State of Nevada. ECA had no operations or assets and
had made efforts toward the development of business relating to the assembly
of printed circuit boards and wire/cable harnesses. Effective October 28, 1996,
the Company acquired all of ECA's outstanding common stock and employed two ECA
officers by issuing 500,000 shares of common stock. The business combination
was accounted for using the purchase method of accounting. The purchase price,
based upon the fair value of the common shares issued, was $752,565, or $1.51
per share. The entire purchase price is considered to be a sign up bonus and
was allocated to compensation expense. ECA's operations have been included in
the accompanying financial statements from the date of acquisition.
On February 12, 1997, a majority of the shareholders of Digital Radio
Communications Corporation, a Utah Corporation, accepted an offer from the
Company to merge Digital Radio into a newly-formed subsidiary of the Company.
The Digital Radio shareholders agreed to exchange each of their common shares
for 0.5577349 common shares of World Wireless, which resulted in the Company
issuing 1,798,100 shares of common stock. In addition, holders of Digital Radio
stock options exchanged each of their options for 0.5577349 stock options,
which resulted in the Company issuing options to purchase 201,900 shares of
common stock exercisable at a weighted-average price of $1.90 per share.
The merger has been accounted for using the purchase method of accounting. The
purchase price, based upon the fair value of the common shares and stock
options issued, was $8,674,062. The fair value of the common shares and stock
options issued was based upon the average market price of the Company's common
stock at the time of the acquisition, discounted for restrictions on resale and
for trading volume. The excess of the purchase price over the estimated fair
value of the identifiable acquired assets less liabilities assumed was
$7,885,075, which was recognized as goodwill. The fair value of purchased
research and development amounted to $1,258,000 and was recognized as an
expense at the date of the merger. The accompanying consolidated financial
statements include the accounts and operations of Digital Radio from February
12, 1997. The following pro forma information presents the results of
operations as if the Digital Radio acquisition had occurred at the beginning
of 1996. The write-off of purchased research and development was a nonrecurring
charge which resulted directly from the transaction and therefore has been
excluded from the following pro forma information. The pro forma results have
been prepared for comparative purposes only and do not purport to be indicative
of what would have occurred had the acquisition been made at the beginning of
1996 as described above or of the results which may occur in the future.
For the Years Ended
December 31,
1997 1996
----------- -----------
Sales $ 3,048,014 $ 2,004,983
Net Loss (6,827,950) (5,999,903)
Net Loss per Common Share $ (0.72) $ (1.17)
On October 31, 1997, the Company acquired all of the outstanding common stock
of TWC, Ltd, (TWC), a Delaware corporation engaged in the design and
manufacture of antennas for sale to radio and electronics manufacturers, and
acquired substantially all of the assets of Austin Antenna, Ltd. (Austin
Antenna), a New Hampshire corporation. The Company paid $146,000 in cash by
advancing $106,000 and by paying $40,000 in acquisition costs, and issued
100,000 shares of restricted common stock valued at $1,036,000 or $10.36 per
share. The Company also issued 1,200 shares of stock to the owners of TWC for
services valued at $12,431.The acquisition was accounted for using the purchase
method of accounting. The net assets acquired were recorded at their fair
value, with $400,000 allocated to patents and $200,000 allocated to research
and development which was charged against operations. The patents are being
amortized over 6.5 years, their estimated remaining useful life. The excess of
the purchase price over the estimated fair value of the net assets acquired was
$434,443 which was allocated to goodwill and is being amortized over 15 years
on a straight-line basis. The results of operations of TWC are included in
the consolidated financial statements from the date of acquisition. The net
assets and operations of TWC are not significant to the net assets and
operations of the Company; therefore, pro forma financial information is
not presented.
On November 11, 1997 the Company acquired all of the issued and outstanding
stock of XARC Corporation, a Kansas corporation primarily engaged in
development and sales of wireless technology, by issuing 10,000 shares of
restricted common stock valued at $103,000. XARC had no assets or liabilities
prior to the acquisition. The acquisition was accounted for under the purchase
method of accounting with the purchase price allocated to purchased research
and development and charged against operations at the acquisition date. Results
of operations for XARC are included in the consolidated financial statements
from the date of acquisition.
