UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________
FORM 10-Q
_____________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarter ended September 30, 1999
Commission file number 333-38567
__________________________________
WORLD WIRELESS COMMUNICATIONS, INC.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Nevada 87-0549700
------------------------------- --------------------
(State of other jurisdiction of I.R.S. employer
incorporation or organization) identification No.)
2441 South 3850 West, West Valley City, Utah 84120
----------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number (801) 575-6600
Indicate by check mark whether registrant (1) filed all reports required
to be filed by Section 13 or 15 (d) of the Exchange Act during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No __.
As of November 15, 1999 there were 19,522,015 shares of the Registrant's
Common Stock, par value $0.001, issued and outstanding.
<PAGE>
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets (Unaudited) -
as of September 30, 1999 and December 31, 1998 . . . . . . . . . 3
Condensed Consolidated Statements of Operations -
(Unaudited) for the Three and Nine Months Ended September
30, 1999 and September 30, 1998 . . . . . . . . . . . . . . . . 5
Condensed Consolidated Statements of Cash Flows
(Unaudited) - for the Nine Months Ended September 30,
1999 and September 30, 1998. . . . . . . . . . . . . . . . . . . 6
Notes to Condensed Consolidated Financial Statements
(Unaudited). . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . . . .12
PART II. Other Information
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . .18
Item 2. Changes in Securities and use of Proceeds . . . . . . . . . .18
Item 3. Default Upon Senior Securities. . . . . . . . . . . . . . . .20
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . .21
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . .21
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . .24
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
WORLD WIRELESS COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
September 30, December 31,
1999 1998
------------ ------------
Current Assets
Cash and cash equivalents $ 453,259 $ 614,897
Investment in securities available-for-sale 137,648 137,648
Trade receivables, net of allowance
for doubtful accounts 696,289 327,387
Other receivables 84,663 77,005
Receivable from shareholder 750,000 -
Inventory 597,876 550,239
Prepaid expenses 18,272 18,594
------------ ------------
Total Current Assets 2,738,007 1,725,770
------------ ------------
Property & Equipment 2,179,972 2,085,930
Less: Accumulated depreciation (1,739,725) (1,047,285)
------------ ------------
Net Equipment 440,247 1,038,645
------------ ------------
Goodwill, net of accumulated amortization 807,496 957,794
------------ ------------
Other Assets, net of accumulated
amortization 358,563 414,381
------------ ------------
Total Assets $ 4,344,313 $ 4,136,590
============ ============
(CONTINUED)
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
WORLD WIRELESS COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' DEFICIT
September 30, December 31,
1999 1998
------------ ------------
Current Liabilities
Trade accounts payable $ 635,298 $ 982,506
Accrued liabilities 526,663 880,638
Notes payable 3,088,449 2,992,858
Obligation under capital leases -
current portion 127,138 197,626
------------ ------------
Total Current Liabilities 4,377,548 5,053,628
------------ ------------
Long-Term Obligation Under Capital Leases 46,523 84,968
Manatorily Redeemable Preferred Stock $0.001
par value; 1,000,000 shares authorized;
820,000 shares designated mandatorily
redeemable; 820,000 shares issued and
outstanding; liquidation preference of
$820,000 820,000 -
Stockholders' Deficit
Common stock - $0.001 par value; 50,000,000
shares authorized; issued and outstanding:
19,461,438 shares at September 30, 1999
and 13,920,400 shares at December 31, 1998 19,461 13,920
Additional paid-in capital 32,370,215 25,419,026
Unrealized gain on marketable
equity securities 62,648 62,648
Unearned compensation (105,196) (70,518)
Receivable from shareholder (66,828) (66,828)
Accumulated deficit (33,180,058) (26,360,254)
------------ -----------
Total Stockholders' Deficit (899,758) (1,002,006)
------------ -----------
Total Liabilities and Stockholders' Deficit $ 4,344,313 $ 4,136,590
============ ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
WORLD WIRELESS COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
-------------------------- --------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales $ 1,044,511 $ 1,184,759 $ 2,717,510 $ 3,551,716
Cost of Sales 891,433 1,184,174 2,270,806 2,740,751
------------ ------------ ------------ ------------
Gross Profit 153,078 585 446,704 810,965
Expenses
Research and development expense 322,920 544,105 994,694 2,480,617
General and administrative expenses 1,148,110 973,414 3,730,130 3,627,650
Amortization of goodwill 50,102 401,495 150,300 1,204,485
Interest income (4,630) - (15,236) -
Impairment of goodwill - 4,722,425 - 4,722,425
Interest expense 746,641 670,683 1,578,727 896,339
------------ ------------ ------------ ------------
Total Expenses 2,263,143 7,312,122 6,438,615 12,931,516
------------ ------------ ------------ ------------
Loss From Operations (2,110,065) (7,311,537) (5,991,911) (12,120,551)
Other Income (Expense) - - (7,716) 319,528
------------ ------------ ------------ ------------
Net Loss (2,110,065) (7,311,537) (5,999,627) (11,801,023)
Preferred Stock Dividends 170,000 - 820,000 -
------------ ------------ ------------ ------------
Net Loss Applicable to
Common Stockholders $ (2,280,065) $ (7,311,537) $ (6,819,627) $(11,801,023)
============ ============ ============ ============
Basic and Diluted Loss
Per Common Share $ (0.13) $ (0.66) $ (0.41) $ (1.05)
============ ============ =========== ============
Weighted Average Number
of Common Shares Used in
Per Share Calculation 17,522,981 11,141,692 16,835,391 11,236,703
============ ============ ============ ============
<FN
The accompanying notes are an integral part of these condensed consolidated
financial statements.
</FN>
</TABLE>
5
<PAGE>
WORLD WIRELESS COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Nine Months
Ended September 30,
---------------------------
1999 1998
------------ ------------
Cash Flows From Operating Activities
Net Loss $ (5,999,627) $(11,801,023)
Adjustments to reconcile net loss
to net cash used by operating activities:
Amortization of goodwill 150,298 1,204,485
Impairment of goodwill - 4,722,425
Depreciation and amortization 748,258 516,966
Amortization of debt discount 325,448 144,628
Purchased research and development - 300,000
Amortization of unearned compensation 57,936 -
Compensation from stock options granted 27,829 322,140
Interest paid with stock and warrants 1,151,034 331,827
Stock issued for services and for
acquisition of contract 231,616 75,000
Gain on sale of business assets - (319,528)
Changes in operating assets and liabilities:
Accounts receivable (376,560) (286,011)
Inventory (47,637) (73,886)
Other assets 322 614,028
Accounts payable (347,208) 411,465
Accrued liabilities (353,975) 123,354
------------ ------------
Net Cash and Cash Equivalents Used By
Operating Activities (4,432,266) (3,714,130)
------------ ------------
Cash Flows From Investing Activities
Payments for the purchase of property
and equipment (94,042) (187,101)
Proceeds from sale of business assets
and property - 372,499
Proceeds from receivable from shareholder - 10,000
Loan to affiliate - (43,591)
------------ ------------
Net Cash and Cash Equivalents Provided
by (Used by) Investing Activities (94,042) 151,807
------------ ------------
(CONTINUED)
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
<PAGE>
WORLD WIRELESS COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
For the Nine Months
Ended September 30,
---------------------------
1999 1998
------------ ------------
Cash Flows From Financing Activities
Proceeds from issuance of common stock $ 3,060,083 $ 1,051,323
Proceeds from issuance of preferred stock 570,000 -
Proceeds from exercise of warrants 23,377 -
Proceeds from borrowings, net of discounts 2,280,000 2,900,000
Principal payments on notes payable (1,459,857) (391,073)
Principal payments on obligation
under capital lease (108,933) (87,657)
------------ ------------
Net Cash and Cash Equivalents Provided By
Financing Activities 4,364,670 3,472,599
------------ ------------
Net Decrease In Cash and Cash Equivalents (161,638) (89,724)
Cash and Cash Equivalents - Beginning of Period 614,897 218,234
------------ ------------
Cash and Cash Equivalents - End of Period $ 453,259 $ 128,510
============ ============
Supplemental Cash Flow Information -
Cash paid for interest was $60,607 and $239,067 for the nine months ended
September 30, 1999 and 1998, respectively.
Non Cash Investing and Financing Activities -
During the third quarter of 1999 subscriptions for the issuance of 750,000
common shares at $1.00 per share were received. During October and
November, 1999 cash in the amount of $250,000 and $500,000, respectively,
were received by the Company in satisfaction of the receivable from the
shareholder.
