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UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





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FORM 10-Q





QUARTERLY REPORT PURSUANT TO SECTION 13


OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934





For the quarter ended September 30, 2002





Commission file number 001-15837





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WORLD WIRELESS COMMUNICATIONS, INC.


(Exact Name of Registrant As Specified In Its Charter)





Nevada

87-0549700(State of other jurisdiction of incorporation or organization)

(I.R.S. employer identification No.)





5670 Greenwood Plaza Boulevard, Penthouse


Greenwood Village, Colorado 80111


(Address of principal executive offices)(Zip
Code)





Registrants telephone number (303) 221-1944





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Indicate by check mark whether registrant (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days.  Yes  x  No  ̈ .





As of October 31, 2002 there were 31,459,945 shares of the Registrants Common Stock, par value $0.001, issued and
outstanding.





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TABLE OF CONTENTS





PART I.

Financial InformationItem 1.

Financial Statements:Statement Regarding Forward-Looking Disclosure

3Unaudited Condensed Consolidated Balance Sheetsas of September 30, 2002 and December 31, 2001

4Unaudited Condensed Consolidated Statements of Operationsfor the Three Months Ended September 30, 2002 and September 30, 2001 and for the Nine Months Ended September 30, 2002 and September 30, 2001

6Unaudited Condensed Consolidated Statements of Cash Flowfor the Nine Months Ended September 30, 2002 and September 30, 2001

7Notes to Unaudited Condensed Consolidated Financial Statements

9Item 2.

Managements Discussion and Analysis of Results of Operation and Financial Condition

15PART II.

Other InformationItem 1.

Legal Proceedings

18Item 2.

Changes in Securities and Use of Proceeds

19Item 4.

Controls and Procedures

26Item 5.

Other Events

26Item 6.

Exhibits and Reports on Form 8-K

26Signatures

27









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PART IFINANCIAL INFORMATION





STATEMENT REGARDING FORWARD-LOOKING DISCLOSURE





This report includes
forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Act or the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the
Exchange Act), which represent the expectations or beliefs of World Wireless Communications, Inc. and our subsidiaries (collectively the Company, we or us) concerning future events that involve risks
and uncertainties, including, without limitation, (i) those associated with the ability of the Company to obtain financing for our current and future operations, to manufacture (or arrange for the manufacturing of) our products, to market and sell
our products, and our ability to establish and maintain our sales of X-traWeb TM products, (ii) general
economic conditions and (iii) technological developments by us, our competitors and others. All statements other than statements of historical facts included in this Report including, without limitation, the statements under Managements
Discussion and Analysis of Results of Operations and Financial Condition and elsewhere herein, are forward-looking statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we cannot
assure you that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from our expectations (Cautionary Statements) are disclosed in this Report, including, without
limitation, in connection with the forward-looking statements included in this report. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the
Cautionary Statements.





Status of Independent Auditors Review





The interim financial statements included in this Form 10-Q have not been reviewed by the Companys independent auditors, nor any
other independent accountants, using professional standards and procedures for conducting such reviews, as established by generally accepted auditing standards. Accordingly, the Companys independent auditors have not expressed any opinion or
any other form of assurance on such financial statements, assume no responsibility for, and disclaim any association with, such financial statements.






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Item 1.    Financial Statements





WORLD WIRELESS COMMUNICATIONS, INC.





UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS





September 30, 2002

December 31, 2001ASSETSCURRENT ASSETSCash and cash equivalents

$
47,520

$
223,738Investment in securities available-for-sale


500


688Trade receivables, net of allowance for doubtful accounts


42,681


68,002Other receivables


17,967


19,502Inventory


464,893


445,976Prepaid expenses


166,504


69,526Total current assets


740,065


827,432Equipment, net of accumulated depreciation and impairments


226,508


369,453Deferred debt placement fees





477,650Other assets, net of accumulated amortization


13,131


12,337Total assets

$
979,704

$
1,686,872














The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.









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LIABILITIES AND STOCKHOLDERS EQUITY





September 30, 2002


December 31, 2001CURRENT LIABILITIESTrade accounts payable

$
904,758



746,699Accrued liabilities


437,152



281,578Accrued interest


738,810



174,892Notes payable


25,000



Notes payablerelated party, net of discount


6,285,000



3,098,216Deferred revenue


30,000



30,000Obligation under capital leasescurrent portion


5,076



5,076Total Current Liabilities


8,425,796



4,336,461Long-term Obligation Under Capital Leases


577



4,009Mandatorily Redeemable 8% Preferred Stock$0.001 par value; 1,000 shares authorized; 0 shares issued and
outstanding; liquidation preference of $0






STOCKHOLDERS DEFICITCommon stock to be issued


3,238,900



Common stock$0.001 par value; 225,000,000 and 50,000,000 shares authorized; issued and outstanding: 31,459,945
shares at September 30, 2002 and 31,447,087 shares at December 31, 2001


31,459



31,447Additional paid-in capital


48,406,749



48,023,183Accumulated other comprehensive loss


(7,597
)


(7,409
)Accumulated deficit


(59,116,180
)


(50,700,819
)Total Stockholders Deficit


(7,446,669
)


(2,653,598
)Total Liabilities and Stockholders Deficit

$
979,704


$
1,686,872














The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.




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WORLD WIRELESS COMMUNICATIONS, INC.





UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS





For the Three Months Ended September 30


For the Nine Months Ended September 302002


2001


2002


2001REVENUES:Services

$



$
23,275


$
15,000


$
104,493Royalties






1,099







17,540Product sales


146,071



238,081



574,906



741,282Total Revenue


146,071



262,455



589,906



863,315COST OF SALES:Services


14,922



74,601



20,464



132,505Products


77,821



316,520



244,651



551,844Total Cost of Sales


92,743



391,121



265,115



684,349Gross Profit


53,328



(128,666
)


324,791



178,966EXPENSESResearch and development expense


168,524



131,978



491,828



406,155Selling, general and administrative expenses


996,946



1,440,622



3,207,745



4,966,192Amortization of goodwill






42,858







128,574Total Expenses


1,165,470



1,615,458



3,699,573



5,500,921Loss From Operations


(1,112,142
)


(1,744,124
)


(3,374,782
)


(5,321,955
)Other Income/(Expense):Interest expense


(1,451,131
)


(255,786
)


(5,067,710
)


(375,340
)Other income (expense)


(632
)


437



27,131



30,115Net Loss


(2,563,905
)


(1,999,473
)


(8,415,361
)


(5,667,180
)Basic and Diluted Net Loss Per Common Share


(0.08
)


(0.06
)


(0.27
)


(0.18
)Weighted Average Number of Common Shares Used in Per Share Calculations


31,459,945



31,443,635



31,455,754



31,333,990








The accompanying notes are an
integral part of these unaudited condensed consolidated financial statements.




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WORLD WIRELESS COMMUNICATIONS, INC.





UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS





For the Nine Months Ended September 30,2002


2001CASH FLOW FROM OPERATING ACTIVITIESNet Loss

$
(8,415,361
)

$
(5,667,180
)Adjustments to reconcile net loss to net cash used in operating activities:Amortization of goodwill






128,574Depreciation


159,230



97,220Change in compensation from stock options






(37,170
)Loss on sale of securities






26,762Amortization of debt discount


484,113



264,269Amortization of debt placement fees


770,148



Debt extension chargerelated party


3,238,900



Valuation allowance on inventory






172,741Consulting services paid with stock


11,250



12,000Provision for doubtful accounts receivable


(6,900
)


11,545Changes in operating assets and liabilities:Accounts receivable


33,757



163,599Inventory


(18,917
)


(179,677
)Prepaid expenses/other assets


(97,771
)


(183,355
)Deferred revenue






30,000Accounts payable


158,060



386,503Accrued liabilities


155,574



(61,649
)Accrued interest


563,918



72,477Net Cash Used in Operating Activities


(2,963,999
)


(4,763,341
)CASH FLOW FROM INVESTING ACTIVITIESPayments for the purchase of property and equipment


(16,286
)


(65,605
)Proceeds from sale of securities






31,083Net Cash Used by Investing Activities


(16,286
)


(34,522
)











The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.









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For the Nine Months Ended September 30,2002


2001CASH FLOW FROM FINANCING ACTIVITIESProceeds from exercise of options

$



$
17,467Proceeds from exercise of warrants






39,261Proceeds from borrowings and issuance of warrants


3,187,500



1,815,600Deferred debt placement fees


(292,500
)


Principal payments on notes payable


(87,500
)


(50,543
)Principal payments on obligation under capital lease


(3,432
)


(15,045
)Net cash provided by financing activities


2,804,068



1,806,740Effect of exchange rate on cash and cash equivalents






(23,045
)Net decrease in cash and cash equivalents


(176,217
)


(3,014,168
)Cash and cash equivalentsbeginning of period


223,737



3,097,624Cash and cash equivalentsend of period

$
47,520


$
83,456SUPPLEMENTAL CASH FLOW INFORMATIONCash paid for interest was $10,630 and $7,318 in 2002 and 2001 respectivelyNON-CASH INVESTING AND FINANCING ACTIVITIESNOTES 3 AND 6











The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.




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WORLD WIRELESS COMMUNICATIONS, INC.





NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 1    SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES





Interim Condensed Consolidated Financial StatementsThe
accompanying condensed consolidated financial statements are unaudited. In the opinion of management, all necessary adjustments (which include only normal recurring adjustments) have been made to present fairly the financial position, results of
operations and cash flows for the periods presented. Certain information and note disclosure normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or
omitted. The results of operations for the three and nine month periods ended September 30, 2002 are not necessarily indicative of the operating results to be expected for the full year.





Major CustomersSales to major customers are defined as sales to any one customer which exceeded 10% of total sales in any of the two reporting periods.





Sales to the major customers during each of the three months ended September 30, 2002 and 2001 are as follows:
Customer A represented 15.8% and 13.2% of sales, respectively; Customer B represented 33.6% and 0% of sales respectively, and Customer C represented 0% and 12.6% respectively.





For the nine months ended September 30, 2002 and 2001, sales to major customers were: Customer A represented 20.7% and 9.0%
respectively, Customer B represented 22.5% and 0% respectively, Customer C represented 0% and 15.7% respectively, and Customer D represented 0% and 7.6% respectively.





InventoryInventory is stated at the lower of cost or market. Cost is determined using the first-in, first-out method.
Reserves for inventory valuation are reviewed periodically, and adjusted accordingly. As of September 30, 2002 and December 31, 2001 inventory consisted of the following:





September 30, 2002

December 31, 2001Materials

$
198,323

$
148,957Work in process


38,178


23,255Finished goods


228,392


273,764Total

$
464,893

$
445,976





Loss Per ShareBasic loss per common share is computed
by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted loss per share reflects potential dilution which could occur if all potentially issuable common shares from stock purchase warrants and
options or convertible notes payable and resulted in the issuance of common stock. For the quarters ended September 30, 2002 and 2001 133,040,367 and 11,569,494 potentially dilutive securities from common stock options, warrants and convertible debt
have been excluded from the weighted-average number of common shares outstanding for the diluted net loss per share computations because they would have decreased the loss per share.





