Thursday, December 05, 2002 3:50:34 PM
PHI MUtual Ventures
April 01, 2002
WORLDWIDE WIRELESS NETWORKS INC (WWWN.OB)
Annual Report (SEC form 10KSB)
ITEM 6: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements, including all notes attached to these statements, which appear at the end of this filing. In addition to historical information, the discussion here and elsewhere in this filing contains some forward-looking statements. These statements by their nature involve risks and uncertainties, and should not be construed to imply any promise, certainty or likelihood that these results or trends will necessarily continue in the future. Our actual results in the future may differ significantly from those anticipated by these forward-looking statements, due to many factors including those set out in the "Risk Factors," "Business" and other sections of this filing.
PLAN OF OPERATION.
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During fiscal year 2002, we plan to continue our efforts on establishing profitability within Orange County, California. We have modified our previous business plan of that called for a concentration on expansion, and we will instead be emphasizing our efforts in further developing our operations in Orange County, California.
We currently do not generate sufficient cash flows to support our current operations. The revenue generated from our operations can only fund approximately 60% of our current operational related expenses and current debt obligations. In order for us to meet our cash requirements over the next twelve months, cost reduction measures must continue to be implemented, sales must increase, and additional funding must be obtained either from our $20,000,000 equity line and/or other private investments.
We are not currently engaged in any product research and development.
We currently have approximately $10,000 of excess Adaptive Broadband equipment that we are in the process of disposing at a discount. During fiscal year 2001, we disposed of approximately $180,000 of Adaptive Broadband equipment at discounts of up to 50%.
We also do not anticipate a significant change in the number of our employees.
OVERVIEW.
We are a networking solutions company that provides high speed Internet access using our own wireless network, frame relay circuits, data center services and network consulting. Since April 1999 we have had 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. Since inception we have operated at a net loss, due primarily to our investment in expanding our network coverage. Management believes that efforts to continue expansion will result in additional losses from which recovery will be difficult. Therefore, we have temporarily discontinued our expansion efforts beyond our existing Orange County operations. We plan to resume expansion efforts after we have established profitability in Orange County. 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 operations and continue growth of our customer base. We have a $20,000,000 equity line with Whitsend Investments Limited, of which approximately $326,000 was utilized in fiscal 2001, that may be utilized on an as-needed basis with certain limitations. If we were unable to access this capital, or any other capital for current operations, then we would be unable to continue our operations.
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 including sales of networking equipment. 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, cost of equipment sold, 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.
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 and finance personal, 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.
REVERSE MERGER TREATMENT.
Effective April 1, 1999, Pacific Link Internet, Inc. (Pacific) (a private company) was acquired by Worldwide Wireless Networks, 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 14 for 1 has been retroactively applied to show the
effects of the 7,000,000 share issuance as though it happened ratably since inception of Pacific. The management of Worldwide resigned and the management and board of Pacific filled the vacancy.
In January 1999, $1,000,000 was advanced to Worldwide Wireless from investors as an investment. Of the 4,199,988 shares issued, 200,000 post merger shares were issued to the investors in relation to the $1,000,000 investment.
BRIDGE TECHNOLOGY
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We entered into an agreement with Bridge Technology, Inc. on June 28, 2000. Under this Agreement, we issued 300,000 shares of restricted common stock for 150,000 restricted shares of Bridge Technology common stock. The shares were issued as restricted in accordance with the Securities and Exchange Commission Regulation 144. During the second quarter ended June 30, 2001, we were notified by Bridge Technology that they unilaterally cancelled the 150,000 share stock certificate issued to us without our consent. We view this as an illegal and fraudulent action. At this time we are contemplating our options ranging from further negotiations to possible litigation.
We have taken an other-than-temporary loss of $1,050,000 on our original investment in Bridge Technology of $1,200,000 , of which $550,000 are recorded on our year-end December 31, 2001 financial statements. The original other-than-temporary loss of $500,000 was recorded on our year-end December 31, 2000 financial statements. Our investment in Bridge Technology suffered losses because of weak market conditions. The original price per share of $8.00 in July 2000 suffered from a continuous decline down to $1.14 by the end of December 2001. Based upon market forecasts and the slim probability of a reverse trend, our management recognized a permanent write down from $4.67 to $1.00 per share to arrive at an investment carrying value of $150,000 or $1.00 per share.
RECENT DEVELOPMENTS.
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On October 27, 1999, we entered into a contract to purchase wireless telecommunications equipment from Adaptive Broadband Corporation. Pursuant to the agreement we committed to purchase 2,624 units, 5,120 units and 7,760 units during the first, second and third years of the agreement, respectively. Units consist of subscriber units or access points. Subscriber units refer to individual customers and access points refer to POPs. The agreement may be terminated by written notice from either party for occurrence of several specific events, notably, if either party is not satisfied with the performance of the other party. On February 15,2001 an agreement was reached with Adaptive Broadband Corporation to terminate the purchase contract and return certain equipment previously acquired which was accomplished in the first quarter of 2001. This resulted in a reduction in both inventory and accounts payable of approximately $1,485,240 in the first quarter of 2001. The termination of this agreement is not expected to have any material impact on our continuing operations, and we incurred a restocking fee of $15,000.
On June 28, 2000, Worldwide Wireless issued 300,000 shares of its common stock valued at $1,200,000 to Bridge Technology, Inc. in exchange for 150,000 shares of Bridge Technology, Inc. stock valued at $1,200,000 based on the quoted stock
prices on the market at the time of exchange. As of December 31, 2001, Worldwide Wireless recorded at total of $1,050,000 of losses on this investment, an investment available for sale. The aggregate fair market value of Bridge Technology, Inc was $150,000. A loss of $550,000 in 2001 and $550,000 in 2000 has been recognized due to management's determination that this decline in value is permanent.
On January 5, 2000 we issued 250,000 restricted common shares to Pacific First National Corp., Inc. in consideration of Five Hundred Thousand Dollars ($500,000.00). The transaction was exempt pursuant to Sections 3 and 4 of the Securities Act of 1933 and applicable state exemptions.
Pursuant to an Acquisition Agreement and Plan of Merger (the "Merger Agreement") dated as of February 10, 2000 between Worldwide Wireless and Tarrab Capital Group ("TCG"), a Nevada corporation, all the outstanding shares of common stock of TCG were exchanged for 5,000 shares of our 144 restricted common stock in a transaction in which we were the successor corporation and TCG will cease to exist. A copy of the Merger Agreement and Certificate of Merger were filed as exhibits to the Form 8-K filed in February, 2000.
