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U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-K



xANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



[No Fee Required] For the fiscal year ended December 31,
2002



 ̈TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



[No Fee Required]



For the transition period from
 to



Commission file 001-15837



WORLD WIRELESS COMMUNICATIONS, INC.

(Name of registrant in its charter)



|Nevada                                                         |  | 87-0549700                          
|-------------------------------------------------------------- |  | ------------------------------------
|(State or other jurisdiction of Incorporation or organization) |  | (I.R.S. Employer Identification No.)



|5670 Greenwood Plaza Boulevard, Suite 340, Greenwood Village,
Colorado |  | 80111     
|---------------------------------------------------------------------- |  | ----------
|(Address of principal executive offices)                               |  | (Zip Code)



Registrants telephone number    (303) 221-1944



Securities registered under Section 12(g) of the Exchange Act:



None

(Title of Class)



Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 ̈



Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-K, and no disclosure will be contained, to
the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ̈Not applicable.



The aggregate market value of the voting stock held by non-affiliates of the registrant computed by reference to the average of the high
and low price at which the stock was sold, as of April 30, 2003, was $2,516,796.



As of April 30, 2003 there were 31,459,945 shares of the registrants common stock issued and outstanding.





EXPLANATORY NOTE:



The financial statements included in this Form 10-K have not
been audited by the Companys independent auditors, nor any other independent accountants, using professional standards and procedures for conducting such audits, as established by generally accepted auditing standards. Accordingly, the
Companys independent auditors have not expressed any opinion or



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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.





PART I



ITEM 1.    DESCRIPTION OF BUSINESS



BUSINESS



Overview



World Wireless Communications, Inc. (the Company, we or us) is a developer of wired and wireless
telemetry (which is the monitoring, collection and transmission of data by wire or radio from remote sources) and remote control systems. By leveraging our experience developing low-cost, reliable communications systems, we have created the latest
generation of technology to monitor and control various remote devices through the internet.



Our products and services allow data from remote devices to be accessed via a secure, encrypted Internet connection using a standard web browser located anywhere where there is internet access. Our
technology has applications across a broad range of industries, for which it can substantially improve the efficiency and cost of access and manipulation of important data from widely dispersed equipment. For example, we are currently deploying our
technology in the automatic meter reading field, whereby utility companies can read natural gas, electric, and water usage on commercial and residential meters on an immediate basis in order to better balance their energy loads, monitor usage,
predict requirements, and ultimately improve service and reduce costs. Another example is remotely monitoring industrial restaurant equipment, such as a fast food restaurant grill, ice machine, fryers, and coolers, to ensure that the particular
piece of equipment is functioning within desired parameters. In this example, our technology can provide maintenance notification so as to avoid malfunction during a peak time in the business day, or ensure a grill or fryer is cooking at the proper
temperature.



Since January 1999, we have
successfully combined all of our technologies into a functional package that not only collects data, but also transmits it and provides control from remote locations. It also enables our customers to use an ordinary browser to access the
data-gathering and remote control functions from anywhere in the world through the internet, where there is internet access. Our management has been engaged principally in developing product positioning strategies, strategic planning and final
development and testing of our integrated technology.



Current
Status



(a)  Overview



We have completed development and testing of the core systems and sub-systems comprising our internet technology, and are currently engaged in implementing the first phase of our near-term planthe introduction of our products
and services to selected customers in major target markets to establish test installations for a variety of commercial and industrial applications.



While our X-traWebtechnology has a wide range of diverse applications, we originally targeted four principal areas to focus our sales: (a) vending machines; (b) facilities management and automatic meter reading;(c) security systems; and (d)
food services equipment. As a result of the slower receipt of revenues from the sale of our X-traWebproducts,
we decided in July 2001 to focus our activities principally on the sale of such products in the automatic meter reading and facilities management fields (in part due to the energy crisis then experienced in parts of the United States), although we
plan to continue to market our products in the areas of (i) vending machines, (ii) security systems and (iii) food services equipment in the future. Furthermore, as a result of the continued delay of the receipt of revenues from the sale of our
X-traWebproducts, we decided to reduce further the number of our employees, particularly in the engineering
and administrative areas, during 2002 and made a further reduction in the number of our employees in late March, 2003. Thus, as of December 31, 2002, we had a total of 21 employees, a reduction of 8 from the total of 29 employees we had as of
December 31, 2001. Also, in January, 2003 we decided to plan to increase the marketing and sale of our radio products.



Our former customers include FreedomPay.com (which sells cashless vending machines), Enodis Chains PLC (the largest manufacturer of
equipment for fast food vendors), a subsidiary of the U.K.-based Enodis, National Gas Automation Inc. (a developer of a liquid propane gas monitoring system), RealTime Data (a vending machine operator) and Midwest United Energy (which provides
natural gas to the agricultural irrigation market). Our current alliance partner is Service



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Concepts ( a provider of products and services to rural cooperatives in the western United States). Our
former alliance partners include Texaco Natural Gas Inc. (for marketing to the natural gas industry), Co-operative ConNEXTions, LLC (a provider of products and services to rural distribution cooperatives in the Western United States), Novar Controls
Corp. ( a supplier of advanced building automation control systems), Fracarro Radioindustrie S.p.A. (a supplier of satellite-based video distribution), and Audiotel S.p.A. (which marketed certain of our X-traWebTMproducts in Italy). We also had relationships with Kyushu Matsushita Electric Co. Ltd. (Panasonic), Motorola, Inc. and Williams Wireless
Inc. and Williams Telemetry Services, a subsidiary of the Williams Company (Williams).



(b)  Financing



We entered into a conditional restructuring agreement with our two secured creditors, Lancer Offshore, Inc.
and Lancer Partners L.P., who are affiliates of our largest stockholder, which requires, as a condition precedent to its effectiveness, that we receive at least $750,000 in equity (the Restructuring Agreement), although it is possible
that another form of consideration (such as subordinated debt acceptable to such creditors) would satisfy such creditors. The Company has an oral agreement from a third party to provide a six-month loan of $4,500,000 bearing simple interest at 3%
per annum, which would be subordinated to our senior secured debt totaling $7,020,000 as of February 6, 2003, have a second security interest in the assets of the Company pledged to our senior secured creditors and a first security interest in the
proceeds from our sale of any of our shares of Senior Preferred Stock which the Company is offering in a private placement transaction to raise up to $4,500,000 therefrom on or before June 30, 2003. The Company hopes to be able to close such new
debt financing, but since it has not been able to do so for almost three months, we cannot assure you we will be able to do so.



The terms of the Restructuring Agreement are favorable to the Company, and, if it is implemented by virtue of the Companys
satisfaction of the $750,000 funding condition, such a step should be helpful in our pursuit of additional financing in the future although we cannot assure you of such result. For a further description of the terms of the Restructuring Agreement,
see Senior Secured Indebtedness FinancingRestructuring Agreement in Item 5 hereof.



The key terms of the Restructuring Agreement are as follows:



(a)  the Companys payment of $1,500,000 to the two secured creditors would
eliminate $2,400,000 in principal amount of the 2001 Notes and cancel all interest accrued on the 2001 Notes to date;



(b)  the maturity date of the 2001 Notes would be extended for two years until June 30, 2005;



(c)  the 2001 Notes would carry no
further interest in the future;



(d)  the conversion rates of the 2001 Notes would be changed so that creditors would receive one share for each $0.50 of debt instead of the current rate of one share for each $0.05 of debt upon the mandatory conversion
thereof (subject to the continued requirements that (i) the approval of such mandatory conversion by the Companys shareholders at a meeting of shareholders (which was given up to the then applicable ceiling amount of $5,000,000 but not for any
excess thereof) and (ii) the Companys receipt of equity from unaffiliated third parties equal to the then outstanding principal amount of the 2001 Notes on or before June 30, 2005; and



(e)  such creditors would surrender
5,000,000 shares of Companys Common Stock for the prior extensions of the maturity date of the 2001 Notes.



Industry



Commercialization of the Internet began in the mid-1980s, with e-mail providing the primary means of communication. However, it was the Internets World Wide Web, which provided a means to link text and pictures, which led to
the blossoming of e-commerce and sparked the explosive growth of the Internet in the 1990s. Today, millions of people around the world send and receive information, and purchase products and services through the Internet. The potential of such a
large



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and still-growing market has
led many business analysts to consider e-commerce as a significant business opportunity. The growth of the Internet is being driven by:



| |  |  | The increasing familiarity, acceptance, and use of the Internet by governments, businesses, and consumers;
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | The large and growing number of personal computers (PCs) installed in homes and offices;
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | The decreasing cost of PCs and related peripherals;
| | - |  | ---------------------------------------------------



| |  |  | The growth and development of technologies that use the Internet to report information about the use or maintenance of various devises;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The proliferation of Internet content;
| | - |  | --------------------------------------



| |  |  | Easier, faster, and less expensive access to the Internet; and
| | - |  | --------------------------------------------------------------



| |  |  | Significant improvements in network infrastructure and bandwidth.
| | - |  | -----------------------------------------------------------------



We expect that corporate investment in technology using the internet will to continue to grow both in the
U.S. and abroad over the long term future, despite the recent economic downturn and the recent reduction of anticipated growth in the telecommunications sector.



Our Technology



We are a developer of wired and wireless telemetry communications and remote control systems and products. We also develop digital radios
in the 900 megahertz (MHZ)and 2.4 gigahertz (GHZ) bands.



At the heart of our strategy is the promotion of our communication systems designed to provide supervisory control of, and obtain data from equipment or devices in remote locations via the internet.



Our proprietary technology consists of three
parts, of which the first is our X-NodeTM. The X-NodeTMis a miniature web server compacted into a one square inch circuit board, which often requires less than 2 kilobytes of memory. This miniature web server
collects information from a remote piece of equipment (e.g., vending machine, natural gas meter, and the like) and makes that information available via the Internet.