The accompanying notes are an integral part of these condensed
consolidated financial statements.
7
<PAGE>
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- The
accompanying condensed consolidated financial statements are
unaudited. In the opinion of management, all necessary adjustments
(which include only normal recurring adjustments) have been made to
present fairly the financial position, results of operations and
cash flows for the periods presented. Certain information and note
disclosure normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted. It is suggested that these condensed
consolidated financial statements be read in conjunction with the
financial statements and notes thereto included in the December 31,
1998 annual report on Form 10-K/A. The results of operations for the
nine month period ended September 30, 1999 are not necessarily
indicative of the operating results to be expected for the full
year.
NOTE 2 -- COMMON STOCK
During the first quarter of 1999, the Company issued 2,040,000
common shares for cash in the amount of $2,040,000 received in a
private placement offering. In connection with the offering, the
Company granted options to purchase 200,000 common shares at $1.75
per share within 5 years, and issued 8,000 shares of common stock as
finder's fees. The Company also paid $163,200 as finder's fees.
During the first quarter of 1999, note holders converted two
unsecured promissory notes totaling $800,000, together with accrued
interest, into 893,698 common shares at $1.00 per share under the
terms of a conversion privilege granted to the note holders in
December 1998.
During the second quarter of 1999, the Company issued 510,000 common
shares for cash in the amount of $510,000 received in a private
placement offering. In connection with this offering, the Company
paid $30,000 as a finders fee.
During the first and second quarter of 1999, the Company issued
120,841 restricted common shares for services valued at $231,499, or
$1.92 per share.
During the third quarter of 1999, the Company issued 850,000 common
shares for cash received in the amount of $850,000 in a private
placement offering. The Company paid $146,000 in cash and issued
26,000 shares of common stock as finder's fees in connection with
this offering. The Company also issued 92,500 common shares upon
exercise of warrants for cash in the amount of $23,125 or $0.25 per
share, and the Company issued 250,000 common shares to holders of
bridge loan notes in satisfaction of the Company's default on the
notes.
During September, 1999 the Company received a subscription agreement
to issue 750,000 shares of common stock for $1.00 per share in a
private placement offering. The Company will pay finders' fees of
approximately $60,000 in connection with this offering. Since the
proceeds for this offering were received by the Company subsequent
to the current quarter the related common shares were considered
issuable and therefore included in equity and as a receivable from
shareholder as of September 30, 1999.
8
<PAGE>
NOTE 3 -- MANDATORILY REDEEMABLE PREFERRED STOCK AND WARRANTS
On May 14, 1999 the Company authorized 950 shares of senior
liquidating mandatorily redeemable 10% preferred stock with a
liquidation preference of $1,000 per share and detachable five-year
warrants to purchase up to 4,750,000 common shares at $0.25 per
share, and issued 650 and 170 shares of preferred stock on July 1,
1999 and August 27, 1999, respectively. The preferred shares must be
redeemed within one year at their par value plus accrued dividends.
The preferred stock cash dividend requirement is $82,000 annually.
The preferred stock was issued for $820,000 consisting of $570,000
cash and the deemed payment of $250,000 of principal of the 1998
bridge loan notes. The issuance of the preferred stock with warrants
was accounted for as the granting of a favorable conversion feature
to the preferred stock holders. The value assigned to the warrants
was based on their intrinsic value but limited to the cash proceeds
and the amount of the deemed principal payments on the 1998 bridge
loan notes. Since the warrants were immediately exercisable, the
resulting discount to the preferred stock of $820,000 was recognized
as preferred dividends on the dates the warrants were issued.
NOTE 4 -- NOTES PAYABLE
On May 14, 1999 the Company issued $2,600,000 of senior secured 16%
notes payable which mature in one year. The notes were issued for
$2,600,000 consisting of $1,600,000 in cash and the deemed payment
of $1,000,000 of principal of the 1998 bridge loan notes. On August
27, 1999, the Company issued an additional $480,000 of senior
secured 16% notes payable for cash in the amount of $480,000. The
notes payable are secured by substantially all the Company's assets.
Interest on the notes is payable quarterly. A mandatory pre-payment
of principal equal to 25% of the gross proceeds from any issuance of
the Company's securities is due upon the closing of the issuance.
The notes will be in default if the reported loss before interest,
depreciation, amortization and taxes exceeds $1,000,000 for the
quarter ended June 30, 1999, or if income as computed above is less
than $250,000 or $1,000,000 for the quarters ended September 30,
1999 and December 31, 1999 respectively. The notes will also be in
default if the Company fails to make a mandatory pre-payment of
principal from the issuance of the Company's securities. If the
notes are determined to be in default for a quarter the Company
could be required to issue five-year warrants to purchase 300,000
shares of common stock at $0.25 per share as compensation for the
default with respect to such quarter. For the quarter ended
September 30, 1999, the Company accrued $397,647 of interest expense
for the potential default. The interest accrual was valued based
upon the intrinsic value of the warrants had they been issued on
September 30, 1999.
NOTE 5 -- COMMITMENTS AND CONTINGENCIES
LEGAL PROCEEDINGS -- The Company leased computer-aided design
software which did not perform as specified; the software, which
cost $550,887, was returned to the seller. The Company requested a
cancellation of the $735,207 debt including a technical support
agreement in the amount of $184,320. The software vendor, Mentor
Graphics, Inc., commenced a lawsuit against the Company seeking
damages of approximately $485,000 plus interest, legal fees and
expenses arising out of the Company's alleged breach of contract for
the purchase of software and related items. The Company settled this
claim for $100,000 during the quarter ended June 30, 1999.
9
<PAGE>
An investment banking firm commenced a lawsuit against the Company
seeking to recover damages of $231,129, plus legal fees and
expenses. In this case, the Company asserted a counterclaim seeking
damages of approximately $250,000. The Company settled this lawsuit
for $145,000, which has been paid.
UNASSERTED CLAIM -- The Company received a verbal request in 1998
from Mr. and Mrs. Richard Austin to rescind the Company's
acquisition of Austin Antenna, Ltd., formerly known as TWC, Ltd., a
Delaware corporation, by a stock purchase which closed in 1997. In
addition, Mr. Austin requested that the Company bear the cost of (i)
the legal fees and expenses in a litigation commenced against Mr.
Austin in a state court in Massachusetts brought by Charles Rich
seeking damages of approximately $50,000 for non-payment of
commissions arising out of the Company's purchase of Austin Antenna
Ltd. and (ii) the unpaid finder's fee that is the subject of the
litigation. The Company, in turn, has put Mr. and Mrs. Austin on
notice of the Company's claims that the Austins have failed to honor
their agreements with Austin Antenna and the Company by failing to
make available engineering drawings and other related data,
proprietary to Austin Antenna and the Company by virtue of the
acquisition agreement, that would enable the Company to consolidate
antenna manufacture in its Salt Lake City facility. The Company is
currently in negotiation with Mr. and Mrs. Austin and is working on
a belief that the claims between the parties may be resolved
amicably. However, there is no current assurance as to the ultimate
outcome of those efforts.
DEFAULT ON 1999 NOTES -- In August, 1999, the Company obtained
separate waivers of the potential defaults for the quarter ended
June 30, 1999 from the holders of the 1999 Notes. In addition, the
Company obtained a deferral of any payment of principal on the 1999
Notes until December 31, 1999 regardless of any financing raised by
the Company prior to such date through the sale of its securities,
and made certain other changes in the loan agreements. As a
condition thereto, the Company (a) granted the holders of the 1999
Notes additional warrants to purchase 300,000 shares of the
Company's common stock at an exercise price of $0.25 per share,
exercisable in whole or in part at any time for a period of five
years, (b) issued the holders of the 1999 Notes 200,000 shares of
the Company's common stock, which shares would be subject to
applicable securities law restrictions, and (c) in the case of the
potential default in the payment of interest for certain of the
holders of the 1999 notes, issued 50,000 shares of its Common Stock,
subject to applicable securities laws restrictions.