NOTE 3--INVENTORY
Inventory consisted of the following:
December 31,
1997 1996
----------- ----------
Materials $ 378,238 $ 20,935
Work in process 118,194 138,946
----------- ----------
Total $ 496,432 $ 159,881
=========== ==========
NOTE 4--EQUIPMENT
Equipment consisted of the following:
December 31,
1997 1996
----------- ----------
Computer equipment $ 246,117 $ 68,440
Manufacturing equipment 1,059,916 308,458
Office furniture 164,566 71,339
Software 118,649 -
----------- ----------
Total $ 1,589,248 $ 448,237
=========== ==========
NOTE 5--NOTES PAYABLE
December 31,
1997 1996
----------- ----------
10% Notes payable; paid in 1997 $ - $ 3,404
Payable due to shareholder; converted to
common stock in January 1997 - 1,970
Capital lease obligations for equipment (Note 12) 40,576 -
15% Note payable to a shareholder; payable
$7,798 monthly through September 1998;
secured by equipment and personally guaranteed
by two stockholders 44,808 125,000
12% Note payable to a shareholder; guaranteed
by an officer and secured by an officer's common
stock; paid in 1998 200,000 -
12% Note payable to shareholder; due December
31, 1997; unsecured 125,000 -
10% Note payable to an unrelated party; due
September 30, 1998; unsecured 400,000 -
12% Note payable to an employee; payable $1,408
monthly through December 31, 1998; unsecured 39,518 -
----------- ----------
Total Notes Payable 849,902 130,374
Less: Current Portion (814,925) (85,566)
----------- ----------
Long-Term Notes Payable $ 34,977 $ 44,808
=========== ==========
From November 1995 through February 1996, the Company issued convertible notes
payable totaling $275,000. The notes bore interest at 6% in addition to the
amortization of the discount (see Note 8) resulting in an effective interest
rate of 463%. The notes were converted into 1,892,860 shares of common stock
in March 1996.
From June through December 1996, the Company issued convertible notes payable
totaling $540,000 in connection with a unit offering of common stock. The notes
bore interest at 6% in addition to the amortization of the discount which
amounted to $1,154,094 (see Note 8). The discount was fully amortized during
the period from the dates the notes were issued through December 31, 1996. The
notes payable were converted into 1,200,000 shares of common stock from October
through December 1996.
The annual maturities of notes payable as of December 31, 1997 were as follows:
Years Ending December 31:
1998 $ 810,386
1999 30,103
2000 8,866
2001 547
---------
Total $ 849,902
=========
NOTE 6--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 are shown below:
For the Years Ended December 31,
1997 1996 1995
----------- ----------- -----------
Operating loss carryforwards $ 3,684,004 $ 864,937 $ 95,813
Accrued liabilities and other 271,694 168,979 5,169
----------- ----------- -----------
Total Deferred Tax Assets 3,955,698 1,033,916 100,982
Valuation Allowance (3,955,698) (1,033,916) (100,982)
----------- ----------- -----------
Net Deferred Tax Asset $ - $ - $ -
=========== =========== ===========
For tax reporting purposes, the Company has net operating loss carryforwards
in the amount of $9,443,887 which will expire beginning in the year 2011. Of
this amount, $1,246,871 was from Digital Radio prior to its acquisition, and
the availability of this amount to offset future taxable income is limited.
The following is a reconciliation of the amount of tax (benefit) that would
result from applying the federal statutory rate to pretax loss with the
provision for income taxes.