On February 10, 2000, we issued 200,000 restricted common shares to Mutual Ventures Corporation in consideration of $400,000 in legal fees paid to Sperry, Young & Stoecklein for services rendered in connection with the Tarrab Capital Group Merger. Mutual Ventures Corporation paid for these legal services on our behalf. The issuance of these shares was exempt from registration under the Securities Act of 1933 by reason of Section 4(2) as a private transaction not involving a public distribution.
On March 13, 2000 we issued 8,000 restricted common shares to Universal Business Insurance, Inc. in consideration of an officer and director liability insurance policy valued at $33,000.00. The transaction was exempt from registration pursuant to 4(2) of the Securities Act of 1933 as a private offering not involving any public distribution.
On April 17, 2000, Worldwide Wireless 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. The transaction was exempt from registration pursuant to 4(2) of the Securities Act of 1933 as a private offering not involving any public distribution.
On May 15, 2000 we issued 100,000 restricted common shares to The Oxford Group, Inc. in consideration of $250,000 in cash. The transaction was exempt from registration pursuant to 4(2) of the Securities Act of 1933 as a private offering not involving any public distribution.
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 into an agreement to sell $1,000,000 of convertible debentures and warrants to AMRO International, S.A. and Trinity Capital Advisors, Inc. A condition of the purchase is that we must register the shares of common stock underlying these debentures and warrants with the SEC. These investors are selling stockholders in this filing. (See Item 6: Subsequent Events below) The transaction was exempt from registration
pursuant to 4(2) of the Securities Act of 1933 as a private offering not involving any public distribution.
On June 1, 2000, we 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 $46,865. The transaction was exempt from registration pursuant to 4(2) of the Securities Act of 1933 as a private offering not involving any public distribution.
On June 1, 2000, Worldwide Wireless Networks, Inc. issued 25,000 shares of common stock for services valued at $58,125. The transaction was exempt from registration pursuant to 4(2) of the Securities Act of 1933 as a private offering not involving any public distribution.
On June 14, 2000, Worldwide Wireless Networks, Inc. issued 5,000 shares of common stock for services valued at $17,250. The transaction was exempt from registration pursuant to 4(2) of the Securities Act of 1933 as a private offering not involving any public distribution.
Whitsend Investments Limited, a British Virgin Islands corporation, entered into a Private Equity Line of Credit Agreement with us, dated as of June 19, 2000, for the future issuance and purchase of shares of our common stock. The purpose of this agreement is to provide Worldwide Wireless with the ability to access and draw down funds when we need them for working capital, up to the maximum amount of $20 million, under the conditions specified in the agreement. Under that agreement, Whitsend Investments Limited has committed to purchase up to the $20 million worth of shares of our common stock over a three-year period. Once every 15 trading days we may request a draw of up to $500,000 of that amount.
On June 30, 2000 Worldwide Wireless Networks, Inc. went into default on a secured promissory note. The secured promissory note was entered on May 1, 2000 with PHI Mutual Ventures, LC. PHI Mutual Ventures, LC loaned us $100,000 under a secured promissory note bearing interest at 12% per annum. The promissory note became due on June 30, 2000, and began to accrue a late interest rate of 18% per annum. As of the date of this filing, we are in default on the principal and interest in the amount of $126,608, which indebtedness exceeds 5% of our total assets. We are currently negotiating with PHI Mutual Ventures, LC to obtain an extension on the promissory note, however there can be no assurance that these negotiations will be successful.
On July 10, 2000, Worldwide Wireless Networks, Inc. issued 5,000 shares of common stock for services valued at $15,000. The transaction was exempt from registration pursuant to 4(2) of the Securities Act of 1933 as a private offering not involving any public distribution.
On July 12, 2000, we agreed to issue warrants to Columbia Financial Group, Inc. in consideration for services rendered on our behalf. The warrants are exercisable for an aggregate of 600,000 common shares. The services which Columbia Financial Group, Inc. performed for us involved the preparation and dissemination to our shareholders, the media and others, information concerning Worldwide Wireless and our activities. Based upon our negotiation of, and entry into some agreements with, other companies providing or offering to provide these services to us for only cash, as well as our understanding of which Columbia Financial Group, Inc. charges to other clients in cash for the same type of services, we value the service provided to us by Columbia Financial
Group, Inc. at approximately $10,000 per year of service. The issuance of these shares was exempt from registration under the Securities Act of 1933 by reason of Section 4(2) as a private transaction not involving a public distribution.
On July 19, 2000, Worldwide Wireless Networks, Inc. issued 125,000 shares of common stock for cash of $250,000 at $2.00 per share. The transaction was exempt from registration pursuant to 4(2) of the Securities Act of 1933 as a private offering not involving any public distribution.
On January 25,2001, Worldwide Wireless Networks, Inc. went into default on a secured promissory note. The secured promissory note was entered on October 24, 2000 with Mutual Ventures Corporation. The principal value of the secured promissory note is $200,000 bearing interest at 12% per annum. The promissory note became due on January 24, 2001, and began to accrue a late interest rate of 18% per annum. As of the date of this filing, we are in default on the principal and interest in the amount of $234,800, which indebtedness exceeds 5% of our total assets. We are currently negotiating with Mutual Ventures Corporation to obtain an extension on the promissory note, however there can be no assurance that these negotiations will be successful.
On January 31, 2001 , Worldwide Wireless Networks, Inc. issued 262,500 shares of common stock for services valued at $65,625. The transaction was exempt from registration pursuant to 4(2) of the Securities Act of 1933 as a private offering not involving any public distribution.
On February 12, 2001, the SEC declared effective our Form SB-2/A Registration Statement registering 11,970,060 shares if its common stock. All proceeds from the sale of common stock under this filing will go to the selling stockholders. We will not receive any proceeds from the sale of common stock. Of the 11,970,060 shares offered in the February 12, 2001 filing, 1,225,000 shares are issuable upon the exercise of warrants and 930,525 are issuable upon the conversion of convertible debentures. (See: Item 5: Market for Common Equity and Related Stockholder Matters - Use of Proceeds from SB-2/A, declared effective February 12, 2001.)
On February 16, 2001, Worldwide Wireless issued 277,391 shares of common stock in exchange for conversion of $51,000 notes payable due AMRO International, S.A. and Trinity Capital Advisors, Inc. plus accrued interest of $2,259 for a total consideration of $53,258.
On February 23, 2001, Worldwide Wireless issued 118,686 shares of common stock in exchange for conversion of $20,000 notes payable due Trinity Capital Advisors, Inc. plus accrued interest of $34 for a total consideration of $20,035.
On February 28, 2001, Worldwide Wireless issued 479,217 shares of common stock in exchange for conversion of $50,000 notes payable due Trinity Capital Advisors, Inc. plus accrued interest of $1,755 for a total consideration of $51,755.