Deferred RevenueDeferred revenue represents amounts invoiced and paid by customers for which products have not yet been shipped.





Comprehensive Income/(Loss)Comprehensive income/(loss) provides a measure of overall Company performance that includes all
changes in equity resulting from transactions and events other than capital transactions. The Companys comprehensive loss for the three and nine months ended September 30, 2002 and 2001 are as follows:





For the Three Months Ended September 30,


For the Nine Months Ended September 30,2002


2001


2002


2001Net loss

$
(2,563,905
)

$
(1,999,473
)

$
(8,415,361
)

$
(5,667,180
)Unrealized loss on marketable equity securities


(1,063
)


7,671



(188
)


13,037Effect of foreign currency translation






5,439







(23,045
)Comprehensive loss for the period

$
(2,564,968
)

$
(1,986,363
)

$
(8,415,549
)

$
(5,677,188
)




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NOTE 2    GOING CONCERN





The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. The Company has sustained recurring losses from operations, and has a working capital deficiency, a stockholders deficit and does not have the necessary funds to repay its debt, which is all due December 31,
2002. As operations have not generated sufficient amounts of cash, the Company has relied upon debt financing to fund its current period operations. The financing has been obtained from affiliates of the Companys largest shareholder who
extended the due dates of the notes several times during 2001 and 2002. There is no guarantee that the due dates of the notes will continue to be extended. The Companys attainment of profitable operations and sufficient additional financing
cannot be determined at this time. These conditions among others raise substantial doubt about the Companys ability to continue as a going concern. See also Notes 6 and 9.





The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of
liabilities that might be necessary should the Company be unable to continue as a going concern. The Companys continuation as a going concern is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely
basis, to comply with the terms and covenants of its financing agreements, to obtain additional financing or refinancing as may be required, and ultimately to attain successful operations. Management is continuing its efforts to obtain additional
funds so that the Company can meet its obligations and sustain operations from sources that are described below.





Managements PlansBased on the Companys current cash position and its plans for 2002, management believes that additional capital will be required immediately, including an additional extension of the debt
that is due to mature on December 31, 2002. The Companys financing agreement with Lancer Offshore, Inc. and Lancer Partners L.P. allowed for such loans to be increased to a total of their current outstanding principal amount of $6,585,000, an
increase over the prior loan ceiling of $6,285,000 (see Notes 6 and 9). Although both lenders can agree to increase such loans again, provided the Company agrees to do so, the Company has no assurance of such mutual agreement. The Company is
currently seeking funding from other sources. There can be no assurance that the Company will be successful in such efforts.





NOTE
3    STOCKHOLDERS EQUITY





Options for 13,334 shares were exercised in March 2001 at
a price of $1.31 per share, for proceeds of $17,467.





NOTE 4    MANDATORILY REDEEMABLE PREFERRED STOCK





Pursuant to the authority vested in the Board of Directors, the Board on June 8, 2001 resolved to issue up to
1,000 shares of a series of 8% cumulative, convertible senior preferred stock. The shares, if and when issued, will be convertible into shares of common stock at a rate of 16,667 shares of common stock for each share of preferred stock. The Company
has not issued any of such shares as of the date hereof.





NOTE 5    COMMITMENTS AND CONTINGENCIES








On February 20, 2001 certain parties filed a lawsuit against the
Company with respect to their purchase of a total of 230,000 shares of common stock of the Company at $3.00 per share in a private placement transaction in February 2000. The plaintiffs seek rescission of the transaction and/or damages, including
treble damages, which they allege arise out of the Companys failure to file a registration statement on or before December 31, 2000. The lawsuit is currently pending and in the discovery stage in the United States District Court for the
District of Utah.








In December 2001, the United States District Court in
Utah approved the plaintiffs motion for leave to amend their pleading to commence a lawsuit against five individual defendants (David D. Singer, an officer-director, Donald I. Wallace, a former officer-director, Malcolm Thomas, a director,
Charles Taylor, a director, and a former officer, Kevin Childress) and to assert an additional cause of action against the Corporation for breach of the implied covenant of good faith and fair dealing and promissory estoppel, and a new cause of
action for fraud against Mr. Singer. The plaintiffs continue to seek the same relief originally sought by them. The Company and the individual defendants recently filed answers in the case.








The Company believes that it has meritorious defenses to such action and intends to prosecute its defenses of the action
vigorously, but there can be no assurance as to the outcome thereof. An estimate of potential losses, if any, cannot be made at this time. The Company is vigorously contesting these new additional claims and believes it has meritorious defenses to
these new claims, and the individual defendants named in the lawsuit are doing the same, although the Company cannot assure the results of such lawsuit.







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In May 2002. the Business Software Alliance, a trade association representing
various software companies rights under the Federal Copyright Act, (BSA) asserted a claim against us alleging that we had unauthorized or unlicensed copies of certain software products published by BSA member companies (in this case,
Adobe Systems Incorporated and Microsoft Corporation) installed on our computers. BSA alleged that we could be held liable for statutory damages on a per product basis of between $30,000 and $150,000 per product, plus reasonable attorneys fees
and court costs.





In August, 2002 the Company reached a tentative settlement of the claim that would require the
Company to pay $54,710 and to acquire various software licenses. The tentative settlement amount has been accrued as of June 30, 2002. The Company is working with BSA to finalize the agreement.





NOTE 6    NOTES PAYABLERELATED PARTY





On May 17, 2001 the Company issued senior secured convertible debt (the 2001 Notes) for $1,125,000 to affiliates of its largest shareholder. The notes bear interest at the rate of 15% per year and were originally to
mature on September 15, 2001, unless they were mandatorily converted into shares of the Companys Common Stock prior to the maturity date. The mandatory conversion was conditional, and provided for the debt to convert into shares of common
stock at a rate below the then market price of the stock. The 2001 Notes are secured by a first security interest in substantially all of the Companys assets. The Company issued a warrant to purchase 562,500 shares of Common Stock in
connection with the notes, and agreed to pay a finders fee of 10%. The value of the warrants was accounted for as discount on the notes, and the amortization of the discount and the placement fee were accounted for as additional interest expense.
Under the terms of the 2001 Notes, the Company and the lender could mutually agree to increase the amount of the loan to a total of $5,000,000 with a pro rata increase in the amount of warrants issuable by the Company. The notes contain a default
provision that would increase the annual interest rate to 16%, and would require the Company to issue a certain number of shares of Common Stock, up to a certain limit.





During the rest of 2001, the Company borrowed an additional $2,085,000 and issued additional warrants to purchase 3,042,500 shares of Common Stock, including a warrant to
purchase 2,000,000 shares of stock issued as an additional placement fee. The Company did not meet the conditions required to convert the debt into shares of Common Stock, and the maturity date of the notes was extended first to December 15, 2001,
and again to February 28, 2002. In consideration for the additional borrowings and other modifications to the original terms of the 2001 Notes, the contingent conversion rate, warrant stock purchase price, default terms and other terms of the notes
were modified so that on December 31, 2001 the notes bore the following terms:





The entire principal amount of
$3,210,000 comprising the 2001 Notes became mandatorily convertible into shares of Common Stock at the rate of one share for each $0.05 of debt (A) upon receipt of approval of the Companys shareholders at a meeting of such conversion and (B)
upon receipt of $3,210,000 in equity from sources other than the Companys largest shareholder or his affiliates on or before February 28, 2002.





Because the contingent conversion rate was below the market value of the stock, the value of the contingent beneficial conversion feature on each of the notes is as follows:





Note Date

Value of Beneficial Conversion Feature at One Share for Each $0.05 of DebtMay 17, 2001

$
866,051August 7, 2001


285,864September 6, 2001


100,000September 18, 2001


157,233October 03, 2001


93,418October 09, 2001


147,992October 29, 2001


150,473November 14, 2001


852,515Total

$
2,653,546





The beneficial conversion feature will be recognized in the
Companys financial statements if and when the related contingencies are resolved.





The exercise price of the
warrant to purchase shares of Common Stock was reduced to $0.30 per share which term will also apply to any additional warrants issued in such the financing transactions;





The maturity date of the entire principal amount of $3,210,000 comprising the 2001 Notes was extended until February 28, 2002 (unless mandatorily converted into shares of
the Companys Common Stock prior to such date)




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The Company agreed to give the lender full antidilution protection in the
event the Company sold shares of its Common Stock at a price less than $0.05 per share during the oneyear period commencing on November 14, 2001;





The amount of shares issuable in the event of a default was 1,605,000 shares of Common Stock, and on January 25, 2002 was increased to 1,780,000 shares of Common Stock, for each month in which a
default exists and continuing until such default is cured, up to a maximum of 12,500,000 shares.





The Company
agreed to reduce its operating budget to a monthly burn rate (i.e. the excess of its expenditures over revenues received, in each case determined on a cash basis) of not greater than $250,000 effective for the month of September 2001 and $375,000
for each month thereafter, and to curtail all its discretionary spending until additional equity is raised.





During 2002 the Company received additional loans of $3,425,000 from affiliates of its largest stockholder, bringing the total amount of the 2001 Notes to $6,585,000. At a special shareholders meeting held on March 15, 2002,
the shareholders of the Company approved the mandatory conversion of the 2001 Notes up to the then applicable ceiling amount of $5,000,000 into shares of Common Stock, although the terms of the Notes now require the Company to raise an additional
$6,585,000 in equity from sources other than its largest shareholder and his affiliates on or before December 31, 2002 before such conversion may occur. At such meeting, the Companys shareholders approved the issuance of up to the then
applicable ceiling amount of 2,500,000 shares of the Companys Common Stock upon the exercise of warrants to purchase such shares held by such affiliates. The Company could pay the 2001 Notes in whole or in part if it obtains additional debt
financing and thereby avoid the mandatory conversion thereof.





The Company also received a four-month extension of
the maturity date of the 2001 Notes from its creditors, and agreed to give such creditors 7,120,000 shares of Common Stock as consideration therefore, subject to the approval of the Companys shareholders at a meeting with respect to such
issuance in accordance with applicable American Stock Exchange rules. On June 28, 2002 the Companys shareholders approved the potential issuance of up to 12,500,000 shares of Common Stock to its lenders, including the 7,120,000 shares
discussed above. If shareholder approval was not obtained, the Company would have been obligated to pay its lenders $356,000 in cash, in lieu of issuing the 7,120,000 shares. The $356,000 was amortized over the modified term of the Notes. Upon
getting shareholder approval to issue the shares, the contingency related to their issuance was resolved. Accordingly, the Company recorded interest expense of $1,780,000, equal to the fair value of the shares on June 28, 2002, less the $356,000
previously recorded. The fair value of the Common Stock to be issued is recorded in the balance sheet as a separate element of stockholders deficit.





