AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 31, 2000
REGISTRATION NO.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------------------
FORM SB-2
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
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WORLDWIDE WIRELESS NETWORKS, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
NEVADA 7389 88-0286466
(STATE OF INCORPORATION) (PRIMARY STANDARD (I.R.S. EMPLOYER
INDUSTRIAL CLASSIFICATION IDENTIFICATION NUMBER)
CODE NUMBER)
770 THE CITY DRIVE SOUTH, SUITE 3700
ORANGE, CALIFORNIA 92868
(714) 937-5500
(Address and Telephone Number of Principal Executive Offices
and Principal Place of Business)
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MICHAEL J. MORRISON, ESQ.
1495 RIDGEVIEW DRIVE, SUITE 220
RENO, NV 89509
(775) 827-6300
(Name, Address and Telephone Number of Agent for Service)
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FELDHAKE, AUGUST & ROQUEMORE
NEWPORT GATEWAY , TOWER II
19900 MACARTHUR BLVD., SUITE 850
NEWPORT BEACH, CALIFORNIA 92612
(949) 553-5000
<PAGE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to
time after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the Prospectus is expected to be made pursuant to Rule 434, check
the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED AMOUNT PRICE PER SHARE
TO BE
REGISTERED
<S> <C> <C>
Common Stock, par value $0.01 per share (1) 9,814,535 (1) $ 2.375 (2)
Common Stock, par value $0.01 per share (3) 225,000 (3) $ 2.375 (2)
Common Stock, par value $0.01 per share (4) 930,526 (4) $ 2.375 (2)
<FN>
(1) Shares registered hereunder were issued by the Registrant in a private
offering made pursuant to Rule 506 under Regulation D pursuant to the
Securities Act of 933 (the "Securities Act").
(2) Closing price on July 31, 2000, pursuant to Rule 457(c) under the Securities
Act.
(3) Shares registered hereunder will become issuable upon the exercise of
warrants issued by the Registrant in a private offering made pursuant to Rule
506 under Regulation D pursuant to the Securities Act. The warrants have an
exercise price calculated based upon the market price of our common stock
at such time.
(4) Shares registered hereunder will become issuable upon the conversion of
convertible debentures issued by the Registrant in a private offering pursuant
to Rule 506 of Regulation D pursuant to the Securities Act. The convertible
debentures have a conversion price which is calculated based upon the market
price of our common stock at such time.
</TABLE>
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<PAGE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
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SUBJECT TO COMPLETION, PRELIMINARY PROSPECTUS DATED JULY 31, 2000
PROSPECTUS
10,970,061 shares of Common Stock
WORLDWIDE WIRELESS NETWORKS, INC.
The information in this Prospectus is not complete and may be changed. The
Selling Stockholders may not sell the Common Stock until the registration
statement filed with the Securities and Exchange Commission is effective. This
Prospectus is not an offer to sell the Common Stock and it is not soliciting an
offer to buy the Common Stock in any state where the offer or sale is not
permitted.
The Selling Stockholders listed on page 29 of this Prospectus (the "Selling
Stockholders") are offering and selling up to 10,970,061 shares of Common Stock.
All proceeds from the sale of Common Stock under this Prospectus will go to the
Selling Stockholders. We will not receive any proceeds from the sale of such
Common Stock. Of the 10,970,061 shares offered, 225,000 shares are issuable upon
the exercise of certain warrants. The exercise price under the warrants varies
depending upon the market price of our common stock; if all of these warrants
were exercised as of July 31, 2000, we would receive up to $534,375 in gross
proceeds. All proceeds that we receive, if any, will be used for working capital
and general corporate purposes.
The Selling Stockholders will pay all brokerage commissions and discounts
attributable to the sale of the shares plus fees and expenses relating to the
registration of their shares. We are responsible for all other costs, expenses
and fees incurred in registering the shares offered by this Prospectus, which
are estimated to be $25,000.
Our Common Stock is traded under the symbol "WWWN" on the OTC Bulletin Board.
The last reported sale price on the OTC Bulletin Board for our Common Stock on
July 31, 2000, was $2.375 per share.
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<PAGE>
INVESTING IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 8
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this Prospectus. Any representation to the contrary is a
criminal offense.
The date of this Prospectus is July 31, 2000
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the Securities and Exchange Commission (the "SEC"). You may
read and copy any document we file at the SEC's public reference room at the
following locations:
- Main Public Reference Room, 450 Fifth Street, N.W., Washington, D.C. 20549
- Regional Public Reference Room, 75 Park Place, 14th Floor, New York, New York
10007
- Regional Public Reference Room, Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511
You may obtain information on the operation of the SEC's public reference rooms
by calling the SEC at (800) SEC-0330.
We are required to file these documents with the SEC electronically. You can
access the electronic versions of these filings on the Internet at the SEC's web
site, located at http://www.sec.gov.
We have included this Prospectus in our registration statement that we filed
with the SEC (the "Registration Statement"). The Registration Statement provides
additional information that we are not required to include in the Prospectus.
You can receive a copy of the entire Registration Statement as described above.
Although this Prospectus describes the material terms of certain contracts,
agreements and other documents filed as exhibits to the Registration Statement,
you should read the exhibits for a more complete description of the document or
matter involved.
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<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
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<S> <C>
PROSPECTUS SUMMARY . . . . . . . . . . . . . . . . . . . . . . 6
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . 8
USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . . . . 14
DETERMINATION OF OFFERING PRICE. . . . . . . . . . . . . . . . 15
SELLING STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . 15
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . 17
LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . 18
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 21
DESCRIPTION OF SECURITIES. . . . . . . . . . . . . . . . . . . 23
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS. . . . . . . . . . . 38
PROPERTY . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . . 38
MARKET PRICE OF THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS. . . . . . . . 39
EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . 40
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS. . . . . . . . . 41
INDEMNIFICATION OF DIRECTORS AND OFFICERS. . . . . . . . . . . 41
RECENT SALES OF UNREGISTERED SECURITIES. . . . . . . . . . . . 42
INDEX TO FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . 44
INDEX TO AND DESCRIPTION OF EXHIBITS . . . . . . . . . . . . . 62
</TABLE>
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<PAGE>
PROSPECTUS SUMMARY
AS USED IN THIS PROSPECTUS, UNLESS THE CONTEXT OTHERWISE REQUIRES, THE TERMS
"WE," "US" OR "THE COMPANY" MEAN WORLDWIDE WIRELESS NETWORKS, INC. D/B/A GLOBAL
PACIFIC INTERNET IN THE STATE OF CALIFORNIA, AND ITS SUBSIDIARIES. THIS SUMMARY
HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS AND IS NOT
COMPLETE AND MAY NOT CONTAIN ALL THE INFORMATION YOU SHOULD CONSIDER BEFORE
INVESTING IN THE COMMON STOCK. YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY
THE COMPANY
Worldwide Wireless Networks, Inc. was incorporated in the state of Nevada on
June 10, 1992 as Second Investors Group, Inc. On June 19, 1998 Second Investors
effected a name change to Progressive Environmental Recovery Corporation. On
March 5, 1999 Progressive Environmental changed its name to Worldwide Wireless
Networks, Inc. We were organized as a "blank check" company and our purpose was
to seek out investment opportunities in emerging companies but we remained
inactive until our reverse merger with Pacific Link Internet, Inc. ("Pacific
Link") in April of 1999. (See: "Management's Discussion and Analysis - Reverse
Merger Treatment.")
As a result of the reverse merger we acquired the business assets of Pacific
Link, a California corporation doing business as Global Pacific Internet.
Pacific Link operated wireless network systems for customers in the Orange
County, California area. Pursuant to the merger agreement, we issued 7,000,000
common shares of WWWN in exchange for 583,000 common shares held by Pacific Link
shareholders, which represented all of that company's outstanding shares. The
directors and officers of Worldwide Wireless resigned and the management of
Pacific Link filled the vacancies. The former shareholders of Pacific Link
obtained 62.5% of the total voting power of WWWN at that time.
Due to a conflict with corporate names in California, Worldwide Wireless is
doing business as "Global Pacific Internet" in California. We are a networking
solutions company which specializes in high speed Internet access using our own
wireless network. Other products we provide include direct service links which
are connections of a customer's computer network to the Internet via our
wireless network, and/or frame relays, which is a wired connection from a
customer's computer to a router which sends the data to the desired end
connection. We also provide web hosting and network consulting. We serve all
sizes of commercial business and the home office market.
We have a short operating history, and have experienced significant operating
losses in that time, primarily due to continued investments we have made in an
effort to expand our existing network. We have entered into several private
placements of debt and equity securities in order to obtain expansion capital,
including the transactions described elsewhere in this Prospectus, and we will
continue to require additional funds to implement our national and international
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<PAGE>
expansion plans until such time as our revenues generated from internal
operations are sufficient to cover all of our capital requirements. Until then,
we may be forced to continue to raise funds through the sale of debt and/or
equity instruments, which may be highly dilutive to our existing shareholders.
If we are unable to access this capital, then the Company will be unable to
continue its expansion as planned, and could remain essentially an Orange
County, California network. Management has developed a cost reduction plan
which could be implemented in such an event, and this plan would allow the
Company to operate profitably, but with no meaningful expansion or growth.
Large scale commercial operations began in April 1999 and, as of June 30, 2000,
we provided high-speed wireless services to approximately 338 commercial
customers. Our high-speed wireless network currently serves approximately 85% of
the Orange County, California area and, on December 31, 1999, we initiated
operations in Los Angeles County, California, as well. We deliver DSL (Digital
Subscriber Line) and 100 Mbps wireless services to our customers, which are high
speed Internet access options. We opened a co-location facility providing
central office services to 12 customers as of June 30, 2000. To facilitate our
market expansion we hired a direct sales force with support and management
teams.
We are incorporated under the laws of the State of Delaware. Our principal
executive offices are located at 770 The City Drive South, Suite 3700, Orange,
California 92868 and our telephone number is (714) 937-5500.
THE OFFERING
Common Stock offered by the Selling Stockholders 10,970,061 shares
Common Stock outstanding 12,888,947 shares(1)
Use of proceeds. We will not receive any proceeds from the sale of shares of
Common Stock by the Selling Stockholders. We may, however, receive proceeds from
the exercise of certain warrants should the holders of such warrants choose to
exercise them (which is solely in such holders' discretion).
Risk factors. An investment in the Common Stock offered hereby involves a great
deal of risk. See "Risk Factors."
OTC Bulletin Board symbol "WWWN"
(1) Based on information as of July 27, 2000. Does not include (i) 624,150
shares of Common Stock reserved for issuance upon exercise of options granted
under our 1999 Stock Option Plan; (ii) 625,000 shares of Common Stock issuable
upon exercise of outstanding warrants, including the warrants exercisable for up
to 225,000 shares of Common Stock which are included in this registration
statement; and (iii) shares of Commons Stock issuable upon exercise of
convertible debentures. EXCEPT AS OTHERWISE INDICATED, ALL REFERENCES IN THIS
PROSPECTUS TO THE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING DO NOT INCLUDE
THE FOREGOING SHARES.
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<PAGE>
RISK FACTORS
AN INVESTMENT IN OUR COMMON STOCK IS HIGHLY SPECULATIVE, INVOLVES A HIGH DEGREE
OF RISK AND SHOULD BE CONSIDERED ONLY BY THOSE PERSONS WHO ARE ABLE TO AFFORD A
LOSS OF THEIR ENTIRE INVESTMENT. IN EVALUATING OUR BUSINESS, PROSPECTIVE
INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS IN ADDITION TO
THE OTHER INFORMATION INCLUDED IN THIS PROSPECTUS.
RISKS RELATING TO OUR FINANCIAL CONDITION
OUR ABILITY TO EXERCISE OUR BUSINESS PLAN AND THE LIQUIDATION OR SETTLEMENT
VALUE OF OUR ASSETS AND LIABILITIES COULD BE SIGNIFICANTLY IMPACTED IF WE ARE
UNABLE TO RAISE ADDITIONAL FINANCING OR RESOLVE OUR OUTSTANDING LIABILITIES.
At March 31, 2000, and December 31, 1999, we had cash of $115,354 and $136,311,
respectively, and a working capital deficit of $214,252 on December 31, 1999. We
continue to generate negative cash losses from operations. Subsequent to June
30, 2000, we obtained an equity line of credit of $20,000,000 from one of the
Selling Stockholders at an interest rate of 8% per annum, and raised another
$1,000,000 from the sale of convertible debentures carrying an interest rate of
7% per annum.
We will need additional financing to continue our operations manage our
outstanding indebtedness and execute our business plan.
WE HAVE A HISTORY OF LOSSES, A SIGNIFICANT WORKING DEFICIT AND EXPECT THAT
LOSSES WILL CONTINUE IN THE FUTURE
At March 31, 2000 our accumulated deficit was $2,569,457, our deficit in
stockholders' equity was $103,913 and on December 31, 2000, our working capital
deficit was $214,252. For the three months ended March 31, 2000 we incurred a
net loss of $534,547 but for the fiscal years ended December 31, 1999 and 1998,
we incurred net losses of $1,526,071 and $297,338, respectively. We have
incurred a net loss in each year of our existence and have financed our
operations primarily through sales of equity and debt securities. The
independent auditors' report on our financial statements for the year ended
December 31, 1999 states that our recurring losses from operations and
significant net working capital deficiency raise substantial doubt about our
ability to continue as a going concern. We expect to incur net losses for the
foreseeable future. We may never achieve or sustain significant revenues or
profitability on a quarterly or annual basis in the future.
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WE MAY BE UNABLE TO OBTAIN THE FINANCING WE NEED TO CONTINUE OUR OPERATIONS
We have experienced significant cash flow difficulties during the last several
years, particularly in our efforts to expand. Our ability to implement our
business strategy of national and international network expansion is contingent
upon our ability to obtain additional financing. We are presently negotiating
with potential financing sources in an attempt to raise additional debt or
equity capital, but we may not be able to do so in sufficient amounts, or under
terms which are favorable to us. We have no commitments, agreements or
understandings regarding additional financing.
RISKS RELATING TO OUR BUSINESS
WE EXPECT TO ENTER INTO FUTURE AGREEMENTS, WHICH RESULT IN SIGNIFICANT DILUTION
OR SUBSTANTIAL INDEBTEDNESS, WITHOUT STOCKHOLDER APPROVAL. STOCKHOLDERS MAY BE
UNABLE TO REVIEW ANY POTENTIAL AGREEMENTS BEFORE THEY ARE SIGNED
In all likelihood, stockholders will be unable to review the terms of or vote on
any potential relationships in which we may enter. Consequently, stockholders
are dependent upon the Board of Directors' judgment with respect to any such
transactions. These transactions, if realized, may involve the issuance of a
significant number of additional equity securities which could cause significant
dilution or the incurrence, assumption or issuance by us of substantial
indebtedness and the undertaking by us of material obligations including, among
other things, long-term employment, consulting or management agreements.
WE HAVE A SHORT OPERATING HISTORY AND, ACCORDINGLY, OUR HISTORICAL FINANCIAL
RESULTS WILL NOT REFLECT OUR FUTURE RESULTS OF OPERATIONS AND OUR KEY PERSONNEL
MAY LACK THE EXPERTISE TO MANAGE THE EXPECTED GROWTH
We have a short operating history and have experienced significant operating
losses in that time, primarily due to continued investments we have made in an
effort to expand our existing network. We believe that comparisons of our
current and future operating results to pre-2000 operating results are not
meaningful and should not be relied upon as indicative of future performance.
In addition, our business will require new financial and management controls,
reporting systems and procedures. Our key personnel may be unable to implement
such controls, systems and procedures and if they are unsuccessful our results
of operations could be materially adversely affected.