On March 8, 2001, Worldwide Wireless issued 543,423 shares of common stock in exchange for conversion of $40,000 notes payable due AMRO International, S.A. plus accrued interest of $1,952 or a total consideration of $41,952.
On March 16, 2001 World Wide Wireless Networks, Inc. went into default on a secured promissory note. PHI Mutual Ventures, LC loaned us $1,000,000 under a secured promissory note bearing interest at 11% per annum on March 15, 2000. The promissory note became due on March 15, 2001, and began to accrue a late interest rate of 18% per annum. As of the date of this filing, we are in default on the principal and interest in the amount of $1,262,524, which indebtedness exceeds 5% of our total assets. We are currently negotiating with PHI Mutual Ventures, LC to obtain an extension on the promissory note, however there can be no assurance that these negotiations will be successful.
On March 16, 2001, we submitted a new filing with the SEC that we subsequently amended on March 30, 2001. We are registering 17,562,500 shares of common stock. (See: Item 5 - Market for Common Equity and Related Stockholder Matters).
On March 29, 2001, Worldwide Wireless issued 200,000 shares of common stock for services valued at $28,000.
On March 31, 2001, Worldwide Wireless issued 553,582 restricted common shares to Universal Business Insurance, Inc. in consideration of an officer and director liability insurance policy valued at $77,502. The transaction was exempt from registration pursuant to 4(2) of the Securities Act of 1933 as a private offering not involving any public distribution.
On April 1, 2001, Worldwide Wireless issued 1,420,454 shares if common stock for cash of $118,509 to Whitsend Investments Limited under our Private Equity Line of Credit.
On April 3, 2001, Worldwide Wireless issued 631,313 shares if common stock for cash of $46,500 to Whitsend Investments Limited under our Private Equity Line of Credit.
On April 17, 2001, Worldwide Wireless issued warrants to purchase 250,000 shares of common stock to Pacific Industrial Partners as part of the settlement agreement discussed at ITEM 3 - Legal Proceedings.
On May 31, 2001, Worldwide Wireless issued 1,893,940 shares if common stock for cash of $47,985 to Whitsend Investments Limited under our Private Equity Line of Credit.
On June 14, 2001, the SEC declared effective our filing (Number 333-57108) in which we registered 19,804,274 shares of common stock. All proceeds from the sales of common stock under the SB-2/A will go to the selling stockholders. We may, however, receive proceeds from the exercise of warrants described in the SB-2/A, should the holders of the warrants choose to exercise them (which is solely in the holder's discretion). Of the 19,804,274 shares offered in the SB-2/A, 16,000,000 may be issuable upon the conversion of the convertible debentures, 1,000,000 shares are issuable upon the exercise of warrants. (See: Item 5: Market for Common Equity and Related Stockholder Matters - Use of Proceeds from SB-2/A, declared effective June 14, 2001.)
On June 21, 2001, Worldwide Wireless issued 800,477 shares of common stock in exchange for conversion of $18,500 notes payable due Trinity Capital Advisors, Inc. plus accrued interest of $1,352 for a total consideration of $19,851.
On June 28, 2001,Worldwide Wireless issued 1,119,970 shares of common stock in exchange for conversion of $18,000 notes payable due AMRO International, S.A. plus accrued interest of $1,264 for a total consideration of $19,264
On July 9, 2001, Worldwide Wireless issued 1,515,152 shares if common stock for cash of $19,185 to Whitsend Investments Limited under our Private Equity Line of Credit.
On July 9, 2001, Worldwide Wireless issued 1,029,552 shares of common stock in exchange for conversion of $13,000 notes payable due Trinity Capital Advisors, Inc plus accrued interest of $1,002 for a total consideration of $14,002
On July 17, 2001, Worldwide Wireless issued warrants to purchase 250,000 shares of common stock to Pacific Industrial Partners as part of the settlement agreement discussed at ITEM 3 - Legal Proceedings
On July 18, 2001, Worldwide Wireless issued 1,957,008 shares of common stock in exchange for conversion of $22,500 notes payable due Trinity Capital Advisors, Inc. plus accrued interest of $1,767 for a total consideration of $24,267
On July 19, 2001, Worldwide Wireless issued 3,466,666 shares of common stock in exchange for conversion of $40,000 notes payable due AMRO International, S.A. plus accrued interest of $2,987 for a total consideration of $42,987
On July 19, 2001, Worldwide Wireless issued 935,017 shares of common stock in exchange for conversion of $11,400 notes payable due Trinity Capital Advisors, Inc. plus accrued interest of $840 for a total consideration of $12,240
On July 20, 2001, Worldwide Wireless issued 3,467,293 shares of common stock in exchange for conversion of $40,000 notes payable due AMRO International, S.A. plus accrued interest of $2,994 for a total consideration of $42,994
On July 26, 2001, Worldwide Wireless issued 1,242,937 shares of common stock in exchange for conversion of $14,300 notes payable due Trinity Capital Advisors, Incplus accrued interest of $1,112 for a total consideration of $15,412
On August 1, 2001, Worldwide Wireless issued 2,272,728 shares if common stock for cash of $46,500 to Whitsend Investments Limited under our Private Equity Line of Credit.
On August 6, 2001, Worldwide Wireless issued 55,358 restricted common shares to Universal Business Insurance, Inc. in additional consideration of an officer and director liability insurance policy valued issued in March 2001 The additional consideration was valued at $783. The transaction was exempt from registration pursuant to 4(2) of the Securities Act of 1933 as a private offering not involving any public distribution.
On August 6, 2001, Worldwide Wireless issued 2,309,940 shares of common stock in exchange for conversion of $30,000 notes payable due AMRO International, S.A. plus accrued interest of $2,339 for a total consideration of $32,339
On August 9, 2001, Worldwide Wireless issued 2,202,746 shares of common stock in exchange for conversion of $27,770 notes payable due AMRO International, S.A. plus accrued interest of $2,187 for a total consideration of $29,957
On September 17, 2001, Worldwide Wireless issued 1,242,898 shares if common stock for cash of $32,601 to Whitsend Investments Limited under our Private Equity Line of Credit
On October 17, 2001, Worldwide Wireless issued warrants to purchase 250,000 shares of common stock to Pacific Industrial Partners as part of the settlement agreement discussed at ITEM 3 - Legal Proceedings
On October 18, 2001, Worldwide Wireless issued 713,050 shares if common stock for cash of $14,443 to Whitsend Investments Limited under our Private Equity Line of Credit
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 December 31, 2001 cash reserves totaled $52,383 with total current assets of $239,341.