On July 23, 2002 the Company reached agreement with its lenders to extend the due date of the 2001 Notes to September 30, 2002 and to confirm to the Company that no events of default existed. The
Company agreed to issue an additional 5,380,000 shares of Common Stock to its lenders in consideration for the modification of terms. The fair value of these shares, $1,102,900, was recognized as non-cash interest expense over the term of the
modified debt.





The Notes also provide for the conversion of the debt into shares of common stock as a remedy
available to the lenders in the event of a default.





On July 23, 2002 the maximum amount of shares issuable in the
event of a default was increased to up to a maximum of 25,000,000 shares.





The contingent beneficial conversion
feature on each of the notes issued during the nine months ended September 30, 2002 is as follows:





Note Date

Value of Beneficial Conversion Feature at One Share for Each $0.05 of DebtJanuary 25, 2002

$
264,051February 8, 2002


211,149March 8, 2002


175,747March 11, 2002


88,261March 27, 2002


139,147April 12, 2002


245,755April 25, 2002


886,132July 23, 2002


273,975August 19, 2002


279,408September 4, 2002


139,047Total

$
2,702,672







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The beneficial conversion feature will be recognized in the Companys
financial statements if and when the related contingencies are resolved.





NOTE 7    RECENT ACCOUNTING
PRONOUNCEMENTS





In April 2002, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections. Under SFAS No. 145, gains and losses from extinguishment of debt shall
be classified as extraordinary items only if they meet certain criteria for classification as extraordinary items in APB Opinion No. 30. SFAS No. 145 also amends SFAS No. 13, Accounting for Leases, to require sale-leaseback accounting for
certain lease modifications that have economic effects that are similar to sale-leaseback transactions and also makes various technical corrections to existing pronouncements that are not substantive in nature. The provisions of SFAS No. 145 related
to the rescission of SFAS No. 4 are effective in fiscal years beginning after May 15, 2002, with early application encouraged. The provisions of SFAS No. 145 related to SFAS No. 13 are effective for transactions occurring after May 15, 2002, with
early application encouraged. All other provisions of SFAS No. 145 are effective for financial statements issued on or after May 15, 2002, with early application encouraged. This amendment and other issues addressed in SFAS No. 145 are not expected
to have a material effect on the financial position or results of operations of the Company.





In May 2002, the
FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS No. 146, addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task
Force (EITF) Issue No. 94-3,Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including certain Costs Incurred in a Restructuring). SFAS No. 146 requires that a liability for an exit cost or
disposal activity be recognized when the liability is incurred, whereas under EITF No. 94-3, a liability was recognized at the date of an entitys commitment to an exit plan. SFAS No. 146 also establishes that fair value is the objective for
initial measurement of the liability. The provisions of SFAS No. 146 are effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged. The adoption of SFAS 146 is not expected to have a
material impact on the Companys operations.





The Company adopted SFAS 142 Goodwill and Other
Intangible Assets on January 1, 2002 and there was no effect.





NOTE 8    BUSINESS SEGMENT INFORMATION





As of September 30, 2002 the Companys operations are classified into two reportable business segments:
X-traWeb TM products and radio products. Corporate includes income, expenses, and assets that are not
allocable to a specific business segment, or relate to activities no longer being pursued.





Segment operating
income is total segment revenue reduced by operating expenses identifiable with or allocable to that business segment. The Company evaluates performance of its segments based on revenues and operating income.





For the Three Months Ended September 30,


For the Nine Months Ended September 30,2002


2001


2002


2001Revenues:X-traWeb

$



$
41,074


$
15,000


$
233,012Radio products


146,071



220,281



574,906



612,763Corporate






1,100







17,540Total sales

$
146,071


$
262,455


$
589,906


$
863,315For the Three Months Ended September 30,


For the Nine Months Ended September 30,2002


2001


2002


2001Operating loss:X-traWeb

$
(500,344
)

$
(860,336
)

$
(1,380,177
)

$
(2,908,724
)Radio products


(611,798
)


(884,888
)


(1,994,606
)


(2,484,052
)Corporate






1,100







70,821Total operating loss

$
(1,112,142
)

$
(1,744,124
)

$
(3,374,783
)

$
(5,321,955
)







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September 30, 2002

December 31, 2001Assets:X-traWeb

$
205,490

$
293,442Radio products


734,542


1,184,904Corporate


39,672


208,526Total assets

$
979,704

$
1,686,872





NOTE 9    SUBSEQUENT EVENTS





In October and November, 2002, an affiliate of the Companys largest shareholder loaned the Company an additional $300,000, bringing
the total to $6,585,000. As a result, the Company issued notes comprising part of the 2001 Notes and issued additional warrants to purchase 150,000 shares of the Companys Common Stock, at an exercise price of $0.30 per share, expiring on
October 2, 2007, October 14, 2007, October 30, 2007 and November 12, 2007, respectively.




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|ITEM 2. |  | MANAGEMENT DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
|------- |  | -----------------------------------------------------------------------------------




When used in this discussion, the words expect(s), feel(s), believe(s), will, may, anticipate(s) and similar expressions are intended to identify forward-looking
statements. Such statements are subject to certain risks and uncertainties, which could cause actual results to differ materially from those projected. Readers are cautioned not to place undue reliance on these forward- looking statements, and are
urged to carefully review and consider the various disclosures elsewhere in this Report which discuss factors which affect our business.





The following discussion should be read in conjunction with our Consolidated Financial Statements and respective notes thereto.





RESULTS OF OPERATIONS





Three Months Ended September 30, 2002 and Three Months Ended
September 30, 2001





We incurred a net loss of $2,563,905 for the three-month period ended September 30, 2002, or a
$0.08 loss per share, compared to a net loss of $1,999,473 or a $0.06 loss per share, for the three months ended September 30, 2001. The increased loss is attributable to $1,451,131 in interest expense related to our debt financing, partially
off-set by a $449,988 reduction in operating expenses.





Sales for the three-month period ended September 30, 2002
totaled $146,071 compared to $262,455 during the three months ended September 30, 2001, or a decrease of $116,384 or 44.3%. During the third quarters of 2002 and 2001, we derived our revenue as follows:





For the Three Months Ended September 30,2002

2001Summary of Revenue by ActivityX-traWeb

$


$
41,074Radio products


146,071


220,281Corporate





1,100Total Revenue

$
146,071

$
262,455





During the third quarter of 2002, we continued to implement our
strategic plan to focus our efforts on the X-traWeb TM product line, and specifically on applying our
technology to automated meter reading solutions for the utilities industry. The decline in revenue from X-traWeb TM products and services in 2002 compared to 2001 resulted primarily from the completion of two non-recurring customer contracts in the vending and facilities management industry, and from our shift to the development and
sale of products for the automated meter reading market. As of September 30, 2002, we have generated $15,000 in revenue from such activities.





The Corporate category represents revenue not directly attributable to a specific segment, or those business activities no longer being pursued. Corporate revenues reported in the third quarter of 2001
represent royalty fees paid under an agreement that has since expired.





Our decline in revenue from radio
products, which totaled $146,071 for the three months ended September 30, 2002, compared to $262,455 for the comparable quarter in 2001, resulted from a significant downturn in unit sales. Antenna sales fell 18.2%; radio sales dropped 45.5%.





Our cost of sales for the three-month period ended September 30, 2002 declined to $92,743 from a total of
$391,121 for the three months ended September 30, 2001, a reduction of $298,378 or 76.3%. The resulting gross profit was $53,328, or 36.5% of sales, for the three-month period ended September 30, 2002 compared to a loss of $128,666, or 49.0%, for
the three months ended September 30, 2001. This improvement in gross profit margin is primarily the result of a write-down of inventory items to their fair value recorded in 2001. The gross profit for the three months ended September 30, 2001 was
$69,334, or 26.4%, before the write-down. The improvement in gross margin before the write-down reflects the absence of revenue from two non-recurring customer contracts in the vending and facilities management industry, where our margins were very
low.





Our research and development expenses increased to $168,524 from $131,978, or by $36,546, or 27.7%, for the
comparable three month periods ended September 30, 2002 versus September 30, 2001. The increase over the comparable period is attributable to development projects relating to our radio product line, and the integration of our automatic meter reading
product into additional




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##### Table of Contents

utility meter models. We believe the resulting radio frequency technology improvements will enhance our automated meter reading solution through
improved performance, and reduced system cost.





Our total selling, general, and administrative expenses amounted
to $996,946 for the three-month period ended September 30, 2002 compared to $1,440,622 for the three months ended September 30, 2001, representing a decrease of $443,676, or 30.8%. Selling and marketing expenses decreased by $57,682, or 22.0%,
during the three-month period ended September 30, 2002 over the three months ended September 30, 2001 and represents a decrease in advertising, consulting, and expenses for marketing our X-traWeb TM products overseas. Total general and administrative expenses for the comparable September 30, 2002 and September 30, 2001 period decreased by
$385,994, or 43.7%, and resulted from (1) decreases of $234,199 in employment related expenses and $115,682 in consulting and outside services and (2) $15,005 in decreased travel related expenses. We also realized lower occupancy costs for the
three-month period ended September 30, 2002 versus the comparable three-month period ended September 30, 2001 as the result of the close of our Kansas City facility in the third quarter of 2001.





Interest expense increased to $1,451,131 during the three-month period ended September 30, 2002 compared to $255,786 for the three months ended September 30, 2001.
This increase is directly related to our issuance of units of secured notes and warrants beginning in the second quarter of 2001, and represents the amortization of discounts related to the warrants, placement fees, fees incurred for the extension
of the debt, and accrued interest on the Notes. On June 28, 2002 the Companys shareholders approved the potential issuance of up to 12,500,000 shares of common stock to its lenders. On July 23, 2002, the Company committed to issue 5,380,000
share of common stock to its lenders for debt extension. The fair value of the 5,380,000 shares, or $1,102,900, accounts for most of the increase in interest expense over the comparable quarter in the prior year.





Nine Months Ended September 30, 2002 and Nine Months Ended September 30, 2001





We incurred a net loss of $8,415,361 for the nine-month period ended September 30, 2002, or a $0.27 loss per share, compared to a net loss of $5,667,180 or a $0.18 loss per
share, for the nine months ended September 30, 2001. The increased loss is attributable to $5,067,710 in interest expense related to our debt financing, partially off-set by a $1,801,348 reduction in operating expenses.