The Company would have been in default under a Pledge/Security
Agreement associated with the 1999 Notes on the date of the filing
of its Form 10-Q for the quarter ended September 30, 1999 because
the Company had an operating loss in excess of that projected for
such quarter, which failure would have constituted an event of
default under the Loan Agreement between the Company and the holders
of the 1999 Notes. Upon the occurrence of such an event of default,
the holders of the 1999 Notes have as their exclusive remedy the
right to additional warrants to purchase 300,000 shares of the
Company's common stock at an exercise price of $0.25 per share,
exercisable in whole or in part at any time for a period of five
years. Upon the occurrence of any other event of default, the
holders of the 1999 Notes have the right, among other things, to
accelerate the due date of the 1999 Notes to the date of the default
and to sell the assets of the Company securing the debt as a means
of repaying the debt. In the event that the holders of the 1999
Notes sell the Company's assets securing the 1999 Notes following a
future default, a remedy available to them in most cases of default,
such sale would materially and adversely affect the Company's
business and financial condition.
10
<PAGE>
NOTE 6 -- SUBSEQUENT EVENTS
On October 15 and November 15, 1999 the Company received $250,000
and $500,000, respectively, in satisfaction of a receivable from
shareholder in the amount of $750,000.
During October 1999 the Company issued 130 shares of senior
liquidating mandatorily redeemable 10% preferred stock together with
five-year detachable warrants to purchase 750,000 common shares at
$0.25 per share. The preferred shares must be redeemed within one
year at their par value plus accrued but unpaid dividends. The
preferred stock cash dividend requirement for these shares is
$13,000. The shares were issued for cash proceeds of $130,000. The
issuance of the preferred stock with warrants will be accounted for
as the granting of a favorable conversion feature to the preferred
stock holders. The value assigned to the warrants will be based upon
their intrinsic value but limited to the cash proceeds. Since the
warrants were immediately exercisable, the resulting discount to the
preferred stock of $130,000 will be recognized as preferred
dividends on the dates the warrants were issued.
During October 1999, the Company issued $400,000 of senior secured
16% notes payable which mature in one year. The notes were issued
for $400,000 in cash. Finders' fees paid in the amount of $44,000
will be recognized as interest expense during the fourth quarter.
During October 1999 the Company issued 60,577 shares of common stock
upon exercise of stock options for services valued at $15,144.
11
<PAGE>
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 SEPTEMBER 30, 1999 AND THREE MONTHS ENDED
SEPTEMBER 30, 1998
Sales in the three-month period ended September 30, 1999 were
$1,044,511 compared to $1,184,759 during the three-month period
ended September 30, 1998. During the third quarter of 1999 the
Company derived its revenue as follows: engineering services,
$17,271; royalties $263,041; branded products, $78,036; and
contract and cable manufacturing, $686,163. The Company's
principal source of revenue for the three-months ended September
30, 1998 was a design and development contract with Williams
Telemetry, a Williams company, in the amount of $600,663 and
design and development project for Kyushu Matsushita Electric Co.,
("KME"), in the amount of $210,975. Other significant revenues
include contract manufacturing of $161,036 and sales of the
Company's own branded goods of $112,085. Gross profit in the
three-month period ended September 30, 1999 was $153,078 compared
to $585 during the comparable period during 1998, which represents
15% and .04% of sales respectively.
The Company reduced its research and development costs by $221,185
from $544,105 in the third quarter in 1998 to $322,920 in the
third quarter in 1999. Such saving was achieved primarily by the
Company's reducing the number of employees and related expenses.
General and administrative expenses increased $174,696 from
$973,414 in the third quarter of 1998 to $1,148,110 in the third
quarter of 1999. The increase is primarily due to professional
services and travel in relation to the promotion and equity
funding of the Company.
The amortization of goodwill decreased $351,393 from $401,495 for
the three-months ending September 30, 1998 to $50,102 for the
three-months ending September 30, 1999. The decrease was due to
the impairment of goodwill the Company recognized in the third
quarter of 1998.
Interest income is due to the Company's investing idle cash in
overnight interest bearing accounts. Interest expense increased
$75,958 from $670,683 for the three-months ending September 30,
1999 to $746,641 for the three-months ending September 30, 1998,
primarily due to the recognition of the beneficial conversion
feature of the warrants and common stock issued in connection with
the obtaining of the waivers on the notes payable.
The Company issued 170 shares of senior liquidating mandatorily
redeemable 10% preferred stock with a liquidation preference of
$1,000 per share and detachable five-year warrants to purchase
850,000 common shares at $0.25. The issuance of the preferred
stock with warrants has been accounted for as the granting of a
favorable conversion feature to the preferred stockholders. The
value assigned to the warrants was based on their intrinsic value
but limited to the cash proceeds and the amount of the notes
converted. Since the warrants were immediately exercisable, the
resulting discount to the preferred stock of $170,000 was
recognized on the date granted as a preferred dividend.
12
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND NINE MONTHS ENDED
SEPTEMBER 30, 1998
Sales in the nine-month period ending September 30, 1999 were
$2,717,510 compared to $3,551,716 during the nine-month period
ending September 30, 1998. During the first nine months of 1999
the Company derived its revenue as follows: engineering services,
$857,534; royalties $263,041 branded products, $498,499; and
contract and cable manufacturing, $1,098,436. The Company's
principal source of revenue for the nine-months ended September
30, 1998 was a design and development contract with Williams
Telemetry, a Williams company, in the amount of $2,366,736. Other
significant revenues include contract manufacturing of $439,108
and sales of the Company's own branded goods of $331,710.
Gross profit in the first nine-month period ending September 30,
1999 was $446,704 compared to $810,965 during the comparable
period during 1998, which represents 17% and 22% of sales
respectively.
The Company reduced its research and development costs by
$1,485,923 from $2,480,617 in the first nine months of 1998 to
$994,694 in the first nine months in 1999, primarily by reducing
the number of its employees and related expenses.
General and administrative expenses increased $102,480 from
$3,627,650 in the first nine months of 1998 to $3,730,130 in the
first nine months of 1999. This increase was due primarily to
professional services rendered in connection with refinancing of
the notes payable.
The amortization of goodwill decreased $1,054,185 from $1,204,485
for the first nine months ending September 30, 1998 to $150,300
for the first nine months ending September 30, 1999. The decrease
was due to the $4,722,425 impairment of goodwill the Company
recognized in the third quarter of 1998.
Interest expense increased $682,388 from $896,339 for the first
nine months ending September 30, 1999 to $1,578,727 for the first
nine months ending September 30, 1998. This increase was due
primarily to the beneficial conversion feature of the warrants and
common stock issued in connection with the obtaining of the
waivers on the notes payable.
Interest income is due to the Company investing idle cash into
overnight interest bearing accounts.
During the nine month period ended September 30, 1999, the Company
issued 820 shares of senior liquidating mandatorily redeemable 10%
preferred stock with a liquidation preference of $1,000 per share
and detachable five-year warrants to purchase 4,100,000 common
shares at $0.25. The issuance of the preferred stock with warrants
has been accounted for as the granting of a favorable conversion
feature to the preferred stockholders. The value assigned to the
warrants was based on their intrinsic value but limited to the
cash proceeds and the amount of the notes converted. Since the
warrants were immediately exercisable, the resulting discount to
the preferred stock of $820,000 was recognized on the date granted
as a preferred dividend.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity at September 30, 1999 consisting of cash
and cash equivalents was $453,259, which represented an decrease
of $161,638 over the Company's cash and cash equivalents of
$614,897 as of December 31, 1998. The Company's current assets
were $2,738,007 as of September 30, 1999, which represented an
increase of $1,012,237 over the Company's current assets of
$1,725,770 as of December 31, 1998. In addition, the Company's
current liabilities were $4,377,548 as of September 30, 1999, a
decrease of $676,080 from the Company's current liabilities of
$5,053,628 as of December 31, 1998.
13
<PAGE>
The Company's cash and cash equivalents at September 30, 1999 of
$453,259 represented a decrease of $222,657 from the Company's
cash and cash equivalents of $675,916 as of June 30, 1999. The
Company's current assets at September 30, 1999 of $2,738,007
represented an increase of $990,331 from the Company's current
assets of $1,747,676 as of June 30, 1999. Also the Company's
current liabilities at September 30, 1999 of $4,377,548
represented an increase of $114,463 from the Company's current
liabilities of $4,263,085 as of June 30, 1999.
In order to pay off the Company's Senior Secured Notes which had a
maturity date of May 15, 1998 (the "1998 Notes"), the Company
raised financing in May 1999. Such financing involved the sale
of separate units consisting of $2,600,000 principal amount of
the Company's Senior Secured Notes, bearing interest at 16% per
annum, payable quarterly and maturing on May 14, 1999 (the "1999
Notes"). The 1999 Notes are secured by a first security interest
in substantially all of the Company's assets, including its
machinery, equipment, automobiles, fixtures, furniture, accounts
receivable and general intangibles, including any stock in any
subsidiary.