The second part of the technology is our product for large-scale installations, the X-GateTM. The X-GateTMis an Internet gateway that can collect information over a wired or wireless network from a substantial number of X-NodesTM(e.g., an array of vending machines), and transmit the information to an information repository via the Internet. This transmission device provides the connection to the Internet and translates the
data between the connected devices and formats it for use on the Internet. The X-GateTMoffers distinct advantages
over the more commonly used gatewaythe personal computerin that it requires no human intervention and incorporates advanced technologies to ensure performance and reliability.



Completing our technology is the business-to-business web site we developed, located in the Denver, Colorado
area. This database-driven site has been used to collect the operations and transactional data which has been transmitted from a customers remote equipment, then store it securely for delivery to authorized customer personnel in raw form, or
process and format it into standard or customized reports using software we employ.



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Following is
an illustration of a typical design for our communication systems:





LOGO



Competitive Advantages



Our technologies offer customers a number
of advantages, including, without limitation:



| |  |  | Open architecture solutions that do not use proprietary protocols, and components that are fully compatible with most important Internet protocols;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Use of a standard web browser and Internet tools (such as Java) to monitor and control remote equipment and functions from any Internet-accessible location;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Wireless technology option that eliminates the need for additional (and generally costly) electrical, telephone, or other hardwired systems at remote
locations;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Wireless technology option that eliminates the need for additional (and generally costly) electrical, telephone, or other hardwired systems at remote
locations;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Highly durable components that can operate in a wide range of environmental conditions;
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | Ease of installing, configuring, bringing online, and maintaining or replacing components;
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | Software embedded in a chip that allows customized configuration of equipment already possessing embedded micro-controllers, which collect, process and transmit
information like a standard computer; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Software embedded in a chip that allows automatic updating of micro-controller functions from a remote location to reflect changes in customer needs and
specifications.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Competitive Adaptability



Since we utilize the standard language of
the Internet, our products are capable of communicating with any Internet web browser and meet current and emerging international Internet communications standards, which provide important benefits when compared to closed, proprietary solutions.



Based on our development and engineering
experience, we are positioned to provide up-to-date technical solutions to customers with remote monitoring and control needs.



Strategic Growth Plan





We plan to develop and sell our products and services in
three separate, but at times overlapping phases.



Phase One. During Phase One, in which we had been engaged and plan to recommence our efforts, we are debuting our unique combination of telemetry technologies by providing them to selected Fortune 1000 and other customers.
During this phase, we are focused on selling the wide-ranging capabilities of our unique technological approach by working with our customers to design and configure our products and services that address their specific industrial, internet
communication needs, while building a database of standardized technology configurations that can be used or easily adapted for a variety of applications. Throughout the process, we will seek to establish ourselves as a recognized brand
for innovative,



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technologically advanced products and services. This phase will continue for each industry application
until the related products reach maturity.



Phase Two.    During Phase Two, we plan to leverage our design and engineering experience to expand our market for products and services by offering product and service packages for applications in a
variety of industries as described in Current Status above. The basic products will be designed to plug in and be ready for use or, if necessary, they can be readily configuredeven by customers. During this phase, we plan to
develop new applications for our technologies, along with a selection of value-added web-based services, to strengthen our ties with our established customers and extend our reach into new markets. The implementation of this phase in our strategic
growth has been delayed as the result of slower than anticipated sales in our target markets and our focus on automated meter reading, as described in Current Status above.



Phase Three.    During Phase Three, we expect to evolve into an
industry-specialized, customer-only Internet Application Service Provider, whereby our customer data can be accessed through our business-to-business website, that will focus on customer web and data hosting. We envision such a step as a natural and
necessary extension of our technology products and services package in order to ensure uninterrupted 24-hour access to operations-critical remote data by our customers. We plan to offer such hosting services to customers upon sale of our products
and services to such customer. We commenced such phase in 2001 on a limited basis and continued it throughout 2002 on a limited basis.



As discussed in Current StatusOverview, above, the Company has shifted its near-term strategy to emphasize the sale and marketing of
its radio products. While these three phases of business development remain fundamental to our plan for the growth of our telemetry products and services, we are currently focusing our efforts on establishing profitability through the sale of our
established product lines, where we have historically been competitive and realized high margins.



Products and Services



X-traWebTMProducts



Our product strategy is to utilize our existing technologies
to develop innovative solutions that enable users of telemetry technologies to leverage the power of the Internet in order to greatly enhance the efficiency and cost of controlling and monitoring remotely located equipment.



Our products and services allow standard web browsers, rather
than customized host system software packages, to monitor and control equipment throughout the world where there is internet access using industry-standard Internet tools. The result is that, from any Internet-accessible location, customers in a
variety of industries have real-time comprehensive, cost-efficient information available that helps them better manage their telemetry requirements.



Our existing X-traWebTMproducts which are available for sale are listed below. These typically are sold as part of a specifically-designed installation for any particular customer.



The X-NodeTM



The X-NodeTMis a small (approximately 1 inch by 1 inch printed circuit board that possesses less
than 2 kilobytes of memory), fully functional micro-controller which collects, processes and transmits information, and can provide wired or wireless internet access. X-NodesTMare extremely durable in most environmental conditions, have low manufacturing costs, and can be attached easily to a wide variety of existing equipment for
the purposes of remotely monitoring and controlling the equipment over the Internet.



Each X-NodeTMhas various input and output capabilities, and allows
flexible programming and extremely rapid execution speed.



The circuit board permits the installation of our flexible software programs to be done automatically during the manufacturing process. The embedded software program is also designed to allow us, from a remote location, to quickly,
easily, and inexpensively update the functions of an X-NodeTMto respond to changes in customer needs.



X-NodesTMcan be used singly by connecting one to a piece of equipment and adding a modem for Internet connection. In situations with multiple devices, where more than
one X-NodeTMis required, customers can use our X-GateTMto link the X-NodesTMinto a self-contained communications network and manage the network. A substantial number of X-NodesTMmay be linked
on a wired or wireless basis to a single X-GateTM.





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The X-NodeTMis illustrated below:



LOGO



The
X-GateTM



Our X-Gate is an approximately 4 inches by 7 inches printed circuit board with a flexible range of onboard memory reaching as much as
eight megabytes. It serves as a data collecting and transmitting system, collecting data sent by one or more X-NodesTMand transmitting such data on a wired or wireless basis through the internet to a web and data hosting server maintained by us or our customer.



Each X-Gate has a micro-controller and various input and output capabilities. The X-GateTMis our proprietary communication system that serves as an alternative to the personal computer. Each is typically installed
near telephone lines, network connections, or other communication lines. In the event of a power outage or brownout, the unit will automatically reboot and continue operation without human interference.



Our current X-GateTMmodels incorporate a modem interface, an ethernet interface, and wireless interfaces. Equipment that is concentrated in a single location can be hardwired
directly to the X-GateTM. In situations where the equipment is impractical to hardwire or spread over a wide area,
X-NodesTMcan be linked together in substantial numbers to an X-GateTMthrough our wireless technologies. We have developed three different versions of our X-GateTMwhich provide different levels of functionality depending on a customers specific needs. Two such versions are geared toward industrial applications and
the third supports energy management systems, including commercial and residential sites



The X-GateTMis illustrated below:



LOGO



X-traWeb
Internet Access Servers



We plan to offer
our customers again the option to use our web servers to host their data in a secure co-location in the Denver Colorado area.



Radios



Spread spectrum radio technology has been used since the 1940s, limited mostly to military applications. Recently, an increased interest
in spread spectrum modulation and its advantages has emerged, particularly concerning low-power, high-density personal communication devices. Because they are unlicensed, spread spectrum systems usually cost much less to install and troubleshoot
than narrow band systems. In addition, spread spectrum modulation has the advantages of low probability of intercept, low probability of detection, low probability of interference and resistance to jamming.



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There are two methods for employing spread spectrum, frequency hopping and direct
sequence. In frequency hopping systems, the carrier frequency of the transmitter abruptly changes (or hops) in accordance with an apparently random pattern. This pattern is in fact a pseudo-random code sequence, with the order of the
frequencies taken from a predetermined set as dictated by the code sequence. The receiver employs the same pseudo-random code sequence and, once the transmitter and receiver are synchronized, the communication is essentially narrow-band on each
frequency in the sequence.



In direct sequence
systems, the carrier phase of the transmitter abruptly changes in accordance with a pseudo-random code sequence. This process is generally achieved by multiplying the digital information signal with a spreading code, also known as a chip sequence.
The chip sequence has a much faster data rate than the information signal and so expands or spreads the signal bandwidth beyond the original bandwidth occupied by just the information signal. The term chips are used to distinguish the shorter coded
bits from the longer uncoded bits of the information signal. At the receiver, the information signal is recovered by remultiplying with a locally generated replica of the spreading code. By doing so, the receiver effectively compresses the spread
signal back to its original unspread bandwidth.



We currently offer three radios for sale. These products represent our Legacy product line, which we have offered continuously over the past several years.



Our line of 900 MHZ spread spectrum radios includes the 900 SS Hopper, a frequency hopping spread spectrum
radio that offers reliable communications in a variety of environments. The Hopper features transmission speeds of up to 56 kilobytes per second and a range of up to 25 miles, line of sight, depending upon conditions and antenna selection. This
radio received an award as the best of show in 1999 at a trade show in Baltimore, Maryland.



In addition, the 900 SS MicroHoppera miniature version of the Hopperoffers a smaller form-factor and lower power-consumption
for short range applications. Measuring just 2.2 inches by 1.75 inches, the MicroHopper is suited for applications where size and cost are important considerations.