For the Years Ended December 31,
1997 1996 1995
----------- ----------- -----------
Tax at statutory rate (34%) $(2,560,277) $(1,100,463) $ (92,050)
Non-deductible expenses 645,880 283,633 -
Change in valuation allowance 2,301,134 932,934 100,982
State tax benefit, net of federal
tax effect (248,497) (106,811) (8,932)
Research and development credit (138,240) (9,293) -
----------- ----------- -----------
Net Income Tax Expense $ - $ - $ -
=========== =========== ===========
In connection with the Digital Radio acquisition, $1,258,000 of research and
development was written-off before tax. This amount comprises most of the non-
deductible expenses in 1997. The results of the acquisition were an increase
to total deferred tax assets of $620,647 and a corresponding increase in the
valuation allowance.
NOTE 7--SUPPLEMENTAL CASH FLOW INFORMATION AND NONCASH
INVESTING AND FINANCING ACTIVITIES
Supplemental Cash Flow Information --
For the Years Ended December 31,
1997 1996 1995
----------- --------- ---------
Interest Paid $ 34,426 $ 30,677 $ -
Noncash Investing and Financing Activities --
During the period from April 10, 1995 through December 31, 1995 the Company
redeemed 600,000 shares of common stock as follows:
Common stock redeemed $ 269,000
---------
Payments made by others in exchange for the following:
139,394 shares of common stock 46,000
Notes payable, net of discount 16,679
Beneficial debt conversion feature 28,321
Issuance of note payable to former shareholder 159,000
---------
250,000
---------
Cash Paid to Redeem Common Stock $ 19,000
=========
During the period ended December 31, 1995, the Company issued 542,746 shares
of common stock valued at $179,106 for services and financing fees.
During the year ended December 31, 1996, $138,000 of debt was issued to acquire
equipment, of which $120,000 was payable to a stockholder. Notes payable in the
amount of $815,000 were converted to common stock. Common stock valued at
$787,588 was issued for services.
During the year ended December 31, 1997, $1,970 in long-term debt was converted
into 5,630 shares of common stock at $0.35 per share. The Company purchased
equipment totaling $54,887 by issuing a note payable in the same amount.
Equipment was sold at no gain or loss in exchange for assumption by the
purchaser of a $54,320 note payable. 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
===========
NOTE 8--STOCKHOLDERS' EQUITY
The Company began business on April 10, 1995 as a joint venture. The
accompanying financial statements have been restated to present the capital
transactions of the Joint Venture at their common stock equivalents, based on
787,140 common shares issued upon the reorganization of the Joint Venture into
Data Security Corporation in November 1995. Capital transactions of the Joint
Venture were as follows: Owners of the Joint Venture invested cash in the
amount of $340,000 and $10,000 in April and June 1995, respectively, and paid
another $46,000 on behalf of the Company during this time. In addition, owners
contributed management services valued at $34,900 and were paid financing fees
of $30,356. These capital transactions, totaling $461,256, have been presented
as being equivalent to the issuance of 1,387,140 shares of common stock which
were valued at $0.33 per share, based upon the price shares were issued to
owners in exchange for cash. The Company redeemed one of the owner's interest
in the Joint Venture for $269,000 by paying the owner $19,000, by other owners
of the Joint Venture paying the owner $46,000 (as described above), by a third-
party lender paying the owner $45,000 and by the Company entering into an
agreement to pay the owner $159,000 plus interest thereon at 10% by March 1996.
The redemption of the ownership interest has been presented in the accompanying
financial statements as being equivalent to the redemption of 600,000 shares
of common stock at $0.45 per share. The payments to the owner were not in
exchange for any additional stated or unstated rights or privileges.
On November 15, 1995, the Company issued 25,000 shares of common stock as fees
for raising financing for the Company. The shares issued were valued at $8,250
or $0.33 per share, based upon the price common stock had been issued for cash.
In December 1995, an additional 320,000 shares of common stock were issued to
a director of the Company in payment for management services. The services and
the shares issued were also valued at $0.33 per share and totaled $105,600.
In November 1995 through February 1996, the Company issued convertible notes
payable in the amount of $275,000, of which notes for $120,000 were issued in
1995. The debt was converted into 1,892,860 shares of common stock in March
1996 at $0.15 per share. The market value of the restricted common shares at
the dates the debt was issued exceeded the rate the debt was converted by an
average of $0.23 per share. This difference was a beneficial conversion feature
of the convertible debt and has been accounted for as a discount on the debt
in the amount of $69,974 in 1995 and $90,384 in 1996. The beneficial conversion
feature was credited to additional paid-in capital on the dates the convertible
notes payable were issued.