We have posted operating losses since inception. Our long-term debt was $603,530 as December 31, 2001. Our current liabilities for that same date were $4,788,852 of which $2,201,456 accounts for the current portion of, our long term liabilities discussed above, and $1,284,857 is attributable to current accounts payable. We anticipate a reduction of approximately $14,960 in March 2002, 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 December 31, 2001, our principal commitments consisted of office, roof-rights payments, and equipment leases. Future minimum principal payments on notes payable were approximately, $2,186,497 in 2002, and $603,530 in 2003. Future minimum capital lease payments were $15,954 through 2002. Future minimum operating lease payments at December 31, 2000 were $874,814. with payments due through the end of fiscal years 2002 and 2003 of $366,210 and $319,801, respectively.
The consolidated cash flows show net cash used for our operating activities for the fiscal year ended December 31, 2001 was $474,260. Net cash used for operating activities consisted primarily of net operating losses and network asset purchases. Net cash provided by our financing activities was $600,991 during the same period. Net cash provided by financing activities was principally attributable to the sale of debt and equity securities.
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. We anticipate that funding for these activities will come from our equity line of credit, as well as the development of strategic alliances.
Worldwide Wireless' current business plan concentrates on the continued development of our Orange County, California network and expansion of our customer base to achieve a positive operational cash flow, which is a continuation of our business goals as of December 31, 2001. We have curtailed our expansion in Los Angeles County as described above.
Whitsend Investments Limited, a British Virgin Islands corporation, entered into a Private Equity Line of Credit Agreement with us, dated as of June 19, 2000, for the future issuance and purchase of shares of our common stock. The purpose of this agreement is to provide Worldwide Wireless with the ability to access and draw down funds when we need them for working capital, up to the maximum amount of $20 million, under the conditions specified in the agreement. Under that agreement, Whitsend Investments Limited has committed to purchase up to the $20 million worth of shares of our common stock over a three-year period. Once every 15 trading days we may request a draw of up to $500,000 of that amount. If we elect to receive any of these funds, we will fix a specific date on which to calculate the appropriate price to charge Whitsend Investments Limited for our shares. This price will be calculated using a formula based on the average trading price of our common stock for the five-day period starting two days before the calculation date and ending two days after it. Each draw must be for at least $75,000. Once the relevant average trading price for that period is calculated, Whitsend Investments Limited receives a discount on the purchase of our shares equal to twelve percent of this amount During fiscal 2001, we utilized this line for a total capital investment of $326,339 by issuing 9,689,535 shares of capital stock.
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 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 available exemptions. 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 can not 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 if we issue more shares of our common stock our shareholders may experience dilution in the value per share of their common stock.
During fiscal year 2002, we plan to focus our efforts on establishing profitability within Orange County, California. We have modified our business goal of concentrating on expansion, and will only enhance our Orange County network at this time.
RESULTS OF OPERATIONS.
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The following table sets forth selected consolidated statements of operating data as a percentage of total revenues:
Year Ended
Dec 31 Dec 31 Dec 31 Dec 31, Dec 31,
1997 1998 1999 2000 2001
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Revenues. . . . . . . . . . $271,841 $841,841 $1,980,203 $3,351,878 $1,965,924
AS A PERCENTAGE OF REVENUES
Cost of sales . . . . . . . $189,382 $430,600 $ 972,802 $2,292,996 $1,054,623
69.7% 51.1% 49.1% 68.4% 53.6%
Gross profit. . . . . . . . $ 82,459 $411,241 $1,007,401 $1.058,882 $ 911,200
30.3% 48.9% 50.9% 31.6% 46.4%
Operating expenses: Selling . . . . . . . . . $ 68,827 $158,592 $ 616,022 $ 836,088 $ 304,657
25.3% 18.8% 31.1% 24.9% 15.5%
General and administrative $154,596 $549,987 $2,417,450 $3,990,987 $3,270,704
56.9% 65.3% 122.1% 119.1% 166.4%
Total operating expenses . $223,423 $708,579 $3,033,472 $4,827,075 $3,575,361
82.2% 84.2% 153.2% 144.0% 181.9%
Loss from operations . . . . $140,964 $297,338 $2,026,071 $3,768,193 $2,664,060
51.9% 35.3% 102.3% 112.4% 135.6%
Other income (expense), net $(12,529) $(32,045) $ (25,181) $ (887,179) $ (974,224)
4.6% 3.8% 1.3% 25.6% 49.5%
Net loss . . . . . . . . . . $153,493 $330,183 $2,051,252 $4,655,372 $3,638,284
56.5% 39.2% 103.6% 138.9% 201.9%
TWELVE MONTHS ENDED DECEMBER 31, 2001 AND 2000
Revenues for the period ended December 31, 2001 were $1,965,823, which represented an decrease of $1,386,055 from $3,351,878 for the period ended December 31, 2000. The decrease was primarily attributable to discontinuing our dial-up and DSL services as well as decreased equipment sales. In 2000 dial-up services were $98,502, DSL services were $170.968, and equipment sales $943,302 a decline of $718,515 for 2001. Wireless customers generated approximately $1,275,936 of our total revenues for such period. Frame circuits customers generated approximately $426,325 of our total revenues and equipment sales
generated $224,787 of our total revenues for the period. The balance of $38,775 resulted from other services, including co-location, and consulting services.
Cost of sales for the fiscal year ended December 31, 2001 was $1,054,623 which represents an decrease of $1,382,393 from $2,292,996 recorded for the period ended December 31, 2000. The decrease was primarily attributable to decreased third-party network service expense on a per customer basis and a decrease in cost of equipment purchased for resale.
Selling expenses for the fiscal year ended December 31, 2001 were $304,657, which represented a decrease of $531,431 from $836,088 for the period ended December 31, 2000. The decrease was primarily due to the company restructuring which commenced in late fiscal 2000 and was completed in 2001 which resulted in a reduction in sales personal and a change in compensation arrangements
General and administrative expenses for the 2001 fiscal year were $3,270,704, which represented a decrease of $720,283 from $3,990,987 for fiscal year 2000. The decrease was primarily due to the company reorganization, staff reductions, and a decrease in legal, professional and outside services as expenses related to being a public company stabilized. We expect slight increases in our general and administrative expenses due to increased advertising and staff additions as our cash flow permits.
Interest expense consists primarily of interest expense on notes payable and capital equipment leases. Interest expense for fiscal year 2001 was $399,301 which represented a increase of $212,806 from interest expense of $186,495 for fiscal year 2000. The increase was primarily attributable to the interest expense on the $2,097,725 of additional long-term debt incurred during the twelve months ended December 31, 2000 of which funds were used to continue expansion and increase the customer base in our existing market.