BECAUSE OUR BUSINESS MODEL IS UNPROVEN, WE CANNOT ASSURE YOU THAT OUR REVENUE
WILL GROW OR THAT WE WILL BECOME PROFITABLE
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<PAGE>
Our business model depends upon our ability to develop and market technologies
and products which allow our customers to integrate Internet and traditional
sales channels. The potential profitability of this business model is unproven.
Alternatively, we may be forced by competitive pressures, industry consolidation
or otherwise, to change our business model. Our business model may not be
successful and we may not sustain revenue growth or achieve or sustain
profitability.
OUR EQUITY AND DEBT FUNDING SOURCES MAY BE INADEQUATE TO FINANCE FUTURE
ACQUISITIONS
The acquisition of complementary businesses and products is an element of our
business strategy. Our ability to engage in acquisition activity depends on our
ability to obtain debt or equity financing, neither of which may be available
or, if available, may not be on terms acceptable to us. Our inability to obtain
such financing would have a material adverse effect on our acquisition
strategy.
Both debt and equity financing involve certain risks. Debt financing may
require us to pay significant amounts of interest and principal payments,
reducing the resources available to us to expand our existing businesses.
Certain types of equity financing may be dilutive to our stockholders' interest
in our assets and earnings.
WE MAY FACE CLAIMS FOR ACTIVITIES OF OUR CLIENTS USING OUR PRODUCTS AND SERVICES
WHICH COULD HARM OUR BUSINESS
Some of our products and services may involve the transmission of information
over the Internet. Our products or services could be used to transmit harmful
applications, negative messages, unauthorized reproduction of copyrighted
material, inaccurate data or computer viruses to end users. Any transmission of
this kind could damage our reputation or give rise to legal claims against us.
We could spend a significant amount of time and money defending these legal
claims.
In addition, our clients may not comply with federal, state and local laws when
promoting their products and services. We cannot predict whether our role in
facilitating these marketing activities would expose us to liability under
current or future laws. Any claims made against us could be costly and
time-consuming to defend, even if we ultimately prevail in, or are dismissed
from, such cases. If we are exposed to this kind of liability, we could be
required to pay substantial fines or penalties, redesign our business methods,
discontinue some of our services or otherwise expend resources to avoid
liability.
WE MUST ADAPT TO RAPID TECHNOLOGICAL CHANGES IN OUR INDUSTRY
Our market is characterized by rapidly changing technologies, frequent new
product and service introductions, short development cycles and evolving
industry standards. The recent growth of the Internet and intense competition in
our industry exacerbate these market characteristics. Our future success will
depend on our ability to adapt to rapidly changing technologies by maintaining
and improving the performance features and reliability of our services. We may
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experience technical difficulties that could delay or prevent the successful
development, introduction or marketing of new products and services. In
addition, any new enhancements to our products and services must meet the
requirements of our current and prospective users. We could incur substantial
costs to modify our services of infrastructure to adapt to rapid technological
change.
WE DEPEND ON THE DEVELOPMENT OF THE INTERNET INFRASTRUCTURE
A number of factors may inhibit Internet usage, including inadequate network
infrastructure, security concerns, inconsistent quality of services, and lack of
availability of cost-effective, high-speed service. If Internet usage grows, the
Internet infrastructure may not be able to support the demands placed on it by
this growth and its performance and reliability may decline. In addition, a
number of Web-based businesses have experienced interruptions in their services
as a result of outages and other delays occurring throughout the Internet. If
outages or delays occur frequently in the future, Internet usage, and the usage
of our products and services could grow more slowly or decline, and this could
have an adverse effect on our business.
WE MAY DEPEND ON THE ACCEPTANCE OF ONLINE PROMOTIONAL PROGRAMS
Our success may also depend on the continued growth and acceptance of online
promotional programs. Although loyalty and promotional programs have been used
extensively in conventional marketing and sales channels, they have only
recently begun to be used online. Our success may depend on our ability to
attract and retain members, advertisers, partners and promotional providers. Our
ability to attract and retain members will depend on our marketing efforts and
on the quality of each member's experience, including the number and relevance
of the direct marketing offers we provide and the perceived value of the
incentives we offer. Our ability to generate significant revenue from
advertisers and partners will depend on our ability to differentiate ourselves
through the technology and services we. The attractiveness of our program to
current and potential customers, and partners, depends in large part on the
attractiveness of the incentive opportunities that we offer. To the extent that
any online promotional program we may use does not achieve market acceptance
among customers, partners and incentives providers, our business would be
materially and adversely affected.
WE FACE EXTENSIVE COMPETITION
We intend to focus on developing, operating, and entering into strategic
relationships with third parties to implement our business plan to provide
promotional and other direct marketing services utilizing telephony, the
Internet and wireless communication technologies. To accomplish our strategy, we
must raise additional capital. If we are able to raise additional capital
necessary to achieve our objectives, we will be competing with others desiring
to invest in identical opportunities and many of these competitors will have
longer operating histories, greater name recognition, larger client bases and
significantly greater financial, technical and marketing resources than us.
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Additionally, the opportunities that we are pursuing are in the promotion
services market, which market, especially as it relates to the Internet, is
intensely competitive. We expect competition in this market to continue to
intensify as a result of increasing market size, greater visibility of the
market opportunity for Internet promotion services and minimal barriers to
entry. Industry consolidation may also increase competition. We compete with
many types of companies, including both online and offline promotion companies,
large Internet publishers, search engine and other Internet portal companies, a
variety of Internet-based advertising networks and other companies that
facilitate the marketing of products and services on the Internet. Many of our
existing competitors, as well as a number of potential new competitors, have
longer operating histories, greater name recognition, larger client bases and
significantly greater financial, technical and marketing resources than us. This
may allow them to compete more effectively and be more responsive to industry
and technological change than us. We may be unable to compete successfully and
competitive pressures may reduce our revenues and result in increased losses or
reduced profits.
WE NEED TO HIRE AND RETAIN QUALIFIED PERSONNEL TO OPERATE OUR GROWING BUSINESS
Our success is largely dependent on the personal efforts of Jack Tortorice, our
Chief Executive Officer, Charles C. Bream, III, our President, Jerry Collazo,
our Chief Financial Officer and other key personnel. The loss of the services of
Messrs. Tortorice, Bream or Collazo could have a materially adverse effect on
our business and prospects. While we have employment agreements with Messrs.
Tortorice and Bream, we have in the past experienced significant turnover with
respect to our executive officers. To implement our new business strategy and
manage our growth successfully, we are dependent upon, among other things,
recruiting and retaining qualified management, marketing, sales, technical and
creative personnel with experience in our business. It is difficult to locate
management, marketing, sales, technical and creative personnel with the
combination of skills and attributes required to execute our strategy.
Accordingly, we are unable to predict whether we will be able to hire or retain
necessary personnel.
OTHER RISKS
WE HAVE A LIMITED TRADING MARKET, AND THE PRICE OF OUR COMMON STOCK MAY BE QUITE
VOLATILE.
There is a limited public trading market for our Common Stock on the OTC
Bulletin Board. We cannot assure you that a regular trading market for our
Common Stock will ever develop or that, if developed, it will be sustained. As
is the case with the securities of many emerging companies, the market price of
our Common Stock may also be highly volatile. Factors such as our operating
results and announcements by us or our competitors of new products or services,
may significantly impact the market price of our securities. Similarly, many of
the capital-raising activities we have engaged in, or may be required to enter
into in the future to obtain needed funds, have resulted in (and may in the
future result in) large blocks of stock being held by professional investors who
may from time to time release such shares into the market place in a manner
which could have a highly depressive effect on the public market and valuation
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of the Company's shares at any given time and for any given period. Ultimately,
we have no control over the schedule or timing of how these shares may be sold
in the future, nor will we likely have knowledge of such releases, and therefore
our stock prices may be affected significantly in the future by such activities
which, in some circumstances, could have a material and adverse impact on the
stock price of our shares for a long time. If this were to happen, it could
materially affect our ability to raise funds under favorable terms in the
future.
In addition, in recent years, the stock market has experienced a high level of
price and volume volatility and market prices for the securities of many
companies have experienced wide fluctuations not necessarily related to the
operating performance of such companies. Our Common Stock may also experience
such volatility.
OUR OPERATING RESULTS AND FINANCIAL CONDITION COULD BE NEGATIVELY IMPACTED BY
PENDING OR FUTURE LITIGATION MATTERS
From time to time, we are involved in litigation incidental to our business.
Such litigation can be expensive and time consuming to prosecute or defend and
could cause our customers to delay or cancel purchase orders until such lawsuits
are resolved. While we believe we have adequately accrued for all of our pending
litigation, to the extent we are involved in significant litigation or other
business disputes in the future, it could have a material adverse effect on our
operating results and financial condition if resolved against us.
THE EXERCISE OR CONVERSION OF OUTSTANDING DERIVATIVE SECURITIES INTO COMMON
STOCK WILL DILUTE THE PERCENTAGE OWNERSHIP OF OUR OTHER STOCKHOLDERS. THE SALE
OF SUCH COMMON STOCK IN THE OPEN MARKET COULD ADVERSELY AFFECT THE MARKET PRICE
OF OUR COMMON STOCK
As of June 30, 2000, there were outstanding options, warrants and convertible
debentures to purchase an aggregate of 1,249,150 shares of our Common Stock and
more options will be granted in the future under our employee benefit plan.
Substantially all of the shares of common stock underlying such securities are
to be registered for resale under the Securities Act. The exercise or conversion
of outstanding stock options, warrants or other convertible securities will
dilute the percentage ownership of our existing stockholders. In addition, any
sales in the public market of shares of our Common Stock issuable upon the
exercise or conversion of such stock options, warrants or convertible
securities, or the perception that such sales could occur, may adversely affect
the prevailing market price of our common stock. Moreover, our ability to obtain
additional equity capital could be adversely affected since the holders of
outstanding warrants and options will likely exercise these securities when we
probably could obtain any needed capital on terms more favorable than those
provided by these securities. We lack control over the timing of any exercise or
the number of shares issued or sold if exercises occur.
-13-
<PAGE>
OUR SALE OF SHARES UPON CONVERSION OF DEBENTURES AT A PRICE BELOW THE MARKET
PRICE OF OUR COMMON STOCK WILL HAVE A DILUTIVE IMPACT ON OUR STOCKHOLDERS
We have issued debentures to certain investors that may convert into common
stock at a discount to the then-prevailing market price of our common stock.
Accordingly, the issuance of shares upon conversion of the principal and
interest under the debentures may have a dilutive impact on our stockholders.
Discounted sales resulting from the conversion of the debentures could have an
immediate adverse effect on the market price of the common stock. Also, to the
extent that debenture and warrant holders convert their securities and sell the
underlying shares into the market, the price of our shares may decrease due to
the additional shares in the market.
FUTURE SALES OF RESTRICTED SHARES COULD DECREASE THE MARKET PRICE OF OUR COMMON
STOCK AND IMPAIR OUR ABILITY TO RAISE CAPITAL
Future sales of common stock by existing stockholders under exemptions from
registration or through the exercise of outstanding registration rights could
materially adversely affect the market price of our common stock and could
materially impair our future ability to raise capital through an offering of
equity securities. A substantial number of shares of common stock are, or will
be in the near future, available for sale under exemptions from registration or
are being registered pursuant to registration rights and we are unable to
predict the effect, if any, that market sales of these shares or the
availability of these shares for future sale will have on the market price of
the common stock prevailing from time to time.
OUR COMMON STOCK MAY BE DILUTED
The issuance of further shares and the eligibility of issued shares for resale
will dilute our common stock and may lower the price of our common stock. If
you invest in our common stock, your interest will be diluted to the extent of
the differences between the price per share you pay for the common stock and the
pro forma as adjusted net tangible book value per share of our common stock at
the time of sale. We calculate net tangible book value per share by calculating
the total assets less intangible assets and total liabilities, and dividing it
by the number of outstanding shares of common stock.
Furthermore, we may issue additional shares, options and warrants and we may
grant additional stock options to our employees, officers, directors and
consultants under our stock option plan, all of which may further dilute our net
tangible book value.
USE OF PROCEEDS
The Selling Stockholders will receive all of the proceeds from the sale of the
shares of Common Stock offered hereby. We will not receive any of the proceeds
from the sale of the shares of the Common Stock by the Selling Stockholders. We
may, however, receive proceeds from the exercise price of shares of Common Stock
which are being reoffered through this Prospectus underlying certain warrants,
-14-
<PAGE>
and/or credit against indebtedness incurred by us through the issuance of
convertible debentures. Because the prices at which these securities may be
exercised for or converted into Common Stock are derived from the market value
of our stock at the time such securities are exercised or converted, it is
impossible to determine how much money we would receive in the event the
warrants are exercised, or how much dilution our existing shareholders will
suffer upon conversion of the convertible debentures. Assuming, that the
warrants are exercised for the price as stated in the Warrant Certificates
(which they may not necessarily be), the Company would receive maximum gross
proceeds of $534,375 from the sale of shares upon the exercise of all of such
warrants. Assuming that all of the debentures are converted into common stock,
the Company will be relived of One Million Dollars ($1,000,000) of debt, plus
accrued interest. If such conversion were to occur today, assuming a conversion
price of $2.375 per share of common stock (based upon the closing price of our
common stock on July 28, 2000), the debenture holders would receive 636,841
shares of our common stock, representing four and seven tenths percent (4.7%) of
our issued and outstanding shares of common stock outstanding today after giving
effect to such conversion (but without giving effect to the exercise of any of
the Company's options or warrants outstanding as of today). Whether or not any
holder of warrants or debentures elects to exercise or convert any of such
securities is solely at the discretion of such holders, and we have no control
or influence over if or when any such holder makes the decision to exercise or
convert any of such securities. Any such proceeds if received, will be
contributed to working capital and will be used for general corporate purposes.
DETERMINATION OF OFFERING PRICE
The terms of sale under the $20 Million Equity Line of Credit Agreement allow
for a twelve percent (12%) discount on the market price of our common stock
which Whitsend Investments Limited negotiated with us. This discount is fair
due to the magnitude of their investment.
Under the Convertible Debenture Agreement the valuation of shares is the market
price over a five (5) day period surrounding the conversion date which is a fair
price for the shares.
THE SELLING STOCKHOLDERS
The following list of Selling Stockholders includes:
- the number of shares of common stock currently owned by each Selling
Stockholder
- the number of shares being offered for resale by this Prospectus by each
Selling Stockholder; and
- the number and percentage of shares of common stock to be held by each
Selling Stockholder after the completion of this offering.
Except as otherwise indicated in the footnotes to the table below, no Selling
Stockholder has been an officer, director or employee of the Company for the
past three years. The registration of the shares does not necessarily mean that
the Selling Stockholders will sell all or any of the Common Stock (or, if they
do, at what prices such sales might occur).
-15-
<PAGE>
The Selling Stockholders provided us with all of the information with respect to
their share ownership. Because the Selling Stockholders may sell all or part of
their shares, we are unable to estimate the number of shares that will be held
by any Selling Stockholders upon termination of any offering made hereby. In
addition, beneficial ownership is determined in accordance with SEC rules and
generally includes voting or investment power with respect to securities. Shares
of common stock subject to options, warrants and convertible debentures
currently exercisable or convertible, or exercisable or convertible within sixty
(60) days, are counted as outstanding for computing the percentage of the person
holding such options or warrants but are not counted as outstanding for
computing the percentage of any other person. (See "Plan of Distribution.")
<TABLE>
<CAPTION>
NUMBER OF
SHARES BENEFICIALLY
OWNED PRIOR TO
NAME AND ADDRESS OF THE OFFERING NUMBER OF SHARES
SELLING STOCKHOLDER OFFERED HEREWITH
<S> <C> <C>
Whitsend Investments Limited 9,694,378(1) 9,268,000(1)
------------------------------ -------------------- -----------------
AMRO International, S.A. 824,420(1)(2) 824,420(1)(2)
------------------------------ -------------------- -----------------
Trinity Capital Advisors, Inc. 206,105(1)(2) 206,105(1)(2)
------------------------------ -------------------- -----------------
Technology Equity Fund Corp. 125,000 125,000
------------------------------ -------------------- -----------------
The Oxford Group, Inc. 100,000 100,000
------------------------------ -------------------- -----------------
Schumann & Associates 220,157 20,157
------------------------------ -------------------- -----------------
<FN>
(1) Shares registered hereunder will become issuable upon the exercise of
warrants issued by the Registrant in a private offering made pursuant to
Rule 506 under Regulation D pursuant to the Securities Act. The
warrants have an exercise price calculated based upon the market price
of our common stock at such time.