The Company issued 300,000 shares of common stock at $0.70 per share during
April and May 1996 for $210,000 in cash and incurred costs in connection with
the offering of $12,000. The Company issued 7,000 shares of common stock in
March 1996 in connection with the termination of the employment of an employee.
The shares issued were valued based upon the $0.70 cash price for common
stock.
Common stock and convertible debt were issued as a unit in an offering from
June through December 1996. The offering resulted in the issuance of 600,000
shares of common stock and $540,000 of notes payable which were convertible
into common stock at $0.45 per share. The gross proceeds from the offering
before $5,000 offering costs were $600,000 and were allocated on the dates
received to (a) the common stock based upon its fair value, (b) to the
beneficial conversion feature of the notes payable based upon the excess of the
fair value of the common stock over the conversion price, and (c) the remaining
amount was allocated to the notes payable, net of a $1,154,094 discount. The
excess of the market value of the common stock over the conversion price at the
dates the notes payable were issued ranged from $0.25 to $0.73 per share and
was a beneficial conversion feature of the convertible debt. The portion of the
proceeds from the unit offering allocated to the beneficial conversion feature
was $629,397, which amount was accounted for as additional paid-in capital on
the dates the convertible notes payable were issued. The notes payable were
converted into 1,200,000 shares of common stock from October through December
1996.
The Company issued 20,000 shares of common stock in November 1996 in settlement
of an employment agreement. The services were valued at $30,123, or $1.51 per
share.
The Company issued 2,557,857 shares of common stock from January 1997 through
August 1997 in private placement offerings for $4,195,250 cash.
The Company issued 25,098 shares of common stock upon the exercise of stock
options. Proceeds from the issuance were $11,452 of cash and a promissory note
from a shareholder of $18,409.
On November 11, 1997, the Company fulfilled an obligation totaling $323,456
under a settlement reached with an otherwise unrelated joint venture partner.
The obligation was settled by the Company issuing 40,000 shares of restricted
common stock valued at $8.09 per share based upon fair value of the common
stock on the date issued. Under the settlement agreement, the shareholder has
an option to require the Company to redeem the stock at $4.00 per share through
February 28, 1998, but the option was not exercised by that date and expired.
During November and December 1997, the Company issued 24,375 shares of common
stock for financing fees in the amount of $253,137.
NOTE 9--EQUITY ADJUSTMENTS
Equity adjustments include unearned compensation from stock options granted in
1997 which vest through 1999, a receivable from a shareholder which arose from
the shareholder exercising an option in exchange for a promissory note, and
accumulated other comprehensive income relating to unrealized gain on
investment in securities available for sale. Changes in equity adjustments for
the year ended December 31, 1997 were as follows:
Accumulated
Other Total
Unearned Shareholder Comprehensive Equity
Compensation Receivable Income Adjustments
---------- ---------- ---------- -----------
Balance - December 31, 1996 $ - $ - $ - $ -
Compensation related to grant
of stock options (2,373,849) - - (2,373,849)
Amortization of unearned
compensation 963,340 - - 963,340
Options exercised for note
receivable from shareholder - (18,409) - (18,409)
Unrealized gain on investment
in securities available
for sale - - 113,354 113,354
----------- ---------- ---------- -----------
Balance - December 31, 1997 $(1,410,509) $ (18,409) $ 113,354 $(1,315,564)
=========== ========== ========== ===========
NOTE 10--STOCK OPTIONS
In December 1996, the Company granted options to two members of management of
the Company to purchase a total of 258,000 shares of restricted common stock
at $0.33 per share for services to the Company. In January 1997, one of the
members was granted an additional option to purchase 150,000 shares at $0.35
per share. The options may be exercised from the date granted through June 30,
1998. The Company recorded compensation expense of $441,180 ($1.71 per share)
during 1996 and $265,500 ($1.77 per share) during 1997 for the difference
between the exercise price and the fair value of the common stock on the dates
granted.