April 01, 2002
WORLDWIDE WIRELESS NETWORKS INC (WWWN.OB)
Annual Report (SEC form 10KSB)
ITEM 6: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements, including all notes attached to these statements, which appear at the end of this filing. In addition to historical information, the discussion here and elsewhere in this filing contains some forward-looking statements. These statements by their nature involve risks and uncertainties, and should not be construed to imply any promise, certainty or likelihood that these results or trends will necessarily continue in the future. Our actual results in the future may differ significantly from those anticipated by these forward-looking statements, due to many factors including those set out in the "Risk Factors," "Business" and other sections of this filing.
PLAN OF OPERATION.
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During fiscal year 2002, we plan to continue our efforts on establishing profitability within Orange County, California. We have modified our previous business plan of that called for a concentration on expansion, and we will instead be emphasizing our efforts in further developing our operations in Orange County, California.
We currently do not generate sufficient cash flows to support our current operations. The revenue generated from our operations can only fund approximately 60% of our current operational related expenses and current debt obligations. In order for us to meet our cash requirements over the next twelve months, cost reduction measures must continue to be implemented, sales must increase, and additional funding must be obtained either from our $20,000,000 equity line and/or other private investments.
We are not currently engaged in any product research and development.
We currently have approximately $10,000 of excess Adaptive Broadband equipment that we are in the process of disposing at a discount. During fiscal year 2001, we disposed of approximately $180,000 of Adaptive Broadband equipment at discounts of up to 50%.
We also do not anticipate a significant change in the number of our employees.
OVERVIEW.
We are a networking solutions company that provides high speed Internet access using our own wireless network, frame relay circuits, data center services and network consulting. Since April 1999 we have had 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. Since inception we have operated at a net loss, due primarily to our investment in expanding our network coverage. Management believes that efforts to continue expansion will result in additional losses from which recovery will be difficult. Therefore, we have temporarily discontinued our expansion efforts beyond our existing Orange County operations. We plan to resume expansion efforts after we have established profitability in Orange County. 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 operations and continue growth of our customer base. We have a $20,000,000 equity line with Whitsend Investments Limited, of which approximately $326,000 was utilized in fiscal 2001, that may be utilized on an as-needed basis with certain limitations. If we were unable to access this capital, or any other capital for current operations, then we would be unable to continue our operations.
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 including sales of networking equipment. 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, cost of equipment sold, 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.
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 and finance personal, 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.
REVERSE MERGER TREATMENT.
Effective April 1, 1999, Pacific Link Internet, Inc. (Pacific) (a private company) was acquired by Worldwide Wireless Networks, 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 14 for 1 has been retroactively applied to show the
effects of the 7,000,000 share issuance as though it happened ratably since inception of Pacific. The management of Worldwide resigned and the management and board of Pacific filled the vacancy.
In January 1999, $1,000,000 was advanced to Worldwide Wireless from investors as an investment. Of the 4,199,988 shares issued, 200,000 post merger shares were issued to the investors in relation to the $1,000,000 investment.
BRIDGE TECHNOLOGY
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We entered into an agreement with Bridge Technology, Inc. on June 28, 2000. Under this Agreement, we issued 300,000 shares of restricted common stock for 150,000 restricted shares of Bridge Technology common stock. The shares were issued as restricted in accordance with the Securities and Exchange Commission Regulation 144. During the second quarter ended June 30, 2001, we were notified by Bridge Technology that they unilaterally cancelled the 150,000 share stock certificate issued to us without our consent. We view this as an illegal and fraudulent action. At this time we are contemplating our options ranging from further negotiations to possible litigation.
We have taken an other-than-temporary loss of $1,050,000 on our original investment in Bridge Technology of $1,200,000 , of which $550,000 are recorded on our year-end December 31, 2001 financial statements. The original other-than-temporary loss of $500,000 was recorded on our year-end December 31, 2000 financial statements. Our investment in Bridge Technology suffered losses because of weak market conditions. The original price per share of $8.00 in July 2000 suffered from a continuous decline down to $1.14 by the end of December 2001. Based upon market forecasts and the slim probability of a reverse trend, our management recognized a permanent write down from $4.67 to $1.00 per share to arrive at an investment carrying value of $150,000 or $1.00 per share.
RECENT DEVELOPMENTS.
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On October 27, 1999, we entered into a contract to purchase wireless telecommunications equipment from Adaptive Broadband Corporation. Pursuant to the agreement we committed to purchase 2,624 units, 5,120 units and 7,760 units during the first, second and third years of the agreement, respectively. Units consist of subscriber units or access points. Subscriber units refer to individual customers and access points refer to POPs. The agreement may be terminated by written notice from either party for occurrence of several specific events, notably, if either party is not satisfied with the performance of the other party. On February 15,2001 an agreement was reached with Adaptive Broadband Corporation to terminate the purchase contract and return certain equipment previously acquired which was accomplished in the first quarter of 2001. This resulted in a reduction in both inventory and accounts payable of approximately $1,485,240 in the first quarter of 2001. The termination of this agreement is not expected to have any material impact on our continuing operations, and we incurred a restocking fee of $15,000.
On June 28, 2000, Worldwide Wireless issued 300,000 shares of its common stock valued at $1,200,000 to Bridge Technology, Inc. in exchange for 150,000 shares of Bridge Technology, Inc. stock valued at $1,200,000 based on the quoted stock
prices on the market at the time of exchange. As of December 31, 2001, Worldwide Wireless recorded at total of $1,050,000 of losses on this investment, an investment available for sale. The aggregate fair market value of Bridge Technology, Inc was $150,000. A loss of $550,000 in 2001 and $550,000 in 2000 has been recognized due to management's determination that this decline in value is permanent.
On January 5, 2000 we issued 250,000 restricted common shares to Pacific First National Corp., Inc. in consideration of Five Hundred Thousand Dollars ($500,000.00). The transaction was exempt pursuant to Sections 3 and 4 of the Securities Act of 1933 and applicable state exemptions.
Pursuant to an Acquisition Agreement and Plan of Merger (the "Merger Agreement") dated as of February 10, 2000 between Worldwide Wireless and Tarrab Capital Group ("TCG"), a Nevada corporation, all the outstanding shares of common stock of TCG were exchanged for 5,000 shares of our 144 restricted common stock in a transaction in which we were the successor corporation and TCG will cease to exist. A copy of the Merger Agreement and Certificate of Merger were filed as exhibits to the Form 8-K filed in February, 2000.