Both frequency hopping spread spectrum radios employ our proprietary encrypting technology. This coding
technology is a major innovation in wireless communications, which substantially reduces the overhead inherent in other coding methods. It adds security, increases throughput efficiency and provides faster effective communications speeds at a much
lower cost.



We also offer the 900 SS
Directeither as a direct sequence or frequency-hopping combined transmitter and receiver (i.e. a transceiver), capable of transmitting data up to 40 kilometers, line of sight.



Antennas



We also manufacture and sell antennas. Our Gonic, New Hampshire based subsidiary, TWC Ltd., maintains approximately 80 different design
executions of specialty antennae for use in law enforcement, marine, and custom applications.



Customer Support and Services



We support our customers with a range of services designed to help integrate our products into our customers systems. This support includes engineering consultation with every developer kit
purchase, customer satisfaction and quality control programs, and in some cases complete turn-key solutions for large projects.



Sales and Marketing



We plan to capitalize on trends in many targeted segments of the telemetry market (including, without limitation, automatic meter reading,
fast food services equipment, facilities management, asset management and security systems) through our ability to penetrate and establish a market presence with products and services designed to meet industry-specific needs. Our marketing strategy
hinges on our establishing a strong reputation as a provider of reliable and technologically superior wireless Internet-based telemetry services to a diverse customer base. To achieve our goals of substantial growth and penetration of our target
markets, we have developed a strategic marketing plan that provides for the future development of long-term sales channels through which we can sell our X-traWebTMsolutions well into the future.



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Our marketing strategy involves a combination of in-house sales and marketing personnel,
independent authorized agents, strategic marketing alliances, joint ventures and direct sales. These will be enhanced and supported by secondary direct marketing, advertising, promotions and public relations efforts.



By virtue of the monthly burn-rate (i.e. the excess of
expenditures over revenue received, in each case on a cash basis) ceiling of $375,000 for each month after September, 2001 as set forth in our recent secured financing, and the delay in the receipt of revenues from the sale of our X-traWebproducts, we severely limited our marketing activities while the 2001 Notes remain outstanding and reduced such
efforts further through employee cutbacks in March, 2003 (see Senior Secured Indebtedness Financing under Item 5 and Item 7Managements Discussion and Analysis of Results of Operations and Financial Condition 
Liquidity).



Direct Sales Organization



During the early launch stages of our
marketing program, our senior management is managing and conducting our marketing activities for our X-traWebTMproducts and services. A target market-oriented, direct sales organization has been established that has responsibility for specific geographic regions, and coordinates the activities of outside marketing partners, including value-added resellers
and information technology consultants within those regions. During 2002, we had three employees focused on direct sales in the United States, but currently have no employees focused solely on such sales. We also engaged independent commission
agents to market our products in the energy and other targeted markets.



If and when we expand our operations, we plan to hire additional sales personnel, or engage additional independent commission agents, to cover new markets and augment the services of sales and marketing personnel in certain
larger markets.



Strategic Marketing Alliances



As an integral part of our marketing
program, we are establishing strategic marketing alliances with outside companies that have strong influence within the respective target markets for our X-traWebTMproducts and services. We plan to align ourselves with partners that are capable of substantially accelerating our penetration of a target market or of adding material value to our marketing program
through the reduction of costs, managerial infrastructure, and other economic advantages. During 2002, we continued to implement a sales plan targeting and pursuing prospective customers through organizations such as management consulting firms,
computer networking consultants and value-added resellers.



We previously had marketing alliances in the residential security, facilities management and Internet sectors. We previously worked with Cooperative ConNEXTions, LLC and now work with its successor, Service Provider, to market our
X-traWebTMproducts and services to rural electrical utilities operating in approximately 16 states west of the
Mississippi River. Moreover, we have formed several such alliances to date in the natural gas and energy sectors. Our staff formerly worked with Texaco Natural Gas Inc. to market our X-traWebproducts to customers in the natural gas field.



Our technology offers these co-marketing partners a value-added component to the services already being provided to their existing
customers. Our current and former co-marketing partners provide us with a credible avenue of introduction to other potential customers for our products and services.



Advertising and Promotions



An integral part of our long-term marketing plan is the generation of awareness within the target markets for
our products and services. We previously allocated a portion of our budget toward ongoing advertising, promotions, and public relations activities, including direct mail, trade print media advertising, trade show participation and sales personnel
incentives, and plan to do so in the future. To reach an even wider audience as we continue to develop widespread awareness of our portal and proprietary telemetry solutions, we plan to implement an advertising and promotional support program
designed to:



| |  |  | Establish X-traWebas a
recognized brand name that is especially familiar to decision-makers within our target markets, and synonymous with premier-quality technology and products, highly effective services and tangible cost efficiencies;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Enhance our branding efforts through the use of industry experts to promote our product and services;
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | Position our technological capabilities, management, products, services and level of support as an industry standard.
| | - |  | ---------------------------------------------------------------------------------------------------------------------



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We also plan to implement advertising in trade publications on a regular basis.



We previously appointed a public relations firm, with
substantial expertise in the information technology industry, to assist us in the development and execution of periodic public relations campaigns, including campaigns coordinated with new product introductions in existing markets and expanded
introductions to new markets. We have also highlighted our activities through occasional articles in trade publications and national business newspapers.



We have participated in regional, national and international trade shows that are conducted for industries that comprise our target
markets, including telemetry and Internet technology industry trade shows (such as the annual trade show Cibet in Hannover, Germany and Comdex in Las Vegas, Nevada). We intend to maintain a regular presence at key trade shows throughout our
development, and use our presence at such events to not only attract customers, but also generate follow-on marketing opportunities, subject to budget constraints imposed by the terms of the 2001 Notes.



In the past we have invested heavily in such advertising and
promotions. In 2001 we spent approximately $447,000, and in 2002 we spent approximately $262,700, in such activities. However, our budget constraints and lack of adequate funding have curtailed these advertising plans, and we plan to invest
exclusively in direct sales to execute the marketing and promotion plans during 2003. Because of our limited resources, and restriction on our spending, it is possible that we will further curtail these activities.



Research and Development



We previously invested significantly in research and
development activities. These activities consisted of proprietary development on our spread spectrum radios and X-traWebTMproducts and services. We plan to continue to invest in research and development in the future, subject, however, to the limitation that we cannot incur a monthly burn-rate greater than $375,000 in any month while the 2001 Notes are
outstanding and provided we obtain additional funding. Thus, our research efforts will be significantly curtailed during such period. Also, in October, 2001 we closed down our Kansas City office, where our research and development activities were
primarily conducted.



We will continue to engage
in research and development activities for our own products, on a limited basis as discussed above. Current and future projects include a new one watt radio (which we plan to have tested for FCC certification), new spread spectrum transceivers in
the 2.4GHz band, improving X-traWebTMproducts to enable plug-and-play developer kits, improved X-traWebcomponents such as the X-traCamTM, a camera that captures video images and transmits them to the internet without the use of a personal computer where they can be viewed using a standard
browser, and similar projects.



Manufacturing



Until December 31, 1999, we also performed
manufacturing services for other manufacturers and vendors of medical, communications, computer graphics and consumer electronic products at our Salt Lake City manufacturing facility, and sold antennas from our Gonic, New Hampshire facility.



We discontinued our direct manufacturing
operations effective as of December 31, 1999, and now outsource the manufacturing activities of our products through third parties (except antennae which we manufacture directly). These third-party manufacturers include a Taiwan-based company and
several domestic manufacturers.



Contract Design and
Development



General



At the present time, we are not seeking design and
development service contracts except in partnering situations in which we would have an ownership interest in the products and/or technology which are the subject of the contract and which promote the sale of our proprietary products,
such as our X-traWebTMproducts. For example, we typically provide certain engineering services for the application
of our X-traWebTMproducts for use in a specific application or applications desired by a vending machine
manufacturer or a manufacturer of fast-food restaurant equipment or for installation in the monitoring of a gas pipeline or the control system in a refrigeration storage unit or office management system.



Formerly, we were engaged in providing engineering, design and
development services to client specifications on a fee for services basis. Under one significant contract, we developed a low-cost spread spectrum technology for use in certain products sold by Kyushu Matsushita Electric Co., Ltd. (KME,
which is also known as Panasonic) which is more fully



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described below. We also developed devices for use in the automatic meter reading field for Williams
Wireless, Inc., a wholly owned subsidiary of the Williams Companies.



Kyushu Matsushita Electric Co. Ltd. (Panasonic) Contract



In April 1997, we acquired a corporation (by merger in 1997), which entered into a contract with Kyushu Matsushita Electric Co., Ltd. to develop low cost spread spectrum radio technology for use in
certain Panasonic products. As part of our development contract with KME, we granted KME a world-wide, non-exclusive license to use or authorize the use of any patents, copyrights, technical know-how and other intellectual property rights embodied
in our LCSSR technology in the manufacture of KME products, and agreed not to license others to use technology which is developed under our contract with KME in connection with any telephone-related products for a period of two years from the first
shipment of KME products using the technology. In consideration for these rights and our services, KME agreed to pay royalties to us on sales of KME products using the technology above a prescribed minimum amount of sales for a period of two years
from the initial shipments of any such products.



During 2000, $447,049, or about 98.0% of the $457,194 royalty income we recognized was earned under this contract and we have not received any further royalties therefrom since such contract expired in September, 2000.



Competition



We have a number of current competitors in all aspects of our
business, many of which have substantially greater financial, marketing and technological resources than us, and which include such industrial giants as Panasonic, Motorola, Sony and AT&T. We intend to compete in our industry by concentrating on
certain product or service niches within the overall market. However, most of our competitors offer products which have one or more features or functions similar to those offered by us, and many have the resources available to develop products with
features and functions, competitive with or superior to those offered by us. We cannot assure you that such competitors will not develop superior features or functions in their products or that the we will be able to maintain a lower cost advantage
for our products.