In connection with the acquisition of Digital Radio, the Company assumed
Digital Radio's stock option plans and granted options to the former
shareholders and employees of Digital Radio to purchase 201,900 shares of
common stock at a weighted-average price of $1.90 per share through December
20, 2001.
The Board of Directors approved a stock option plan in September 1997 which
authorized options to purchase 1,500,000 shares of common stock. Options to
purchase 937,044 common shares were granted under the Plan on December 18,
1997,with a weighted-average exercise price of $6.50 per share. The Plan was
approved and the options were granted subject to shareholders' approval, which
was obtained on December 18, 1997. The options become exercisable from the date
granted through November 10, 1999. The unexercised options expire on December
17, 2002. Compensation relating to the options of $2,108,349, or $2.25 per
share, is being recognized over the period the options vest of which $697,840
was recognized during the fourth quarter of 1997.
A summary of the status of the Company's stock options as of December 31, 1997
and 1996, and changes during the years then ended are presented below:
<TABLE>
<Capital>
December 31,
----------------------------------------
1997 1996
------------------- ------------------
Weighted-Average Weighted Average
Exercise Exercise
Shares Price Shares Price
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Outstanding at beginning
of year 258,000 $ 0.33 - $ -
Granted 1,288,944 5.06 258,000 0.33
Exercised 25,098 1.19 - -
---------- ----------
Outstanding at end
of year 1,521,846 4.33 258,000 0.33
========== ==========
Options exercisable
at year-end 792,610 2.32 258,000 0.33
========== ==========
Weighted-average fair
value of options granted
during the year $ 3.43 $ 1.76
========== ==========
The following table summarizes information about stock options outstanding at
December 31, 1997:
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------- ------------------------
Weighted-
Number Average Weighted- Number Weighted-
Range of Outstanding Remaining Average Exercisable Average
Exercise At Contractual Exercise at Exercise
Prices 12/31/97 Life Price 12/31/97 Price
----------- -------- ----------- ------------ ----------- -----------
<C> <C> <C> <C> <C> <C>
$0.18 224 2.0 years $0.18 224 $0.18
$0.33 - $0.35 408,000 0.6 $0.34 408,000 $0.34
$2.00 176,578 2.1 $2.00 176,578 $2.00
$6.50 937,044 2.0 $6.50 207,808 $6.50
</TABLE>
The Company measures compensation under stock-based options and plans using the
intrinsic value method prescribed in Accounting Principles Board Opinion 25,
Accounting for Stock Issued to Employees, and related interpretations. Stock-
based compensation charged to operations was $963,340 and $441,180 for the
years ended December 31, 1997 and 1996. Had compensation cost for the Company's
options been determined based on the fair value at the grant dates consistent
with the alternative method set forth under Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation, net loss and loss
per share would have increased to the pro forma amounts indicated below:
For the Years Ended December 31,
-------------------------------------
1997 1996 1995
----------- ----------- -----------
Net loss:
As reported $(7,530,227) $(3,236,657) $ (270,736)
Pro forma (8,060,504) (3,249,557) (270,736)
Basic and diluted loss per share:
As reported $ (0.82) $ (1.03) $ (0.26)
Pro forma (0.87) (1.03) (0.26)
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 1997 and 1996, respectively: dividend yield of
0.0% for both periods; expected volatility of 79.2% and 99.6%; risk-free
interest rate of 5.3% and 5.0% and expected life of the options of 2.0 years
and 1.5 years.
Subsequent to December 31, 1997, option holders exercised options to purchase
336,926 shares of common stock at exercise prices from $0.33 to $2.00 per
share.