(2) Shares registered hereunder will become issuable upon the conversion of
convertible debentures issued by the registrant in a private offering
pursuant to Rule 506 of Regulation D pursuant to the Securities Act.
The convertible debentures have a conversation price which is calculated
as based upon the market price of our common stock at such time.
</TABLE>
DIVIDEND POLICY
We have not paid cash dividends on our Common Stock since our inception. We do
not intend to pay cash dividends on our Common Stock in the foreseeable future.
We currently intend to reinvest earnings, if any, in the development and
expansion of our business. The declaration of dividends in the future will be at
the election of our Board of Directors, to the extent they may lawfully do so,
and will depend upon our earnings, capital requirements and financial position,
general economic conditions and other relevant factors.
-16-
<PAGE>
PLAN OF DISTRIBUTION
The Selling Stockholders may offer their shares at various times in one or more
of the following transactions:
- ordinary brokers transactions, which may include long or short sales
- cross or block trades or otherwise on the OTC Electronic Bulletin Board
- purchases by brokers, dealers or underwriters as principal and resale by
such purchasers for their own accounts pursuant to this Prospectus
- "at the market" to or through market makers or into an existing market for
the common stock
- in other ways not involving market makers or established trading markets,
including direct sales to purchasers or sales effected through agents
- options, swaps or other derivatives
- any combination of the foregoing, or by any other legally available means
- in connection with short sales of shares of common stock
- option or other transactions
Brokers, dealers, underwriters or agents participating in the distribution of
the shares of common stock may receive compensation in the form of discounts,
concessions or commission from the Selling Stockholders and/or the purchasers of
shares of common stock for whom such broker-dealers may act as agent or to whom
they may sell as principal, or both, which compensation as to a particular
broker-dealer may be in excess of customary commissions. The Selling
Stockholders and any broker-dealers acting in connection with the sale of the
shares of common stock hereunder may be deemed to be underwriters within the
meaning of Section 2(11) of the Securities Act because of the number of shares
of common stock to be sold or reserved by such persons or entities or the manner
of sale of such shares, or both. If a Selling Stockholder or any broker-dealer
or other holders were determined to be underwriters any commissions received by
them and any profit realized by them on the resale of shares of common stock as
principals may be deemed underwriting compensation under the Securities Act.
Neither we nor any Selling Stockholder can presently estimate the amount of such
compensation. We don't know of existing arrangements between any Selling
Stockholder and any other shareholder, dealer, underwriter or agent relating to
the sale or distribution of the shares.
-17-
<PAGE>
The Selling Stockholders have represented to us that any purchase or sale of
shares of common stock by them will comply with all applicable securities
regulations then in effect, which would include Regulation M promulgated under
the Securities Exchange Act of 1934. In general, Rule 102 under Regulation M
prohibits any person connected with a distribution of our common stock from
directly or indirectly bidding for, or purchasing for any account in which he or
she has a beneficial interest, any of our common stock or any right to purchase
our common stock, for a period of one business day before and after completion
of his or her participation in the distribution.
During the time a Selling Stockholder participates in a distribution, Rule 104
under Regulation M prohibits the Selling Stockholders and any other persons
engaged in the distribution from engaging in any stabilizing bid or purchasing
our common stock except for the purpose of preventing or retarding a decline in
the open market price of our common stock. No such person may effect any
stabilizing transaction to facilitate any offering at the market. Inasmuch as
the Selling Stockholders will be reoffering and reselling our common stock at
the market, Rule 104 prohibits them from effecting any stabilizing transaction
in contravention of Rule 104 with respect to our common stock.
There can be no assurance that the Selling Stockholders will sell any or all of
the shares offered by them hereunder or otherwise. Also, there can be no
assurance that each Selling Stockholder will, in fact, comply with applicable
securities regulations in connection with its potential sale or distribution of
his shares, including Regulation M, and WWWN but has no power to compel them to
or to assure that they do.
LEGAL PROCEEDINGS
Except as disclosed below, we are not involved in any material pending legal
proceedings, other than routine litigation, incidental to our business, to which
we are a party or of which any of our property is subject.
On March 28, 2000, we filed a lawsuit against one of our former consultants, DFL
Capital Partners, LLC and our former legal counsel, alleging, among other
things, fraud and malpractice. The dispute arises out of an option agreement we
entered into in the Fall of 1998 for our consultant to provide technical and
financial advisory services in exchange for certain non-qualified options. We
retained legal counsel recommended to us by the consultant, but were never
advised that the partner of the law firm who represented us specifically was, at
the same time, also the managing member of DFL Capital Partners, LLC. As a
result of this undisclosed conflict of interest, we believe that the agreement
which the law firm counseled us to sign did not adequately protect us in terms
of the services which we understood we were supposed to receive and the number
of stock options which the consultant was to receive as compensation for such
services. Depending upon the resolution of this lawsuit, the number of options
to purchase our common stock which the consultant may retain could range from
50,000 to 700,000.
On July 12, 2000, a lawsuit was filed in Orange County Superior Court against us
and certain officers, directors and shareholders by Pacific Industrial Partners,
LLC and certain of its corporate affiliates ("PIP") for Breach of Contract;
Breach of the Implied Covenant of Good Faith and Fair Dealing; Promissory
Estoppel; and Intentional Interference With Existing Contract. The dispute
-18-
<PAGE>
arises out of a convertible debt proposal we signed dated January 6, 2000, as
amended, pursuant to which PIP proposed to finance up to $2.5 Million Dollars
through the purchase of convertible notes at eight percent (8%) interest (with
an option to purchase up to $3 Million Dollars in additional notes) and the
conversion price was $2 per share for the initial notes and 50% of average
closing bid price for the 5 trading days prior to conversion for the additional
$3 Million.
In addition PIP agreed to grant certain rooftop rights to WWWN under purportedly
favorable leasing agreements. The proposal was subject to the completing of due
diligence by PIP, the deposit of $100,000 of earnest money into escrow by PIP,
the negotiation and execution of definitive legal documents and agreements
between PIP and us, the receipt of the opinion of counsel and the obtaining of
all legally required consents to the transaction (such as board or shareholder
approval) by the us.
Upon receipt of the definitive documentation from PIP, much of which contained
terms and conditions not in the original proposal letter, and which management
and our board of Directors viewed as onerous to our company and its existing
shareholders, the company's counsel notified PIP's counsel, at the direction of
our board that the board could not in good faith fulfillment of its fiduciary
responsibilities to the company and its shareholders accept the new transaction
terms as proposed and ceased negotiations with PIP on our behalf.
Our Management, including our in-house counsel, have reviewed the complaint
filed by PIP, and have determined that there is little merit in the claims
raised by PIP, and that it intends to seek a dismissal of this suit against all
named defendants.
If we are unable to have WWWN dismissed from this lawsuit, and if PIP were to
prevail on all or a significant portion of its claims against us, then
enforcement of this judgment would have a materially adverse impact upon the
company and its financial condition.
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The current executive officers, key employees and directors of the Company are
as follows:
The names, ages and positions of the directors, executive officers and key
employees of the Company, and their respective ages and positions, are set forth
below. Biographical information for each of these persons is also presented
below. Our executive officers are appointed by our Board of Directors and serve
at its discretion.
-19-
<PAGE>
<TABLE>
<CAPTION>
DIRECTORS AND EXECUTIVE OFFICERS
-----------------------------------
Name Age Position Held
------------------------- --- -----------------------------------
<S> <C> <C>
Jack Tortorice 51 Chief Executive Officer
and Chairman of the Board
Charles C. Bream III 55 President, Chief Operating Officer,
Director
Thomas J. Rotert, Esq. 34 Director, Secretary and Treasurer
Jerry Collazo 41 Chief Financial Officer
</TABLE>
JACK TORTORICE. Chief Executive Officer and Director since April of 1999. He
---------------
served as CEO, Chairman of the Board and a Director of Pacific Link from October
1997 to May 1999. Prior to joining Pacific Link, he was General Manager for the
sales and marketing division of Frontier Communications from January 1995 to
June 1997. Prior positions include: General Manager for sales and operations of
ITT Courier related to computer equipment sales; Vice President of Sales for
Automatic Data Processing selling payroll outsourcing; and sales positions for
Wang Labs and Xerox. Mr. Tortorice graduated with a Masters in Business
Administration from Pepperdine University in 1989 and received a bachelor's
degree in economics from Edinboro University in Pennsylvania in 1973.
CHARLES C. BREAM. President, Chief Operating Officer, and Director since
------------------
January 1, 2000. Mr. Bream has held executive positions in the
telecommunications and computer and software industries for over 19 years and
also has investment banking experience. During the period from 1991 to 1999 he
was President of Quarter Phone, a telecom start-up, a Senior Vice President at
Cable & Wireless, Senior Vice President/General Manager of the
telecommunications business at General Research Corporation, and a member of
Holding Capital Group, a private investment banking firm. Before that he held
executive positions at EMS, Xerox, Data General, and Epson America. Prior to his
experience in technology industries, he held various marketing and sales
positions with packaged goods companies such as Procter and Gamble. He received
an MBA from Wharton Business School in 1970 and a B.S. degree from the U.S.
Naval Academy in 1967.
THOMAS J. ROTERT, ESQ.. Secretary and Treasurer. Mr. Rotert was appointed as a
----------------------
Director on October 1, 1999. He also serves as our general counsel, corporate
secretary and treasurer. He is a licensed attorney in the state of California
and practices in the areas of civil litigation, primarily, and some corporate
and transactional law. From May 1998 to the present he has been a partner in the
law firm of Schuman & Associates, located in Costa Mesa, California. From
October 1997 through May 1998 he was employed as an attorney for Sayer &
Associates, a California firm. He was litigation counsel for Bollington &
Roberts, another California firm, from 1992 to October 1997. He received a
Juris Doctorate from Western State University in 1993 and a bachelor's from the
University of Kansas in 1989.
JERRY COLLAZO. Most recently, Mr. Collazo has served as COO of Xtend Micro
--------------
Products. Previously, he served as CFO of Powerwave Technologies (NASDAQ:PWAV),
a leader in wireless telecommunications, helping the company grow to $60 million
in revenues. Prior, he served as CFO of Young Minds, Inc. Mr. Collazo has also
served as Director of Finance and Tax for Seagate Technology (NYSE:SEG)
(formerly Archive Corporation), a $400 million revenue company. In addition, he
has served as a manager at Ernst & Young. Mr. Collazo is a CPA and holds a
Masters in Business Administration from UCLA, a Masters in Business Taxation
from Golden Gate University and a BS in Accounting from Fort Lewis College.
-20-
<PAGE>
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
Mr. Rotert filed a Chapter 7 voluntary bankruptcy petition in February 1998 in
the Central District of California Division of the United States Bankruptcy
Court, which was discharged in June of 1998.
In February 2000, the Company learned that one of its Directors, Dennis Shen,
who had served in such capacity since the inception of the Company, had been
convicted in California in 1996 of two counts involving the receipt or
concealment of stolen property, both of which were dropped to misdemeanor counts
and which, it appears, were eventually expunged at the bench and entered as not
guilty pleas. Although Mr. Shen has had a close and valuable relationship with
the Company since its initial operations, and it is expected that he will
continue to provide valuable services to the Company as a consultant and
significant shareholder in the future, upon learning of these convictions Mr.
Shen's resignation was accepted by the Company's Board of Directors on February
23, 2000. Susan Shen, the wife of Dennis Shen, was not implicated in any of the
charges discussed above, but resigned her position as the Company's Secretary
and Treasurer on about the same date. She continues to be a full-time employee
of the Company, and Shen family members continue to be significant shareholders
of the Company.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth our outstanding beneficial ownership of common
stock of: (i) each person or group known by us to own beneficially more than 5%
of our outstanding common stock, (ii) each of our executive officers, (iii) each
of our directors and (iv) all executive officers and directors as a group.
Beneficial ownership is determined in accordance with the rules of the SEC and
generally includes voting or investment power with respect to securities.
Except as indicated by footnote, as far as we know, the persons named in the
table below have sole voting power and investment power with respect to all
shares of common stock shown as beneficially owned by them. The percentage of
beneficial ownership is based on 12,888,947 shares of common stock outstanding
and options, warrants and convertible debentures exercisable or convertible
within 60 days as of March 31, 2000.
COMMON STOCK BENEFICIALLY OWNED
----------------------------------
-21-
<PAGE>
<TABLE>
<CAPTION>
Name and Address of Number of Shares of
Beneficial Owners Common Stock Percentage of Class
----------------------------- -------------------- --------------------
<S> <C> <C>
Dennis and Susan Shen 3,084,500 (1) 26.1%
770 The City Drive South,
Suite 3700
Orange, California 92868
Sean LeMons 777,600 (2) 6.4%
15123 Brookhurst #205
Westminster, California 92683
Ming-Chau Yeung 774,000 (1) 6.3%
9 Red Coat Place
Irvine, California 92602
<FN>
(1) Dennis Shen is the record owner of 500,000 shares and options to
purchase 4,500 sharesl; he and Susan Shen jointly own 1,806,000 shares,
and they share voting and investment power over 774,000 shares held by
Susan's mother, Ming-Chau Yeung.
(2) Includes options to purchase 3,600 shares exercisable within 60 days.
</TABLE>
DISPUTED BENEFICIAL OWNERSHIP
-------------------------------
In September 1998, Pacific Link entered into an option agreement with DFL
Capital Partners, LLC. According to the agreement DFL Capital Partners, LLC was
granted the option to buy 50,000 common shares at $0.10 per share. The right to
exercise the option vested immediately and remained exercisable for ten (10)
years The amount of common shares subject to the options would adjust according
to recapitalizations of Pacific Link. The parties to this agreement are
currently in a dispute as to the application of this agreement to our common
shares, and have filed a lawsuit in connection with such dispute, which is
described in detail under the heading "LEGAL PROCEEDINGS" above. Depending upon
the resolution of this dispute, we may have up to 700,000 common shares subject
to these options and if the optionee exercises the options it may become a 5%
shareholder.
MANAGEMENT
----------
Common Stock Beneficially Owned
<TABLE>
<CAPTION>
Name and Address of Number of Shares of
Beneficial Ownership Common Stock Percentage of Class
-------------------------- -------------------- --------------------
<S> <C> <C>
Jack Tortorice 2,975,500 (1) 22.6%
770 The City Drive South,
Suite 3700
Orange, California 92868
Charles C. Bream III 154,600 (2) 1.7%
770 The City Drive South,
Suite 3700
Orange, California 92868
Thomas Rotert , Esq. 25,000 0.02%
2900 Bristol Street
Suite D-208
Costa Mesa, CA 92626
All executive officers and 3,155,100 24.5%
Directors as a group
<FN>
(1) Includes options to purchase 4,500 shares exercisable within 60 days.
(2) Represents options to purchase 120,000 shares exercisable within 60 days.
</TABLE>
-22-
<PAGE>
DESCRIPTION OF SECURITIES
The following summary of certain provisions of our capital stock does not
purport to be complete and is subject to, and qualified in its entirety by, the
provisions of our Certificate of Incorporation, as amended, and the Amended and
Restated Bylaws that are referenced as Exhibits to this Registration Statement
and by provisions of applicable law.