Also, as of September 30, 1999 the Company had sold separate units
consisting of 820 shares of the Company's 10% Senior Preferred
Stock(1) and detachable warrants to purchase 4,100,000 shares
of the Company's Common Stock at an exercise price of $0.25 per
share, exercisable in whole or in part by the holder at any time
on or before May 14, 2004 in the case of 3,250,000 shares and
August 27, 2004 in the case of 850,000 shares. Such sales by the
Company occurred in a private placement transaction exempt from
registration made by the Securities Act of 1933, as amended. (2)
____________________
1*Each share of the Company's Senior Preferred Stock has the
following characteristics:
(a)has a 10% cumulative dividend;
(b)constitutes the senior series of any preferred stock the
Company may issue;
(c)is non-voting;
(d)is convertible into shares of the Company's Common Stock at the
conversion rate of 10,000 shares of Common Stock for each share of
Senior Preferred Stock (or $0.10 per share), if all the shares the
Company's Senior Preferred Stock are not redeemed by May 14, 2000
(or up to a total of 8,200,000 shares of the Company's Common
Stock based on the 820 shares of the Company's Senior Preferred
Stock which were issued and outstanding as of September 30, 1999);
(e)is mandatorily redeemable upon the earlier to occur of (i) May
14, 2000 or (ii) the Company's raising of gross proceeds of
$5,500,000 from the closing of one or more private placement
transactions or secondary offerings of its securities; and
(f)has a first priority in liquidation of $1,000 per share, plus
the amount of unpaid cumulative dividends, payable from the
Company's assets after its payment (or its making of adequate
provision for the payment) of all claims of its creditors.
2** In May and August, 1999, Lancer Offshore Inc. and the
Orbiter Fund, who are affiliates of the Company's largest
shareholder group (consisting of such entities, Michael Lauer,
Lancer Partners LLC and Lancer Partners L.P.) purchased $1,800,000
principal amount of the 1999 Notes and also acquired at such time
separate units consisting of 450 shares of the Company's Senior
Preferred Stock and warrants to purchase 2,250,000 shares of the
Company's Common Stock, for an aggregate investment of $2,250,000.
14
<PAGE>
As a result of such new financing, the Company paid off the
principal amount of the Notes of $2,395,528 outstanding and
accrued interest of $96,355 in full on or immediately after the
maturity date of the 1998 Notes. Accordingly, the Company
believes that it satisfied all of its remaining obligations under
the 1998 Notes in full and it does not anticipate any further
claim with respect thereto.
In August, 1999, the Company obtained separate waivers of the
potential defaults for the quarter ended June 30, 1999 from the
holders of the 1999 Notes. In addition, the Company obtained a
deferral of any payment of principal on the 1999 Notes until
December 31, 1999 regardless of any financing raised by the
Company prior to such date through the sale of its securities, and
made certain other changes in the loan agreements. As a condition
thereto, the Company (a) granted the holders of the 1999 Notes
additional warrants to purchase 300,000 shares of the Company's
common stock at an exercise price of $0.25 per share, exercisable
in whole or in part at any time for a period of five years, (b)
issued the holders of the 1999 Notes 200,000 shares of the
Company's common stock, which shares would be subject to
applicable securities law restrictions, and (c) in the case of the
potential default in the payment of interest for certain of the
holders of the 1999 notes, issued 50,000 shares of its Common
Stock, subject to applicable securities laws restrictions.
The Company would have been in default under a Pledge/Security
Agreement associated with the 1999 Notes on the date of filing of
its Form 10-Q for the quarter ended September 30, 1999 because the
Company had an operating loss in excess of that projected for such
quarter, which failure would have constituted an event of default
under the Loan Agreement between the Company and the holders of
the 1999 Notes. Upon the occurrence of such an event of default,
the holders of the 1999 Notes have as their exclusive remedy the
right to additional warrants to purchase 300,000 shares of the
Company's common stock at an exercise price of $0.25 per share,
exercisable in whole or in part at any time for a period of five
years. However, there can be no assurance that the Company will
not commit a default under the 1999 Notes in the future. In the
event that the holders of the 1999 Notes sell the Company's assets
securing the 1999 Notes following a future default, a remedy
available to them in most cases of default, such sale would
materially and adversely affect the Company's business and
financial condition.
OUTLOOK
The statements contained in this Outlook are based on current
expectation. These statements are forward looking and actual
results may differ materially.
X-TRAWEB(TM) PRODUCTS
The Company commenced the shifting of its strategic direction
during the first quarter of 1999. In early 1999, the Company
successfully implemented its proprietary X-traWeb(TM) network for
integrating wireless solutions with Internet technologies. The
Company's X-traWeb(TM) network allows data from a remote wireless
radio frequency (RF) system to be accessed via a secure, encrypted
Internet connection using a standard Web browser located anywhere.
As a result, the data is available at an Internet-accessible
remote location to simplify the control, access and monitoring of
those devices.
The Company's existing X-traWeb products currently offered for
sale are described below:
(a) X-Node is a small (approximately 1" x 1") embedded controller
suitable for mounting in existing equipment for the purpose of
remotely monitoring and controlling the equipment over the
Internet. For example, a small, embedded computer, called a
micro-controller, controls many beverage vending machines. This
embedded controller has a serial port built-in to allow a
hand-held computer to configure the machine and obtain transaction
information. This information can now be collected, remotely, by
fitting an X-Node to this serial port. Two versions of the X-Node
have been developed and are fully operational; one has a serial
interface and the other a digital interface.
(b) X-Gate is a small, rugged Internet gateway device that
replaces the more common gateway: the personal computer. The
X-Gate is fully operational at present.
(c) X-traWeb((TM)) Internet Access Servers dedicated to remote
monitoring and control applications are available.
15
<PAGE>
The Company formed X-traWeb, Inc. its wholly-owned Delaware
subsidiary, on May 12, 1999 to conduct the Company's
X-traWeb((TM)) business.
Applications for X-traWeb((TM)) in addition to automatic meter
reading (AMR), include remote monitoring and control of wireless
supervisory control and data acquisition (SCADA) implementations
in the oil and gas pipeline; environmental control; water and
wastewater management; and heating, ventilation and air
conditioning (HVAC) industries. Other applications include data
access and monitoring for vending machines, medical devices, and
security systems.
During the period from January 1, 1999 through September 30, 1999,
the Company received no revenues from, and had no sales of any of,
its X-traWeb products. As of September 30, 1999, the Company had
submitted proposals to an Italian telephone manufacturer, an
Italian electrical utility, a California utility and others. In
addition, the Company received a purchase order for the initial
installation of an X-traWeb((TM)) network for a vending machine
owner and operator in Pennsylvania and for a test site at a
national fast food chain site in Columbus, Ohio. While the
Company believes that its pending proposals will be accepted in
whole or in part from these sources and others, and that it will
derive substantial revenues therefrom in 1999 and thereafter,
there cannot be any assurance that any such sales will be made or
the amount thereof, although management anticipates that
X-traWeb((TM)) product sales will constitute the bulk of its
revenues over the next 12-month period and thereafter.
PROPRIETARY RADIO PRODUCTS
The Company is currently offering for sale a total of four 900 MHZ
and two 2.4 Ghz low speed digital radios ("LSDRs") which can be
used in a variety of industrial applications, including remote
control, event detection, SCADA, environmental monitoring,
security and industrial control applications.
The Company only sold a limit quantity of these radio products to
date since the Company is awaiting Federal Communications
Commission (FCC) clearance on all of the above models (with the
exception of 2.4 Ghz Hopper). The Company expects to receive FCC
approval of these LSDRs within the next 60 day period, although
there can be no assurance of such result. If such FCC approval is
obtained, the Company can then offer the LSDRs so approved for
sale in unlimited quantities for commercial application.
The Company believes that it will derive significant revenues from
the sale of its proprietary radio products in the future. However,
there can be no assurance as to the amount of such sales or when
such sales will occur.
The Company had also developed for The Williams Companies, Inc.
devices called Telemetry Interfaces Modular, or TIM (TM)s, which
operate at the point of data origin and transmit data to a data
collection and forwarding point called a WinGate (TM) unit and the
WinGate (TM) unit, in turn, forwards that data to an operating
center via a wide area network. These supervisory control and
data acquisition (SCADA) units use some of the Company's radio
products. However, market penetration in the automatic meter
reading (AMR) field has not occurred as anticipated, and, as a
result, the Company's contract with Williams has generated a
substantially lower level of revenues from that originally
anticipated therefrom. The Company does not anticipate at present
receiving any future commitments from Williams.