NOTE 11-RELATED PARTY TRANSACTIONS
During 1997, an officer and shareholder loaned $125,000 to the Company. The
loan carries a 12% interest rate and was due on December 31, 1997. The Company
issued 9,375 shares of common stock valued at $98,938 as a fee relating to the
loan. A loan to the Company of $400,000 was guaranteed and secured by the
common stock held by an officer. Through the acquisition of Digital Radio, the
Company assumed and subsequently paid a note payable and accrued wages totaling
$128,057 to two officers and shareholders.
During 1995, the principal shareholders and managers of the Company contributed
cash, paid expenses for the benefit of the Company and contributed services to
the Company all valued at $461,256, for which they received 1,387,140 shares
of common stock, valued at $0.33 per share. Subsequently, one of the
shareholders interests were redeemed through the payment of $46,000, payment
by a third party lender of $45,000, and the issuance of a promissory note
bearing interest at 10% in the amount of $159,000 to the shareholder. The note
was paid by March 1996.
NOTE 12--COMMITMENTS AND CONTINGENCIES
Lease Commitments -- The Company leases office and production facilities under
agreements accounted for as operating leases. Lease expense for the years ended
December 31, 1997 and 1996 and for the period ended December 31, 1995 was
$367,301, $123,779 and $17,820, respectively. The facilities lease terms end
in May and June 1998. The Company also assumed lease commitments in the merger
with Digital Radio for three vehicles under operating lease agreements. The
following is a schedule by years of the future minimum lease payments required
under operating and capital leases together with the present value of net
minimum lease payments as of December 31,1997:
Capital Operating
Leases Leases
---------- ---------
Years Ending December 31:
1998 $ 21,448 $ 118,860
1999 18,081 4,981
2000 11,246 -
2001 695 -
----------- --------
Total Minimum Lease Payments 51,470 $123,481
========
Less amount representing interest (10,894)
-----------
Present Value of Net Minimum Lease Payments 40,576
Less Current Portion (21,448)
-----------
Capital Lease - Long-Term $ 19,128
===========
Commitment to Acquire Technology-- The Company has entered into an agreement
to acquire certain technology from Asyst, Inc., an otherwise unrelated company.
Under the agreement the Company will issue approximately $300,000 in common
stock (not less than 30,000 shares), and will advance $65,000 in cash, in
exchange primarily for Asyst's spectrum technology. Appropriate accounting
treatment of this transaction, should it occur, has not been determined.
Unasserted Claim -- Although action has not been initiated, a former officer
of the Company has threatened litigation against the Company following his
resignation as an officer and as a director in October 1997. The resignation
was the result of a dispute over compensation involving, among other things,
a claim by the former officer and director that the Company had agreed to grant
him options to purchase 275,000 shares of the Company's common stock at a price
of $2.00 per share in connection with his employment, and had later disaffirmed
such obligation. Because of the number of shares involved in this unasserted
claim, and the difference between the current market price for the Company's
common stock and the exercise price of the options claimed, the expense to the
Company for financial reporting purposes would be material if the former
officer should initiate and prevail in litigation over these claims. The
Company intends to vigorously defend any such action.
401K Profit Sharing Plan --The Company sponsors a 401K profit sharing plan but
has no commitment to match employee's contributions to the plan, nor has the
Company made any contributions to the plan to date.
NOTE 13--SUBSEQUENT EVENTS
In January 1998, the Company sold its SecuriKey business and related products
to a shareholder/employee for $372,499. The sale resulted in a gain of
approximately $300,000. The results from operations of the SecuriKey business
were not significant during the year ended December 31, 1997.
In January 1998, the Company entered into agreements to lease equipment and
software with future minimum lease payments totaling $1,093,165. The lease
agreements are for periods ranging from two to three years.
On January 8, 1998, the Company issued an unsecured note payable to an
unrelated party in the amount of $400,000. Interest accrues at 10.0% and the
note and related accrued interest are due September 30, 1998.
Between March 17, 1998 and March 30, 1998, the Company issued 500,000 shares
of common stock at $2.00 per share in a private placement offering.
(Unaudited).
Subsequent to December 31, 1997, option holders exercised options to purchase
333,926 shares of common stock at exercise prices from $0.33 to $2.00 per
share. (Unaudited)