COMMON STOCK
We are presently authorized to issue up to 50,000,000 shares of Common Stock,
$.001 par value per share. As of July 27, 2000, there were approximately
12,888,947 shares of Common Stock outstanding. The holders of Common Stock are
entitled to one vote for each share held of record on each matter submitted to a
vote of stockholders. There is no cumulative voting for election of directors.
OPTIONS AND WARRANTS
There are currently outstanding options to purchase 624,150 shares of Common
Stock at an exercise price of $3 per share, and outstanding warrants to purchase
625,000 shares of Common Stock at exercise prices ranging from $3.00 to $5.00.
CONVERTIBLE DEBENTURES
TRANSACTIONS WITH SELLING STOCKHOLDERS
The shares to be registered pursuant to the Registration Statement and this
Prospectus have been issued in, or underlay certain derivative securities
exercisable for or convertible into such shares which were issued in, certain
private transactions exempted pursuant to Sections 4(2) or 4(b), or other
applicable exemptions, of the Securities Act from the registration provisions
contained in Section 5 of the Securities Act. The following pages briefly
describe the agreements and transactions we entered into with each of the
Selling Stockholders with respect to each class of security registered hereby.
The following is not intended to be a complete description of each transaction
or agreement described below, and the discussion in this Registration Statement
is qualified in its entirety by reference to the complete transaction documents
included or referenced as our Exhibit to this Registration Statement.
-23-
<PAGE>
PRIVATE EQUITY LINE OF CREDIT AGREEMENT
OVERVIEW
Whitsend Investments Limited, a British Virgin Islands corporation, and we
signed a Private Equity Line of Credit Agreement, dated as of June 19, 2000, for
the future issuance and purchase of shares of our common stock. The agreement
establishes what is sometimes termed an equity line or an equity draw down
facility. In general, the draw down facility operates like this: the investor,
Whitsend Investments Limited, has committed up to $20 million to purchase shares
of our common stock over a 36 month period. Once every 15 trading days, we may
request a draw of up to $500,000 of that money, subject to a formula based on
the average common stock price. Each draw down must be for at least $75,000. A
five (5) day trading period, preceding, including and following the date
determines the stock price. We then use the formulas in the common stock
purchase agreement to calculate the amount of money that Whitsend Investments
Limited will provide to us and the number of shares of our common stock we will
issue to Whitsend Investments Limited in return for that money. The formulas for
determining the actual draw down amounts, the number of shares we issue to
Whitsend Investments Limited and the price per share paid by Whitsend
Investments Limited are described in detail below.
Whitsend Investments Limited will receive a discount of twelve percent (12%) to
the average daily market price of our common stock for the 5-day period which
includes the two (2) trading days immediately preceding the draw, the date the
draw is made and the two (2) days immediately following the draw. We will
receive the amount of the requested draw (less an escrow agent's fee of $1,500
and a 4% placement fee payable to the placement agent, Triton West Group, which
introduced Whitsend Investments Limited to us). Triton West Group is not
obligated to purchase any of our shares.
We are under no obligation to request a draw for any period or at all. The
aggregate total of all draws cannot exceed Twenty Million Dollars, and no single
draw can exceed Five Hundred Thousand Dollars.
In lieu of providing Whitsend Investments Limited with a minimum aggregate draw
down commitment, we have issued to Whitsend Investments Limited stock purchase
warrants to purchase up to 125,000 shares of our common stock with an exercise
price of $4.69. The warrants expire June 19, 2003. The common stock issuable
upon exercise of those warrants is included in the registration statement of
which this Prospectus is a part.
-24-
<PAGE>
Based on a review of our trading volume and stock price history, and the number
of draws we could make, we are registering 9,569,378 shares of common stock for
possible issuance under the Equity Line of Credit Agreement, and 125,000 shares
of common stock underlying the warrants delivered to Whitsend Investments
Limited in connection therewith. The listing requirements of The Nasdaq SmallCap
Market prohibit us from issuing 20% or more of our issued and outstanding shares
of common stock in a single transaction if the shares of common stock may be
issued for less than the greater of market value or book value unless we get
stockholder approval. Based on shares of common stock issued and outstanding on
July 10, 2000, the date of the closing of the common stock purchase agreement,
if we were to become listed on the Small Cap Market, which we intend to apply
for once we meet the applicable listing requirements, we would not be able to
issue more than 2,552,789 shares under the equity line of credit agreement and
the warrant to Whitsend Investments Limited, without the approval of our
stockholders (assuming the same number of shares of common stock outstanding as
are outstanding as of today). Because 125,000 of these shares of common stock
are committed to the Whitsend Investments Limited warrant, if we wish to draw
amounts under the equity line of credit agreement which would cause an issuance
of more than 2,452,789 shares of common stock under the common stock purchase
agreement, we must receive stockholder approval prior to any such draw.
In addition, the equity line of credit agreement does not permit us to draw down
funds if the issuance of shares of common stock to Whitsend Investments Limited
pursuant to such draw would result in Whitsend Investments Limited owning more
than 9.9% of our outstanding common stock on the date we request such draw.
THE DRAW DOWN PROCEDURE AND THE STOCK PURCHASES
We may request a draw by faxing a notice to Whitsend Investments Limited,
stating the amount of the draw we wish to exercise [and the minimum threshold
price, if any, at which we are willing to sell the shares of our common stock].
The Valuation Period is five day period which includes, the two (2) trading days
immediately preceding the draw, the date the draw is requested to be made, and
the two (2) trading days immediately following the draw. The company may set a
threshold price if the market price is less than the threshold price the
Company. The purchase price of the shares will be eighty-eight percent (88%) of
the market price as determined during the valuation period. We are limited to a
mandatory period of fifteen (15) trading days between draws (except under
special circumstances designated in the Agreement, such as in the case of an
acquisition), unless this restriction is waived by Whitsend Investments Limited.
AMOUNT OF THE DRAW
The amount of the draw is the amount we have requested, with a minimum draw of
$75,000 and a maximum draw of $500,000.
NUMBER OF SHARES OF OUR COMMON STOCK ISSUABLE UPON A DRAW
To determine the number of shares of our common stock which we must issue in
connection with a draw, the Purchase Price is determined by taking the average
market price during the Valuation Period and multiplying it by 88%. The 88%
accounts for Whitsend Investments Limited's 12% discount. The discount is
reduced to 10% in the event our common stock is approved for listing on the
Nasdaq SmallCap Market or on another national securities market or exchange.
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SAMPLE CALCULATION OF STOCK PURCHASE
The following is an example of the calculation of the draw down amount and the
number of shares of our common stock we would issue to Whitsend Investments
Limited in connection with such draw based on certain hypothetical assumptions.
SAMPLE DRAW DOWN AMOUNT CALCULATION
We provide a notice of a requested draw to Whitsend Investments Limited
indicating that we wish to draw down $500,000, which is the maximum amount for
any draw. The average market price of our common stock for the five-day
valuation period is $3. Multiplying the average market price of $3 by 88%, the
purchase price would be $2.64. Dividing the amount of the draw by the purchase
price Whitsend Investments Limited would purchase 189,394 shares.
Suppose that the notice specifies a threshold amount of $3.50, below which we
will not sell any shares of common stock to Whitsend Investments Limited during
this draw down period. We are not required to sell below threshold price but
Whitsend Investments Limited has the option to purchase shares at this price.
Whitsend Investments Limited shall send the applicable purchase price to the
escrow agent and we shall deliver the shares of common stock purchased to the
Depository Trust Company to be credited to the Whitsend Investments Limited
account within three trading days after each settlement upon confirmation by the
escrow agent of receipt of the purchase price.
In the above example, and assuming one settlement, we would receive $500,000,
less $20,000, representing a 4% fee to Triton West Group (the placement agent),
less a $1,500 escrow fee, or net proceeds from such draw of $478,500. The
delivery of the requisite number of shares of common stock and payment of the
draw will take place through the escrow agent, Epstein, Becker & Green, P.C. in
New York, N.Y.
NECESSARY CONDITIONS BEFORE WHITSEND INVESTMENTS LIMITED IS OBLIGED TO PURCHASE
OUR SHARES OF OUR COMMON STOCK
The following conditions must be satisfied before Whitsend Investments Limited
is obligated to purchase the shares of our common stock that we wish to sell
from time to time under the Agreement:
- this registration statement for the shares of common stock we will be
issuing must be declared effective by the Securities and Exchange
Commission and must remain effective and available as of the draw down
settlement date for making resales of the shares of common stock
purchased by Whitsend Investments Limited;
- there can be no material adverse change in our business, operations,
properties, prospects or financial condition;
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- we must not have merged or consolidated with or into another company or
transferred all or substantially all of our assets to another company,
unless the acquiring company has agreed to honor the terms of the
Agreement;
- no statute, rule, regulation, executive order, decree, ruling or
injunction may be in effect which prohibits consummation of the
transactions contemplated by the Agreement;
- no litigation or proceeding adverse to us, Whitsend Investments Limited or
their affiliates, can be pending, nor can any investigation by any
governmental authority be threatened against us or them seeking to
restrain, prevent or change the transactions contemplated by the Common
Stock Purchase Agreement or seeking damages in connection with such
transactions; and
- trading in our shares of common stock must not have been suspended by the
Securities and Exchange Commission.
The Common Stock Purchase Agreement does not permit us to draw down funds if the
issuance of shares of common stock to Whitsend Investments Limited pursuant to
the draw down would result in Whitsend Investments Limited owning more than 9.9%
of the total amount of our outstanding common stock as of such draw date.
In the event that we do not register the shares as required by the Registration
Right Agreement for the Convertible Debenture and Warrant Purchase Agreement, we
will incur penalties in the amount of two percent (2%) of the aggregate market
value of shares of common stock purchased from the Company, including conversion
and warrant shares.
RESTRICTIONS ON FUTURE FINANCINGS
The Agreement limits our ability to raise money by selling our securities for
cash at a discount to the market price during the commitment period pursuant to
any equity line of credit and Whitsend Investments Limited has a first right of
refusal to elect to participate in our future financing activities.
There are exceptions to this limitation for securities sold in the
following situations:
- in a registered public offering which is underwritten by one or more
established investment banks;
- pursuant to any presently existing or future employee benefit plan which
plan has been or is approved by our stockholders;
- pursuant to any compensatory plan for a full-time employee or key
consultant;
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- in connection with a strategic partnership or other business transaction,
the principal purpose of which is not simply to raise money; and
- in a transaction to which Whitsend Investments Limited gives its written
approval which will not be unreasonably withheld.
COSTS OF CLOSING THE TRANSACTION
At the closing of the transaction on June 19,2000, we delivered the requisite
opinion of counsel to Whitsend Investments Limited and paid the escrow agent,
Epstein, Becker & Green, P.C. of New York, $20,000 for Whitsend Investments
Limited's legal, administrative and escrow costs.
TERMINATION OF THE PURCHASE AGREEMENT
Whitsend Investments Limited may terminate the equity draw down facility under
the Agreement if any of the following events occur:
- we suffer a material adverse change in our business, operations,
properties, or financial condition;
- a stop order or suspension of the effectiveness of the Registration
Statement for an aggregate of thirty (30) trading days occurs;
- we file for protection from our creditors; or
- this registration statement is not declared effective by the Securities
and Exchange Commission by December 1, 2000.
INDEMNIFICATION OF WHITSEND INVESTMENTS LIMITED
Whitsend Investments Limited is entitled to customary indemnification from us
for any losses or liabilities suffered by it based upon material misstatements
or omissions from the registration statement and the Prospectus, except as they
relate to information supplied by Whitsend Investments Limited to us for
inclusion in the registration statement and Prospectus. Conversely, we are
entitled to an indemnity from WIL for material misstatements or omissions
relating to information supplied to us by them for inclusion in the registration
statement or Prospectus.
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
On June 30, 2000, we entered into a Convertible Debenture and the Warrant
Purchase Agreement with certain investors for the purchase of debentures having
an aggregate principal amount of $1,000,000.
The convertible debentures are set to mature on June 30, 2003 with interest to
accrue at 7% per annum from the date such convertible debentures were issued
until the earlier of conversion into shares of our common stock or June 30,
2003, payable quarterly in arrears, on September 1, October 1, January 1 and
June 1 of each year, commencing September 1, 2000.
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The convertible debentures are convertible by the holder into shares of our
common stock at any time prior to the close of business on June 30, 2003. The
conversion price is equal to the lesser of $3.66 per share or 80% of the market
price as of the date on which the holder of the debenture gives us notice of the
intent to convert the debenture, provided that if the conversion price is not
--------
less than $7.00 per share, the Company may, upon seven (7) days' notice to the
Investor, honor all or any part of such conversion notice in cash and such
notice shall specify the dollar amount to be paid in cash or any subsequent
conversion. We have the right to redeem the convertible debentures for the sum
of 150% of the unpaid principal and any accrued or unpaid interest. We are
obligated to reserve for issuance upon conversion a sufficient number of shares
of common stock and to register such reserved shares of common stock and
maintain an effective registration statement for such shares of common stock.
The beneficial conversion feature associated with the issuance of the
convertible debenture will result in a charge of approximately $25,000 to
interest expense during the third quarter of our current fiscal year.
We received proceeds from the sale of the debentures in the amount of
$1,000,000, less an escrow, administrative and legal fee of $7,000 to Epstein,
Becker & Green, P.C., and a finders fee of 5,000 shares of common stock to
Triton West Group, Inc.
In the event that we do not register the shares as required by the Registration
Right Agreement for the Convertible Debenture and Warrant Purchase Agreement, we
will incur penalties in the amount of two percent (2%) of the aggregate market
value of shares of common stock purchased from the Company.
In the event a Registration Statement is not declared effective by December 1,
2000, the investor has the right to terminate the Agreement.
The Company entered into an oral agreement to register 125,000 shares of its
common stock issued to Technology Equity Fund Corporation. The Board of
Directors resolution evidencing this transaction is attached as Exhibit 99.2.
The Company entered into an oral agreement to register 100,000 shares of its
common stock issued to The Oxford Group, Inc. The Board of Directors resolution
evidencing this transaction is attached as Exhibit 99.3.
The Company entered into an oral agreement to register 20,157 shares of its
common stock issued to Schumann & Associates. The Board of Directors resolution
evidencing this transaction is attached as Exhibit 99.4.
EXPERTS
The consolidated financial statements of Worldwide Wireless Net, Inc. as of
December 31, 1999 and 1998 and for the years then ended included in this
Prospectus have been included in reliance upon the report of Crouch, Bierwolf &
Chisholm, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
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LEGAL MATTERS
The legality of the shares of Common Stock offered hereby will be passed upon
for the Company by Feldhake, August & Roquemore, Newport Beach, California.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for our Common Stock is The Depository Trust
Company.
THE COMPANY'S PRODUCTS AND MARKETS
WIRELESS NETWORK
-----------------
We have the technical expertise to build and operate large scale wireless
networks without relying on an existing wire-based network, such as a telephone
network's copper lines. Our wireless network allows the user to connect to an
Internet service provider bandwidth via a radio modem. Typically a customer
relies on an incumbent local exchange carrier such as a telephone company's
copper wires or a cable company's television coaxial plant to provide the
physical means for the customer to connect to the Internet.
Our primary means of providing our wireless services is a wireless network
consisting of an operations center, centralized base stations known as
"points-of-presence" ("POPs"), and distribution radios which connect to the end
customer. We currently operate a wireless network which has been operational
for approximately eighteen (18) months and covers an estimated 85% of Orange
County, California and, since December 31, 1999, we have also been providing
wireless services in Los Angeles County, California. We currently rely on
fifteen, fully-operational POPs, which are generally located on the tops of tall
buildings. We negotiate long- term site licenses for each POP location.
The typical POP site consists of one indoor/outdoor equipment cabinet (62" H x
23" W x 34" D) and an array of four (4) to eight (8) small sectional antennas
(42" H x 4" W). The sectional antennas can be painted any color to match
existing surroundings. There is no roof penetration, and once the system is
installed there are minimum inspections. We pay for all costs associated with
the installation and our unit requires a single phase 110 volt outlet for power.