CONTRACT MANUFACTURE AND ASSEMBLY; ANTENNAS
The Company is actively engaged in performing assembly and
manufacturing services for other manufacturers and vendors of
medical, communications, computer graphics and consumer electronic
products at its Salt Lake City manufacturing facility. The Company
expects its level of manufacturing and assembly activities to
increase during the second half of 1999. However, there can be no
assurance as to the amounts to be derived therefrom or the timing
thereof.
16
<PAGE>
In addition, while the Company is engaged in the manufacture and
sales of various antennas, it does not expect antenna products to
contribute materially to its consolidated net sales or income in
the foreseeable future.
On October 15, 1998, the Company entered into a seven-year lease
for a 34,000 square foot facility in West Valley City, Utah. The
Company consolidated its American Fork and Salt Lake City, Utah
operations and staff into the new facility. Management expects
the new facility to provide sufficient manufacturing and office
space for the foreseeable future. However, if additional capacity
were required, management would consider out-sourcing a portion of
the manufacturing overload. If a portion of manufacturing is
out-sourced, the Company may lose some control over the following
areas: cost, timeliness of deliveries and quality. However, by
out-sourcing a portion of its manufacturing the Company could
avoid delays and costs associated with the expansion of its own
facilities. The magnitude of any expansion of the Company's
manufacturing capabilities that is required would be a direct
function of the sales increase and manufacturing overload, both of
which are unknown at this time.
ENGINEERING SERVICES
While the Company does continue to provide design and development
services for various third parties, it has reduced its current
level of activity in this area.
The Company completed development under a contract with Kyushu
Matsushita Electric Co., Ltd. (KME, which is also known as
Panasonic) that calls for royalty payments upon shipment of
certain KME products. Shipments of KME products containing the
Company's technology began during the third quarter of 1998.
Management believes royalty payments from the contract were earned
during the fourth quarter of 1998, and first half of 1999, but
were subject to recoupment by KME up to the first $600,000 of
royalties. The Company received royalty payments during the
fourth quarter of 1999 on account of total shipments through
September 30, 1999. The Company cannot predict the amount of the
royalties to be received from the future sale of such KME
products.
SUMMARY
Management believes that the potential growth of the Company's
X-traWeb((TM)) business segment, proprietary radio products and
manufacturing activities require additional financing to sustain
the Company's proposed operations in these areas. It is
anticipated that additional executive and marketing personnel will
be required for the X-traWeb((TM)) business in advance of the
receipt of any substantial revenues from such source. There can
be no assurance that the Company will be able to locate and hire
qualified personnel for such functions; moreover, such a task is
time-consuming. Similarly, the Company's inventory needs are
expected to increase if, as and when orders are received for these
new products. Thus, the Company is currently engaged in seeking
to raise additional financing (whether through debt, equity or a
combination thereof). The Company has private placement
transactions being undertaken in implementation of its
fund-raising program. While the Company believes that such
additional financing can be obtained, there can be no assurance
that such financing will be achieved, or, if made available, on
terms acceptable to the Company.
In summary, while management is optimistic about the Company's
future, it is fully aware that anticipated revenue increases from
sales of X-traWeb((TM)) products, proprietary radios and
manufactures activities, 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.
17
<PAGE>
STATEMENT REGARDING FORWARD-LOOKING DISCLOSURE
This report includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act and Section 21E of
the Exchange Act which represent the Company's expectations or
beliefs concerning future events that involve risks and
uncertainties, including those associated with the ability of the
Company to obtain financing for its current and future operations,
to manufacture (or arrange for the manufacturing of) its products,
to market and sell its products, and the ability of the Company to
establish and maintain its sales of X-traWeb((TM)) products. All
statements other than statements of historical facts included in
this Report including, without limitation, the statements under
"Management's Discussion and Analysis of Results of Operations and
Financial Condition" and elsewhere herein, are forward-looking
statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it
can give no assurance that such expectations will prove to have
been correct. Important factors that could cause actual results
to differ materially from the Company's expectations ("Cautionary
Statements") are disclosed in this Report, including without
limitation, in connection with the forward-looking statements
included in this report. All subsequent written and oral
forward-looking statements attributable to the Company or persons
acting on its behalf are expressly qualified in their entirety by
the Cautionary Statements.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
PaineWebber Incorporated commenced a lawsuit against the Company
in the United States District Court for the Southern District of
New York in which the plaintiff seeks to recover damages of
approximately $231,000, plus legal fees and expenses of its
counsel in such action. In this case, the Company asserted a
counterclaim seeking damages of approximately $250,000. Plaintiff
filed a motion for summary judgment in the case in May, 1999 and
the Company filed a reply thereto in June, 1999. The Company
settled this lawsuit for $145,000, which has been paid.
The Company received a oral request in 1998 from Mr. and Mrs.
Richard Austin to rescind its purchase of the stock of Austin
Antenna Ltd. and related assets which closed in 1997. In
addition, Mr. Austin requested that the Company bear the cost of
(i) the legal fees and expenses in a litigation commenced against
Mr. Austin in a state court in Massachusetts brought by Charles
Rich seeking damages of approximately $50,000 for non-payment of
commissions arising out of the Company's purchase of Austin
Antenna Ltd. and related assets and (ii) the unpaid finder's fee
that is the subject of the litigation. The Company, in turn,
advised Mr. and Mrs. Austin that Austin Antenna Ltd. has breached
its agreement with the Company by, among other things, failing to
furnish the Company with proprietary engineering drawings and
related data that would enable the Company to manufacture the
antennas now produced by the Austin Antenna division. The Company
is currently negotiating with Mr. and Mrs. Austin and believes
that the claims may be resolved amicably, although there can be no
assurance as to the outcome thereof.
ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS
(c) Sales of Unregistered Securities
1. In July, 1999 the Company issued for cash 405,000 shares of
its Common Stock to Riedel Investments at a price of $1.00 per
share. The shares were issued in reliance upon Section 4(2) of
the Securities Act of 1933, as amended (the "Act") and Rule 506
of Regulation D promulgated thereunder. The Company believes
that Reidel Investments are an accredited investor.
2. In July, 1999 the Company issued for cash 195,000 shares of
its Common Stock to Rush & Co. at a price of $1.00 per share.
The shares were issued in reliance upon Section 4(2) of the Act
and Rule 506 of Regulation D promulgated thereunder. The
Company believes that Rush & Co. are an accredited investor.
3. In July, 1999 the Company issued for services 26,000 shares
of its Common Stock to James T. Kelly for services rendered
valued at $26,000 or $1.00 per share. The shares were issued in
reliance upon Section 4(2) of the Act and Rule 506 of
Regulation D promulgated thereunder. The Company believes that
James Kelly is an accredited investor
18
<PAGE>
4. In August, 1999, the Company issued 200,000 shares of its
Common Stock at $1.00 per share and Warrants to purchase
300,000 shares of its Common Stock at an exercise price of
$0.25 per share, expiring on May 14, 2004, to the nine holders
of the Company's 16% Senior Secured Notes issued on May 14,
1999 (the "1999 Notes") listed below in consideration of such
persons' collective waiver of the Company's potential default
under the 1999 Notes. The shares of Common Stock and Warrants
were issued to the nine persons listed and in the amounts set
forth below:
Number of Shares of
Common Stock
Name of Purchaser Shares of Common Stock Subject To Warrants
---------------------- ---------------------- -------------------
Lancer Offshore Inc. 61,538 161,540
The Orbiter Fund Ltd. 46,154
-0-
The McCloskey Trust 33,846 50,769
DPM Investment Corp. 3,077
4,615
Frying Pan Partner, LLC 3,077
4,615
CJL Investments, LLC 6,153
9,230
Sterling Technology Partners LLC 15,385 23,077
James T. Kelly 15,385 23,077
K.R. Braithwaite 15,385 23,077
The shares of Common Stock and the Warrants were issued in
reliance upon Section 4(2) of the Act and Rule 506 of
Regulation D promulgated thereunder. The Company believes
that each of the holders of the 1999 Notes is an accredited
investor.