On February 10, 2000, we issued 200,000 restricted common shares to Mutual Ventures Corporation in consideration of $400,000 in legal fees paid to Sperry, Young & Stoecklein for services rendered in connection with the Tarrab Capital Group Merger. Mutual Ventures Corporation paid for these legal services on our behalf. The issuance of these shares was exempt from registration under the Securities Act of 1933 by reason of Section 4(2) as a private transaction not involving a public distribution.
On March 13, 2000 we issued 8,000 restricted common shares to Universal Business Insurance, Inc. in consideration of an officer and director liability insurance policy valued at $33,000.00. The transaction was exempt from registration pursuant to 4(2) of the Securities Act of 1933 as a private offering not involving any public distribution.
On April 17, 2000, Worldwide Wireless 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. The transaction was exempt from registration pursuant to 4(2) of the Securities Act of 1933 as a private offering not involving any public distribution.
On May 15, 2000 we issued 100,000 restricted common shares to The Oxford Group, Inc. in consideration of $250,000 in cash. The transaction was exempt from registration pursuant to 4(2) of the Securities Act of 1933 as a private offering not involving any public distribution.
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 into an agreement to sell $1,000,000 of convertible debentures and warrants to AMRO International, S.A. and Trinity Capital Advisors, Inc. A condition of the purchase is that we must register the shares of common stock underlying these debentures and warrants with the SEC. These investors are selling stockholders in this filing. (See Item 6: Subsequent Events below) The transaction was exempt from registration
pursuant to 4(2) of the Securities Act of 1933 as a private offering not involving any public distribution.
On June 1, 2000, we 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 $46,865. The transaction was exempt from registration pursuant to 4(2) of the Securities Act of 1933 as a private offering not involving any public distribution.
On June 1, 2000, Worldwide Wireless Networks, Inc. issued 25,000 shares of common stock for services valued at $58,125. The transaction was exempt from registration pursuant to 4(2) of the Securities Act of 1933 as a private offering not involving any public distribution.
On June 14, 2000, Worldwide Wireless Networks, Inc. issued 5,000 shares of common stock for services valued at $17,250. The transaction was exempt from registration pursuant to 4(2) of the Securities Act of 1933 as a private offering not involving any public distribution.
Whitsend Investments Limited, a British Virgin Islands corporation, entered into a Private Equity Line of Credit Agreement with us, dated as of June 19, 2000, for the future issuance and purchase of shares of our common stock. The purpose of this agreement is to provide Worldwide Wireless with the ability to access and draw down funds when we need them for working capital, up to the maximum amount of $20 million, under the conditions specified in the agreement. Under that agreement, Whitsend Investments Limited has committed to purchase up to the $20 million worth of shares of our common stock over a three-year period. Once every 15 trading days we may request a draw of up to $500,000 of that amount.
On June 30, 2000 Worldwide Wireless Networks, Inc. went into default on a secured promissory note. The secured promissory note was entered on May 1, 2000 with PHI Mutual Ventures, LC. PHI Mutual Ventures, LC loaned us $100,000 under a secured promissory note bearing interest at 12% per annum. The promissory note became due on June 30, 2000, and began to accrue a late interest rate of 18% per annum. As of the date of this filing, we are in default on the principal and interest in the amount of $126,608, which indebtedness exceeds 5% of our total assets. We are currently negotiating with PHI Mutual Ventures, LC to obtain an extension on the promissory note, however there can be no assurance that these negotiations will be successful.
On July 10, 2000, Worldwide Wireless Networks, Inc. issued 5,000 shares of common stock for services valued at $15,000. The transaction was exempt from registration pursuant to 4(2) of the Securities Act of 1933 as a private offering not involving any public distribution.
On July 12, 2000, we agreed to issue warrants to Columbia Financial Group, Inc. in consideration for services rendered on our behalf. The warrants are exercisable for an aggregate of 600,000 common shares. The services which Columbia Financial Group, Inc. performed for us involved the preparation and dissemination to our shareholders, the media and others, information concerning Worldwide Wireless and our activities. Based upon our negotiation of, and entry into some agreements with, other companies providing or offering to provide these services to us for only cash, as well as our understanding of which Columbia Financial Group, Inc. charges to other clients in cash for the same type of services, we value the service provided to us by Columbia Financial
Group, Inc. at approximately $10,000 per year of service. The issuance of these shares was exempt from registration under the Securities Act of 1933 by reason of Section 4(2) as a private transaction not involving a public distribution.
On July 19, 2000, Worldwide Wireless Networks, Inc. issued 125,000 shares of common stock for cash of $250,000 at $2.00 per share. The transaction was exempt from registration pursuant to 4(2) of the Securities Act of 1933 as a private offering not involving any public distribution.
On January 25,2001, Worldwide Wireless Networks, Inc. went into default on a secured promissory note. The secured promissory note was entered on October 24, 2000 with Mutual Ventures Corporation. The principal value of the secured promissory note is $200,000 bearing interest at 12% per annum. The promissory note became due on January 24, 2001, and began to accrue a late interest rate of 18% per annum. As of the date of this filing, we are in default on the principal and interest in the amount of $234,800, which indebtedness exceeds 5% of our total assets. We are currently negotiating with Mutual Ventures Corporation to obtain an extension on the promissory note, however there can be no assurance that these negotiations will be successful.
On January 31, 2001 , Worldwide Wireless Networks, Inc. issued 262,500 shares of common stock for services valued at $65,625. The transaction was exempt from registration pursuant to 4(2) of the Securities Act of 1933 as a private offering not involving any public distribution.
On February 12, 2001, the SEC declared effective our Form SB-2/A Registration Statement registering 11,970,060 shares if its common stock. All proceeds from the sale of common stock under this filing will go to the selling stockholders. We will not receive any proceeds from the sale of common stock. Of the 11,970,060 shares offered in the February 12, 2001 filing, 1,225,000 shares are issuable upon the exercise of warrants and 930,525 are issuable upon the conversion of convertible debentures. (See: Item 5: Market for Common Equity and Related Stockholder Matters - Use of Proceeds from SB-2/A, declared effective February 12, 2001.)
On February 16, 2001, Worldwide Wireless issued 277,391 shares of common stock in exchange for conversion of $51,000 notes payable due AMRO International, S.A. and Trinity Capital Advisors, Inc. plus accrued interest of $2,259 for a total consideration of $53,258.
On February 23, 2001, Worldwide Wireless issued 118,686 shares of common stock in exchange for conversion of $20,000 notes payable due Trinity Capital Advisors, Inc. plus accrued interest of $34 for a total consideration of $20,035.
On February 28, 2001, Worldwide Wireless issued 479,217 shares of common stock in exchange for conversion of $50,000 notes payable due Trinity Capital Advisors, Inc. plus accrued interest of $1,755 for a total consideration of $51,755.