Sales for the nine-month period ended September 30, 2002 totaled $589,906 compared to $863,315 during the nine months ended September 30,
2001, or a decrease of $273,409 or 31.7%. During the nine months ended September 30 of 2002 and 2001, we derived our revenue as follows:





For the Nine Months Ended Septembere 30,2002

2001Summary of Revenue by ActivityX-traWeb

$
15,000

$
233,012Radio products


574,906


612,763Corporate





17,540Total Revenue

$
589,906

$
863,315





During 2002, we continued to implement our strategic plan to focus
our efforts on the X-traWeb TM product line, and specifically on applying our technology to automated
meter reading solutions for the utilities industry. The decline in revenue from X-traWeb TM products and
services in 2002 compared to 2001 resulted primarily from the completion of two non-recurring customer contracts in the vending and facilities management industry, and from our shift to the development and sale of products for the automated meter
reading market. As of September 30, 2002, we have generated $15,000 in revenue from such activities.





The
Corporate category represents revenue not directly attributable to a specific segment, or those business activities no longer being pursued. Corporate revenues reported in the second quarter of 2001 represent royalty fees paid under an agreement
that has since expired.





Our decrease in revenue from radio products, which totaled $574,906 for the nine months
ended September 30, 2002, compared to $612,763 for the comparable period in 2001, resulted from a sharp decline in sales in the third quarter of 2002, following a small down turn in unit sales during the second quarter. The decline in sales during
the second quarter occurred primarily in our antenna products. Sales of both antenna and radio products were off in the third quarter.





Our cost of sales for the nine-month period ended September 30, 2002 declined to $265,115 from a total of $684,349 for the nine months ended September 30, 2001, a reduction of $419,234
or 61.3%. The resulting gross profit was $324,791, or 55.1% of sales, for the nine-month period ended September 30, 2002 compared to $178,966, or 20.7%, for the nine months ended September 30, 2001. This improvement in gross profit margin reflects
the absence of a write-down of inventory items to their fair value recorded in 2001, and the completion of two non-recurring customer contracts in the vending and facilities management industry, where our margins were very low.




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##### Table of Contents

Our research and development expenses increased to $491,828 from $406,155, or by $85,673, or 21.1%, for the comparable
nine month periods ended September 30, 2002 versus September 30, 2001. The increase over the comparable period is primarily attributable to development projects relating to our radio product line. We believe the resulting radio frequency technology
improvements will enhance our automated meter reading solution through improved performance, and reduced system cost.





Our total selling, general, and administrative expenses amounted to $3,207,745 for the nine-month period ended September 30, 2002 compared to $4,966,192 for the nine months ended September 30, 2001, representing a decrease of
$1,758,447, or 35.4%. Selling and marketing expenses decreased by $335,049, or 39.5%, during the nine-month period ended September 30, 2002 over the nine months ended September 30, 2001 and represents a decrease in advertising, consulting, and
expenses for marketing our X-traWeb TM products overseas. Total general and administrative expenses for
the comparable September 30, 2002 and September 30, 2001 period decreased by $1,423,407, or 34.6%, and resulted from (1) decreases of $859,333 in employment related expenses and $415,261 in consulting and outside services, and (2) $128,058 in
decreased travel related expenses. We also realized lower occupancy costs for the nine-month period ended September 30, 2002 versus the comparable nine-month period ended September 30, 2001 as the result of the close of our Kansas City facility in
the third quarter of 2001. These cost savings were offset in part by increased legal and accounting fees, and increased insurance costs.





Interest expense increased to $5,067,710 during the nine-month period ended September 30, 2002 compared to $375,340 for the nine months ended September 30, 2001. This increase is directly related to our issuance of units of
secured notes and warrants beginning in the second quarter of 2001, and represents the amortization of discounts related to the warrants, placement fees, fees incurred for the extension of the debt, and accrued interest on the Notes. On June 28,
2002 the Companys shareholders approved the potential issuance of up to 12,500,000 shares of common stock to its lenders. Prior to June 28, 2002, the Company had committed to issue 7,120,000 share of common stock to its lenders for debt
extension. On July 23, 2002, the Company committed to issue 5,380,000 share of common stock to its lenders for debt extension. The fair value of the 12,500,000 shares, or $3,238,900, accounts for most of the increase in interest expense over the
comparable period in the prior year.





Recent Accounting Pronouncements





In April 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 145, Rescission of
FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections. Under SFAS No. 145, gains and losses from extinguishment of debt shall be classified as extraordinary items only if they meet certain criteria for
classification as extraordinary items in APB Opinion No. 30. SFAS No. 145 also amends SFAS No. 13, Accounting for Leases, to require sale-leaseback accounting for certain lease modifications that have economic effects that are similar to
sale-leaseback transactions and also makes various technical corrections to existing pronouncements that are not substantive in nature. The provisions of SFAS No. 145 related to the rescission of SFAS No. 4 are effective in fiscal years beginning
after May 15, 2002, with early application encouraged. The provisions of SFAS No. 145 related to SFAS No. 13 are effective for transactions occurring after May 15, 2002, with early application encouraged. All other provisions of SFAS No. 145 are
effective for financial statements issued on or after May 15, 2002, with early application encouraged. This amendment and other issues addressed in SFAS No. 145 are not expected to have a material effect on our financial position or results of
operations.





In May 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal
Activities. SFAS No. 146, addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including certain Costs Incurred in a Restructuring). SFAS No. 146 requires that a liability for an exit cost or disposal activity be recognized when the liability is incurred, whereas
under EITF No. 94-3, a liability was recognized at the date of an entitys commitment to an exit plan. SFAS No. 146 also establishes that fair value is the objective for initial measurement of the liability. The provisions of SFAS No. 146 are
effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged. The adoption of SFAS 146 is not expected to have a material impact on our operations.





We adopted SFAS 142 Goodwill and Other Intangible Assets on January 1, 2002 and there was no impact.





LIQUIDITY AND CAPITAL RESOURCES





Our
liquidity at September 30, 2002 consisted of cash and cash equivalents of $47,520, which represents a decrease of $176,218 over our cash and cash equivalents of $223,738 as of December 31, 2001. Our current assets were $740,065 as of September 30,
2002, a decrease of $87,367 from our current assets of $827,432 as of December 31, 2001.





As of September 30, 2002, our total liabilities
were $8,426,373, which was an increase of $4,089,335 from our total liabilities of $4,340,470 as of December 31, 2001. Substantially all of our liabilities are current, including debt from affiliates totaling $6,585,000, which is due December 31,
2002.




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##### Table of Contents

Cash used in operating activities was $2,963,999 during the nine months ended September 30, 2002, which was financed primarily by additional
borrowings from affiliates of $2,857,500 (net of placement fees). In addition, on October 3, 2002 the Company reached agreement with its lenders to extend the due date of the 2001 Notes to December 31, 2002 and to confirm to the Company that no
events of default existed. The Company agreed to issue an additional 5,300,000 shares to its lenders in consideration for the modification of terms. The fair value of these shares, $901,000, will be recognized as non-cash interest expense over the
term of the modified debt. Cash used in operating activities was $5,451,363 less than our net loss, attributable primarily to non-cash interest expenses and net changes in working capital.





During the quarter ended September 30, 2002, we received an additional $750,000 in loans from an affiliate comprising part of the 2001 Notes and issued additional detachable five-year
warrants to purchase 375,000 shares of our Common Stock at $0.30 per share, expiring on various dates in 2007, to such creditor as part of such financing. Such financing increased the total loans from such affiliates to $6,285,000 as of September
30, 2002. For a further description of this financing, see Senior Secured Indebtedness Financing in Item 2 of Part 2 of this Report.





Based on our current cash position, we believe that additional capital will be required by mid-November, 2002. We recently obtained financing proceeds from Lancer Offshore, Inc., an affiliate of our largest stockholder, which
management believes is adequate to fund our operations at least through mid-November, 2002. Our agreement with Lancer Offshore, Inc. and Lancer Partners L.P. allowed for such loan to be increased to a current outstanding principal amount of
$6,585,000 (an increase over the prior loan ceiling amount of $6,285,000). Although both lenders can agree to increase such loan again, provided we agree to do so, we cannot assure you of such mutual agreement. Since the $6,585,000 loan from such
lenders matures on December 31, 2002, we are currently seeking funding from other sources.





See Note 2 to the accompanying financial
statements for a discussion of the Companys status as a going concern.





SUMMARY





While we believe that (i) a number of our pending proposals for projects or products will be accepted in whole or in part, (ii) we will develop additional
sources of sales and (iii) we will derive substantial revenues therefrom, we cannot assure you that any such sales will be made or the amount thereof, although we anticipate that X-traWeb TM product sales will constitute the bulk of our revenues during the year 2003 and thereafter. We also believe that we will derive significant
revenues from the sale of our proprietary radio products in the future, but we cannot assure you as to the amount of such sales or when such sales will occur.





In summary, we are fully aware that anticipated revenue increases from sales of our X-traWeb TM products and our proprietary radios are by no means assured, and that our requirements for capital are substantial. If significant revenues with adequate margins are not generated and/or the additional financing is not
obtained, our ability to continue as a going concern is dependent on continued support from our lenders.





PART II.





OTHER INFORMATION





ITEM 1.Legal Proceedings





On February 20, 2001 the Pinnacle Fund L.P., Barry M. Kitt
and Tom and Denise Hunse filed a lawsuit against us with respect to the purchase of a total of 230,000 shares of our common stock at $3.00 per share in a private placement transaction in February 2000. The plaintiffs seek rescission of the
transaction and/or damages, including treble damages, which they allege arise out of our failure to file a registration statement on or before December 31, 2000. The lawsuit is currently pending in the United States District Court for the District
of Utah. The case is in the discovery stage; the parties have exchanged documents and written responses to questions asked and depositions of the parties have been taken.





In December, 2001 the District Court in Utah approved the plaintiffs motion for leave to amend their pleadings to commence a lawsuit against five individual
defendants (David D. Singer, an officer-director, Donald I. Wallace, a former officer-director, Malcolm Thomas, a director, Charles Taylor, a director and a former officer, Kevin Childress) and to assert an additional cause of action against them
for the underlying state law securities claim against the Company, and new causes of action against the Company for breach of the implied covenant of good faith and fair dealing and promissory estoppel, and a new cause of action for fraud against
Mr. Singer. The Company and individual defendants filed answers to these new claims in the case.




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##### Table of Contents




We believe that we have meritorious defenses to such action and intend to
prosecute our defense of the action vigorously, but there can be no assurance as to the outcome thereof. We are vigorously contesting these new additional claims and believe we have meritorious defenses to these new claims, and the individual
defendants named in the lawsuit are doing the same, although we cannot assure you of the result in such lawsuit.