A key element of our
competitive strategy is to align ourself with major manufacturers by developing proprietary products or technology for market leaders that can be incorporated into its partner manufacturers products. We formerly had a marketing alliance
with Texaco Natural Gas Inc., and currently have such an alliance with Service Providers (the successor to Cooperative ConNEXTions, LLC) to market our X-traWeb products in the United States. We previously licensed low-cost spread spectrum technology
for use in certain products sold by Panasonic (which agreement expired in September, 2000) and entered into a VAR Agreement with Motorola, Inc. to sell its MOSCAD Remote Terminal Units. We also believe that our agreements with KME (i.e., Panasonic),
and Motorola, illustrate the manner in which we can partner with much larger, established companies to access mass markets for our proprietary wireless communications products and technology.



Our management has identified six primary competitors offering
either telemetry-related products and services or web-enabled technologies:

| |  |  | Itron, a developer and manufacturer of automated meter reading solutions, including wired and wireless automated meter reading devices;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Schlumberger, a developer and manufacturer of automatic meter reading solutions, including wired and wireless automated meter reading devices;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Spyglass, Inc. which develops software and firmware, including web-enabling firmware for embedded microcontrollers;
| | - |  | -------------------------------------------------------------------------------------------------------------------



| |  |  | emWare, a provider of distributed embedded device networking software that provides Internet connectivity for any device that scales from 8-bit microcontrollers to
32-bit microprocessors;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Connect One, a developer and manufacturer of Internet connectivity solutions that enable devices to connect to the Internet without requiring a PC; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Phar Lap Software, Inc., a provider of realtime operating systems and software development tools for applications.
| | - |  | ------------------------------------------------------------------------------------------------------------------

|
|





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While each of these companies offers products and/or services that have some parallels to
those provided by X-traWeb, none currently provides, to our knowledge, the type of cost-effective, total solution approach that we do. In addition, we believe we combine successfully all of the necessary technical elements with the additional
capability for wireless system integration and communications.



In addition, our management has identified two key competitors in the radio products field. However, our management believes that our radios provide better performance at a lower price for comparable radios offered by such companies.



Employees



As of December 31, 2002 we had 21 employees. Of these
employees, 2 were classified as executive, 5 as administrative personnel, 11 as engineering, and 3 as sales and marketing. Our employees do not belong to a collective bargaining unit, and we are not aware of any labor union organizing activity.



Patents and Intellectual Property



We believe that reliance upon trade secrets, copyrights and
unpatented proprietary know-how in conjunction with the development of new products is at least as important as patent protection in our business since most patents provide fairly narrow protection, and are of limited value in areas of rapid
technological change. Further, patents require public disclosure of information that may otherwise be subject to trade secret protection.



We presently have one United States patent covering our spread spectrum technology, one United States patent which covers technology
relating to, among other technical matters, a method and apparatus for de-modulating spread spectrum wireless signals and one patent application covering a spectral diffusion spreading communication. We previously had filed three United
States patent applications on various operating aspects of our X-traWebTMsystem, but these were abandoned because
we were unable to obtain from individual inventors a required oath and declaration form, although such applications can be revived in the foreseeable future. We intend to obtain the necessary documentation from such inventors, although we cannot
assure you that we will succeed in such attempt. In addition, we have a patent application pending relating to a system and method for data encoding, but such an international patent application of the same was not pursued. We previously owned two
U.S. issued patents, but they were abandoned, although they can be revived on or before December 26, 2003 and January 10, 2004, respectively. At the present time, we have no other patents or patent applications pending in the United States or in
foreign countries.



The spread spectrum
de-modulation technology patent application was the subject of litigation in the State of Utah, Salt Lake County Court, in which a former joint venturer with us claimed, among other things, an ownership interest in the technology. We settled this
lawsuit in November 1997. Under the settlement agreement, we agreed, among other things, to share co-ownership of the technology covered by the patent application with our former joint venture partner. Spread spectrum communication is a
method of transmitting and receiving coded information that is resistant to interference due to the fact that the transmission is spread over a large band with. This method requires, however, that both the transmitter and the receiver have the same
spreading code.



We also use confidentiality
agreements with our customers and other parties to protect trade secrets and other proprietary data. We claim copyrights on the circuit boards and software used in our products. We cannot assure you that we protect sensitive information and prevent
other persons from obtaining and using our technology or developing other technology which embodies our technology.



In cases where we do not have patents on our products, we cannot assure you that another company will not replicate one or more of our
products. Furthermore, we cannot assure you that any patents we obtain will give us meaningful protection or provide us with any significant competitive advantages over competing products. Also, we cannot assure you that patent rights that we have
or may obtain in the future will give us any competitive advantage or will not be challenged by other companies or individuals. Furthermore, we cannot assure you that other companies or individuals will not independently develop similar products,
duplicate our products or design products around any of our patents.



We also presently hold a number of trademarks and/or services marks relating to our X-traWebTMproduct line and our radio product line. We intend to pursue registration of trademarks associated with our key products as they are developed and become available for general commercial use, and to protect our legal rights
concerning the use of our trademarks. We intend to rely upon common law trademark rights to protect any unregistered trademarks, which do not provide us with the same level of protection afforded by a United States federal registration of a
trademark. For example, unlike a registered trademark, common law trademark rights are limited to the geographic area in which the trademark is actually used.



12



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Williams
Wireless, Inc. (Williams) raised a claim that we violated the non-competition provisions of their agreements by allegedly marketing X-traWebTMproducts in the telemetry meter reading applications. We, in turn, claimed that Williams Wireless, Inc. failed to satisfy all of its duties under its various agreements with us. While we believed that
Williams claim was properly disputable, the parties orally agreed to enter into a settlement agreement and mutual release. On March 8, 2000, before such settlement agreement was concluded, Williams sold substantially all of its assets and
business, including its agreements with us, to an unrelated party, Internet Telemetry Corp. (ITC), and thereafter we resolved this dispute amicably.



We and ITC entered into a settlement agreement and mutual release dated as of August 7, 2000, which contained
the following key elements:



(a)
each party released the other of any claims under the Williams agreements with us, and the parties terminated such agreements in all respects;



(b) we agreed to grant ITC a perpetual, non-exclusive irrevocable royalty-free worldwide license to manufacture, use and
sell our MicroHopper radio, as configured on the date of our agreement, as a component of ITCs telemetry systems or products, and to manufacture, use and sell such radio only when incorporated into ITCs telemetry systems or products;



(c) each party agreed to allow
the other party to resell the others products pursuant to a standard resellers agreement adopted by such party; and



(d) each party agreed to indemnify the other from any claims arising under such agreement. We believe that this agreement
will have no material adverse effect on our business.





We have not filed any patent applications in foreign countries.



ITEM 2.    PROPERTIES



As of December 31, 2002, our executive offices and principal
administrative offices are located at 5670 Greenwood Plaza Boulevard, Greenwood Village, Colorado in approximately 10,441 square feet of space which is leased at a monthly cost of $18,594 for base rental and allocable common area maintenance
charges. We also pay for certain utility expenses. The five-year lease for these premises expires on December 31, 2005. However, our landlord commenced a lawsuit to collect the unpaid rent thereon and for our eviction from our premises and obtained
a judgment of eviction and for the amount of the unpaid rent. See Legal Proceedings in Item 3. As a result, we will be evicted from such premises on May 7, 2003 and are attempting to find suitable alternative premises.



In addition, we continue to operate our facility in Gonic, New
Hampshire of approximately 5,000 square feet at a monthly rent of $2,400. Prior to November 30, 2001 we also maintained leased offices in Overland Park, Kansas of approximately 2,850 square feet at a monthly rent of $3,444 which we discontinued at
such time.



We believe that our facilities in
Gonic, New Hampshire are satisfactory for our present scale of operations there, but, if we are evicted from our current principal premises, we will seek suitable alternative office space, which we hope will be satisfactory for our operations to be
conducted there.



We have obligations under
various equipment leases which are not material.



ITEM
3.    LEGAL PROCEEDINGS



1. 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 sought 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 had
been removed to the United States District Court for the District of Utah.



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



13



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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 (which previously had been asserted against the Company initially).



The Company settled such lawsuit in December, 2002, without its admission of any wrongdoing or liability. Such settlement did not have any
material adverse impact on the Companys business or financial position.



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 purchased 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.



3. Our landlord, WHPTRI
Real Estate, L.P., filed a lawsuit against us in March 2003, in Arapahoe County, Colorado seeking to collect unpaid rent on our executive and administrative offices in Greenwood Village, Colorado of approximately $75,000 and to evict us from such
premises. The court granted the plaintiff a judgment for the unpaid rent and for eviction in late April, 2003 which the landlord agreed to stay until May 7, 2003, at which point we would be evicted from our premises. If such eviction were to occur,
we plan to relocate our offices to another nearby location, although no alternative space has been leased as of the date hereof.



ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS



We submitted no matters to a vote of our shareholders during the fourth quarter of 2002.



ITEM 5.    MARKET FOR REGISTRANTS COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS



Common
Stock



Our shares of Common Stock are traded
on the American Stock Exchange under the symbol XWC. The high and low per share price of the shares of our Common Stock and the dividends that were paid thereon for 2000 and 2001 were as follows:



|        |  | 2001 |  | 2002
|------- |  | ---- |  | ----
|Quarter |  | High |  |     
|1st     |  | 2.00 |  |     
|2nd     |  | 0.97 |  |     
|3rd     |  | 0.59 |  |     
|4th     |  | 0.88 |  |     



At
December 31, 2002 we had approximately 2,500 beneficial owners of our shares of Common Stock.



Dividend Policy



We have not paid any dividends on our shares of Common Stock to date and do not anticipate paying any dividends in the foreseeable future.