On March 8, 2001, Worldwide Wireless issued 543,423 shares of common stock in exchange for conversion of $40,000 notes payable due AMRO International, S.A. plus accrued interest of $1,952 or a total consideration of $41,952.
On March 16, 2001 World Wide Wireless Networks, Inc. went into default on a secured promissory note. PHI Mutual Ventures, LC loaned us $1,000,000 under a secured promissory note bearing interest at 11% per annum on March 15, 2000. The promissory note became due on March 15, 2001, and began to accrue a late interest rate of 18% per annum. As of the date of this filing, we are in default on the principal and interest in the amount of $1,262,524, which indebtedness exceeds 5% of our total assets. We are currently negotiating with PHI Mutual Ventures, LC to obtain an extension on the promissory note, however there can be no assurance that these negotiations will be successful.
On March 16, 2001, we submitted a new filing with the SEC that we subsequently amended on March 30, 2001. We are registering 17,562,500 shares of common stock. (See: Item 5 - Market for Common Equity and Related Stockholder Matters).
On March 29, 2001, Worldwide Wireless issued 200,000 shares of common stock for services valued at $28,000.
On March 31, 2001, Worldwide Wireless issued 553,582 restricted common shares to Universal Business Insurance, Inc. in consideration of an officer and director liability insurance policy valued at $77,502. The transaction was exempt from registration pursuant to 4(2) of the Securities Act of 1933 as a private offering not involving any public distribution.
On April 1, 2001, Worldwide Wireless issued 1,420,454 shares if common stock for cash of $118,509 to Whitsend Investments Limited under our Private Equity Line of Credit.
On April 3, 2001, Worldwide Wireless issued 631,313 shares if common stock for cash of $46,500 to Whitsend Investments Limited under our Private Equity Line of Credit.
On April 17, 2001, Worldwide Wireless issued warrants to purchase 250,000 shares of common stock to Pacific Industrial Partners as part of the settlement agreement discussed at ITEM 3 - Legal Proceedings.
On May 31, 2001, Worldwide Wireless issued 1,893,940 shares if common stock for cash of $47,985 to Whitsend Investments Limited under our Private Equity Line of Credit.
On June 14, 2001, the SEC declared effective our filing (Number 333-57108) in which we registered 19,804,274 shares of common stock. All proceeds from the sales of common stock under the SB-2/A will go to the selling stockholders. We may, however, receive proceeds from the exercise of warrants described in the SB-2/A, should the holders of the warrants choose to exercise them (which is solely in the holder's discretion). Of the 19,804,274 shares offered in the SB-2/A, 16,000,000 may be issuable upon the conversion of the convertible debentures, 1,000,000 shares are issuable upon the exercise of warrants. (See: Item 5: Market for Common Equity and Related Stockholder Matters - Use of Proceeds from SB-2/A, declared effective June 14, 2001.)
On June 21, 2001, Worldwide Wireless issued 800,477 shares of common stock in exchange for conversion of $18,500 notes payable due Trinity Capital Advisors, Inc. plus accrued interest of $1,352 for a total consideration of $19,851.
On June 28, 2001,Worldwide Wireless issued 1,119,970 shares of common stock in exchange for conversion of $18,000 notes payable due AMRO International, S.A. plus accrued interest of $1,264 for a total consideration of $19,264
On July 9, 2001, Worldwide Wireless issued 1,515,152 shares if common stock for cash of $19,185 to Whitsend Investments Limited under our Private Equity Line of Credit.
On July 9, 2001, Worldwide Wireless issued 1,029,552 shares of common stock in exchange for conversion of $13,000 notes payable due Trinity Capital Advisors, Inc plus accrued interest of $1,002 for a total consideration of $14,002
On July 17, 2001, Worldwide Wireless issued warrants to purchase 250,000 shares of common stock to Pacific Industrial Partners as part of the settlement agreement discussed at ITEM 3 - Legal Proceedings
On July 18, 2001, Worldwide Wireless issued 1,957,008 shares of common stock in exchange for conversion of $22,500 notes payable due Trinity Capital Advisors, Inc. plus accrued interest of $1,767 for a total consideration of $24,267
On July 19, 2001, Worldwide Wireless issued 3,466,666 shares of common stock in exchange for conversion of $40,000 notes payable due AMRO International, S.A. plus accrued interest of $2,987 for a total consideration of $42,987
On July 19, 2001, Worldwide Wireless issued 935,017 shares of common stock in exchange for conversion of $11,400 notes payable due Trinity Capital Advisors, Inc. plus accrued interest of $840 for a total consideration of $12,240
On July 20, 2001, Worldwide Wireless issued 3,467,293 shares of common stock in exchange for conversion of $40,000 notes payable due AMRO International, S.A. plus accrued interest of $2,994 for a total consideration of $42,994
On July 26, 2001, Worldwide Wireless issued 1,242,937 shares of common stock in exchange for conversion of $14,300 notes payable due Trinity Capital Advisors, Incplus accrued interest of $1,112 for a total consideration of $15,412
On August 1, 2001, Worldwide Wireless issued 2,272,728 shares if common stock for cash of $46,500 to Whitsend Investments Limited under our Private Equity Line of Credit.
On August 6, 2001, Worldwide Wireless issued 55,358 restricted common shares to Universal Business Insurance, Inc. in additional consideration of an officer and director liability insurance policy valued issued in March 2001 The additional consideration was valued at $783. The transaction was exempt from registration pursuant to 4(2) of the Securities Act of 1933 as a private offering not involving any public distribution.
On August 6, 2001, Worldwide Wireless issued 2,309,940 shares of common stock in exchange for conversion of $30,000 notes payable due AMRO International, S.A. plus accrued interest of $2,339 for a total consideration of $32,339
On August 9, 2001, Worldwide Wireless issued 2,202,746 shares of common stock in exchange for conversion of $27,770 notes payable due AMRO International, S.A. plus accrued interest of $2,187 for a total consideration of $29,957
On September 17, 2001, Worldwide Wireless issued 1,242,898 shares if common stock for cash of $32,601 to Whitsend Investments Limited under our Private Equity Line of Credit
On October 17, 2001, Worldwide Wireless issued warrants to purchase 250,000 shares of common stock to Pacific Industrial Partners as part of the settlement agreement discussed at ITEM 3 - Legal Proceedings
On October 18, 2001, Worldwide Wireless issued 713,050 shares if common stock for cash of $14,443 to Whitsend Investments Limited under our Private Equity Line of Credit
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 December 31, 2001 cash reserves totaled $52,383 with total current assets of $239,341.