5. In August, 1999, the Company issued 50,000 shares of
its Common Stock to the five holders of the 1999 Notes
listed below in consideration of such persons'
collective waiver of the Company's potential default in
the payment of interest due under the 1999 Notes. The
shares of Common Stock were issued to the five persons
listed and in the amounts set forth below:
No. of Shares of
Name of Purchaser Common Stock
--------------------- ------------------
Lancer Offshore, Inc. 20,000
The Orbiter Fund Ltd. 15,000
Sterling Technology Partners LLC 5,000
James T. Kelly 5,000
K. R. Braithwaite 5,000
19
<PAGE>
The shares of Common Stock were issued in reliance upon
Section 4(2) of the Act and Rule 506 of Regulation D
promulgated thereunder. The Company believes that each of
the above holders of the 1999 Notes is an accredited investor.
6. In August, 1999 K.R. Braithwaite exercised her warrants
to purchase for cash 92,500 shares of its Common Stock
at a price of $.25 per share. The shares were issued
in reliance upon Section 4(2) of the Act and Rule 506
of Regulation D promulgated thereunder. The Company
believes that K.R. Braithwaite is an accredited investor
7. In September, 1999 the Company sold 250,000 shares of
its Common Stock to RUSP Holding S.A., at a price of
$1.00 per share, in cash. The shares were issued in
reliance upon Section 4(2) of the Act Rule 506 of
Regulation D promulgated thereunder. The Company
believes that Rusp Holding S.A., is an accredited
investor.
8. In August, 1999, the Company sold $400,000 and $80,000
principal amount of its 16% Senior Secured Notes
maturing on May 14, 2000 to Lancer Offshore Inc. and
Sterling Technology Partners LLC, respectively, for
$480,000 in cash. The Notes were issued in reliance
upon Section 4(2) of the Act and Rule 506 of Regulation
D promulgated thereunder. The Company believes that
each of Lancer Offshore Inc. and Sterling Technology
Partners LLC is an accredited investor.
9. In August 1999, the Company sold 100 and 20 shares of
its Senior Preferred Stock to Lancer Offshore Inc. and
Sterling Technology Partners, LLC, respectively and
detachable warrants to purchase 500,000 shares and
100,000 shares of its Common Stock at an exercise price
of $0.25 per share expiring on August 27, 2004 to
Lancer Offshore Inc. and Sterling Technology Partners,
LLC, respectively, for $100,000 and $20,000 in cash,
respectively. The shares of Senior Preferred Stock and
Warrants were issued in reliance upon Section 4(2) of
the Act and Rule 506 of Regulation D promulgated
thereunder. The Company believes that each of Lancer
Offshore Inc. and Sterling Technology Partners LLC is
an accredited investor.
10. In August, 1999, the Company sold 50 shares of its
Senior Preferred Stock and detachable warrants to
purchase 250,000 shares of its Common Stock at an
exercise price of $0.25 per share expiring on August
27, 2004 to Capital Research Ltd. for $50,000 in cash.
The shares of Senior Preferred Stock and Warrants were
issued in reliance upon Section 4(2) of the Act and
Rule 506 of Regulation D promulgated thereunder. The
Company believes that Capital Research Ltd. is an
accredited investor.
11. In September, 1999, the Company issued Warrants to
James T. Kelly and Sterling Technology Partners LLC to
purchase 75,000 shares and 75,000 shares of its Common
Stock at an exercise price of $1.00 per share, in
consideration of services rendered by the Company in
connection with the Company's raising of equity in the
fourth quarter of 1998 and the first quarter of 1999.
The Warrants were issued in reliance upon Section 4(2)
of the Act and Rule 506 of Regulation D promulgated
thereunder. The Company believes that each of James T.
Kelly and Sterling Technology Partners LLC is an
accredited investor.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
A description of certain of the potential defaults committed by
the Company under the Pledge/Security Agreement dated as of May
15, 1999 is set forth in Part I Management's Discussion and
Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources, of this Form 10-Q and is
hereby incorporated by reference.
20
<PAGE>
ITEM 5. OTHER INFORMATION
1. On July 22, 1999, the Company appointed Donald Wallace,
the President of its wholly-owned subsidiary, X-traWeb,
Inc., as a Director of the Corporation.
2. On July 27, 1999, the Company appointed Charles Taylor
as a Director of the Corporation. Mr. Taylor currently
is employed by Amerindo Investment Advisors, a
management firm that specializes in making investments
in the technology sector.
3. In September, 1999, the Company appointed Malcolm
Thomas as a Director of the Corporation. From 1991 to
the present, Mr. Thomas has served as the Director of
Operations and Marketing for Fluor Daniel, Inc., a New
York Stock Exchange firm engaged in construction
engineering and related services. Mr. Thomas is
responsible for directing all operations of Fluor's
facility management operating company's Western United
States Regional Office.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
1. (a) The following documents are filed as part of this
report. Financial Statements of the Company
(unaudited), including Condensed Consolidated
Balance sheet, Condensed Consolidated Statements
of Operation, Condensed Consolidated Statements
of Cash Flows and Notes to Financial Statements
as of and for the period ended September 30, 1999.
(b) The Exhibits which are listed on the Exhibit
Index being filed are attached hereto.
2. No reports of Form 8-K were filed by the Registrant
during the quarter period covered by this report.
21
<PAGE>
EXHIBIT INDEX
No. Description
3.1 Articles of Incorporation of the Company and all amendment
thereto *
3.2 Bylaws of the Company*
4.1 Form of Common Stock Certificate*
4.2 Form of Subscription Agreement used in private financing
providing for registration rights*
5. Opinion of Connolly Epstein Chicco Foxman Engelmyer &
Ewing regarding the legality of securities being registered*
10.1 1997 Stock Option Plan*
10.2 DRCC Omnibus Stock Option Plan*
10.3 Development and License Agreement dated April 4, 1997,
between DRCC and Kyushu Matsushita Electric Co., Ltd.*
10.4 Amended and restated Technical Development and Marketing
Alliance Agreement dated September 15, 1997, between the
Company and Williams Telemetry Services, Inc.*
10.5 Lease Agreement dated May 17, 1995, between DRCC and Pracvest
Partnership relating to the Company's American Fork City offices
and facility*
10.6 Lease Agreement dated February 12, 1996, between the Company and
Green/Praver, et al., relating to the Company's Salt Lake City
offices*
10.7 Shareholders Agreement dated May 21, 1997 between the Company,
DRCC, Philip A. Bunker and William E. Chipman, Sr. *
10.8 Asset Purchase Agreement dated October 31, 1997, between
the Company and Austin Antenna, Ltd.*
10.9 Stock Exchange Agreement dated October 31, 1997, between
the Company, TWC, Ltd. and the shareholders of TWC, Ltd.*
10.10 Settlement Agreement, Mutual Waiver and Release of All
Claims dated November 11, 1997 between Digital Radio
Communications Corp. and Digital Scientific, Inc.*
10.11 Agreement (undated) between the Company, Xarc
Corporation and Donald J. Wallace relating to the
Company's acquisition of Xarc Corporation*
10.12 Promissory Note dated December 4, 1997, by the Company, payable to
William E. Chipman, Sr. in the principal amount of $125,000*
10.13 Promissory Note dated November 13, 1997, by the Company, payable to
T. Kent Rainey in the principal amount of $200,000*
10.14 Investment Banking Services Agreement dated November 19,
1997, between The Company and PaineWebber Incorporated*
10.15 $400,000 Promissory Note dated December 24, 1997,
payable to Electronic Assembly Corporation*
10.16 $400,000 Promissory Note dated January 8, 1998, payable to Tiverton
Holdings Ltd.*
10.17 Loan Agreement by and among the Registrant and the Bridge
Noteholders dated as of May 15, 1998*
10.18 Amendment and Waiver Agreement by and among the Registrant and the
Bridge Noteholders dated August 7, 1998*
22
<PAGE>
10.19 Amendment and Waiver Agreement by and among the Registrant and the
Bridge Noteholders dated September 11, 1998*
10.20 Loan Agreement by and among the Registrant and the Bridge
Noteholders dated as of May 15, 1998 (Previously filed), together
with the Notes, Pledge/Security Agreement, Pledgee/Representative
Agreement, Subordination, and Registration Rights Agreement*
10.21 Separation and Mutual Release Agreement between the Registrant and
William E. Chipman, Sr. dated as of May 26, 1998*+
10.22 Registration Rights Agreement by and among the Registrant and the
purchasers of common stock issued pursuant to the Registrants
Confidential Private Placement Memorandum dated September 9, 1998,
as amended*
10.23 Employment Agreement between the Registrant and James
O'Callaghan dated May 20, 1998*+
10.24 Lease agreement between the Registrant and NP#2 dated as
of July 29, 1998 relating to the premises at 2441 South
3850 West, West Valley City, Utah 84120*
10.25 Agreement between KME and the Registrant dated October 19, 1998
relating to the Registrant's providing of technical assistance and
development relating to the Gigarange telephone*
10.26 Agreement between KME and the Registrant dated as of March 1, 1998
relating to the Panasonic MicroCast System*
10.27 General and Mutual Release Agreement between the Registrant and
Phil Acton dated November 2, 1998*+
10.28 Agreement and Waiver Agreement by and among the Registrant and the
Bridge Noteholders dated November 25, 1998*
10.29 1998 Employee Incentive Stock Option Plan*+
10.30 1998 Non-qualified Stock Option Plan*+
10.31 Amendment of Agreement by and among the Registrant and the Bridge
Noteholders dated as of March 26, 1999*
10.32 Loan Agreement by and among the Registrant and the Senior Secured
Noteholders dated as of May 14, 1999, together with the Notes,
Pledge/Security Agreement, Pledgee Representative Agreement,
Subordination and Registration Rights Agreement*
10.33 Two separate Agreements by and among the Registrant and
the 1999 Bridge Noteholders dated August 19, 1999.**
27 Financial Data Schedules**
_____________________
** Filed herewith
* Filed previously
+ Management contract or compensatory plan or arrangement
filed previously
23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: November 19, 1999 World Wireless Communications, Inc.