As part of our network expansion and in the course of normal operations, we are
negotiating to expand our rights associated with the current POP locations as
well as acquire additional point-of-presence locations. Management currently
believes that the market for these facilities is reasonable for its purposes;
however, the ability to acquire and maintain these rights is, and will continue
to be a material factor in the success of the Company.
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In general, our end customers must be within five (5) miles of a POP and have
line-of-sight visibility between the POP and an antenna located at their
building. The five mile standard is based upon the equipment we use, existing
interference and equipment reliability. Other companies may use greater
distances from a POP, and we do as well, but we have adopted five miles as a
general guideline for our connections. Each end customer must install a rooftop
or window radio with an antenna. When the customer accesses the Internet, the
signal travels over its building's wiring or wireless network to the rooftop or
window antenna. The antenna sends the data signal to a nearby POP, where the
signal is communicated to our broadband switching center and then onto its final
destination.
Our wireless network provides flexibility, quick installation and quality
service for Internet users. For example, during the Panasonic Shock Wave Beach
Games in August of 1999 we established a temporary wireless system which
provided Internet access to the participants on the beach. We are able to
install the necessary equipment at a customer's business within two to five
days. Actual installation of a wireless system may take as little as four
hours. Installation and incorporation into our wireless network can be
accomplished as fast as within 48 hours following a signed service order. This
can be accomplished when we rely on installation scheduling and preparation
prior to contract signing. However, we generally plan for a three week time
period for completion of installation. We provide a quality service because we
manage our network traffic by using routing equipment that measures and controls
packet flows (data bundled for transmission), and we install equipment with
performance levels that meet or exceed those required by the customer.
Our wireless network is engineered to provide high reliability and wide area
coverage. We generally operate at a greater than 98% uptime. Our wireless
networks are capable of high speeds of 128 kbps through 100 Mbps speeds. Kbps
stands for Kilobits per second, and Mbps stands for megabits per second; the
number of bits per second is the industry standard of measurement of how fast
data can be transmitted over the Internet. Our wireless system and Digital
Subscriber Lines (which are enhanced copper lines that connect to a local
telephone company system and then directly to the Internet), provide connection
to the Internet at high speeds. Our wireless connections can provide
transmissions at greater speeds than a dial up connection. For example, a dial
up modem transmits at 28,000 to 56,000 bps; a T1 line (which is a dedicated
telephone cable with a bundle of twenty-four voice or data lines) transmits at
1.544 Mbps, and our wireless network transmits at a rate of 100 Mbps. These
high speed connections allow files, documents and voice transmissions to be
dispatched over the Internet in much shorter time periods.
We operate on a combination of licensed frequencies of 23 Ghz and unlicensed
frequencies in the 2.4 Ghz ISM bandwidth, 5.8 Ghz ISM bandwidth, and 5.2 Ghz
UNII bandwidth ranges. Ghz, (giga hertz) is a measurement of electromagnetic
energy which is equivalent to one "wave" or cycle per second. The bandwidth
range determines whether federal licensing is required. Certain frequencies
must be licensed by the U.S. Federal Communications Commission (the "FCC"),
whereas unlicensed frequencies are part of the radio spectrum that the general
public may use for personal radios. The licensing required is determined on a
site-by-site basis, depending on the distance and type of network link.
Reliability is achieved through redundant radio links and wired line back-up.
Security is provided through spread spectrum radio links and encryption, among
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other standard security measures. Our radio modem transmits data by a microwave
frequency which changes 32 times a second. During our initial twelve months of
operations we experienced no significant weather interference, nor did we expect
to, since the low frequencies which the Company uses are rarely affected by
weather conditions (other than hail). We are not sure how a wireless network in
geographical areas with more severe weather than Southern California would be
affected, but management does not believe that weather conditions will pose a
significant factor to the Company's ability to provide its wireless services.
PRINCIPAL SERVICES
-------------------
High-speed Internet: We offer connections to the Internet at speeds from 128
--------------------
kbps to 100 Mbps. This service provides always-connected, secure access for all
sizes of commercial businesses. These connections are primarily supported by
our wireless network with the balance of customers being served by DSL and
leased T-1 circuits. We enhance our service by balancing and distributing our
traffic across our upstream connections, which include Digital Broadcast
Networks, Savis, and Exodus networks. As of June 30, 2000, we had approximately
338 high-speed wireless customers.
Dial-up Internet Access: As of June 30, 2000, we provided Internet access to
-------------------------
approximately 825 Internet users using dial-up connections. This service is
marketed to the general public throughout Orange County and to our commercial
customers to support work-at-home, remote server access, and other business
applications.
Data Center Services: We offer web hosting, web site development and co-location
--------------------
services to our customers. Our co-location service allows a customer located
outside our wireless network to physically place a computer connected to the
customer's network in a secure facility with a high-speed physical connection to
the Internet. As of March 31, 2000, we provided such services to approximately
1067 customers.
Network Consulting: We have substantial expertise in building and operating
-------------------
large-scale wireless, ATM, and Internet Protocol networks. We offer design and
implementation services for private wireless networks and consulting services to
develop network hardware components. As of March 31, 2000, we provided such
services to approximately 28-30 customers, representing 4.5 percent of our total
revenues for that fiscal quarter.
BUSINESS AND OPERATING STRATEGIES
------------------------------------
Our historical sales have resulted from domestic operations primarily located in
Orange County, California. This area has a high concentration of
technology-oriented businesses that represent our prime targeted customers due
to their need for high-speed Internet access. By focusing our expansion to
markets in Southern California, management believes that we can efficiently
leverage our network assets, brand equity, central facilities, administration,
and technical resources which currently exist.
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We generally work with our end customer when providing network access. We
believe that a direct customer relationship provides the opportunity for us to
cross-sell network products, improve customer satisfaction, and reduces the
chance of customer attrition. In May 1999, we created a direct sales force to
market and sell our products and services. This sales force markets our
services to businesses of all sizes within our network service area, and is
supported by our customer service, technical experts, and outbound telemarketing
activities. This direct sales activity is supplemented by telemarketing sales
agents and through customer referrals.
At the local level, we advertise in general print media and through publications
targeted at the information professional. During late 1999 we established an
e-commerce site, www.airwaveproducts.com, to sell wireless network equipment to
enterprise customers and Internet service providers. Although no revenues were
generated from this site during fiscal year 1999, management believes that in
the future an increasing percentage of our revenues will be attributable to the
sale of products and services over the Internet.
Our backlog results from the difference in timing between a firm customer order
and the installation of all services ordered by such customer. In general, our
target interval for installation is three weeks. As of March 31, 2000, we
estimate that our revenue from contracts for services ordered but not yet filled
to be approximately $120,000, of which approximately $20,000 represents
recurring monthly revenue, and the rest represents one-time revenue from the
sale of equipment.
COMPETITION
Our market is crowded with companies which provide both wired and wireless
Internet networks and Internet access to businesses and individuals. We face
competition from existing network and Internet service providers, most of whom
have financial resources, brand recognition, work coverage, technical resources,
and sales forces much larger than ours. These providers may have substantial
financial and technical resources directed at the same markets served by us. As
a result, from time to time, we may need to adjust the pricing of our products,
expend more funds to acquire customers and may experience higher customer
attrition. In addition, we need to be able successfully to compete with the
larger and more established companies that already provide Internet service.
In the wireless market we compete with, among others, Teligent, Inc., Winstar
Communications, Inc., and NEXTLINK Communications, Inc., each of which offers
wireless directional, high-speed network services; Pacific Bell, AT&T, World
Com, Qwest, Cox Communications, Sprint and similarly situated telecommunications
companies, which offer Internet products as stand-alone products or in a bundle
with telecommunications, network services, or wide-area networking; and
companies such as Covad and Rythms Net Connections, which are representative of
service providers who provide high-speed network facilities primarily by using
state-of-the-art modems in conjunction with the facilities of incumbent local
exchange carriers.
Similarly, we compete with Time Warner, @Work, and other cable television
companies which have converted cable television coaxial lines to support
bi-directional, high-speed network services, and we also compete with
Internet-dedicated access companies, such as Verio, Concentric, and Level 3,
which specialize in Internet protocol products that include data center
services, web hosting, virtual private networking, network consulting, and
related products and services.
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We compete with these companies in the areas of rapid installation, technical
performance, quality of customer service and price. We have the capacity to
deliver Internet service in 48 hours because at a minimum our service may only
require installation of a radio and antennae at a customer's site. Competing
technologies that rely on physical wiring may require 30 to 45 days for the
necessary wiring to be installed. We develop our networks primarily with our
own internal engineering expertise, and we believe the use of our own personnel
increases the uniqueness of our service and prevents direct copy by our
competition. Use of our own technical network configuration, radio technology,
and POP site implementations reduce costs and improve performance.
Although pricing is an important factor in our customers' purchase decisions, we
believe that customer relationships, customer service and consistent quality
will be the key to generating customer loyalty. During the past several years
management has observed market prices for network services declining, which is a
trend management believes will likely continue. As prices decline for any given
speed of service, we expect that our total number of customers will increase due
to more individuals and companies having access to, and deciding to use, such
services. As the total number of customers increase, the proportion of
customers purchasing our high-speed services, which are more expensive in
comparison to our other services, will increase because the cost to upgrade a
customer's speed is generally minimal.
Many of our competitors rely on existing networks of copper lines owned by third
parties. We believe these networks are facing increased demand from individuals
and businesses for new services at a reasonable cost. Our management believes
that elimination of reliance on third parties reduces our costs by eliminating
the expense of payments to such third parties for labor costs associated with
installation and costs of troubleshooting network problems. Further, we believe
that capital expenditures associated with constructing our wireless network are
substantially lower because we do not physically have to construct a wire
network.
EMPLOYEES
We currently have 51 full-time employees. These individuals bring to the
company expertise in various aspects of sales, engineering, customer service,
finance and network operations. The majority of our employees are based in
Orange County, California. We believe we have good relations with our
employees, and none are covered by any collective bargaining agreement.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
LITIGATION REFORM ACT OF 1995
Certain matters discussed in this Prospectus are "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, and are subject
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to the safe harbor created thereby. Statements contained or incorporated by
reference in this document that are not based on historical fact are
"forward-looking statements" within the meaning of the Private Securities Reform
Act of 1995. Forward-looking statements may be identified by use of
forward-looking terminology such as "believe,' "intends," "may," "will,"
"expects," "estimate," "anticipate," "continue," or similar terms, variations of
those terms or the negative of those terms. Similarly, statements that describe
our future plans, objectives or goals are forward-looking statements. Such
forward-looking statements are subject to certain risks and uncertainties,
including those described in the section captioned "Risk Factors" below.
OVERVIEW
--------
We are a networking solutions company which provides high speed Internet access
using our own wireless network, dial-up Internet access, data center services
and network consulting. Since April 1999 we have undertaken large-scale
commercial operations and have developed a commercial customer base, a direct
sales force and have expanded our wireless network. Our primary market is
currently Orange County, California, where we operate our wireless network.
Recently, we have also initiated operations in Los Angeles County, California.
While we have experienced revenue growth since our inception, we have operated
at a net loss, due primarily to our investment in expanding our network
coverage, which is expected to continue. Management believes that our continued
expansion will result in additional losses for the foreseeable future, due to
our continued expansion efforts beyond the amount of revenues generated from our
existing operations. We must fund these expansion efforts, for the foreseeable
future, from the incurrence of debt and/or the sale of equity, and there can be
no assurance that we will be able to access either debt or equity capitalization
in sufficient amounts or on acceptable terms to continue to fund such expansion
efforts (as further described below). We have received a letter from one of our
existing investors indicating a willingness to provide certain additional debt
and/or equity capitalization as may be determined between us from time to time
as our financial needs arise. Depending upon the terms presented to us, we may
or may not use all or any portion of such funding. If we were unable to access
this capital, or any other capital for expansion, then the Company would be
unable to continue its expansion as planned, and would remain essentially an
Orange County, California network. Management has developed a cost reduction
plan which could be implemented in such an event, and this plan would allow the
Company to operate profitably, with little to no expansion or growth.
Revenues. We generate revenues primarily through the sale of annuity-like
--------
service contracts with customers, the sale and installation of wireless
networks, and network consulting. We recognize revenues when services are
completed. We believe that growth in revenue will come from additional
penetration in markets currently served by existing networks, expansion of
complimentary product lines to existing and new customers, and geographic
expansion using currently deployed technologies. We have spent, and intend to
continue to spend, significant resources on these activities.
Cost of Sales. Cost of sales consists of third-party network usage and other
---------------
outsourced service costs, and the cost of roof rights. Third-party network
costs are expensed in the period when services are rendered and are generally
proportional to the number of customers. We do not currently anticipate that
inflation will have a material impact on our results of operations.
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Sales and Marketing. Sales and marketing expenses include salaries, sales
---------------------
commissions, employee benefits, travel and related expenses for our direct sales
force, fees paid to third-party sales agents, marketing and sales support
functions. In an effort to increase our revenues, user base and brand
awareness, we expect to increase significantly the amount of spending on sales
and marketing over the next year. Marketing costs associated with increasing
our user base, which to date have been minimal, are expensed in the period
incurred.
General and Administrative. General and administrative expenses include
----------------------------
salaries, employee benefits and expenses for our executive, finance,
depreciation of network equipment, technical staff costs, legal, and human
resources personnel. Investment in network equipment is related primarily to
geographic network expansion and incremental customer installations, which
result in increased depreciation expense in future periods. In addition,
general and administrative expenses include fees for professional services and
occupancy costs. We expect general and administrative expenses to increase in
absolute dollars as we continue to expand our administrative infrastructure to
support the anticipated growth of our business, including costs associated with
being a public company.
LIQUIDITY AND CAPITAL RESOURCES
Since Pacific Link's inception, it has financed its operations primarily through
the private placement of equity securities, loans, leasing arrangements,
cash-flow from operations and the merger completed with Worldwide Wireless in
April 1999. As of March 31, 2000 cash reserves totaled $115,354 with total
current assets of $1,364,455.
Our long-term debt was $1,251 as of that same date. Our current liabilities for
that same date were $2,643,771, of which $1,144,912 accounts for the current
portion of, our long term liabilities discussed above, and $1,206,042 is
attributable to current accounts payable. We anticipate a reduction of
approximately $17,567 in October 2000, due to the expiration of certain capital
lease obligations. We have paid interest rates ranging from 15.5% to 32.5%, or
an average of 21.7%, on such obligations as a new company without a credit
history.
As of March 31, 2000, our principal commitments consisted of office, roof-rights
payments, and equipment leases. Future minimum principal payments on notes
payable were approximately $7,720. Future minimum lease payments were $42,910
with $40,887 through 2000 and $5,484 through 2001. Future minimum lease
payments at March 31, 2000 were $30,551. Of that amount, capital lease payments
due through the end of fiscal years 2000 and 2001 were $32,626 and $1,585,
respectively, and operating lease payments due through the same periods were
$283,836 and $283,836, respectively.
The consolidated cash flows show net cash used for our operating activities for
the fiscal year ended December 31, 1999 was $865,302. Net cash used for
operating activities consisted primarily of net operating losses and network
asset purchases. Net cash provided by our financing activities was $2,029,671
during the same period. Net cash provided by financing activities was
attributable to the sale of securities by Worldwide Wireless Networks prior to
the merger in April 1999, and the sale of other debt and equity securities as
described as in the Recent Transactions section below.
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We expect to continue to incur significant capital expenditures in the future in
our current market of Orange County, including additions and enhancements to our
server and network infrastructure, software licenses and furniture, fixtures and
equipment. The actual amount of capital expenditures will depend on the rate of
growth in our user base and available resources, which is difficult to predict
and which could change dramatically over time. Technological advances may also
require us to make capital expenditures to develop or acquire new equipment or
technology.