14



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Sale of
Securities



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



(a) As of October 3, 2002, we issued (i) a Senior Secured Note in the principal amount of $25,000 (described immediately
below) and (ii) a warrant to purchase 12,500 shares of our Common Stock at an exercise price of $0.30 per share, expiring on October 2, 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 October 15, 2002, we issued (i) a Senior Secured Note in the principal amount of $125,000 (described immediately
below) and (ii) a warrant to purchase 62,500 shares of our Common Stock at an exercise price of $0.30 per share, expiring on October 14, 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 October 31, 2002, we issued (i) a Senior Secured Note in the principal amount of $100,000 (described immediately
below) and (ii) a warrant to purchase 50,000 shares of our Common Stock at an exercise price of $0.30 per share, expiring on October 30, 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.





(d) As of November 13, 2002, we issued (i) a
Senior Secured Note in the principal amount of $50,000 (described immediately below) and (ii) a warrant to purchase 25,000 shares of our Common Stock at an exercise price of $0.30 per share, expiring on November 12, 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.



(e) As of December 3, 2002, we issued (i) a
Senior Secured Note in the principal amount of $75,000 (described immediately below) and (ii) a warrant to purchase 37,500 shares of our Common Stock at an exercise price of $0.30 per share, expiring on December 2, 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.



(f) As of December 11, 2002, we issued (i) a
Senior Secured Note in the principal amount of $75,000 (described immediately below) and (ii) a warrant to purchase 37,500 shares of our Common Stock at an exercise price of $0.30 per share, expiring on December 10, 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.



(g) As of December 24, 2002, we issued (i) a
Senior Secured Note in the principal amount of $75,000 (described immediately below) and (ii) a warrant to purchase 37,500 shares of our Common Stock at an exercise price of $0.30 per share, expiring on December 23, 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.



Senior Secured Indebtedness Financing



The Company modified its Senior Secured Convertible Notes
during the quarter ended December 31, 2002, which had the general effect of increasing the equity amount needed for the mandatory conversion of such notes on January 9, 2003, the parties agreed to extend the due date thereof until July 1, 2003. A
detailed description of such financing through February 6, 2003 is set forth below, including the additional six-month extension of the maturity date of the 2001 Notes until July 1, 2003. Also, a detailed description of the Restructuring Agreement
is set forth in (p) below.



15



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(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.



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:



16



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approved the terms of the
August 7, 2001 financing (which it did). The Company issued an additional Note for the $350,000 loan.



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.



(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.





17



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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 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



18



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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.





19



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(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 $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



20



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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:



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.



21



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(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 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.



(m)
    December, 2002 Financing



Lancer Offshore, Inc. loaned the Company an additional $75,000 on each of December 3, 2002, December 11, 2002 and December 24, 2002 (bringing its total loan to the Company to $5,610,000 as of December 24, 2002). As a result, the
Company issued three notes comprising part of the 2001 Notes and issued additional warrants to Lancer Offshore, Inc. to purchase 37,500, 37,500 and 37,500 shares of the Companys Common Stock at a exercise price $0.30 per share, expiring on
December 2, 2007, December 10, 2007 and December 23, 2007, respectively.



22



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Furthermore,
the parties agreed on December 3, 2002 to amend the entire 2001 Note financing as follows:



The entire principal amount of $6,660,000 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 $6,660 ,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.



Also, the parties agreed on December 11, 2002 to amend the entire 2001 Note financing as follows:



The entire principal amount of $6,735,000 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 $6,735,000 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.



Furthermore, the
parties agreed on December 24, 2002 to amend the entire 2001 Note financing as follows:



The entire principal amount of $6,810,000 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 (which was given on March 15, 2002, up to then applicable ceiling amount of $5,000,000) and (B) upon our receipt of $6,810,000 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 December 31, 2002.



(n)     January, 2003 Financing



Lancer Offshore, Inc. loaned the Company an additional $75,000 on each of January 9, 2003 and January 22,
2003 (bringing its total loan to the Company to $5,760,000 as of January 22, 2003). As a result, the Company issued two notes comprising part of the 2001 Notes and issued additional warrants to Lancer Offshore, Inc. to purchase 37,500 and 37,500
shares of the Companys Common Stock at an exercise price $0.30 per share, expiring on January 8, 2008 and January 21, 2008, respectively.



Furthermore, the parties agreed on January 9, 2003 to amend the entire 2001 Note financing as follows:



(i) The maturity date of the entire principal
amount of $ 6,885,000 comprising the 2001 Notes was extended from December 31, 2002 until July 1, 2003 (unless mandatorily converted into shares of our Common Stock prior to such date), without the payment of any cash or shares of our Common Stock
for such extension; and



(ii)
The entire principal amount of $6,885,000 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 $6,885,000 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 July 1, 2003.



Also, the parties agreed on January 22, 2003 to amend the entire 2001 Note financing as follows:



The entire principal amount of $6,960,000 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
$6,960,000 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 July 1, 2003.



(o)     February, 2003 Financing



Lancer Offshore, Inc. loaned the Company an
additional $60,000 on February 6, 2003 (bringing its total loan to the Company to $5,820,000). As a result, the Company issued a note comprising part of the 2001 Notes and issued an additional warrant to



23



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Lancer Offshore, Inc. to
purchase 30,000 shares of the Companys Common Stock, at an exercise price of $0.30 per share, expiring on February 5, 2008.



Also, the parties agreed on February 6, 2003 to amend the entire 2002 Note as follows:



The entire principal amount of $7,020,000 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 $7,020,000 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 July 1, 2003.



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.



(p)    Restructuring Agreement



We entered into the Restructuring Agreement with our two secured creditors, Lancer Offshore, Inc. and Lancer
Partners L.P., who are affiliates of our largest stockholder, subject to the condition precedent that we receive an equity investment of at least $750,000. The key terms of such agreement are set forth below:



1. The Company would pay such creditors
$1,400,000 for $2,400,000 principal amount of the 2001 Notes, which would result in the elimination of $1,000,000 of indebtedness and leave an outstanding principal amount of $4,620,000 (which, because of the change in (p) 5 below, would be
convertible into a maximum of 9,240,000 shares of our Common Stock).



2. The Company would pay such creditors the sum of $100,000 in full payment of all interest accrued on the 2001 Notes to date (which is in excess of $1,375,000).



3. The maturity date of the 2001 Notes would
be extended from July 1, 2003 until June 30, 2005.



4. The 2001 Notes would carry no further interest thereon in the future.



5. The 2001 Notes held by such creditors would become mandatorily convertible at the rate of one share for each $0.50 of
debt, instead of the current rate of one share for each $0.05 of debt. Such mandatory conversion of the 2001 Notes would occur upon (i) the approval of such mandatory conversion by the Companys shareholders at a meeting of shareholders (which
was given up to the then applicable ceiling amount of $5,000,000 but not for any excess thereof), and (ii) the Companys receipt of equity in an amount equal to the then outstanding principal balance of the 2001 Notes from persons 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, 2005 (instead of the current date of July 1, 2003).



6. Such creditors would surrender 5,000,000
shares of Common Stock for the prior extensions of the maturity date of the 2001 Notes.



7. Michael Lauers affiliates (i.e. Lancer Offshore, Inc., Lancer Partners L.P. and The Orbiter Fund Ltd.) as the
owners of the Companys Common Stock, would agree to vote all of their shares of the Companys Common Stock for the approval of the shares of Common Stock issuable upon the conversion of the Senior Preferred Stock issued pursuant to the
offering of such stock being undertaken by thee Company.



24



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As of the date
hereof, we have not received the $750,000 equity investment required to implement the Restructuring Agreement. We are currently seeking such financing, although we cannot assure you that we will be able to obtain such investment.



(q)     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.



ITEM
6.     SELECTED FINANCIAL AND OTHER DATA





The following table sets forth selected financial and other data of the Company and should be read in conjunction with the more detailed
financial statements included elsewhere in this Report. The financial data for the year ended December 31, 2002 includes our unaudited results only and have not been reviewed by our independent certified public accountants. See
Managements Discussion and Analysis of Results of Operations and Financial Condition.



|                                            |  | December 31, |           
|------------------------------------------- |  | ------------ | ----------
|                                            |  | 2002         |           
|Current Assets                              |  | $            | 549,710   
|Net Equipment                               |  |              | 214,616   
|Other Assets                                |  |              | 13,131    
|                                            |  |              |           
|Total Assets                                |  | $            | 777,457   
|                                            |  |              |           
|Current Liabilities                         |  | $            | 9,539,611 
|Long-Term Liabilities                       |  |              | 17,140    
|Mandatorily Redeemable Preferred Stock      |  |              |          
|Stockholders Deficit                       |  |              | (8,779,294
|                                            |  |              |           
|Total Liabilities and Stockholders Deficit |  | $            | 777,457   
|                                            |  |              |           



|                    |  | For the Years Ended December 31,
|------------------- |  | --------------------------------
|                    |  | 2002                            
|Sales               |  | $                               
|Cost of Sales       |  |                                 
|                    |  |                                 
|Gross Profit (Loss) |  |                                 