By: \S\ David D. Singer
------------------------------
David D. Singer
President, Chief Executive Officer
(principal financial officer)
August 19, 1999
TO: Purchasers of Units (each a "Lender" and collectively the
"Lenders") consisting of $200,000 principal amount of 16% Senior
Secured Notes of World Wireless Communications, Inc. (the
"Company").
Re: Waiver of Interest Default under Agreements
-------------------------------------------
Ladies and Gentlemen:
Reference is made to the Loan Agreement between the Lenders
and the Company dated as of May 14, 1999 (the "Agreement"),
including each note attached thereto as Exhibit A (the "Note"), and
the Pledge/Security Agreement attached thereto as Exhibit B (the
"Pledge/Security Agreement").
As an inducement for the Company to consummate an offering of
its common stock pursuant to the Confidential Private Placement
Memorandum dated January 24, 1999, as amended (the "Offering"), the
Company and each Lender agree as follows:
1. The Company hereby delivers to each Lender his, her or
its pro rata share of 50,000 shares of the Company's common stock,
which are subject to applicable securities laws restrictions,
receipt of which is hereby acknowledged.
2. The parties agree that the interest due on the Note held
by the Lenders who are signatories hereto as of August 15, 1999
shall be deferred until November 15, 1999 and shall become due and
payable on such date, together with the interest otherwise due on
each Note on such date.
3. In consideration thereof, each Lender unconditionally
and irrevocably waives the Company's default under Sections 1, 3(a)
and 4(a), of each Note and Section 2.2(c)(i) of the Pledge/Security
Agreement, including, without limitation, any and all rights and
remedies set forth therein, effective as of the date hereof.
Except as amended as set forth herein, the Agreement, each
Note and the Pledge/Security Agreement shall continue in full force
and effect.
If this letter accurately sets forth our understanding, please
sign your name below and return your signed original to us
immediately.
Very truly yours,
WORLD WIRELESS COMMUNICATIONS, INC.
<PAGE>
By: /s/ David D. Singer
-------------------
David D. Singer, President
AGREED:
LANCER OFFSHORE, INC. THE ORBITER FUND
By: S/s Michael Lauer By: /s/ Michael Lauer
------------------------ ------------------------
Michael Lauer, President Michael Lauer, President
STERLING TECHNOLOGY PARTNERS, LLC
By: /s/ Bruce D. Cowen
-------------------------
Bruce D. Cowen, President
/s/ James Kelly
------------------------
James Kelly
/s/ Kathryn Braithwaite
-------------------------
K.R. Braithwaite
<PAGE>
August 19, 1999
TO: Purchasers of Units (each a "Lender" and collectively the "Lenders")
consisting of $200,000 principal amount of 16% Senior Secured Notes of
World Wireless Communications, Inc. (the "Company").
Re: Waiver of Default under Agreements
----------------------------------
Ladies and Gentlemen:
Reference is made to the Loan Agreement between the Lenders and the
Company dated as of May 14, 1999 (the "Agreement"), including each note
attached thereto as Exhibit A (the "Note"), and the Pledge/Security
Agreement attached thereto as Exhibit B (the "Pledge/Security Agreement").
As an inducement for the Company to consummate an offering of its
common stock pursuant to the Confidential Private Placement Memorandum
dated January 24, 1999, as amended (the "Offering"), the Company and each
Lender agree as follows:
1. The Company hereby delivers to each Lender his, her or its pro
rata share of default stock purchase warrants to purchase an aggregate of
300,000 shares of the Company's common stock at an exercise price of $0.25
per share in the form of Exhibit 2 to the Pledge/Security Agreement,
receipt of which is hereby acknowledged.
2. In addition to the foregoing, the Company hereby delivers to
each Lender his, her or its pro rata share of 200,000 shares of the
Company's common stock, which are subject to applicable securities laws
restrictions, receipt of which is hereby acknowledged.
3, Section 3(b) of each Note shall be amended to read as follows
effective as of May 14, 1999:
"Notwithstanding anything contained herein to the contrary, this Note
shall be mandatorily prepaid in an amount equal to 25% of the gross
proceeds received by the Maker from any and all closings of an
offering of its securities, whether through one or more private
placement or secondary public offerings, which prepayment shall be
made upon the closing of any such offering, any gross proceeds
received by the Company from any such offering on or before December
31, 1999 shall be due and payable on December 31, 1999."
4. Section 5.6 of the Pledge/Security Agreement shall be amended to
read as follows, effective as of May 14, 1999:
<PAGE>
"Additional Remedies upon Certain Defaults. Notwithstanding anything
contained in this Agreement to the contrary, if there is an event of
default under Section 2.2(c)(v) hereof and as the exclusive remedy in
such case. Pledgor shall grant to each Pledgee his pro rata share
(computed based on the ratio of the principal amount of his Note to
the principal amount of all Notes originally issued) of additional
warrants, substantially in the form attached hereto as Exhibit 2, to
purchase additional shares of the common stock of Pledgor (the
"Default Warrant Shares") at the rate of Three Hundred Thousand
(300,000) Default Warrant Shares for each such event of default under
Section 2.2(c)(v) hereof; provided, however, that the number of
Default Warrant Shares shall not exceed Nine Hundred Thousand
(900,000) of such shares in the aggregate. The representations and
warranties of each Pledgee set forth in Section 3 of such Pledgee's
Subscription Agreement shall be true and correct with respect to such
Default Warrant Shares on the date of such grant and as the exclusive
remedy in such case after 2.2(c)(v) hereof."
In consideration of the foregoing amendments, each Lender
unconditionally and irrevocably waives the Company's default under Sections
3(b), 4(a), 4(b) and 4(e)(i) of each Note and Section 2.2(c)(i), (ii), and
(v)(i) of the Pledge/Security Agreement, including, without limitation, any
and all rights and remedies set forth therein, effective as of the date
hereof.
Except as amended as set forth herein, the Agreement, each Note and
the Pledge/Security Agreement shall continue in full force and effect.
If this letter accurately sets forth our understanding, please sign
your name below and return your signed original to us immediately.
Very truly yours,
WORLD WIRELESS COMMUNICATIONS, INC.
By: /s/ David D. Singer
---------------------------------
David D. Singer, President
AGREED:
LANCER OFFSHORE, INC. THE ORBITER FUND
By: /s/ Michael Lauer By: /s/ Michael Lauer
--------------------------- --------------------------
Michael Lauer, President Michael Lauer, President
THE McCLOSKEY TRUST STERLING TECHNOLOGY PARTNERS, LLC
By: /s/ Thomas D. McCloskey By: /s/ Bruce D. Cowen
---------------------------- ----------------------------
Thomas D. McCloskey, Jr., Trustee Bruce D. Cowen, President
<PAGE>
/s/ James Kelly
---------------------------
DPM INVESTMENT CORP. James Kelly
By: /s/ Thomas D. McCloskey /s/ Kathryn Braithwaite
------------------------------ ----------------------------
Thomas D. McCloskey, Jr. , V.P. K.R. Braithwaite
FRYING PAN PARTNERS, LLC. CJL INVESTMENTS, LLC
By: /s/ David L. Marrs By: /s/ John H. Perry
------------------------------- ----------------------------
David L. Marrs, Member John H. Perry, III, Managing-Member
August 19, 1999
TO: Purchasers of Units (each a "Lender" and collectively the
"Lenders") consisting of $200,000 principal amount of 16% Senior
Secured Notes of World Wireless Communications, Inc. (the
"Company").