ITEM
2.Changes in Securities and Use of Proceeds





Senior Secured Indebtedness Financing





The Company modified its Senior Secured Convertible Notes during the quarter ended September 30, 2002, which
had the general effect of increasing the equity amount needed for the mandatory conversion of such notes and extending the due date thereof until October 31, 2002. A detailed description of such financing through November 13, 2002 is set forth
below, including the additional three-month extension of the maturity date of the 2001 Notes until December 31, 2002.





(a)    May 17, 2001 Financing





On May 17, 2001, the Company sold an
investment unit consisting of (a) $2,250,000 principal amount of its Senior Secured Convertible Notes (the 2001 Notes) and (b) warrants to purchase 1,125,000 shares of Common Stock of the Company to Lancer Offshore, Inc., an affiliate of
the Companys largest stockholder, in a private placement transaction exempt from registration under the Securities Act of 1933, as amended (the Act), subject to the following terms and conditions.





1.  The 2001 Notes bear simple interest at the rate of 15% per annum and were to mature on September 15, 2001, unless they were
mandatorily converted into shares of the Companys Common Stock prior to such date.





2.  Under the
2001 Notes, the Company received the principal amount of $1,125,000 on May 17, 2001 and the holder agreed to loan the additional amount of $1,125,000 on or before July 15, 2001, provided that the Company raised a minimum of $2,000,000 in equity from
persons other than Michael Lauer and his affiliates, including Lancer Offshore Inc., Lancer Partners L.P., and The Orbiter Fund Ltd.





3.  The 2001 Notes are secured by a first security interest of substantially all of the Companys assets, including its machinery, equipment, automobiles, fixtures, furniture, accounts receivable and general
intangibles, including patents, patent applications and any stock in any subsidiary.





4.  Under the 2001
Notes, the Company and Lancer Offshore, Inc. may jointly agree to increase the amount of the loan to a total of $5,000,000 with a pro rata increase in the amount of Warrants issuable by the Company.





5.  The 2001 Notes were mandatorily convertible into shares of our Common Stock at the rate of $0.50 per share (i.e. one share
for each $0.50 of debt) upon (i) our receipt of approval of our shareholders at a meeting of such conversion and (ii) our receipt of $2,000,000 in equity from persons other than Michael Lauer and his affiliates on or before December 31, 2001.





6.  The Company agreed to give Lancer Offshore, Inc. registration rights with respect to the shares
issuable upon conversion of the 2001 Notes and upon exercise of the warrants granted to it.





7.  Any
event of default under the 2001 Notes will require the issuance of 1,000,000 shares of our Common Stock commencing with the month in which such default first occurs and thereafter in each such month in which such default is not cured, up to a
maximum amount of 10,000,000 shares of our Common Stock.





8.  The warrants issued and potentially
issuable to Lancer Offshore Inc. had an exercise price of $0.50 per share, expire on the fifth anniversary date of the date of issuance and may be exercised in whole or in part, but the shares subject thereto are issuable only upon the approval of
such issuance by our shareholders at a meeting. The Company issued a warrant to purchase 562,500 shares of its Common Stock, expiring on May 16, 2006, as a result of the loan of $1,125,000 to us.





9.  The Company agreed to pay a finders fee to Capital Research Ltd. and Sterling Technology Partners of a total of 10% of the gross proceeds received
by us on the sale of the 2001 Notes payable on each closing of a tranche of the financing under the 2001 Notes.





10.  In the event of a default, the lender has as an additional remedy the right to convert its outstanding obligations into shares of Common Stock at the rate of one share for each $0.20 of debt in full satisfaction of
such obligations.




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##### Table of Contents




On May 17, 2001, the average of the high and low price per share of the
Companys Common Stock was $0.675, which was higher than the conversion rate of one share for each $0.50 of debt and the exercise price of each warrant of $0.50 per share.





(b)  August 7, 2001 Financing





The Company failed
to meet the conditions described in item 2 above on the May 17, 2001 financing by July 15, 2001. As a result, on August 7, 2001, Lancer Partners L.P., another affiliate of our largest stockholder, agreed to loan us an additional $875,000 as part of
the 2001 Notes on the following terms and conditions:





1.  Lancer Partners L.P. agreed to loan the
Company the additional amount of $350,000 on August, 2001 provided our Board approved the terms of the August 7, 2001 financing (which it did). The Company issued an additional 2001 Note for the $350,000 loan.





2.  Lancer Partners L.P. agreed to loan the Company $275,000 on or about September 15, 2001 and $250,000 on or about October 15,
2001, provided that the Company raised a minimum of $1,500,000 in equity from persons other than Michael Lauer and his affiliates, including Lancer Offshore Inc., Lancer Partners L.P. and The Orbiter Fund Ltd., on or before September 15, 2001. Each
of these additional loans would mature on December 15, 2001 unless mandatorily converted into shares of our Common Stock.





3.  This tranche of $875,000 comprising the 2001 Notes is mandatorily convertible into shares of our Common Stock at the rate of $0.20 per share (i.e. one share for each $0.20 of debt) upon (a) the receipt of approval of
our stockholders at a meeting of such conversion and (b) our receipt of $2,000,000 of equity from nonLancer entities or affiliates by December 31, 2001.





4.  The Company agreed to issue additional warrants to purchase up to an additional 562,500 shares of our Common Stock if the entire $875,000 is loaned by Lancer Partners L.P. to the Company.
As a result of the $350,000 loan made on August 7, 2001, the Company issued a warrant to purchase an additional 225,000 shares of our Common Stock, expiring on August 6, 2006, at an exercise price of $0.30 per share.





5.  The Company agreed as a condition to the August 7, 2001 financing to reduce its operating budget to a monthly burn rate
(i.e. the excess of its expenditures over revenues received, in each case determined on a cash basis) of not greater than $250,000 effective September 1, 2001 and to curtail all its discretionary spending of funds until additional equity is raised.





6.  The Company agreed to provide Lancer Partners L.P. with fully executed loan agreements, Uniform
Commercial Code and other filings and warrant agreements by August 15, 2001, which were executed and delivered by both parties on August 21, 2001.





7.  The terms set forth in the May 17, 200 financing described in 1, 3, 4, 6, 7 and 9 apply with the same force and effect to the August 7, 2001 financing.





In addition, under the August 7, 2001 financing, the Company agreed to amend the May 17, 2001 financing as follows:





(i)  The $1,125,000 principal amount comprising a portion of the 2001 Notes became mandatorily convertible into shares of our
Common Stock at the rate of $0.20 per share (i.e. one share for each $0.20 of debt);





(ii)  The Company
agreed to give Lancer Offshore Inc. and Lancer Partners L.P. full antidilution protection in the event the Company sold shares of its Common Stock at a price of less than $0.20 per share during the oneyear period commencing on May 12,
2001;





(iii)  The exercise price of the warrant to purchase 562,500 shares of our Common Stock was
reduced to $0.30 per share which term will also apply to any additional warrants issued in such the financing transactions; and





(iv)  The maximum amount of shares of our Common Stock issuable in the event of continuing monthly defaults was increased to 12,500,000 from 10,000,000.





On August 7, 2001, the average of the high and low price per share of the Companys Common Stock was $0.38, which was higher than the conversion rate of one share for
each $0.20 of debt and the exercise price of each warrant at $0.30 per share.




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##### Table of Contents




(c)  September, 2001 Financing





The Company failed to meet the condition described in Item 2 above on the August 7, 2001 financing by September 15, 2001. Despite such failure, Lancer Partners L.P.
loaned the Company an additional $100,000 and $175,000 on September 6, 2001 and September 18, 2001, respectively, which loans mature on December 15, 2001. As a result thereof, the Company issued a separate note comprising part of the 2001 Notes to
such party (which collectively are mandatorily convertible into 1,375,000 shares of our Common Stock at $0.20 per share) and also issued a warrant to purchase 87,500 shares of our Common Stock at $0.30 per share.





In addition, the parties amended the August 7, 2001 financing as follows:





(i)  The maturity date of the two tranches of the 2001 Notes totaling $1,475,000 in principal amount was extended from September 15, 2001 until October 15, 2001; and





(ii)  The creditors extended the time for the Company to raise $1,500,000 until October 15, 2001 as a condition to the issuance
of the $250,000 loan on or about October 15, 2001.





Also, the holders of the 2001 Notes acknowledged that there
was no default of any kind as of September 14, 2001.





On September 8, 2001 and September 16, 2001, the average of
the high and low price per share of the Companys Common Stock was $0.255 and $0.235, respectively, which was higher than the conversion rate of one share for each $0.20 of debt, but lower than the exercise price of each warrant at $0.30 per
share.





(d)  October and November, 2001 Financing





The Company again failed to meet the condition to raise additional equity financing of $1,500,000 on or before October 15, 2001. Despite such failure, Lancer Partners L.P.
loaned the Company an additional $25,000 (bringing its total loan to the Company to $650,000 in principal amount) and Lancer Offshore, Inc. loaned the Company an additional $85,000 on October 3, 2001, $175,000 on October 9, 2001, $175,000 on October
29, 2001 and $1,000,000 on November 14, 2001 (bringing its total loan to the Company to $2,560,000 in principal amount), or a total loan from such parties of $3,210,000. As a result, the Company issued separate notes comprising part of the 2001
Notes and issued additional warrants to such parties to purchase 730,000 shares of the Companys Common Stock at an exercise price of $0.30 per share, expiring in each case on a date in 2006 five years after the date of their respective
issuance.





In addition, the parties agreed on November 14, 2001 to amend the entire 2001 Note financing as follows:





(i)  The entire principal amount of $3,210,000 comprising the 2001 Notes became mandatorily convertible into shares
of our Common Stock at the rate of one share for each $0.05 of debt (A) upon our receipt of approval of our shareholders at a meeting of such conversion and (B) upon our receipt of $3,210,000 in equity from sources other than Michael Lauer, Lancer
Offshore, Inc., Lancer Partners L.P. and The Orbiter Fund Ltd. on or before February 28, 2002.





(ii)  The maturity date of the entire principal amount of $3,210,000 comprising the 2001 Notes was extended until February 28, 2002 (unless mandatorily converted into shares of the Companys Common Stock prior to such
date);





(iii)  The amount of shares issuable in the event of a default was then increased to 1,605,000
shares of our Common Stock for each month in which a default exists and continuing until such default is cured, up to a maximum of 12,500,000 shares;





(iv)  The Company agreed to give Lancer Offshore Inc. and Lancer Partners L.P. full anti-dilution protection in the event the Company sold shares of its Common Stock at a price less than
$0.05 per share during the one-year period commencing on November 14, 2001 (which was changed from May 12, 2001); and





(v)  The finders fee payable on the transaction was increased by requiring the Company to issue a fiveyear warrant to Capital Research Ltd. to purchase 2,000,000 shares of the Companys Common Stock at an
exercise price of $0.05 per share, which expires on November 13, 2006.