25



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|                                        |  |   |            |   |  |            |   |  |            |   |  |             |   |  |   |             |  
|--------------------------------------- |  | - | ---------- | - |  | ---------- | - |  | ---------- | - |  | ----------- | - |  | - | ----------- | -
|Total Operating Expenses                |  |   | 4,923,920  |   |  | 7,028,751  |   |  | 5,787,161  |   |  | 9,563,963   |   |  |   | 11,554,560  |  
|                                        |  |   |            |   |  |            |   |  |            |   |  |             |   |  |   |             |  
|Net Loss From Operations                |  |   | (4,530,068 | ) |  | (6,867,381 | ) |  | (5,285,755 | ) |  | (9,329,581  | ) |  |   | (10,996,476 | )
|Interest expense                        |  |   | (5,357,518 | ) |  | (1,196,098 | ) |  | (132,586   | ) |  | (3,556,097  | ) |  |   | (1,813,208  | )
|Other income                            |  |   | 41,004     |   |  | 16,807     |   |  | 648,537    |   |  | 26,662      |   |  |   | 343,625     |  
|                                        |  |   |            |   |  |            |   |  |            |   |  |             |   |  |   |             |  
|Net Loss                                |  |   | (9,846,582 | ) |  | (8,046,672 | ) |  | (4,769,804 | ) |  | (12,859,016 | ) |  |   | (12,466,059 | )
|Preferred Dividends                     |  |   |           |   |  |           |   |  | 6,400      |   |  | 1,000,658   |   |  |   |            |  
|                                        |  |   |            |   |  |            |   |  |            |   |  |             |   |  |   |             |  
|Net Loss Applicable to Common Shares    |  | $ | (9,846,582 | ) |  | (8,046,672 | ) |  | (4,776,204 | ) |  | (13,859,674 | ) |  | $ | (12,466,059 | )
|                                        |  |   |            |   |  |            |   |  |            |   |  |             |   |  |   |             |  
|Basic and Diluted Loss Per Common Share |  | $ | (0.31      | ) |  | (0.26      | ) |  | (0.16      | ) |  | (0.80       | ) |  | $ | (1.11       | )
|                                        |  |   |            |   |  |            |   |  |            |   |  |             |   |  |   |             |  
|Weighted Average                        |  |   |            |   |  |            |   |  |            |   |  |             |   |  |   |             |  
|Number of Common                        |  |   |            |   |  |            |   |  |            |   |  |             |   |  |   |             |  
|Shares Used in Per                      |  |   |            |   |  |            |   |  |            |   |  |             |   |  |   |             |  
|Share Calculation                       |  |   | 31,456,873 |   |  | 31,362,497 |   |  | 29,507,160 |   |  | 17,308,258  |   |  |   | 11,189,603  |  
|                                        |  |   |            |   |  |            |   |  |            |   |  |             |   |  |   |             |  



ITEM 7.     MANAGEMENTS 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, and Selected Consolidated Historical Financial Data. The preparation of financial statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts in these financial statements and accompanying notes. In particular, estimates are required in the evaluation of allowances for impaired inventory and for doubtful
accounts. Actual results could differ from those estimates.



RESULTS OF OPERATIONS



2002 to 2001



We incurred a net loss applicable to common
shares of $9,846,582 for 2002, or a $0.31 loss per share compared to a net loss applicable to common shares of $8,046,672 or a $0.26 loss per share, for 2001. This represents an increased loss in 2002 of $1,799,910 or 22.4% increase in the loss from
2001. Loss from operations in 2002 was $4,530,068 compared to loss from operations of $6,867,381 in 2001, representing a decrease in loss from operations of 2,337,313 or 34.0%.



Revenues for 2002 decreased $317,230 or 30.1% compared to 2001, resulting from a decrease in royalty fees of
$22,540, and a $245,372 decrease in revenue from the X-traWebTMproduct line. During 2002 and 2001, we derived our
revenue as follows:



|               |  | Year Ended December 31
|-------------- |  | ----------------------
|               |  | 2001                  
|X-traWeb      |  | $                     
|Radio products |  |                       
|Corporate      |  |                       
|               |  |                       
|Total Revenue  |  | $                     
|               |  |                       



26



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During 2002, we continued to implement our strategic plan to focus our efforts on the
X-traWebTMproduct line. In 2002 our revenue derived from the X-traWebTMproduct line included $25,000, or 100%, from engineering design services related to proof-of-concept and similar development activities contracted by
customers interested in custom applications of our internet communications products and services. In 2001, $105,768, or 39.1%, of our X-traWebTMrevenue resulted from such engineering services. The overall decline in revenue from X-traWebTMproducts and services in 2002 compared to 2001 resulted primarily from the completion of two non-recurring customer contracts, and from our shift in July 2001 to the development and sale of products
for the automated meter reading market, as discussed above in ITEM 1DESCRIPTION OF BUSINESSCurrent Status.



Our revenue from radio products, which totaled $710,124 for 2002, compared to $764,442 for 2001, declined slightly as the result of
promotional pricing and a slight decrease in unit sales.



Corporate revenues consist primarily of royalties. Because the license agreement with our primary customer expired by its terms in September 2000, royalty income dropped sharply in 2001. In 2002 we received no royalty income.



Also during June 2000, we formed two additional
operating subsidiaries, X-traWeb Services Corp. and X-traWeb Financial Corp., which are designed to offer various services of X-traWeb products and to provide financing capability of sales of X-traWeb products or services, respectively, although
neither entity derived any revenues as of December 31, 2002.



Our cost of sales for 2002 compared to 2001 declined to $341,272 from a total of $890,984 in 2001, or a reduction of $549,712 or 61.7%. The resulting gross profit was $393,852, or 53.6% of sales, for 2002 compared to $161,370, or
15.3%, for 2001. This represents an increase of 38.3% in gross profit margin percentage for the comparable periods. The increase in gross margin results primarily from a non-recurring $198,000 write-down in 2001 of our inventory from its original
cost to its estimated fair value and the almost exclusive derivation of revenue from our radio product line, where we have historically realized significant margins.



Our research and development expenses increased to $666,428 from $425,720, or by $240,708, or 56.5%, for the
comparable twelve month periods ended December 31, 2002 versus December 31, 2001. Such increase reflects primarily our investment in new radio technology, and the development of two-way communications and control technologies for our automated meter
reading products. A substantial portion of our research and development costs continue to relate to the ongoing application development of the X-traWebTMtechnology in 2002.



Our total selling, general, and administrative expenses amounted to $4,257,492 for 2002 compared to $6,388,745 for 2001, a decrease of 33.4%. Selling and marketing expenses decreased by $545,700, or 43.5%, during 2002 versus
2001 reflecting a savings of $68,477 in employment expenses, $319,314 in advertising and consulting expenditures, and the elimination of $182,185 in selling and marketing expenses incurred at our X-traWeb offices in Italy during 2001. General and
administrative expenses in 2002 decreased by $1,585,553, or 30.9%, over 2001, and resulted from (1) a decreased in employment expenses totaling $891,700, (2) a decrease in consulting and outside services expenses of $461,902, and (3) a decrease of
$273,277 of expenses resulting from the closing of our subsidiarie, X-traWeb Europe S.p.A. These decreased expenses were partially offset by an increase in legal expenses of $250,187.



Interest income was $1,649 in 2002 compared to $30,306 in 2001, with the decrease directly attributable to
decreased funds available for temporary investment. Interest expense increased to $5,357,518 during 2002 compared to $1,196,098 in 2001, due to the issuance of $3,600,000 and $3,210,000 principal amount of 2001 Notes to related parties in 2002 and
2001, respectively, and the related amortization of the discount attributable to warrants, deferred placement fees and debt modification expenses.



2001 to 2000



We incurred a net loss applicable to common shares of $8,046,672 for 2001, or a $0.26 loss per share compared to a net loss applicable to
common shares of $4,776,204 or a $0.16 loss per share, for 2000. This represents an increased loss in 2001 of $3,270,468 or 68.5% increase in the loss from 2000.



27



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Revenues for 2001 decreased $662,479 or 38.6% compared to 2000, resulting from a decrease
in royalty fees of $439,654, and a $180,232 decrease in revenue from the X-traWebTMproduct line. During 2001 and
2000, we derived our revenue as follows:



|               |  | Year Ended December 31,
|-------------- |  | -----------------------
|               |  | 2001                   
|X-traWebTM     |  | $                      
|Radio products |  |                        
|Corporate      |  |                        
|               |  |                        
|Total Revenue  |  | $                      
|               |  |                        



During
2001, we continued to implement our strategic plan to focus our efforts on the X-traWebTMproduct line. In 2001 our
revenue derived from the X-traWebTMproduct line included $105,768, or 39.1%, from engineering design services
related to proof-of-concept and similar development activities contracted by customers interested in custom applications of our internet communications products and services. In 2000, $243,730, or 54.1%, of our X-traWebTMrevenue resulted from such engineering services. The overall decline in revenue from X-traWebTMproducts and services in 2001 compared to 2000 resulted primarily from the completion of two non-recurring customer contracts,
and from our shift in July 2001 to the development and sale of products for the automated meter reading market, as discussed above in ITEM 1DESCRIPTION OF BUSINESSCurrent Status.



Our increased revenue from radio products, which totaled
$764,442 for 2001, compared to $690,377 for 2000, resulted from increased unit sales.



Corporate revenues consist primarily of royalties. Because the license agreement with our primary customer expired by its terms in September 2000, royalty income dropped sharply in 2001.



During June 2000, we formed a new operating subsidiary,
X-traWeb Europe S.p.A., based in Milan, Italy. Only $9,574 in sales were realized from the European operation during 2000, and only $725 in sales were realized during 2001. In November 2001, we ceased all operations of the Italian subsidiary.



Also during June 2000, we formed two additional
operating subsidiaries, X-traWeb Services Corp. and X-traWeb Financial Corp., which are designed to offer various services of X-traWebTMproducts and to provide financing capability of sales of X-traWeb products or services, respectively, although neither entity derived any revenues as of December 31, 2001.



Our cost of sales for 2001 compared to 2000 declined to
$890,984 from a total of $1,213,427 in 2000, or a reduction of $322,443 or 26.6%. The resulting gross profit was $161,370, or 15.3% of sales, for 2001 compared to $501,406, or 29.2%, for 2000. This represents a decrease of 13.9% in gross profit
margin percentage for the comparable periods. The decrease in gross margin results primarily from a $198,000 write-down in 2001 of our inventory from its original cost to its estimated fair value and the loss of high margin royalties in 2001.