The Company's current business plan calls for us to launch wireless networks in
San Diego, Santa Barbara and Ontario, California, and Honolulu, Hawaii during
our current expansion phase. We have recently launched the Los Angeles Wireless
network. We anticipate that during this expansion based upon our historical
funding of expansion efforts, we will remain unprofitable in each market for at
least 12 to 18 months after launch. We expect that we will require outside
financing of at least $1,000,000 to $3,000,000 per location to establish and
deploy our network in the areas mentioned above, in addition to any revenues
generated from operations. We intend to explore the letter we received from one
of our shareholders to determine if mutually agreeable terms can be reached
whereby it would provide certain debt and/or equity capitalization to help
finance our expansion efforts, and, even if acceptable terms can be negotiated,
additional external funds will also have to be raised.
We have investigated the availability, source and terms for external debt
financing and are exploring options which may be available to us. However, we
cannot assure that we will be able to obtain such financing on terms agreeable
to us. Also, the acquisition of funding through the issuance of debt could
result in a substantial portion of our cash flows from operations being
dedicated to the repayment of principal and interest on the indebtedness, and
could render us more vulnerable to competitive and economic downturns.
Any future securities offerings will be effected through registered offerings,
or in compliance with applicable exemptions under federal and state laws. The
purchasers and manner of issuance will be determined according to our financial
needs and the terms available. After determination of the availability of debt
financing we may elect to offer securities and, accordingly, will determine the
type of offering or the type or number of securities which we will offer at that
time. However, we cannot assure that a future securities offering will be
successful. We have no plans to make a public offering of our common stock at
this time. We also note that each time if we issue more shares of our common
stock our shareholders will experience dilution in the percentage of ownership
of their common stock.
If we are unable to obtain sufficient additional funds on terms agreeable to us,
we will suspend our expansion plans into new markets and will restructure our
operations to rely on operating cash flow.
-37-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion should be read in conjunction with the Company's
consolidated financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Any discussions of results, causes and trends
should not be construed to imply any promise, certainty or likelihood that such
results or trends will necessarily continue in the future.
PROPERTY
Our principal executive offices are located in the City of Orange, California,
where we lease 8,728 square feet of office space with roof rights for antennas.
We renewed the lease on March 30, 1999 and it will expire in 2004. The monthly
rent ranges from approximately $16,583 in the first year to $18,329 in the fifth
year. This office space is in good condition and satisfies our current space
needs.
We also lease two office spaces in Irvine, California. One office space,
located at 5 Park Place, is 1,062 square feet and houses our sales agents. This
lease will expire in April of 2003, and requires a basic rent payment of $2,549
per month (which is subject to adjustments for the term of the lease). The
other office space is located at 8001 Irvine Center Drive, and is subleased to a
computer consulting company for the cost of the lease (which is approximately
$4,021 per month). Recently, to facilitate our expansion into Los Angeles
County, California, we opened a sales office there comprising 1,993 square feet,
located at 5933 Century Boulevard, Los Angeles, CA. The lease for that office
has a five-year term, expiring in March 2005. Monthly rent there is $2,889.85
for the first thirty months of the lease, escalating to $3,089.15 for the
remainder of our lease term.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has entered into Employment Agreements with Jack Tortorice and
Charles C. Bream, III, who serve as the Company's Chairman of the Board of
Directors and Chief Executive Officer, respectively. These agreements call for
the Company to compensate Messrs. Tortorice and Bream with a combination of cash
and stock, as described above (See: Executive Compensation").
Thomas Rotert, Esq., a Director of the Company, also serves as our Corporate
Secretary and Treasurer. Mr. Rotert does not receive any compensation for
serving in these capacities, however his law firm, Schumann & Associates, has
been engaged by us to represent us as general legal counsel, for which they
receive compensation in cash as well as options to purchase common stock of the
Company under our 1999 Stock Option Plan. All stock to which Schumann &
Associates is entitled is purchasable at its trading price on the date
exercised, and options are earned at the end of each month at the rate of 10,000
options per month of service.
-38-
<PAGE>
Dennis Shen, who formerly served as a Director of the Company, resigned from
that position in February 2000 (See "Executive Officers of the Registrant"). He
has continued to provide services to the Company under a Consulting Agreement,
for which he receives cash compensation equal to $50,000 per year, and will be
responsible for, among other things, monitoring the Pacific Bridge Net and
Global Bridge E Net ventures on behalf of the Company. (See: "Business: Product
Development").
Sean LeMons, another founder of the Company and a holder of more than 5% of our
outstanding stock, is an employee of the Company. His annual salary for FY1999
was $57,600.
MARKET PRICE OF THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is traded over-the-counter and quoted on the Over the Counter
(OTC) Electronic Bulletin Board under the symbol "WWWN". The following table
represents the range of the high and low bid prices of our stock as reported by
the NASDAQ Trading and Market Services for each fiscal quarter for the last two
fiscal years ending December 31, 1998 and the nine month interim period ended
September 30, 1999. Such quotations represent prices between dealers, may not
include retail markups, markdowns, or commissions and may not necessarily
represent actual transactions.
Year Quarter High Low
---- ---------------- ------- -------
1997 Third Quarter 0.25 0.125
Fourth Quarter 0.13 0.13
1998 First Quarter 0.125 0.10
1999 First Quarter 4.0 4.0
Second Quarter 6.0 0.40625
Third Quarter 4.75 2.875
Fourth Quarter 4.00 2.50
2000 First Quarter 9.56 4.50
2000 Second Quarter 7.85 3.19
During 1997 and 1998 our market was sporadically and thinly traded. There was
no trading activity during the second, third and fourth quarters of 1998.
Trading activity increased in August of 1999. The price per share of companies
situated similarly to WWWN have exhibited extreme volatility in response to
company-specific information as well as general market conditions. Shareholders
should consider the possibility of the loss of the entire value of their shares.
As of June 30, 2000, we had approximately 128 stockholders of record.
Management controls 3,155,100 shares subject to convertible debentures, and
controls 24.5% of our outstanding shares. We have 625,000 common shares subject
to warrants and shares subject convertible to debentures and 7,558,160 common
shares issued and subject to the resale limitations of Rule 144. We may have
50,000 to 700,000 common shares subject to options pending the resolution of a
disputed options contract entered into by Pacific Link in September of 1998.
(See, "Disputed Beneficial Ownership" page 29).
-39-
<PAGE>
EXECUTIVE COMPENSATION
The following table shows compensation of our executive officers for our last
completed fiscal year.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
--------------------
<TABLE>
<CAPTION>
Fiscal Annual Other
Name and Principal Position Year Salary ($) Bonus Compensation
--------------------------- ------ ----------- ------ -------------
<S> <C> <C> <C> <C>
Jack Tortorice 1999 $ 98,000 $ 0 $ 0
Chief Executive Officer
and Director
Charles C. Bream III 1999 $ 0 (1) $ 0 $ 0
Thomas Rotert 1999 $ 0 $ 0 $ 0
Secretary and Treasurer
<FN>
(1) Mr. Bream's employment contract calls for an annual salary of $120,000
for fiscal year 2000.
</TABLE>
COMPENSATION OF DIRECTORS
---------------------------
We do not have any standard arrangement for compensation of our directors for
any services provided as director, including services for committee
participation or for special assignments.
EMPLOYMENT CONTRACTS
---------------------
On January 1, 1999, we amended our employment agreement with Mr. Tortorice. The
agreement is for an initial term of five years, terminating on December 31,
2003. However, the agreement automatically renews for one year for the next
four years after the initial term. Mr. Tortorice receives a salary of $150,000
per year. He has a $500 car allowance per month and will be reimbursed for
expenses incurred on our behalf. We may terminate the agreement for cause, as
defined in the agreement. Pursuant to the agreement, if we terminate the
agreement we have agreed to buy back his original shares, 3,500 common shares,
for $25 a share and we will distribute a pro rata share of profits to each of
them. Mr. Tortorice may terminate the agreement by giving us 30 days notice.
On January 1, 2000, we entered into an employment agreement with Mr. Bream for
an initial term of five years, terminating on December 31, 2004. Mr. Bream
agreed to be employed as our President and Chief Operating Officer for an
interim period of sixty (60) days after which time he will become our Chief
Executive Officer for the remainder of the term of the contract. Mr. Bream
-40-
<PAGE>
receives a salary of $120,000 per year and stock options pursuant to our
employee stock option plan for an aggregate of 580,000 common shares. Such
options include the right to purchase 100,000 common shares with an exercise
price of $3.00, which vest immediately, and the right to purchase 20,000 common
shares each month for the first twenty-four months of employment. Worldwide
Wireless may terminate Mr. Bream's employment with written notification with out
cause and for cause, as defined in the agreement. Worldwide Wireless is
obligated to pay a severance payment equal to six months of salary if
termination is without cause. Mr. Bream may terminate the employment with
thirty-days written notice.
1999 STOCK OPTION PLAN
-------------------------
On August 13, 1999, the Company established an Employee Stock Ownership Plan
(the Plan). The Plan covers both current and prospective employees, consultants
and directors. Executive officers and employees are covered under the Incentive
Stock Option and consultants will be covered under the Nonstatutory Stock
Option.
The exercise price for each option shall be established by the Company Board of
Directors. The exercise price per share for an Incentive Stock Option can not
be less than the fair market value of a share of stock on the effective grant
date. The exercise price per share for a Nonstatutory Stock Option can not be
less than 85% of the fair market value of a share of stock on the effective date
of the option.
As of March 31, 2000, there are 515,127 options granted but none have yet
vested. Per FASB 123, the Company recognized compensation when the options vest,
therefore no compensation has been recorded for these options. No options are
exercisable after the expiration of 10 years after the effective grant date.
The maximum number of shares to be issued under the plan is 1,000,000.
Additional grants to employees for tenure in the amount of 13,500 options have
been earned but have not yet been issued.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
We have had no change in, or disagreements with, our principal independent
accountant during our last three fiscal years.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our Articles of Incorporation and bylaws provide for the indemnification of
present and former directors and officers and each person who serves at our
request as our officer or director. To the full extent of Nevada Revised
Statutes Sections 78.7502 and 78.751 indemnification for a director is mandatory
and indemnification for an officer, agent or employee is permissive. We will
indemnify such individuals against all costs, expenses and liabilities
reasonably incurred in a threatened, pending or completed action, suit or
proceeding brought because such individual is our director or officer. Such
individual must have conducted himself in good faith and reasonably believed
that his conduct was in, or not opposed to, our best interest. In a criminal
action he must not have had a reasonable cause to believe his conduct was
unlawful. This right of indemnification shall not be exclusive of other rights
the individual is entitled to as a matter of law or otherwise.
-41-
<PAGE>
We will not indemnify an individual adjudged liable due to his negligence or
willful misconduct toward us, adjudged liable to us, or if he improperly
received personal benefit. Indemnification in a derivative action is limited to
reasonable expenses incurred in connection with the proceeding. Also, we are
authorized to purchase insurance on behalf of an individual for liabilities
incurred whether or not we would have the power or obligation to indemnify him
pursuant to our bylaws.
RECENT SALES OF UNREGISTERED SECURITIES
The following discussion describes all securities we have sold within the past
three years without registration:
Subsequent to the close of the first quarter, 2000, we awarded 915 shares to
Robert P. Kelly, Jr. and Mimi Grant, joint owners of Southern California
Technology Executive Network in compensation for its membership in that
organization.
On May 15, 2000 we issued 100,000 restricted common shares to The Oxford Group,
Inc. in consideration of Three Hundred Fifty Thousand Dollars ($350,000) in
cash. The transaction was exempt pursuant to Section 3 and 4 of the Securities
Act of 1933 and applicable state exemptions. These investors are Selling
Stockholders in this Registration Statement.
On May 25, 2000, we issued 144,887 shares of common stock for cash of $500,000
at $3.45 per share, from a private investor on June 30, 2000. We subsequently
recalled the shares and the $500,000 was rolled in to an agreement to sell
$1,000,000 convertible debenture and warrants purchase agreement with AMRO
International, S.A. and Trinity Capital Advisors, Inc. We will issue and sell
to investors One Million Dollars ($1,000,000) of Convertible Debentures and
100,000 warrants. A condition of sale is that we must register the investor
securities with the SEC. These investors are Selling Stockholders in this
Registration Statement.
On June 1, 2000, the Company issued 20,157 shares of common stock to Schumann &
Associates in consideration of legal and management services rendered between
October 1999 and May 31, 2000, which were valued at $80,000. Schumann &
Associates are Selling Stockholders in this Registration Statement
On June 1, 2000, the Company issued 25,000 shares of common stock for services
valued at $82,344. The transaction was exempt pursuant to Section 3 and 4 of the
Securities Act of 1933 and applicable state exemptions.
On June 14, 2000, the Company issued 5,000 shares of common stock for services
valued at $16,469. The transaction was exempt pursuant to Section 3 and 4 of the
Securities Act of 1933 and applicable state exemptions.
-42-
<PAGE>
On June 19, 2000, we entered into a Private Equity line of Credit Agreement with
Whitsend Investments Limited, one of the Selling Stockholders. The terms of the
agreement allow for periodic draw downs of the funding at the discretion of the
Company, the Investor is committed to purchasing up to Twenty Million Dollars
($20,000,000) of the Company's common stock. A condition to draw down is that
the Company must register the investor securities with the SEC. These investors
are Selling Stockholders in this Registration Statement.
On July 19, 2000 we issued 125,000 restricted common shares to Technology Equity
Fund Corp. in consideration of Two Hundred Fifty Thousand Dollars ($250,000) in
cash. The transaction was exempt pursuant to Section 3 and 4 of the Securities
Act of 1933 and applicable state exemptions. These investors are Selling
Stockholders in this Registration Statement.
In each of the private transactions above, we believe that each purchaser (i)
was aware that the securities had not been registered under federal securities
laws, (ii) acquired the securities for his/her/its own account for investment
purposes of the federal securities laws, (iii) understood that the securities
would need to be indefinitely held unless registered or an exemption from
registration applied to a proposed disposition and (iv) was aware that the
certificate representing the securities would bear a legend restricting its
transfer. We believe that, in light of the foregoing, the sale of our
securities to the respective acquirers did not constitute the sale of an
unregistered security in violation of the federal securities laws and
regulations by reason of the exemptions provided under Sections 3(b) and 4(2) of
the Securities Act, and the rules and regulations promulgated thereunder.
COMPLIANCE WITH SECTION 16 OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires the Company's directors and officers
and persons who beneficially own more than ten percent of the Company's Common
Stock to file with the Securities and Exchange Commission ("Commission") initial
reports of ownership and reports of changes in ownership of Common Stock in the
Company. Officers, directors and greater-than-ten percent shareholders are
required by Commission regulation to furnish the Company with copies of all
Section 16(a) reports they filed. To the Company's knowledge, based solely on
review of the copies of such reports furnished to the Company and written
representation that no other reports were required, during the fiscal year ended
December 31, 1999, such persons complied with all Section 16(a) filing
requirements.
-43-
<PAGE>
FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
Worldwide Wireless Networks, Inc. Consolidated Financial Statements March 31,
2000, December 31, 1999 and December 31, 1998.
PAGE
Independent Accountants Report 45
Consolidated Balance Sheets 46-47
Consolidated Statement of Operations 48
Consolidated Statement of Stockholders Equity 49
Consolidated Statement of Cash Flow 50-51
Notes to Financial Statements 51-61
-44-
<PAGE>
Independent Accountants Report
CROUCH, BIERWOLF & CHISHOLM
Certified Public Accountants
50 West Broadway, Suite 1130
Salt Lake City, Utah 84101
Office (801) 363-1175
Fax (801) 363-0615
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders of Worldwide Wireless Networks, Inc.