(e)  January and February, 2002 Financing





Lancer Offshore, Inc. loaned the Company an additional $350,000 on January 25, 2002 and $250,000 on February 8,
2002 (bringing its total loan to the Company to $3,160,000 in principal amount). As a result, the Company issued separate notes




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comprising part of the 2001 Notes and issued additional warrants to Lancer Offshore, Inc. to purchase 300,000 shares of the Companys
Common Stock at an exercise price of $0.30 per share, expiring in each case on a date in 2007 five years after the date of their respective issuance.





In addition, the parties agreed on January 25, 2002 to amend the entire 2001 Note financing as follows:





(i)  The entire principal amount of $3,810,000 comprising the 2001 Notes became mandatorily convertible into shares of our Common Stock at the rate of one share for each $0.05 of debt (A)
upon our receipt of approval of our shareholders at a meeting of such conversion and (B) upon our receipt of $3,810,000 in equity from sources other than Michael Lauer, Lancer Offshore, Inc., Lancer Partners L.P. and The Orbiter Fund Ltd. on or
before February 28, 2002.





(ii)  The amount of shares issuable in the event of a default was now
increased to 1,780,000 shares of our Common Stock for each month in which a default exists and continuing until such default is cured, up to a maximum of 12,500,000 shares; and





(iii)  The Company agreed to give Lancer Offshore Inc. and Lancer Partners L.P. full antidilution protection in the event the Company sold shares of its
Common Stock at a price less than $0.05 per share during the oneyear period commencing on the date of the making of the last loan from such parties to the Company (which was changed from November 14, 2001 to February 8, 2002).





(f)  March, 2002 Financing





Lancer Offshore, Inc. loaned the Company an additional $200,000 on March 8, 2002 (bringing its total loan to the Company to $3,360,000 in principal amount) and Lancer Partners L.P. loaned the Company
an additional $100,000 on March 11, 2002 and $150,000 on March 27, 2002 (bring its total loan to the Company to $900,000 in principal amount). As a result, the Company issued separate notes comprising part of the 2001 Notes and issued additional
warrants to Lancer Offshore, Inc. and Lancer Partners L.P. to purchase 100,000 shares and 125,000 shares of the Companys Common Stock, respectively, at an exercise price of $0.30 per share, expiring in each case on a date in 2007, five years
after the date of their respective issuance.





In addition, the parties agreed on February 28, 2002 to amend the entire 2001 Note
financing as follows:





(i)  The maturity date of the entire principal amount of $3,810,000 comprising
the 2001 Notes was extended until June 30, 2002 (unless mandatorily converted into shares of the Companys Common Stock prior to such date).





(ii)  The entire principal amount of $3,810,000 comprising the 2001 Notes became mandatorily convertible into shares of our Common Stock at the rate of one share to $0.05 of debt (A) upon our
receipt of approval of our shareholders at a meeting of such conversion (which was given on March 15, 2002) and (B) upon our receipt of $3,810,000 in equity from sources other than Michael Lauer and his affiliates, including, without limitation,
Lancer Offshore, Inc., Lancer Partners L.P. and The Orbiter Fund Ltd., on or before June 30, 2002.





(iii)  The Company agreed to issue 7,120,000 shares of its Common Stock to Lancer Offshore, Inc. and Lancer Partners L.P., to be divided pro rata between them based on their respective share of the total loans of $3,810,000
to us as of February 28, 2002, subject to the approval of such issuance by our stockholders at a meeting in accordance with applicable American Stock Exchange rules. In the event that (i) such stockholder approval is not obtained on or before July
31, 2002 or (ii) the Company fails to issue such shares within 30 days after such approval is obtained due to its fault, the Company agreed to pay the sum of $356,000 to such creditors, pro rata as set forth above, in full satisfaction thereof, with
such payment to be made within 30 days after the later to occur of such two events.





Furthermore, the parties
agreed on March 27, 2002 to amend the entire 2001 Note financing as follows: the entire principal amount of $4,260,000 comprising the 2001 Notes became mandatorily convertible into shares of our Common Stock at the rate of one share to $0.05 of debt
(A) upon our receipt of approval of our shareholders at a meeting of such conversion (which was given on March 15, 2002) and (B) upon our receipt of $4,260,000 in equity from sources other than Michael Lauer and his affiliates, including, without
limitation, Lancer Offshore, Inc., Lancer Partners L.P. and The Orbiter Fund Ltd., on or before June 30, 2002.





(g)  April,
2002 Financing





Lancer Offshore, Inc. loaned the Company an additional $275,000 on April 12, 2002. As a
result, the Company issued a note comprising part of the 2001 Notes and issued an additional warrant to Lancer Offshore, Inc. to purchase 137,500 shares of the Companys Common Stock, at an exercise price of $0.30 per share, expiring on April
11, 2007. In addition, Lancer Offshore, Inc. loaned the Company an additional $700,000 on April 25, 2002 (bringing its total loan to the Company to




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$4,335,000 in principal amount), and Lancer Partners L.P. loaned the Company an additional $300,000 on such date (bringing its total loan to the
Company to $1,200,000 in principal amount). As a result, the Company issued separate notes comprising part of the 2001 Notes and issued additional warrants to Lancer Offshore, Inc. and Lancer Partners L.P. to purchase 350,000 and 150,000 shares of
the Companys Common Stock, respectively, at an exercise price of $0.30 per share, expiring on April 24, 2007.





In addition, the
parties agreed on April 25, 2002 to amend the entire 2001 Note financing as follows:





(i)  The maturity
date of the entire principal amount of $5,535,000 comprising the 2001 Notes was extended until June 30, 2002 (unless mandatorily converted into shares of the Companys Common Stock prior to such date).





(ii)  The entire principal amount of $5,535,000 comprising the 2001 Notes became mandatorily convertible into shares of our
Common Stock at the rate of one share to $0.05 of debt (A) upon our receipt of approval of our shareholders at a meeting of such conversion (which was given on March 15, 2002) and (B) upon our receipt of $5,535,000 in equity from sources other than
Michael Lauer and his affiliates, including, without limitation, Lancer Offshore, Inc., Lancer Partners L.P. and The Orbiter Fund Ltd., on or before June 30, 2002.





(h)  July, 2002 Financing





Lancer Offshore, Inc.
loaned the Company an additional $300,000 on July 23, 2002 (bringing its total loan to the Company to $4,635,000). As a result, the Company issued a note comprising part of the 2001 Notes and issued an additional warrant to Lancer Offshore, Inc. to
purchase 150,000 shares of the Companys Common Stock, at an exercise price of $0.30 per share, expiring on July 22, 2007.





Furthermore, the parties agreed on July 23, 2002 to amend the entire 2001 Note financing as follows:





(i)  The maturity date of the entire principal amount of $5,835,000 comprising the 2001 Notes was extended from June 30, 2002 until September 30, 2002 (unless mandatorily converted into shares of the Companys Common
Stock prior to such date).





(ii)  The entire principal amount of $5,835,000 comprising the 2001 Notes
became mandatorily convertible into shares of our Common Stock at the rate of one share for each $0.05 of debt (A) upon our receipt of approval of our shareholders at a meeting of such conversion (which was given on March 15, 2002, up to then
applicable ceiling amount of $5,000,000) and (B) upon our receipt of $5,835,000 in equity from sources other than Michael Lauer and his affiliates, including, without limitation, Lancer Offshore, Inc., Lancer Partners L.P. and the Orbiter Fund Ltd.,
on or before September 30, 2002.





(iii)  The total amount of shares issuable in the event of continuing
monthly defaults was increased to 25,000,000 from 12,500,000.





(iv)  In the event of a default, the
lenders additional remedy to convert its outstanding obligations into shares of Common Stock became convertible at the rate of one share for each $0.05 of debt (a decrease from the prior rate of one share for each $0.20 of debt) in full
satisfaction of such obligations.





(v)  The Company agreed to issue 5,380,000 shares of its Common Stock
to Lancer Offshore, Inc. and Lancer Partners L.P., to be divided pro rata between them based on their respective share of the total loans of $5,585,000 to us as of July 23, 2002, subject to the approval of such issuance by our stockholders at a
meeting in accordance with applicable American Stock Exchange rules. In the event that (i) such stockholder approval is not obtained on or before July 31, 2002 (which approval was given on June 28, 2002) or (ii) the Company fails to issue such
shares due to its fault within 30 days after the later of (A) the receipt of such stockholder approval or (B) the receipt of approval of an amended American Stock Exchange listing application covering, among other things, the 12,500,000 shares
issuable to such creditors, the Company agreed to pay the sum of $356,000 to such creditors, pro rata as set forth above, in full satisfaction thereof, with such payment to be made within 30 days after the later to occur of such two events.





(i)  August, 2002 Financing





Lancer Offshore, Inc. loaned the Company an additional $300,000 on August 20, 2002 (bringing its total loan to the Company to $4,935,000). As a result, the Company issued a note comprising part of the
2001 Notes and issued an additional warrant to Lancer Offshore, Inc. to purchase 150,000 shares of the Companys Common Stock, at an exercise price of $0.30 per share, expiring on August 19, 2007.





Furthermore, the parties agreed on August 20, 2002 to amend the entire 2001 Note financing as follows:




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The entire principal amount of $6,135,000 comprising the 2001 Notes became
mandatorily convertible into shares of our Common Stock at the rate of one share for each $0.05 of debt (A) upon our receipt of approval of our shareholders at a meeting of such conversion (which was given on March 15, 2002, up to then applicable
ceiling amount of $5,000,000) and (B) upon our receipt of $6,135,000 in equity from sources other than Michael Lauer and his affiliates, including, without limitation, Lancer Offshore, Inc., Lancer Partners L.P. and the Orbiter Fund Ltd., on or
before September 30, 2002.





(j)  September 4, 2002 Financing





Lancer Offshore, Inc. loaned the Company an additional $150,000 on September 4, 2002 (bringing its total loan to the Company to $5,085,000). As a result, the Company issued
a note comprising part of the 2001 Notes and issued an additional warrant to Lancer Offshore, Inc. to purchase 75,000 shares of the Companys Common Stock, at an exercise price of $0.30 per share, expiring on September 3, 2007.





Furthermore, the parties agreed on September 4, 2002 to amend the entire 2001 Note financing as follows:





The entire principal amount of $6,285,000 comprising the 2001 Notes became mandatorily convertible into shares of our Common
Stock at the rate of one share for each $0.05 of debt (A) upon our receipt of approval of our shareholders at a meeting of such conversion (which was given on March 15, 2002, up to then applicable ceiling amount of $5,000,000) and (B) upon our
receipt of $6,285,000 in equity from sources other than Michael Lauer and his affiliates, including, without limitation, Lancer Offshore, Inc., Lancer Partners L.P. and the Orbiter Fund Ltd., on or before September 30, 2002.