Our research and development expenses decreased
to $425,720 from $1,483,365, or by $1,057,645, or 71.3%, for the comparable twelve month periods ended December 31, 2001 versus December 31, 2000. Such decrease reflects the maturity of our product line, and the emphasis away from development and
toward production and applications engineering. Research and development costs continue to relate to the ongoing application development of the X-traWebTMtechnology in 2001.



Our total selling, general, and administrative expenses amounted to $6,388,745 for 2001 compared to $5,810,032 for 2000, an increase of 10.0%. Selling and marketing expenses decreased by $806,359, or 39.1%, during 2001
versus 2000 reflecting a savings of $297,200 in employment expenses and $380,500 in advertising and consulting expenditures. General and administrative expenses in 2001 increased by $1,385,072, or 40.2%, over 2000, and resulted from (1) a decreased
reduction in compensation expense related to stock options accounted for as variable options totaling $534,239, (2) an increase in employment expenses of $797,562, or 64.8%, resulting primarily from the shift from research and development to
applications engineering (3) an increase of $73,238, or 46.2%, in facilities rent, (4) an increase of $73,238,or 46.2%, in facilities rent, and (5) an increase of $191,228 and $122,221 of expenses resulting from the operations of our subsidiaries,



28



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X-traWeb Europe S.p.A. and TWC Ltd, respectively. These increased expenses were partially offset by a
decrease in corporate travel related expenses of $395,847.



Interest income comprises most of other income and was $30,306 in 2001 compared to $337,618 in 2000, with the decrease directly attributable to decreased funds available for temporary investment. Interest expense increased to
$1,196,098 during 2001 compared to $132,586 in 2000, due to the issuance of $3,210,000 principal amount of 2001 Notes to related parties between May and December, 2001 and the related amortization of the discount attributable to warrants and
deferred placement fee of $444,670 and $565,350 respectively.



Liquidity and Capital Resources



Our liquidity at December 31, 2002 consist of cash and cash equivalents of $14,896, which represents a decrease of $208,842 over our cash and cash equivalents as of December 31, 2001. We had a working capital deficit of $8,980,209 at
the end of 2002 compared to working capital defect of $3,509,029 as of the end of 2001.



Our liquidity decreased significantly due to cash used in operating activities of $3,492,717, caused primarily by our net operating loss. We funded our negative cash flow in 2002 by consuming most of
our cash and cash equivalents on hand at the beginning of the year and by borrowing $3,600,000 from related parties during 2002 as discussed below (these borrowings are a component of the working capital deficit).



During 2002, we received an additional $3,600,000 in loans
from an affiliates of our largest stockholder, comprising part of the 2001 Notes, including $525,000 as loans from one such affiliate during the fourth quarter of 2002. These additional loans are also part of the 2001 Notes. We also issued
detachable five-year warrants to purchase 1,800,000 shares of our Common Stock during 2002 as a result of these additional loans. For a further description of this financing see Senior Secured Indebtedness Financing under Item 5. Thus,
as of December 31, 2002, we received a total of $6,810,000 in loans from such affiliates.



Based on our current cash position and our plans for 2003, we believe that additional capital will be required immediately. We received additional loans of $210,000 from an affiliate of our largest
stockholder during January and February, 2003. Our agreement with Lancer Offshore, Inc. and Lancer Partners L.P. also allows for such loan to be increased above its current outstanding principal amount of $7,020,000, provided that both parties agree
to do so, although we cannot assure you of such mutual agreement.



We previously obtained an oral financing commitment totaling $4,500,000 from a third party, to be provided as a six-month loan of $4,500,000 at a simple interest rate of 3% per annum, which management believes would be
adequate to fund our operations for at least the next six months. However, the funding party has not provided the financing yet, and to date, no funds have been received thereunder. We are currently attempting to close such loan in whole or in part
immediately, since we need our additional capital now. As a result of the foregoing events, we are currently exploring the availability of funding from other sources.



GOING CONCERNThe accompanying financial statements have been prepared assuming that we will continue as
a going concern. We have sustained recurring losses from operations, and have a working capital deficiency, a stockholders deficit and do not have the necessary funds to repay our debt, which is all due on July 1, 2003, or to continue our
operations without an immediate infusion of funds. As operations have not generated sufficient amounts of cash, we have relied upon financing from affiliates of our largest shareholders to fund operations since May 2001. These affiliates have
extended the due dates of the notes several times during 2001, once during 2002 and one during 2003 (although a further two-year extension until June 30, 2005 is subject to the condition that we receive at least $750,000 in equity (although it is
possible that subordinated debt might satisfy such condition)). There is no guarantee that debt holders will continue to do so in the future. The timing of our attainment of profitable operations and sufficient additional financing cannot be
determined at this time. Moreover, the monthly burn-rate limitation of $375,000 imposed on us under our secured financing hampers the conduct of business operations. We have suspended most business operations while we continue to seek additional
funding. These uncertainties raise substantial doubt about our ability to continue as a going concern.



SUMMARY



During 2000 and 2001, we implemented our redirection efforts to focus on the growth of our X-traWebTMbusiness segment and proprietary radio products. In 2000, we raised $13,646,000 in new equity capital, paid off substantially all outstanding debt, redeemed all mandatorily redeemable preferred stock outstanding, and relocated our
corporate headquarters



29



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to the Denver, Colorado area. Also, we realized revenues from the sales of our X-traWeb products for the
first time during 2000 and signed various marketing alliance agreements during the year.



During 2002, we continued to focus on our sales of X-traWebTMproducts and services but did not realize revenues at the level that we expected or needed. As a result of the slower receipt of revenues from the sale of our X-traWebTMproducts, we decided in February, 2003 to continue to focus our activities principally on the sale of such products in the automatic meter reading and
facilities management fields, but also to increase our sales of our proprietary radio products. In addition we plan to market our X-traWebTMproducts in the areas of (i) vending machines, (ii) security systems and (iii) food services equipment in the future. We also decided to reduce the number of our employees, particularly in the engineering and administrative
areas. Thus, as of December 2002, we had a total of 21 employees, a reduction of 8 from the total of 29 employees we had as of December 31, 2001, and had a further significant reduction in all areas in March, 2003.



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 in the United States and other countries and (iii) will derive substantial revenues therefrom in 2003 and thereafter, we cannot assure
you that any such sales will be made or the amount thereof, although we anticipate that the sale of our propriety radio products will constitute the bulk of our sales in 2003 and that X-traWebTMproduct sales will constitute the bulk of our revenues thereafter, but we cannot assure you as to the amount of such sales or when such sales will occur. We
do not expect the sales of our antenna products to contribute materially to our consolidated net income in the foreseeable future.



In summary, we are fully aware that anticipated revenue increases from sales of our X-traWebTMproducts and our proprietary radios are by no means assured, and that our requirements for capital are substantial and immediate. If significant revenues with
adequate margins are not generated and/or the additional financing is not obtained, we have a contingency plan to further reduce overhead and other operating costs so as to remain a going concern through July 1, 2003, the due date of our secured
notes payable. These contingency plans, however, would require additional reductions in product development and marketing costs, which could impact the timing and ultimate amount of future revenues. Moreover, by virtue of the factors listed under
Going Concern immediately above, our ability to continue as a going concern is dependent on continued support from our lenders unless the contemplated additional financing is obtained or alternate capital sources are found.



Recently Issued Accounting Pronouncements



On July 1, 2001, Statement of Financial Accounting Standards
No. 141 (SFAS 141), Business Combinations became effective. SFAS 141 requires the purchase method of accounting for business combinations initiated after June 30, 2001 and eliminates the pooling-of-interest method. The
adoption of SFAS 141 did not have any significant impact on our financial statements.



Effective January 2002, we were required to adopt SFAS No. 142 Goodwill and Other Intangible Assets. Under SFAS 142, goodwill is no longer subject to amortization over its estimated useful
life. Instead, goodwill is assessed for impairment on an annual basis (or more frequently if circumstances indicate a possible impairment) by means of a fair-value-based test. As of December 31, 2001, we had no unamortized goodwill. We believe the
implementation of SFAS 142 will not have a material effect on our Financial Statements.



We will adopt SFAS No. 143 Accounting for Asset Retirement Obligations, no later than January 1, 2003. Under SFAS 143, the fair value of a liability for an asset retirement obligation
covered under the scope of SFAS 143 would be recognized in the period in which the liability is incurred, with an offsetting increase in the carrying amount of the related long-lived asset. Over time, the liability would be accreted to its present
value, and the capitalized cost would be depreciated over the useful life of the related asset. Upon settlement of the liability, an entity would either settle the obligation for its recorded amount or incur a gain or loss upon settlement. We are
still studying this newly-issued standard to determine, among other things, whether we have any asset retirement obligations which are covered under the scope of SFAS 143. The effect on us of adopting this standard, if any, has not yet been
determined.



In August 2001, the Financial
Accounting Standards Board issued SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS 144 provides new guidance on the recognition of impairment losses on long-lived assets to be held and used or to be disposed
of and also broadens the definition of what constitutes a discontinued operation and how the results of a discontinued operation are to be measured and presented. SFAS 144 is effective for the fiscal year beginning 2002, but is not expected to have
a material impact on our financial statements.



30



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In June 2002, the FASB issued SFAS No. 146, Accounting for Exit or Disposal
Activities. This statement addresses the recognition, measurement, and reporting of costs associated with exit and disposal activities. SFAS No. 146 is applicable to restructuring activities and costs related to terminating a contract that is
not a capital lease and one time benefit arrangements received by employees who are involuntarily terminated. SFAS No. 146 supersedes 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). Under SFAS No. 146 the cost associated with an exit or disposal activity is recognized in the periods in which it is incurred rather than at the date the company committed to
the exit plan. This statement is effective for exit or disposal activities initiated after December 31, 2002, with earlier adoption encouraged. Previously issued financial statements will not be restated. The provisions of EITF Issue No. 94-3 will
continue to apply for exit plans initiated prior to the adoption of SFAS No. 146. Management anticipates that the adoption of SFAS 146 will not have a material impact on the Companys financial statements.