(formerly Pacific Link Internet, Inc.):
We have audited the accompanying consolidated balance sheets of Worldwide
Wireless Networks, Inc. (formerly Pacific Link Internet, Inc.) as of December
31, 1999 and 1998 and the related consolidated statements of operations,
stockholders' equity and cash flows for the years then ended and from inception
on August 1, 1997 through December 31, 1997. 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 financial statements referred to above present fairly, in
all material respects, the financial position of Worldwide Wireless Networks,
Inc. (formerly Pacific Link Internet, Inc.) as of December 31, 1999 and 1998 and
the results of its operations and cash flows for the years then ended and from
inception on August 1, 1997 through December 31, 1997 in conformity with
generally accepted accounting principles.
/s/ Crouch, Bierwolf & Chisholm
Salt Lake City, Utah
February 18, 2000
-45-
<PAGE>
<TABLE>
<CAPTION>
WORLDWIDE WIRELESS NETWORKS, INC.
Consolidated Balance Sheets
ASSETS
------
March 31 December 31 December 31
2000 1999 1998
----------- ------------- -------------
<S> <C> <C> <C>
CURRENT ASSETS
Cash and Cash Equivalents (Note 1) $ 115,354 $ 136,311 $ -
Accounts receivable (net of allowance for
doubtful accounts of $35,000, $20,000, and
$2,200 respectively 542,551 165,091 29,340
Other receivables (1999-employee advance) 20,258 3,000 -
Inventory 634,025 129,861 -
Prepaid Expenses 52,267 18,912 -
----------- ------------- -------------
Total Current Assets 1,364,455 453,175 29,340
----------- ------------- -------------
PROPERTY & EQUIPMENT (Note 1)
Office equipment 175,728 103,231 28,833
Leased equipment 61,315 177,653 209,751
Machinery equipment 1,271,938 1,109,524 226,878
----------- ------------- -------------
1,508,981 1,390,408 465,462
----------- ------------- -------------
Less:
Accumulated depreciation - leased
Equipment (54,027) (165,255) (130,111)
Accumulated depreciation (393,933) (282,495) (28,491)
----------- ------------- -------------
Total Property & Equipment 1,061,021 942,658 306,860
----------- ------------- -------------
OTHER ASSETS
Investments (Note 1) 36,885 36,885 -
Deferred Charges (Note 1) 17,202 21,984 10,428
Deposits 61,546 36,197 15,184
----------- ------------- -------------
Total Other Assets 115,633 95,066 25,612
----------- ------------- -------------
TOTAL ASSETS $2,541,109 $ 1,490,899 $ 361,812
=========== ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements
-46-
<PAGE>
<TABLE>
<CAPTION>
WORLDWIDE WIRELESS NETWORKS, INC.
Consolidated Balance Sheets continued
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
March 31 December 31 December 31
2000 1999 1998
------------ ------------- -------------
<S> <C> <C> <C>
CURRENT LIABILITIES
Bank overdrafts $ - $ - $ 4,092
Accounts Payable 1,206,042 655,485 522,337
Accrued expenses 126,074 83,933 -
Lines of credit (Note 6) 86,545 89,323 98,471
Unearned revenue (Note 1) 80,198 102,356 23,542
Current portion of long-term liabilities
(Note 5) 1,144,912 665,355 102,517
------------ ------------- -------------
Total Current Liabilities 2,643,771 1,596,452 750,959
------------ ------------- -------------
LONG TERM LIABILITIES (Note 5)
Unearned Revenue (Note 1) - - 17,948
Notes payable (Note 5) 1,046,722 562,245 9,277
Notes payable - related party (Note 5) 75,000 75,000 31,300
Capital lease obligations (Note 5) 24,441 30,340 88,190
Less current portion (1,144,912) (665,355) (102,517)
------------ ------------- -------------
Total long term Liabilities 1,251 2,230 44,198
------------ ------------- -------------
TOTAL LIABILITIES 2,645,022 1,598,682 795,157
------------ ------------- -------------
STOCKHOLDERS' EQUITY
Common stock, 50,000,000 shares of 0.001
par value authorized 1,799,988 and
3,999,988 shares issued and outstanding 12,059 11,800 4,000
Additional paid in capital 2,453,503 1,915,345 101,145
Retained earnings (2,569,475) (2,034,928) (483,676)
Officer receivables - - (54,814)
------------ ------------- -------------
Total Stockholders' Equity (103,913) (107,783) (433,345)
------------ ------------- -------------
TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY $ 2,541,109 $ 1,490,899 $ 361,812
============ ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements
-47-
<PAGE>
<TABLE>
<CAPTION>
WORLDWIDE WIRELESS NETWORKS, INC.
Consolidated Statements of Operations
For the three For the year For the year
months ended ended ended
March 31 December 31, December 31,
2000 1999 1998
--------------- --------------- --------------
<S> <C> <C> <C>
SALES $ 912,972 $ 1,980,203 $ 841,841
COST OF GOODS SOLD 560,292 972,802 430,600
--------------- --------------- --------------
GROSS PROFIT 352,680 1,007,401 411,241
--------------- --------------- --------------
OPERATING EXPENSES
Bad Debt Expense 40,317 94,861
General and Administrative Expenses 706,513 1,877,133 455,126
Sales Expense 162,432 616,022 158,592
--------------- --------------- --------------
TOTAL OPERATING EXPENSES 868,945 2,533,472 708,579
--------------- --------------- --------------
OPERATING INCOME (LOSS) (516,265) (1,526,071) (297,338)
--------------- --------------- --------------
OTHER INCOME AND (EXPENSES)
Loss on investment (13,115) -
Interest Expense (21,327) (46,895) (51,455)
Miscellaneous Income 3,045 34,829 19,410
--------------- --------------- --------------
Total Other Income and (Expenses) (18,282) (25,181) (32,045)
--------------- --------------- --------------
INCOME (LOSS) BEFORE INCOME TAXES (1,551,252) (329,383)
PROVISION FOR INCOME TAXES (Note 1) - 800
NET INCOME (LOSS) $ (534,547) (1,551,252) (330,183)
--------------- --------------- --------------
NET INCOME (LOSS) PER SHARE $ (.04) $ (0.16) $ (.09)
=============== =============== ==============
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES 12,055,889 9,716,655 3,679,994
=============== =============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements
-48-
<PAGE>
<TABLE>
<CAPTION>
WORLDWIDE WIRELESS NETWORKS, INC.
Consolidated Statements of Stockholders' Equity
Stockholders' Equity
--------------------
Additional Retained
Common Stock Paid in Earnings
Shares Amount Capital (Deficit)
---------- --------- ----------- ------------
<S> <C> <C> <C> <C>
Balance on December 31, 1997 3,360,000 $ 3,360 $ (860) $ (153,493)
Shares issued for cash 639,988 640 102,005 -
Net income (loss) for the year - - - (330,183)
ended December 31, 1998
---------- --------- ----------- ------------
Balance on December 31, 1998 3,999,988 4,000 101,145 (483,676)
April 1, 1999 - Reverse acquisition 7,000,000 7,000 (7,000) -
and reorganization adjustment
April 2, 1999 - Stock issued for cash 400,000 400 299,600 -
and services valued at $.75 per share
June 1999 Stock issued for cash at $5 200,000 200 999,800 -
per share
June 1999 Warrants issued for services - - 122,000 -
December 1999 - Stock issued for cash
at $2 per share 200,000 200 399,800 -
Net income (loss) for year ended
December 31, 1999 - - - (1,551,252)
---------- --------- ----------- ------------
Balance on December 31, 1999 11,799,988 $ 11,800 $1,915,345 $(2,034,928)
========== ========= =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements
-49-
<PAGE>
<TABLE>
<CAPTION>
WORLDWIDE WIRELESS NETWORKS, INC.
Consolidated Statements of Cash Flows
For the three For the year For the year
months ended ended ended
March 31 December 31, December 31,
2000 1999 1998
--------------- --------------- --------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net income (loss) $ (534,547) $ (1,551,252) $ (330,183)
Adjustments to Reconcile Net Income (Loss) to
Net Cash Used in Operating Activities:
Depreciation & Amortization 116,549 321,246 97,736
Bad Debt 15,000 - 94,836
Loss of Investment 13,115 -
Stock and warrants issued for services 322,000 -
Shares issued for services 5,417
Shares issued for insurance policy 33,000
Change in Assets and Liabilities
(Increase) Decrease in:
Accounts Receivable (131,936) (135,751) (17,401)
Other Receivables (17,258) 54,814 (39,486)
Employee advance (3,000) -
Prepaid Expenses (33,355) (18,912) 3,263
Deferred charges (11,556) (10,428)
Inventory (504,164) (129,861) -
Increase / (decrease) in current liabilities:
Bank Overdraft - (4,092) 4,092
Accounts Payable (+Accrued Expenses 2000) 592,698 133,148 336,665
Accrued Expenses 83,933 -
Lines of Credit (2,778)
Unearned Revenue (22,158) 60,866 41,490
--------------- --------------- --------------
Net Cash Provided (Used) by (483,532) (865,302) 180,584
Operating Activities
--------------- --------------- --------------
Cash Flows from Investing Activities
Purchase of Property and Equipment (225,095) (957,045) (187,411)
Cash paid for deposits (25,349) (21,013) (6,113)
Cash from deferred charges 4,782 (50,000) -
--------------- --------------- --------------
Net Cash Provided (Used) by (245,662) (1,028,058) (193,524)
Investing Activities
--------------- --------------- --------------
-50-
<PAGE>
Cash Flows from Financing Activities
Advances on line of credit 98 3,860
Cash paid on line of credit (9,246) -
Cash from sale of stock 500,000 72,645
Cash received from debt financing 474,650 633,468 -
Principal payments on long-term debt (5,889) (94,649) (64,519)
Cash received in merger with Worldwide 1,000,000 -
Shares issued for cash 500,000
--------------- --------------- --------------
Net Cash Provided(Used) by Financing Activities 968,761 2,029,671 11,986
--------------- --------------- --------------
Net Increase(Decrease) in Cash and Cash Equivalents 239,567 136,311 (954)
--------------- --------------- --------------
Cash and Cash Equivalents at Beginning of Period 136,311 - 954
--------------- --------------- --------------
Cash and Cash Equivalents at End of Period $ 375,878 $ 136,311 -
=============== =============== ==============
Supplemental Cash Flow Information
Cash paid for interest $ 28,119 $ 61,725
Cash paid for income taxes - -
Non-cash financing translation:
Purchase of equipment with lease obligations - $ 24,784
Stock and warrants issued for services $ 322,000 -
</TABLE>
The accompanying notes are an integral part of these financial statements
WORLDWIDE WIRELESS NETWORKS, INC.
Notes to Financial Statements
NOTE 1 - Summary of Significant Accounting Policies
a. Organization
The audited financial statements presented for December 31, 1999 and 1998,
are those of Worldwide Wireless Networks, Inc. (formerly Pacific Link Internet,
Inc.) (The Company). The Company was incorporated under the laws of the State
of California on September 22, 1997, however operations began on August 1, 1997.
The Company provides wireless internet access to business and individuals. The
Company's headquarters are located in Orange, California.
-51-
<PAGE>
WORLDWIDE WIRELESS NETWORKS, INC.
On April 1, 1999, the Company merged with Worldwide Wireless Networks, Inc.
(Worldwide) a public company with no operations, and assumed the name of
Worldwide Wireless Networks, Inc. Pursuant to the merger, Pacific Link ceased
to exist and Worldwide became the surviving corporation. Worldwide was
organized in the State of Nevada on June 10, 1992. Worldwide recently raised
$1,000,000 in anticipation of the merger, and provided this as the only asset to
the newly combined organization. The merger, was treated as a reverse merger for
accounting purposes, therefore the December 31, 1999 period is consolidated and
the December 31, 1998 is that of the accounting acquirer (Pacific Link Internet,
Inc.) only.
b. Recognition of Revenue Deferred Chares, Unearned Revenue
The Company recognizes income and expense on the accrual basis of
accounting. During 1998 and 1999, the Company entered into various sales
agreements whereby, a third party financial institution pays a factored sales
amount to the Company for sales contracts received from customers with terms of
1 to 3 years. The Company has deferred the revenue on these contracts to be
recognized over the time of the contract. Unearned revenue has been established
on the books in order to defer the revenues received from the third party on
these contracts. The corresponding factoring fee has been deferred as an asset
called "deferred charges" and is also recognized over the life of the contract.
All other sales are recorded when the services are completed.
c. Earnings (Loss) Per Share
The computation of earnings per share of common stock is based on the
weighted average number of shares outstanding at the date of the financial
statements. The 1998 and 1997 weighted average shares have been retroactively
restated for the stock split treatment of the reverse merger for comparability
purposes. Fully diluted earnings per share has not been presented, because the
earnings per share is the same. Warrants to purchase 400,000 common shares and
employee stock options have been eliminated in the fully diluted earnings per
share due to their anti-dilutive effect.
d. Provision for Income Taxes
No provision for income taxes has been recorded due to net operating loss
carryforwards totaling approximately $2,035,000 that will be offset against
future taxable income. These NOL carryforwards begin to expire in the year
2013. No tax benefit has been reported in the financial statements because the
Company has yet to generate taxable income.
Deferred tax assets and the valuation account is as follows at December 31,
1999 and 1999:
1999 1998
---------- ----------
Deferred tax asset:
NOL carryforward $ 691,000 $ 163,000
Valuation allowance (691,000) (163,000)
---------- ----------
Total $ - $ -
========== ==========
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WORLDWIDE WIRELESS NETWORKS, INC.
e. Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of
three months or less to be cash equivalents.
f. Property and Equipment
Expenditures for property and equipment and for renewals and betterments,
which extend the originally estimated economic life of assets or convert the
assets to a new use, are capitalized at cost. Expenditures for maintenance,
repairs and other renewals of items are charged to expense. When items are
disposed of, the cost and accumulated depreciation are eliminated from the
accounts, and any gain or loss is included in the results of operations. Assets
are reviewed by management annually for impairment and are written down to fair
market value if impairment exists.
The provision for depreciation is calculated using the straight-line method
over the estimated useful lives of the assets. Useful lives of assets are as
follows: Computer and wireless network equipment - 3 years; DSL equipment - 1
year; Furniture and fixtures - 7 years; Office equipment - 5 years.
Depreciation expense for the period ended December 31, 1999, 1998 is $321,246
and $97,736, respectively.
NOTE 2 - Related Party Transactions
During 1999, the Company paid $16,300 to a shareholder for a note payable
which was outstanding from December 31, 1998.
During 1999, the Company paid $15,000 to a shareholder for a note payable
which was outstanding from December 31, 1997.
During 1999, the Company received $75,000 from a shareholder for a note
payable. As of December 31, 999, the balance due is $75,000.
NOTE 3 - Investment
In April 1999, the Company entered into an agreement with Bridge
Technology, Inc., wherein the Company contributed $50,000 for a 20% interest in
Pacific Bridge Net (PBN). In addition to the capital contribution, the Company
was to provide consulting services to PBN for $50,000.
As of December 31, 1999, the investment has been reduced from $50,000 to
$36,885 due to the Company's 20% share of the $65,575 loss reported by PBN. The
Company uses the equity method of accounting for this investment.
NOTE 4 - Long-Term Liabilities
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WORLDWIDE WIRELESS NETWORKS, INC.
Long Term Liabilities are detailed in the following schedules as of
December 31, 1999 and 1998:
<TABLE>
<CAPTION>
Notes payable is detailed as follows: 1999 1998
-------- -------
<S> <C> <C>
Note payable to an individual, payments due monthly of
500 through July 2000, bears interest at 7%, secured by
equipment and other assets. 3,777 9,277
Note payable to a corporation, payments due monthly of
5,457 until paid in full, bears interest at 12%, unsecured
note 58,468 -
Note payable to a corporation, no monthly payment,
matures March 2000, bears interest at 11%, guaranteed by
an officer of the Company and secured by business assets
500,000 -
-------- -------
Total Notes Payable $562,245 $ 9,277
-------- -------
Notes payable related party is detailed as follows:
Note payable to a shareholder, non interest bearing, due
upon demand, unsecured note $ - $15,000
Note payable to a shareholder, non interest bearing, due
upon demand, unsecured note - 16,300
Note payable to a shareholder, no monthly payment, -
payable on demand, bears interest at 10%, unsecured note 25,000
Note payable to a shareholder, no monthly payment,
payable on demand, bears interest at 10%, unsecured note 50,000 -
-------- -------
Total notes payable - related party $ 75,000 $31,300
-------- -------
Capital lease obligations are detailed in the following schedule as of December
31, 1999 and 1998:
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WORLDWIDE WIRELESS NETWORKS, INC.