(k)  October, 2002 Financing





Lancer Offshore, Inc. loaned the Company an additional $25,000 on October 3, 2002 and an additional $125,000 on October 15, 2002 and an additional $100,000 on October 31, 2002 (bringing its total loan to the Company to
$5,335,000). As a result, the Company issued three notes comprising part of the 2001 Notes and issued additional warrants to Lancer Offshore, Inc. to purchase 12,500, 62,500 and 50,000 shares of the Companys Common Stock, at an exercise price
of $0.30 per share, expiring on October 2, 2007, October 14, 2007 and October 30, 2007, respectively.





Furthermore, the parties agreed on October 3, 2002 to amend the entire 2001 Note financing, among other things, as follows:





(i)  The maturity date of the entire principal amount of $6,310,000 comprising the 2001 Notes was extended from September 30, 2002 until December 31, 2002 (unless mandatorily converted into
shares of the Companys Common Stock prior to such date).





(ii)  The entire principal amount of
$6,310,000 comprising the 2001 Notes became mandatorily convertible into shares of our Common Stock at the rate of one share for each $0.05 of debt (A) upon our receipt of approval of our shareholders at a meeting of such conversion (which was given
on March 15, 2002, up to then applicable ceiling amount of $5,000,000) and (B) upon our receipt of $6,310,000 in equity from sources other than Michael Lauer and his affiliates, including, without limitation, Lancer Offshore, Inc., Lancer Partners
L.P. and the Orbiter Fund Ltd., on or before December 31, 2002.





(iii)  The lenders restriction
against the Companys issuance of any of shares of Common Stock or securities convertible into such shares at $0.20 per share or less, without the lenders prior written consent, was changed to any such issuance of less than $0.05 per
share.





(iv)  The Company agreed to issue 5,300,000 shares of its Common Stock to Lancer Offshore, Inc.
and Lancer Partners L.P., to be divided pro rata between them based on their respective share of the total loans of $6,310,000 to us as of October 3, 2002, subject to the approval of such issuance by the stockholders at a meeting in accordance with
applicable American Stock Exchange rules. In the event that (i) such stockholder approval is not obtained on or before June 30, 2003 or (ii) the Company fails to issue such shares due to its fault within 30 days after the later of (A) the receipt of
such stockholder approval or (B) the receipt of an amended American Stock Exchange listing application covering, among other things the 5,300,000 shares issuable to such creditors, the Company agreed to pay the sum of $265,000 to such creditors, pro
rata as set forth above, in full satisfaction thereof, with such payment to be made within 30 days after the later to occur of such two events.





Also, the parties agreed on October 15, 2002 to amend the entire 2001 Note financing as follows:





The entire principal amount of $6,435,000 comprising the 2001 Notes became mandatorily convertible into




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shares of our Common Stock at the rate of one share for each $0.05 of debt (A) upon our receipt of approval of our shareholders at a meeting of
such conversion (which was given on March 15, 2002, up to then applicable ceiling amount of $5,000,000) and (B) upon our receipt of $6,435,000 in equity from sources other than Michael Lauer and his affiliates, including, without limitation, Lancer
Offshore, Inc., Lancer Partners L.P. and the Orbiter Fund Ltd., on or before December 31, 2002.





In addition, the
parties agreed on October 31, 2002 to amend the entire 2001 Note financing as follows:





The entire principal
amount of $6,535,000 comprising the 2001 Notes became mandatorily convertible into shares of our Common Stock at the rate of one share for each $0.05 of debt (A) upon our receipt of approval of our shareholders at a meeting of such conversion (which
was given on March 15, 2002, up to then applicable ceiling amount of $5,000,000) and (B) upon our receipt of $6,535,000 in equity from sources other than Michael Lauer and his affiliates, including, without limitation, Lancer Offshore, Inc., Lancer
Partners L.P. and the Orbiter Fund Ltd., on or before December 31, 2002.





(l)  November, 2002 Financing





Lancer Offshore, Inc. loaned the Company an additional $50,000 on November 13, 2002 (bringing its total loan to the Company to
$5,385,000). As a result, the Company issued a note comprising part of the 2001 Notes and issued an additional warrant to Lancer Offshore, Inc. to purchase 25,000 shares of the Companys Common Stock, at an exercise price of $0.30 per share,
expiring on November 12, 2007.





In addition, the parties agreed on November 13, 2002 to amend the entire 2001 Note
financing as follows:





The entire principal amount of $6,585,000 comprising the 2001 Notes is now mandatorily
convertible into shares of our Common Stock at the rate of one share for each $0.05 of debt (A) upon our receipt of approval of our shareholders at a meeting of such conversion (which was given on March 15, 2002, up to then applicable ceiling amount
of $5,000,000) and (B) upon our receipt of $6,585,000 in equity from sources other than Michael Lauer and his affiliates, including, without limitation, Lancer Offshore, Inc., Lancer Partners L.P. and the Orbiter Fund Ltd., on or before December 31,
2002.





On and after October 1, 2001, on the date of the issuance of each of the additional notes comprising part
of the 2001 Notes and the warrants to purchase shares of our Common Stock, the average of the high and low price of a share of the Companys Common Stock was higher than the conversion rate of each Note in question, and, at times, was higher or
lower than the exercise price of each Warrant.





(m)  American Stock Exchange Rules





Under applicable American Stock Exchange Rules, we are required to obtain the approval of our stockholders if we propose to issue shares
of our Common Stock (i) to a controlling stockholder at a per share price less than the market value thereof and (ii) such issuance involves an amount of shares that is more than 5% of the number of the corporations then issued and outstanding
shares of Common Stock in any one year. Such rule applies to our recent financing transaction with Lancer Offshore, Inc. and Lancer Partners L.P Accordingly, we obtained the approval of our stockholders at a special meeting held on March 15, 2002 in
order to permit the mandatory conversion of the 2001 Notes owned by Lancer Offshore, Inc. and Lancer Partners L.P. into shares of our Common Stock (up to the then applicable ceiling amount of $5,000,000), and the issuance of the shares of our Common
Stock upon the exercise of the warrants granted to Lancer Offshore, Inc. and Lancer Partners L.P. (up to the then applicable amount of 2,500,000 shares) in connection with the above financing, which approval satisfies one of the two conditions to
the mandatory conversion of the 2001 Notes.





We contemplate that we will seek stockholder approval for the balance
of any shares issuable pursuant to such financing to the extent that such approval has not yet been obtained.





(n)  Risk of
Default Under Our Senior Secured Indebtedness





While we are attempting to raise the amount needed in
additional equity as a further condition for the mandatory




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conversion of the 2001 Notes into our shares of Common Stock or to pay the 2001 Notes in whole or in part and thereby eliminate or reduce the
extent of the mandatory conversion of the 2001 Notes, we cannot assure you of such result. Moreover, we cannot assure you that we will not commit a default under the 2001 Notes in the future when they mature on December 31, 2002. In the event that
the holders of the 2001 Notes sell our assets securing the 2001 Notes following any future default by us, a remedy available under the 2001 Notes, such sale would materially and adversely affect our business and financial condition





ITEM 4.Controls and Procedures





Within the
90-day period prior to the filing of this report, an evaluation was carried out under the supervision and with the participation of the Companys Chief Executive Officer and Chief Financial Officer of the effectiveness of our disclosure
controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-14 and 15d  14). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Companys disclosure controls
and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods
specified in Securities and Exchange Commission rules and forms. However, such officers noted there had been a prior deficiency in the reporting of certain agreements which were not correctly disclosed by the Company. The Company has taken
corrective action in this area by requiring, among other things, the timely reporting of any such agreement to the Companys Chief Financial Officer. Subsequent to the date of their evaluation, there were no significant changes in the
Companys internal controls or in other factors that could significantly affect the disclosure controls, including any corrective actions with regard to significant deficiencies and material weaknesses.





ITEM 5.Other Events





1.  We made sales of shares of our securities during the third quarter of
2002, each of which is exempt from registration under the Act, as set forth below:





(a)  As of July 23,
2002, we issued (i) a Senior Secured Note in the principal amount of $300,000 (described immediately above) and (ii) a warrant to purchase 150,000 shares of our Common Stock at an exercise price of $0.30 per share, expiring on July 22, 2007, to
Lancer Offshore, Inc., an affiliate of our largest stockholder. We believe that Lancer Offshore, Inc. is an accredited investor within the meaning of Regulation D issued under the Act. We issued such securities in reliance upon Section 4(2) of the
Act.





(b)  As of August 20, 2002, we issued (i) a Senior Secured Note in the principal amount of
$300,000 (described immediately above) and (ii) a warrant to purchase 150,000 shares of our Common Stock at an exercise price of $0.30 per share, expiring on August 19, 2007, to Lancer Offshore, Inc., an affiliate of our largest stockholder. We
believe that Lancer Offshore, Inc. is an accredited investor within the meaning of Regulation D issued under the Act. We issued such securities in reliance upon Section 4(2) of the Act.





(c)  As of September 4, 2002, we issued (i) a Senior Secured Note in the principal amount of $150,000 (described immediately above) and (ii) a warrant to purchase
75,000 shares of our Common Stock at an exercise price of $0.30 per share, expiring on September 3, 2007, to Lancer Offshore, Inc., an affiliate of our largest stockholder. We believe that Lancer Partners L.P. is an accredited investor within the
meaning of Regulation D issued under the Act. We issued such securities in reliance upon Section 4(2) of the Act.





2.  Business
Software Alliance (BSA), a trade association, asserted a claim against us during May, 2002 alleging that we had without authorization or license installed on our computers unlicensed copies of certain products published by members of BSA
(in this case, Adobe Systems Incorporated and Microsoft Corporation), and that such unauthorized use constituted copyright infringement under the Federal Copyright Act. BSA alleged that we could be held liable for statutory damages on a per product
basis of between $30,000 and $150,000 per product, plus reasonable attorneys fees and court costs.





We and BSA
agreed to settle such claims by our payment of the sum of $54,710 in three unequal installments and our purchase of new software for the items in question. We expect such settlement agreement to be signed by BSA in the near future, although we
cannot assure you of such result. If such settlement is achieved amicably, our liability thereunder will not have a material adverse effect on our business and financial condition. If such settlement is not achieved and the matter were litigated and
we lost such litigation, such loss would have a material adverse effect on our business and financial condition.





ITEM
6.Exhibits and Reports on Form 8-K





(a)  The following documents are filed as part of this
report: Financial Statements of the Company (unaudited), including Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Operation, Condensed Consolidated Statements




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of Cash Flow and Notes to Condensed Consolidated Financial Statements as at and for the three months ended September 30, 2002 and the Exhibits
which are listed on the Exhibit Index.