Re: Waiver of Interest Default under Agreements
-------------------------------------------
Ladies and Gentlemen:
Reference is made to the Loan Agreement between the Lenders
and the Company dated as of May 14, 1999 (the "Agreement"),
including each note attached thereto as Exhibit A (the "Note"), and
the Pledge/Security Agreement attached thereto as Exhibit B (the
"Pledge/Security Agreement").
As an inducement for the Company to consummate an offering of
its common stock pursuant to the Confidential Private Placement
Memorandum dated January 24, 1999, as amended (the "Offering"), the
Company and each Lender agree as follows:
1. The Company hereby delivers to each Lender his, her or
its pro rata share of 50,000 shares of the Company's common stock,
which are subject to applicable securities laws restrictions,
receipt of which is hereby acknowledged.
2. The parties agree that the interest due on the Note held
by the Lenders who are signatories hereto as of August 15, 1999
shall be deferred until November 15, 1999 and shall become due and
payable on such date, together with the interest otherwise due on
each Note on such date.
3. In consideration thereof, each Lender unconditionally
and irrevocably waives the Company's default under Sections 1, 3(a)
and 4(a), of each Note and Section 2.2(c)(i) of the Pledge/Security
Agreement, including, without limitation, any and all rights and
remedies set forth therein, effective as of the date hereof.
Except as amended as set forth herein, the Agreement, each
Note and the Pledge/Security Agreement shall continue in full force
and effect.
If this letter accurately sets forth our understanding, please
sign your name below and return your signed original to us
immediately.
Very truly yours,
WORLD WIRELESS COMMUNICATIONS, INC.
<PAGE>
By: /s/ David D. Singer
-------------------
David D. Singer, President
AGREED:
LANCER OFFSHORE, INC. THE ORBITER FUND
By: S/s Michael Lauer By: /s/ Michael Lauer
------------------------ ------------------------
Michael Lauer, President Michael Lauer, President
STERLING TECHNOLOGY PARTNERS, LLC
By: /s/ Bruce D. Cowen
-------------------------
Bruce D. Cowen, President
/s/ James Kelly
------------------------
James Kelly
/s/ Kathryn Braithwaite
-------------------------
K.R. Braithwaite
<PAGE>
August 19, 1999
TO: Purchasers of Units (each a "Lender" and collectively the "Lenders")
consisting of $200,000 principal amount of 16% Senior Secured Notes of
World Wireless Communications, Inc. (the "Company").
Re: Waiver of Default under Agreements
----------------------------------
Ladies and Gentlemen:
Reference is made to the Loan Agreement between the Lenders and the
Company dated as of May 14, 1999 (the "Agreement"), including each note
attached thereto as Exhibit A (the "Note"), and the Pledge/Security
Agreement attached thereto as Exhibit B (the "Pledge/Security Agreement").
As an inducement for the Company to consummate an offering of its
common stock pursuant to the Confidential Private Placement Memorandum
dated January 24, 1999, as amended (the "Offering"), the Company and each
Lender agree as follows:
1. The Company hereby delivers to each Lender his, her or its pro
rata share of default stock purchase warrants to purchase an aggregate of
300,000 shares of the Company's common stock at an exercise price of $0.25
per share in the form of Exhibit 2 to the Pledge/Security Agreement,
receipt of which is hereby acknowledged.
2. In addition to the foregoing, the Company hereby delivers to
each Lender his, her or its pro rata share of 200,000 shares of the
Company's common stock, which are subject to applicable securities laws
restrictions, receipt of which is hereby acknowledged.
3, Section 3(b) of each Note shall be amended to read as follows
effective as of May 14, 1999:
"Notwithstanding anything contained herein to the contrary, this Note
shall be mandatorily prepaid in an amount equal to 25% of the gross
proceeds received by the Maker from any and all closings of an
offering of its securities, whether through one or more private
placement or secondary public offerings, which prepayment shall be
made upon the closing of any such offering, any gross proceeds
received by the Company from any such offering on or before December
31, 1999 shall be due and payable on December 31, 1999."
4. Section 5.6 of the Pledge/Security Agreement shall be amended to
read as follows, effective as of May 14, 1999:
<PAGE>
"Additional Remedies upon Certain Defaults. Notwithstanding anything
contained in this Agreement to the contrary, if there is an event of
default under Section 2.2(c)(v) hereof and as the exclusive remedy in
such case. Pledgor shall grant to each Pledgee his pro rata share
(computed based on the ratio of the principal amount of his Note to
the principal amount of all Notes originally issued) of additional
warrants, substantially in the form attached hereto as Exhibit 2, to
purchase additional shares of the common stock of Pledgor (the
"Default Warrant Shares") at the rate of Three Hundred Thousand
(300,000) Default Warrant Shares for each such event of default under
Section 2.2(c)(v) hereof; provided, however, that the number of
Default Warrant Shares shall not exceed Nine Hundred Thousand
(900,000) of such shares in the aggregate. The representations and
warranties of each Pledgee set forth in Section 3 of such Pledgee's
Subscription Agreement shall be true and correct with respect to such
Default Warrant Shares on the date of such grant and as the exclusive
remedy in such case after 2.2(c)(v) hereof."
In consideration of the foregoing amendments, each Lender
unconditionally and irrevocably waives the Company's default under Sections
3(b), 4(a), 4(b) and 4(e)(i) of each Note and Section 2.2(c)(i), (ii), and
(v)(i) of the Pledge/Security Agreement, including, without limitation, any
and all rights and remedies set forth therein, effective as of the date
hereof.
Except as amended as set forth herein, the Agreement, each Note and
the Pledge/Security Agreement shall continue in full force and effect.
If this letter accurately sets forth our understanding, please sign
your name below and return your signed original to us immediately.
Very truly yours,
WORLD WIRELESS COMMUNICATIONS, INC.
By: /s/ David D. Singer
---------------------------------
David D. Singer, President
AGREED:
LANCER OFFSHORE, INC. THE ORBITER FUND
By: /s/ Michael Lauer By: /s/ Michael Lauer
--------------------------- --------------------------
Michael Lauer, President Michael Lauer, President
THE McCLOSKEY TRUST STERLING TECHNOLOGY PARTNERS, LLC
By: /s/ Thomas D. McCloskey By: /s/ Bruce D. Cowen
---------------------------- ----------------------------
Thomas D. McCloskey, Jr., Trustee Bruce D. Cowen, President
<PAGE>
/s/ James Kelly
---------------------------
DPM INVESTMENT CORP. James Kelly
By: /s/ Thomas D. McCloskey /s/ Kathryn Braithwaite
------------------------------ ----------------------------
Thomas D. McCloskey, Jr. , V.P. K.R. Braithwaite
FRYING PAN PARTNERS, LLC. CJL INVESTMENTS, LLC
By: /s/ David L. Marrs By: /s/ John H. Perry
------------------------------- ----------------------------
David L. Marrs, Member John H. Perry, III, Managing-Member
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information from the condensed balance
sheet as of September 30, 1999, and the condensed statement of operations for
the nine months ended September 30, 1999, and is qualiied in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 453,259
<SECURITIES> 137,648
<RECEIVABLES> 1,446,289
<ALLOWANCES> (65,000)
<INVENTORY> 597,876
<CURRENT-ASSETS> 2,738,007
<PP&E> 2,179,972
<DEPRECIATION> (1,739,725)
<TOTAL-ASSETS> 4,344,313
<CURRENT-LIABILITIES> 4,377,548
<BONDS> 46,523
820,000
0
<COMMON> 19,461
<OTHER-SE> (919,758)
<TOTAL-LIABILITY-AND-EQUITY> 4,344,313
<SALES> 2,717,510
<TOTAL-REVENUES> 2,717,510
<CGS> 2,270,806
<TOTAL-COSTS> 2,270,806
<OTHER-EXPENSES> 4,859,888
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,578,727
<INCOME-PRETAX> (5,991,911)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,991,911)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,819,627)
<EPS-BASIC> (0.41)
<EPS-DILUTED> (0.41)
</TABLE>