We have posted operating losses since inception. Our long-term debt was $603,530 as December 31, 2001. Our current liabilities for that same date were $4,788,852 of which $2,201,456 accounts for the current portion of, our long term liabilities discussed above, and $1,284,857 is attributable to current accounts payable. We anticipate a reduction of approximately $14,960 in March 2002, 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 December 31, 2001, our principal commitments consisted of office, roof-rights payments, and equipment leases. Future minimum principal payments on notes payable were approximately, $2,186,497 in 2002, and $603,530 in 2003. Future minimum capital lease payments were $15,954 through 2002. Future minimum operating lease payments at December 31, 2000 were $874,814. with payments due through the end of fiscal years 2002 and 2003 of $366,210 and $319,801, respectively.
The consolidated cash flows show net cash used for our operating activities for the fiscal year ended December 31, 2001 was $474,260. Net cash used for operating activities consisted primarily of net operating losses and network asset purchases. Net cash provided by our financing activities was $600,991 during the same period. Net cash provided by financing activities was principally attributable to the sale of debt and equity securities.
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. We anticipate that funding for these activities will come from our equity line of credit, as well as the development of strategic alliances.
Worldwide Wireless' current business plan concentrates on the continued development of our Orange County, California network and expansion of our customer base to achieve a positive operational cash flow, which is a continuation of our business goals as of December 31, 2001. We have curtailed our expansion in Los Angeles County as described above.
Whitsend Investments Limited, a British Virgin Islands corporation, entered into a Private Equity Line of Credit Agreement with us, dated as of June 19, 2000, for the future issuance and purchase of shares of our common stock. The purpose of this agreement is to provide Worldwide Wireless with the ability to access and draw down funds when we need them for working capital, up to the maximum amount of $20 million, under the conditions specified in the agreement. Under that agreement, Whitsend Investments Limited has committed to purchase up to the $20 million worth of shares of our common stock over a three-year period. Once every 15 trading days we may request a draw of up to $500,000 of that amount. If we elect to receive any of these funds, we will fix a specific date on which to calculate the appropriate price to charge Whitsend Investments Limited for our shares. This price will be calculated using a formula based on the average trading price of our common stock for the five-day period starting two days before the calculation date and ending two days after it. Each draw must be for at least $75,000. Once the relevant average trading price for that period is calculated, Whitsend Investments Limited receives a discount on the purchase of our shares equal to twelve percent of this amount During fiscal 2001, we utilized this line for a total capital investment of $326,339 by issuing 9,689,535 shares of capital stock.
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 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 available exemptions. 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 can not 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 if we issue more shares of our common stock our shareholders may experience dilution in the value per share of their common stock.
During fiscal year 2002, we plan to focus our efforts on establishing profitability within Orange County, California. We have modified our business goal of concentrating on expansion, and will only enhance our Orange County network at this time.
RESULTS OF OPERATIONS.
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The following table sets forth selected consolidated statements of operating data as a percentage of total revenues:
Year Ended
Dec 31 Dec 31 Dec 31 Dec 31, Dec 31,
1997 1998 1999 2000 2001
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Revenues. . . . . . . . . . $271,841 $841,841 $1,980,203 $3,351,878 $1,965,924
AS A PERCENTAGE OF REVENUES
Cost of sales . . . . . . . $189,382 $430,600 $ 972,802 $2,292,996 $1,054,623
69.7% 51.1% 49.1% 68.4% 53.6%
Gross profit. . . . . . . . $ 82,459 $411,241 $1,007,401 $1.058,882 $ 911,200
30.3% 48.9% 50.9% 31.6% 46.4%
Operating expenses: Selling . . . . . . . . . $ 68,827 $158,592 $ 616,022 $ 836,088 $ 304,657
25.3% 18.8% 31.1% 24.9% 15.5%
General and administrative $154,596 $549,987 $2,417,450 $3,990,987 $3,270,704
56.9% 65.3% 122.1% 119.1% 166.4%
Total operating expenses . $223,423 $708,579 $3,033,472 $4,827,075 $3,575,361
82.2% 84.2% 153.2% 144.0% 181.9%
Loss from operations . . . . $140,964 $297,338 $2,026,071 $3,768,193 $2,664,060
51.9% 35.3% 102.3% 112.4% 135.6%
Other income (expense), net $(12,529) $(32,045) $ (25,181) $ (887,179) $ (974,224)
4.6% 3.8% 1.3% 25.6% 49.5%
Net loss . . . . . . . . . . $153,493 $330,183 $2,051,252 $4,655,372 $3,638,284
56.5% 39.2% 103.6% 138.9% 201.9%
TWELVE MONTHS ENDED DECEMBER 31, 2001 AND 2000
Revenues for the period ended December 31, 2001 were $1,965,823, which represented an decrease of $1,386,055 from $3,351,878 for the period ended December 31, 2000. The decrease was primarily attributable to discontinuing our dial-up and DSL services as well as decreased equipment sales. In 2000 dial-up services were $98,502, DSL services were $170.968, and equipment sales $943,302 a decline of $718,515 for 2001. Wireless customers generated approximately $1,275,936 of our total revenues for such period. Frame circuits customers generated approximately $426,325 of our total revenues and equipment sales
generated $224,787 of our total revenues for the period. The balance of $38,775 resulted from other services, including co-location, and consulting services.
Cost of sales for the fiscal year ended December 31, 2001 was $1,054,623 which represents an decrease of $1,382,393 from $2,292,996 recorded for the period ended December 31, 2000. The decrease was primarily attributable to decreased third-party network service expense on a per customer basis and a decrease in cost of equipment purchased for resale.
Selling expenses for the fiscal year ended December 31, 2001 were $304,657, which represented a decrease of $531,431 from $836,088 for the period ended December 31, 2000. The decrease was primarily due to the company restructuring which commenced in late fiscal 2000 and was completed in 2001 which resulted in a reduction in sales personal and a change in compensation arrangements
General and administrative expenses for the 2001 fiscal year were $3,270,704, which represented a decrease of $720,283 from $3,990,987 for fiscal year 2000. The decrease was primarily due to the company reorganization, staff reductions, and a decrease in legal, professional and outside services as expenses related to being a public company stabilized. We expect slight increases in our general and administrative expenses due to increased advertising and staff additions as our cash flow permits.
Interest expense consists primarily of interest expense on notes payable and capital equipment leases. Interest expense for fiscal year 2001 was $399,301 which represented a increase of $212,806 from interest expense of $186,495 for fiscal year 2000. The increase was primarily attributable to the interest expense on the $2,097,725 of additional long-term debt incurred during the twelve months ended December 31, 2000 of which funds were used to continue expansion and increase the customer base in our existing market.
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