Exhibit Index10.54

Amendment of Agreements by and among the Registrant and Lancer Offshore, Inc., and Lancer Partners L.P. dated as of October 3, 2002.10.55

Amendment of Agreements by and among the Registrant and Lancer Offshore, Inc, and Lancer Partners L.P. dated as of October 15, 2002.10.56

Amendment of Agreements by and among the Registrant and Lancer Offshore, Inc, and Lancer Partners L.P. dated as of October 31, 2002.10.57

Amendment of Agreements by and among the Registrant and Lancer Offshore, Inc. and Lancer Partners L.P. dated as of November 13, 2002.99.1

Certification of Chief Executive Officer99.2

Certification of Vice President of Finance and Chief Financial Officer





(b)  The following reports on Form 8-K were filed by the Registrant during the
quarter ended September 30, 2002:





None








SIGNATURES





Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused
this report to be signed on its behalf by the undersigned, there unto duly authorized.





Date:  November 19, 2002





WORLD WIRELESS COMMUNICATIONS, INC.By:

/s/    DAVID D.
SINGERDavid D. Singer President,
Chief Executive Officer





By:

/s/    ROBERT W.
HATHAWAYRobert W. Hathaway Vice
President of Finance and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)




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CERTIFICATIONS





I, David D. Singer, the President of World Wireless Communications, Inc. (the Company), certify that:





1.  I have reviewed this quarterly report on Form 10-Q of the Company;





2.  Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by this quarterly report;





3.  Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this quarterly report;





4.  The
registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:





| | (a) |  | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | (b) |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly
report (the Evaluation Date); and
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | (c) |  | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------




5.  The registrants other certifying officers and I have
disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent function):





| | (a) |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | (b) |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



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6.  The registrants other certifying officers and I have
indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material weaknesses.





Date:  November 19, 2002





/s/    David D. SingerDavid D. Singer President




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CERTIFICATIONS





I, Robert W. Hathaway, the Vice President of Finance and Chief Financial Officer of World Wireless Communications, Inc. (the Company), certify that:





1.  I have reviewed this quarterly report on Form 10-Q of the Company;





2.  Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;





3.  Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in this quarterly report;





4.  The
registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:





| | (a) |  | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | (b) |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly
report (the Evaluation Date); and
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | (c) |  | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------




5.  The registrants other certifying officers and I have
disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent function):





| | (a) |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | (b) |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



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6.  The registrants other certifying officers and I have
indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material weaknesses.





Date:  November 19, 2002





/s/    Robert W. HathawayRobert W. Hathaway Vice President of Finance and Chief Financial Officer




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##### Table of Contents

EXHIBIT INDEX





EXHIBIT NUMBER

DESCRIPTION3.1

Articles of Incorporation of the Company and all amendments thereto*3.2

Bylaws of the Company*4.1

Form of Common Stock Certificate*4.2

Form of Subscription Agreement used in private financing providing for registration rights*5.1

Opinion of Connolly Epstein Chicco Foxman Engelmyer & Ewing regarding the legality of securities being registered*5.2

Opinion of Law Offices of Stephen R. Field as to the legality of the securities being registered*10.1

1997 Stock Option Plan*10.2

DRCC Omnibus Stock Option Plan*10.3

Development and License Agreement dated April 4, 1997, between DRCC and Kyushu Matsushita Electric Co., Ltd.*10.4

Amended and restated Technical Development and Marketing Alliance Agreement dated September 15, 1997, between the Company and Williams Telemetry Services,
Inc.*10.5

Lease Agreement dated May 17, 1995, between DRCC and Pracvest Partnership relating to the Companys American Fork City offices and
facility*10.6

Lease Agreement dated February 12, 1996, between the Company the Green/Praver, et al., relating to the Companys Salt Lake City offices*10.7

Shareholders Agreement dated May 21, 1997 between the Company, DRCC, Philip A. Bunker and William E. Chipman, Sr.*10.8

Asset Purchase Agreement dated October 31, 1997, between the Company and Austin Antenna, Ltd.*10.9

Stock Exchange Agreement dated October 31, 1997, between the Company, TWC, Ltd. and the shareholders of TWC, Ltd.*10.10

Settlement Agreement, Mutual Waiver and Release of All Claims dated November 11, 1997 between Digital Radio Communications Corp. and Digital Scientific,
Inc.*10.11

Agreement (undated) between the Company, Xarc Corporation and Donald J. Wallace relating to the Companys acquisition of Xarc Corporation*10.12

Promissory Note dated December 4, 1997, by the Company, payable to William E. Chipman, Sr. in the principal amount of $125,000*10.13

Promissory Note dated November 13, 1997, by the Company, payable to T. Kent Rainey in the principal amount of $200,000*10.14

Investment Banking Services Agreement dated November 19, 1997, between the Company and PaineWebber Incorporated*10.15

$400,000 Promissory Note dated December 24, 1997, payable to Electronic Assembly Corporation*10.16

$400,000 Promissory Note dated January 8, 1998, payable to Tiverton Holdings Ltd.*10.17

Loan Agreement by and among the Registrant and the Bridge Noteholders* dated as of May 15, 1998*10.18

Amendment and Waiver Agreement by and among the Registrant and the Bridge Noteholders dated August 7, 1998*10.19

Amendment and Waiver Agreement by and among the Registrant and the Bridge Noteholders dated September 11, 1998*10.20

Loan Agreement by and among the Registrant and the Bridge Noteholders dated as of May 15, 1998 (Previously filed), together with the Notes, Pledge/Security
Agreement, Pledgee/Representative Agreement, Subordination, and Registration Rights Agreement*10.21

Separation and Mutual Release Agreement between the Registrant and William E. Chipman, Sr. dated as of May 26, 1998*10.22

Registration Rights Agreement by and among the Registrant and the purchasers of common stock issued pursuant to the Registrants Confidential Private
Placement Memorandum dated September 9, 1998, as amended*10.23

Employment Agreement between the Registrant and James OCallaghan dated May 20, 1998*10.24

Lease agreement between the Registrant and NP#2 dated as of July 29, 1998 relating to the premises at 2441 South 3850 West, West Valley City, Utah
84120*10.25

Agreement between KME and the Registrant dated October 19, 1998 relating to the Registrants providing of technical assistance and development relating
to the Gigarange telephone*10.26

Agreement between KME and the Registrant dated as of March 1, 1998 relating to the Panasonic MicroCast System*10.27

General and Mutual Release Agreement between the Registrant and Phil Acton dated November 2, 1998*10.28

Agreement and Waiver Agreement by and among the Registrant and the Bridge Noteholders dated November 25, 1998*10.29

1998 Employee Incentive Stock Option Plan*10.30

1998 Non-qualified Stock Option Plan*10.31

Amendment of Agreement by and among the Registrant and the Bridge Noteholders dated as of March 26, 1999*10.32

Loan Agreement by and among the Registrant and the Senior Secured Noteholders dated as of May 14, 1999, together with the Notes, Pledge/Security Agreement,
Pledgee Representative Agreement, Subordination and Registration Rights Agreement*




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##### Table of Contents




10.33

Two separate Agreements by and among the Registrant and the 1999 Bridge Noteholders dated August 19, 1999*10.34

Waiver Agreement by and among the Registrant and the Bridge Noteholders dated as of December 7, 1999*10.35

Registration Rights Agreement by and among the Registrant and the purchasers of common stock issued pursuant to the Registrants Confidential Private
Placement Memorandum dated January 12, 2000 as amended*10.36

Settlement Agreement and Mutual Release between Internet Telemetry Corp. and the Registrant, dated as of August 7, 2000.*10.37

Financing Commitment Letter between the Registrant and Insight Capital LLC dated April 2, 2001.*10.38

Loan Agreement by and among the Registrant and Lancer Offshore,Inc. Noteholders dated as of May 17, 2001, together with the Notes, Warrant, Pledge/Security
Agreement, Subordination Agreement, and Registration Rights Agreement.*10.39

Amended and Restated Loan Agreement by and among the Registrant, Lancer Offshore, Inc. and Lancer Partners L.P. dated as of August 7, 2001, together with the
Note, Warrant, Amended and Restated Pledge / Security Agreement, Subordination Agreement, Pledgee Representation Agreement and the Amended and Restated Registration Rights Agreement.*10.40

Amendment of Agreements by and among the Registrant and Lancer Offshore, Inc. and Lancer Partners L.P. dated September 14, 2001.*10.41

Amendment of Agreements by and among the Registrant and Lancer Offshore, Inc. and Lancer Partners L.P. dated as of October 12, 2001.*10.42

Amendment of Agreements by and among the Registrant and Lancer Offshore, Inc. and Lancer Partners L.P. dated as of November 14, 2001. *10.43

Amendment of Agreements by and among the Registrant and Lancer Offshore, Inc. and Lancer Partners L.P. dated as of January 25, 2002.*10.44

Amendment to Warrant Nos. T-1A, T-5, T-6, T-7 and T-8 held by Lancer Offshore, Inc. *10.45

Amendment to Warrant Nos. T-2, T-3 and T-4 held by Lancer Partners L.P. *10.46

Amendment to Warrant No. T-9 held by Capital Research Ltd. *10.47

Amendment of Agreements by and among the Registrant and Lancer Offshore, Inc. and Lancer Partners L.P. dated as of February 28, 2002. *10.48

Amendment of Agreements by and among the Registrant and Lancer Offshore, Inc. and Lancer Partners L.P. dated as of March 27, 2002. *10.49

Amendment of Agreements by and among the Registrant and Lancer Offshore, Inc. and Lancer Partners L.P. dated as of April 12, 2002. *10.50

Amendment of Agreements by and among the Registrant and Lancer Offshore, Inc. and Lancer Partners L.P. dated as of April 25, 2002. *10.51

Amendment of Agreements by and among the Registrant and Lancer Offshore, Inc. and Lancer Partners L.P. dated as of July 23, 2002. *10.52

Amendment of Agreements by and Among the Registrant and Lancer Offshore, Inc. and Lancer Partners L.P. dated as of August 20, 2002. *10.53

Amendment of Agreements by and among the Registrant and Lancer Offshore, Inc., and Lancer Partners L.P. dated as of September 4, 2002. *10.54

Amendment of Agreements by and among the Registrant and Lancer Offshore, Inc., and Lancer Partners L.P. dated as of October 3, 2002. **10.55

Amendment of Agreements by and among the Registrant and Lancer Offshore, Inc, and Lancer Partners L.P. dated as of October 15, 2002. **10.56

Amendment of Agreements by and among the Registrant and Lancer Offshore, Inc, and Lancer Partners L.P. dated as of October 31, 2002.**10.57

Amendment of Agreements by and among the Registrant and Lancer Offshore, Inc, and Lancer Partners L.P. dated as of November 13, 2002.**





| | * |  | Filed previously
| | - |  | ----------------




| | ** |  | Filed herewith.
| | -- |  | ---------------




| | + |  | Management contract or compensatory plan or arrangement filed previously.
| | - |  | -------------------------------------------------------------------------