1999 1998
-------- --------
Capital lease obligation to a corporation for antenna
equipment, lease payments due monthly of $710 through
January 2001, bears interest at 19.7% secured by antenna
equipment. $ 8,815 $ 13,790
Capital lease obligation to a corporation for wireless
equipment, lease payments due monthly of $175 through
May 2001, bears interest at 18%, secured by wireless
equipment. 2,743 4,091
Capital lease obligation to a corporation for wireless
equipment, lease payments due monthly of $1,244
through October 2000, bears interest at 15.5%, secured by
wireless equipment. 17,567 23,689
Capital lease obligation to a corporation for equipment,
lease payments due monthly of $1,248 through December
1999, bears interest of 32.5%, secured by equipment. 1,215 12,644
Capital lease obligation to a corporation for equipment,
lease payments due monthly of $841 through October
1999, bears interest of 17%, secured by equipment. - 7,792
Capital lease obligation to a corporation for equipment,
lease payments due monthly of $721 through January
2000, bears interest at 19.4%, secured by equipment. - 8,388
Capital lease obligation to a corporation for equipment,
lease payments due monthly of $545 through August
1999, bears interest of 19.2%, secured by equipment. - 3,582
Capital lease obligation to a corporation for equipment,
lease payments due monthly of $997 through December
1999, bears interest at 24.1%, secured by equipment. - 10,532
Capital lease obligation to a corporation for equipment,
lease payments due monthly of $680 through January
1999, bears interest at 24.1%, secured by equipment. - 667
Capital lease obligations to a corporation for equipment,
lease payments due monthly of $338 through July 1999,
bears interest at 19.1%, secured by equipment. - 2,219
Capital lease obligation to a corporation for equipment,
lease payments due monthly of $205 through April 1999,
bears interest at 15.2%, secured by equipment. - 796
-------- --------
Total Lease Obligations 30,340 88,190
-------- --------
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<PAGE>
WORLDWIDE WIRELESS NETWORKS, INC.
Total long term liabilities 667,585 128,767
Less current portion of:
Notes payable 562,245 5,526
Notes payable - related party 75,000 31,300
Capital lease obligations 28,110 65,691
-------- --------
Total current portion 665,355 102,517
-------- --------
Net Long Term Liabilities $ 2,230 $ 26,250
======== ========
Future minimum principal payments on notes payable are as follows at December
31, 1999:
2000 637,245
-------------------
Total notes payable $ 637,245
===================
Future minimum lease payments are as follows at December 31, 1999:
2000 32,626
2001 1,585
-------------------
Less portion representing interest 3,871
-------------------
Total $ 30,340
===================
</TABLE>
NOTE 5 - Lines of Credit
The Company has three lines of credit with three banks with total credit of
$106,000. The average interest rate is 11.75%. The balances due at December
31, 1999 and 1998 were $89,323 and $98,741, respectively.
NOTE 6 - Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts of assets and liabilities, disclosure
of contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reporting period. In these financial
statements, assets, liabilities, revenues and expenses involve reliance on
management's estimates. Actual results could differ form those estimates.
NOTE 7 - Commitments and Contingencies
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WORLDWIDE WIRELESS NETWORKS, INC.
The Company has an operating lease for office space. Monthly lease
payments are due of $2,549 for sixty months starting May 1, 1998 and ending
April 30, 2003.
The Company has an operating lease for antenna space on a roof. The
agreement calls for monthly payments of $350 the first six months, $450 the next
six months, and $500 for the remaining 48 months of the sixty-month contract.
The lease began on September 15, 1998 and ends on August 31, 2003.
The Company has an operating lease for office space. Monthly lease
payments are due of $4,021 for sixty months starting October 15, 1998 and ending
September 30, 2003.
The Company has an operating lease for office space. Monthly lease
payments are due of $10,083 and the lease expires in March 2004.
The Company has an operating lease for roof space. Monthly lease payments
due of $250 for sixty months starting September 15, 1998 and ending August 31,
2003.
The Company has an operating lease for roof space. Monthly lease payments
are due of $300 for sixty months starting November 16, 1998 and ending October
31, 2003.
The Company has an operating lease for roof space that could potentially
secure up to three antennas. The agreement calls for minimum monthly payments
for the initial antenna of $1,000 the first twelve months, $1,050 the next
twelve months, $1,103 the following twelve months, $1,158 the next twelve
months, and $1,216 for the remaining twelve months of the sixty-month contract.
Each additional antenna (limit of three total) will require monthly payments of
$750 the first twelve months, $788 the next twelve months, $827 the following
twelve months, $868 the next twelve months, and $912 the remaining twelve
months. The lease began on October 1, 1998 and ends on September 30, 2003.
The company has an operating lease for roof space. Monthly lease payments
are due of $1,300 for use of a one directional antenna or $1,300 for use of a
four directional antenna for sixty months starting October 1, 1998 and ending
September 30, 2003.
The Company has an operating lease for roof space. Monthly lease payments
are due of $250 for thirty-six months starting December 2, 1998 and ending
November 30, 2001.
The Company has an operating lease for roof space. Monthly lease payments
are due of $200 for thirty-six months starting August 1, 1999 and ending July
31, 2002.
The Company has an operating lease for roof space. Monthly lease payments
are due of $300 for thirty-six months starting April 1, 1999 and ending March
31, 2004.
-57-
<PAGE>
WORLDWIDE WIRELESS NETWORKS, INC.
Future minimum operating lease payments are as follows at December 31,
1999:
2000 $ 264,836
2001 265,473
2002 263,134
2003 216,578
2004 33,153
----------
TOTAL $1,043,174
==========
The Company is obligated under employment contracts to officers of the
Company through December 31, 2003, for $110,000 total compensation per year.
The Company has an investor group committed to providing capital for the
Company's continued expansion and operations. If this funding source did not
provide the necessary capital needed, the Company would need to find additional
sources of funding, or cut back on the expansion process to maintain operations.
NOTE 8 - Employee Stock Option Plan
On August 13, 1999, the Company established an Employee Stock Ownership
Plan (the Plan). The Plan covers both current and prospective employees,
consultants and directors. Employees will be covered under the Incentive Stock
Option and consultants will be covered under the Nonstatutory Stock Option.
The exercise price of each option shall be established by the Company Board
of Directors. The exercise price per share for an Incentive Stock Option can
not be less than the fair market value of a share of stock on the effective
grant date. The exercise price per share for a Nonstatutory Stock Option can
not be less than 85% of the fair market value of a share of stock on the
effective date of the option.
As of December 31, 1999, there are 326,175 options granted but none have
yet vested. Per FASB 123, the Company recognized compensation when the options
vest, therefore no compensation has been recorded for these options. No options
are exercisable after the expiration of 10 years after the effective grant date.
The maximum number of shares to be issued under the plan is 1,000,000.
During 1999, 2,895 options vested for employees prior to termination. No
options were exercised and the Company recorded no compensation due to the
immaterial amount of these vested options.
NOTE 9 - Reverse Acquisition and Reorganization
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<PAGE>
WORLDWIDE WIRELESS NETWORKS, INC.
Effective April 1, 1999, Pacific Link Internet, Inc. (Pacific) (a private
company) was acquired by Worldwide Wireless Internet, Inc. (Worldwide) (a public
company). Worldwide issued 7,000,000 shares to the shareholders of Pacific in
exchange for all shares of Pacific, thus making it a wholly owned subsidiary of
Worldwide. The agreement provides for the acquisition to be treated as a
reverse acquisition, thus making Pacific the accounting survivor. Because the
historical financial information in these financial statements prior to the
reverse acquisition (April 1, 1999) is that of the accounting acquirer
(Pacific), a forward stock split of 8 for 1 has been retroactively applied to
show the effects of the reverse merger. The management of Worldwide resigned
and the management and board of Pacific filled the vacancy.
NOTE 10 - Warrants
In June 1999, the Company issued warrants to purchase common stock at
various prices for services. The fair value of the warrants were determined
using the Black-Scholes option pricing model with the following assumptions:
risk free interest rate of 7%; warrant life of 5 years; volatility of 25% with
no dividend yield. The Company recorded expenses of $122,000 in connection with
the warrant issuance. No warrants were exercised at December 31, 1999 and the
following are outstanding:
Warrants Exercise Price
---------- ---------------
100,000 $3.00 per share
100,000 $4.00 per share
200,000 $5.00 per share
---------
400,000
=========
NOTE 11 - Subsequent Events
On February 10, 2000, the Company entered an agreement to acquire all
outstanding stock of Tarrab Capital Group, a Nevada corporation, with the
issuance of 5,000 shares of the Company. Tarrab is an inactive public company
with no assets and no revenues or operations for the year ended December 31,
1999.
NOTE 12 - Stockholders' Equity Transactions
During 1998, the Company issued 638,988 shares of common stock at $.16 per
share for cash.
On April 1, 1999, the Company issued 7,000,000 shares in the reverse merger
acquisition with Pacific Link Internet (See Note 10).
On April 2, 1999, the Company issued 400,000 shares of common stock for
cash of $100,000 and services valued at $200,000.
In June of 1999, the Company issued 200,000 shares for $1,000,000 in cash
at $5 per share.
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<PAGE>
WORLDWIDE WIRELESS NETWORKS, INC.
In June 1999, the Company issued warrants to purchase stock at 3.00, 4.00
and 5.00 per share, valued at $122,000 (See Note 11).
In December 1999, the Company issued 200,000 shares of common stock for
cash of $400,000, at $2 per share, from a private investor.
NOTE 13 - Prior Period Restatement
Accounts receivable - related party was reclassified as a contra equity
account for the period ended December 31, 1998, to confirm to SEC regulations
for officers receivables. Assets decreased by $54,814 and Equity decreased the
same amount for this restatement.
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Worldwide Wireless Networks, Inc. (the "Company") has elected to omit
substantially all footnotes to the financial statements for the three
months ended March 31, 2000, since there have been no material changes
(other than indicated in other footnotes) to the information
previously reported by the Company in their Annual Report filed on
Form 10-KSB for the Fiscal year ended December 31, 1999.
UNAUDITED INFORMATION
The information furnished herein was taken from the books and records
of the Company without audit. However, such information reflects all
adjustments which are, in the opinion of management, necessary to
properly reflect the results of the period presented. The information
presented is not necessarily indicative of the results from operations
expected for the full fiscal year.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Worldwide Wireless Networks, Inc.
------------------------------------
(Registrant)
By: /s/ Charles C. Bream, III, President
-----------------------------------------
(Signature and Title)
July 31, 2000
Date
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<PAGE>
WORLDWIDE WIRELESS NETWORKS, INC.
In accordance with the Securities Exchange Act of 1934, this report has been
signed by the following persons on behalf of the Registrant, in the capacities
and on the date indicated.
SIGNATURE TITLE DATE
--------------------------------------------------------------------------------
/s/ Jack Tortorice Director and Chief Executive July 13, 2000
Jack Tortorice Officer
/s/ Charles C. Bream, III President, Chief Operating July 13, 2000
Charles C. Bream, III Officer
/s/ Thomas Rotert Director April 13, 2000
Thomas Rotert
-61-
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the use of our report, dated May 10, 2000, in this
registration statement on Form SB-2 for Worldwide Wireless Networks, Inc.
Crouch, Bierwolf & Chisholm
Salt Lake City, Utah
July 31, 2000
-62-
<PAGE>
WORLDWIDE WIRELESS NETWORKS, INC.
<TABLE>
<CAPTION>
INDEX TO AND DESCRIPTION OF EXHIBITS
Exhibit
Number Description Location
<S> <C> <C>
1.1 Agreement and Plan of Merger between Filed Feb. _, 2000
Worldwide Wireless and Tarrab Capital Group
1.2 Certificate of Merger Certificate of Merger Filed Feb. _, 2000
between Worldwide Wireless and Tarrab Capital Group
2.1 Articles of Incorporation of Second Investors Group, Filed Nov. 8, 1999
dated June 10, 1992
2.2 Certificate of Amendment to Articles of Incorporation, Filed Nov. 8, 1999
filed June 19, 1998
2.3 Certificate of Amendment to Articles of Incorporation Filed Nov. 8, 1999
filed March 5, 1999
2.4 Articles of Merger filed April 9, 1999 Filed Nov. 8, 1999
2.5 Amended and Restated Bylaws of Worldwide Wireless Filed Nov. 8, 1999
6.1 Lease Agreement between Worldwide Wireless and Filed Nov. 8, 1999
NL-Orange, LP dated March 30, 1999
6.2 Consultant Agreement between Worldwide Wireless Filed Nov. 8, 1999
and Columbia Financial Group, dated June 1, 1999
6.3 Form of Employment Agreement Filed Nov. 8, 1999
6.4 Microwave radio status license call sign WP0T648 Filed Nov. 8, 1999
between Worldwide Wireless and the FCC, dated
July 7, 1999
6.5 Microwave radio status license call sign WP0T649 Filed Nov. 8, 1999
between Worldwide Wireless and the FCC, dated
July 7, 1999
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<PAGE>
WORLDWIDE WIRELESS NETWORKS, INC.
6.6 Agreement between Bridge Technology, Inc. and Filed Nov. 8, 1999
Worldwide Wireless, dated May 20, 1999.
6.7 Purchase Agreement between Adaptive Broadband Filed Nov. 8, 1999
Corporation and Worldwide Wireless,
dated October 27, 1999
8.1 Agreement and Plan of Merger between Worldwide Filed Nov. 8, 1999
Wireless and Pacific Link Internet, Inc.,
dated March 31, 1999
10.1 Letter of Intent dated May 8, 2000 between Filed Apr. 15, 2000
Worldwide Wireless and 1st Universe Internet
10.2 Private Equity Line of Credit Agreement See attached
10.3 Registration Rights Agreement See attached
10.4 Escrow Agreement dated June 19, 2000 See attached
10.5 Put Notice/Compliance Certificate See attached
10.6 Stock Purchase Warrant See attached
10.7 Opinion of Feldhake, August & Roquemore See attached
dated June 19, 2000
10.8 Convertible Debenture and Warrants Purchase See attached
Agreement
10.9 7% Convertible Debenture See attached
10.10 Registration Rights Agreement See attached
10.11 Escrow Agreement dated June 30, 2000 See attached
10.12 Stock Purchase Warrant See attached
10.13 Opinion of Feldhake, August & Roquemore See attached
dated July 10, 2000
10.14 Instructions to Transfer Agent See attached
22.1 Subsidiaries of the Registrant Filed Nov. 8, 1999
27.1 Financial Data Schedule See attached
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<PAGE>
WORLDWIDE WIRELESS NETWORKS, INC.
99.1 Press release issued by Worldwide Wireless and Filed Apr. 15, 2000
announcing the purchase of the assets of
1st Universe Internet
99.2 Resolution of the Board of Directors of See attached
Worldwide Wireless dated July 19, 2000
authorizing the issuance of shares to
Technology Equity Fund Corporation
99.3 Resolution of the Board of Directors of See attached
Worldwide Wireless dated May 15, 2000
authorizing the issuance of shares to
The Oxford Group
99.4 Resolution of the Board of Directors of See attached
Worldwide Wireless dated June 1, 2000
authorizing the issuance of shares to
Schumann & Associates
</TABLE>
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<PAGE>