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) and Section 21E of the Securities Exchange Act of 1934, as amended which represent our expectations or beliefs concerning future events that involve
risks and uncertainties, including, without limitation, (i) those associated with our ability 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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 Business 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.



ITEM
8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



See Index to Financial Statements, Page F-1.



ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE



Not applicable.



PART III.



ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT



Our executive officers and
directors at December 31, 2002 were as follows:



|Name                   |  | Age |  | Position                                                                             
|---------------------- |  | --- |  | -------------------------------------------------------------------------------------
|David D. Singer        |  | 53  |  | Chairman of the Board of Directors, President, Chief
Executive Officer and a Director
|                      
|Charles Taylor         |  | 53  |  | Director                                                                             
|                      
|Malcolm P. Thomas      |  | 52  |  | Director                                                                             
|                      
|M. Robert Carr         |  | 59  |  | Director                                                                             
|                      
|Richard L. Stoneburner |  | 55  |  | Director                                                                             
|                      
|Robert W. Hathaway     |  | 35  |  | Vice President of Finance and Chief Financial Officer                                



31



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David D.
SingerMr. Singer was appointed our President in November 1996, and became one of our Directors in February 1997. From 1977 to 1983, Mr. Singer was President of CSL Energy Controls, Inc., a company specializing in third party energy
conservation. From 1983 to 1985, Mr. Singer was a special consultant to the General President of the Sheetmetal Workers Association. From 1985 to 1988, Mr. Singer was Vice President First Municipal Division, Bank One Leasing Corporation. From 1989
to 1994, Mr. Singer was President of Highland Energy Group. From 1991 to 1996, Mr. Singer was employed by Navtech Industries, Inc., an electronic assembly company, as Vice President Sales and Marketing from February 1994 to July 1995, and as
President and Chief Operating Officer from July 1995 to July 1996.



Charles TaylorMr. Taylor was elected one of our Directors in July, 1999 and was elected as a member of our Audit, Compensation and Stock Option Committees on November 11, 1999. During the period from 1995 through
December 31, 2000, Mr. Taylor has been a senior investment advisor with Amerindo Investment Advisors based in New York City and is a senior member of a team that manages approximately $4 billion in growth portfolios, including the Amerindo
Technology Fund. Prior to such period, Mr. Taylor served as a technology analyst with several major investment banking firm. Mr. Taylor is now self-employed.



Malcolm P. ThomasMr. Thomas was elected one of our Directors effective September 2, 1999 and was elected as a member of our Audit
Committee on November 11, 1999 and of our Compensation and Stock Option Committees on January 20, 2000. During the period from 1991 to December 31, 2000, Mr. Thomas was the Director of Operations and Marketing at Fluor Global Services, Inc., a
wholly-owned subsidiary of Fluor Corporation (a New York Stock Exchange company), having been promoted from Manager of Marketing Services and operation in the Western United States for his corporation. Commencing in January, 2001, Mr Thomas has been
the Executive Vice President and General Manager of Building Technology Engineers, a joint venture subsidiary of EMCOR Group and CB Richard Ellis.



M. Robert CarrMr. Carr was elected one our Directors on April 26, 2000 and was elected as a member of our Audit Committee on such
date. During the period from 1995 to the present, Mr. Carr has been engaged in business as an attorney and a management and policy consultant based in Washington, D.C. Previously Mr. Carr served as a United States Congressman from the State of
Michigan during the period from 1975 to 1981 and 1983 to 1995. There he served as Chairman of the House Transportation Appropriation Subcommittee. He also served on the House Armed Services, Judiciary and Interior and Insular Affairs Committees.



Richard L. StoneburnerMr. Stoneburner was
appointed one of our Directors on August 6, 2002. Mr. Stoneburner currently serves as the Executive Vice President of Marketing and Business Development for Intermarket Global, LLC. During the period from August 1, 1998 to June 30, 2002, Mr.
Stoneburner served as the Chief Executive Officer and General Manager of Co-operative ConNEXTions, LLC. Prior thereto, Mr. Stoneburner served in various leadership positions in the energy and pharmaceutical industries, including as Vice President of
Energy Partners Relations and Energy One LLC and Vice President and General Manager of Utilcorp Energy Solutions, the non-regulated retail marketing subsidiary of Ulticorp United, Inc.



Robert W. HathawayMr. Hathaway joined us on September 19, 2000 and was appointed our Vice President of
Finance and Chief Financial Officer on February 23, 2001. During the period from April, 2000 to August, 2000, he was the Controller for USA Capital LLC, a lease finance and servicing organization. Prior thereto from March, 1998 to March, 2000, Mr.
Hathaway served as the Vice President and Controller of Universal Lending Corporation, where he designed and implemented accounting practices and procedures. During the period from November, 1995 to June, 1997 he served as accountant, and became a
Vice President and Controller From July, 1997 to January 1998, at National Mortgage Corporation where he designed and implemented accounting practices and procedures.



ITEM 11.    EXECUTIVE COMPENSATION



The table below sets forth information concerning compensation paid in 2002, 2001 and 2000 to David D.
Singer, our Chairman, President and Chief Executive Officer, and Robert W. Hathaway, our Vice President of Finance and Chief Financial Officer. Except as set forth in the table, none of our executive officers received compensation of $100,000 or
more in 2002.



32



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Summary
Compensation Table



|Name and Principal Position                     |      |                |        | Annual Compensation     |       | Long-Term Compensation |                           |                
|----------------------------------------------- | ---- | -------------- | ------ | ----------------------- | ----- | ---------------------- | ------------------------- | ---------------
|                                                |      |                |        |                         |       |                        |                           |                
|                                                | Year |                | Salary |                         | Bonus |                        | Other Annual Compensation |                
|David D. Singer(1)(2) President                 |      | 2002 2001 2000 |        | 280,752 217,678 205,571 |       |                     |                           | 22,583 22,500 
|                                               
|Robert W. Hathaway(3) Vice President of Finance |      | 2002 2001 2000 |        | 125,000 118,028        |       |                     |                           | 3,728        

---

|(1) |  | Mr. Singer resigned as an officer and director of the Company and its subsidiary, X-traWeb, Inc. on May 1, 2003 for personal reasons.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------



|(2) |  | Mr. Singer received compensation reportable as Other Annual Compensation which exceeded 10% of his respective salary in 2002 and 2001, in the amount of
$22,583 and $22,500 respectively representing the fair value of automobiles provided by the Company for Mr. Singers personal use.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) |  | Mr. Hathaway did not receive compensation reportable as Other Annual Compensation which exceeded 10% of their respective salary in 2002.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------



The following table sets forth
certain information regarding options owned by Messrs. Singer, Hathaway and Kramer at December 31, 2002:



Aggregated Option Exercises in Last Fiscal Year and Options Values



|Name               |  | Shares Acquired on Exercise (#) |               | Value Realized($) |  | Number of Options and Underlying Securities At Year-End |     |  | Value of In The Money Options\SARs At Fiscal Year-End ($)
|------------------ |  | ------------------------------- | ------------- | ----------------- |  | ------------------------------------------------------- | --- |  | ---------------------------------------------------------
|                   |  |                                 | Unexercisable |                   |  | Exercisable                                             |     |  | Unexercisable                                            
|David D. Singer    |  |                                |               |                  |  | 230,000                                                 | (1) |  | 332,500                                                  
|Robert W. Hathaway |  |                                |               |                  |  | 13,950                                                  | (3) |  | 19,300                                                   



For the
purpose of computing the value of in-the-money options at December 31, 2002 in the above table, the fair market value of a share of our Common Stock at December 31, 2002 is deemed to be $0.14 per share, which was the average of the high
and low prices of such shares on the American Stock Exchange on such date.





33



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---

|(1) |  | The stock options are exercisable as follows: 80,000 shares on November 11, 2003, 30,000 shares on April 15, 2003, 30,000 shares on April 15, 2004, 30,000 shares on
April 15, 2005, 30,000 shares on April 15, 2006, and 30,000 shares on April 15, 2007.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Options to purchase 12,500 shares were exercisable as of June 4, 2002 and an additional 320,000 shares were exercisable as of December 31, 2002.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | One stock option is exercisable as follows: 650 shares on October 16, 2003, 650 shares on October 16, 2004, and 650 shares on October 16, 2005. In addition, another
stock option is exercisable as follows: 3,000 on July 27, 2003, 3,000 on July 27, 2004, 3,000 shares on July 27, 2005 and 3,000 on July 27, 2006.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) |  | Options to purchase 15,000 shares were exercisable as of June 4, 2002, and an additional 1,300 were exercisable as of December 31, 2002.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------



ITEM 12.     SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT



(a) Set forth below is information as of December 31, 2002 pertaining to ownership of the Companys Common Stock, determined in accordance with Rule 13(d)(3) under the Securities and Exchange Act of 1934, by persons known to us
who own more than 5% of our shares of Common Stock:



|Name and Address of Beneficial Owner                                 |  | Number of Shares(1) |        |  | Percent of Class(2)
|-------------------------------------------------------------------- |  | ------------------- | ------ |  | -------------------
|Michael Lauer 375 Park Avenue Suite 2006 New York, NY 10022          |  | 9,795,853           | (3)(4) |  | 28.8               
|                                                                    
|Lancer Offshore Inc. 375 Park Avenue Suite 2006 New York, NY 10022   |  | 6,780,662           | (3)    |  | 20.3               
|                                                                    
|Lancer Partners, LP 375 Park Avenue Suite 2006 New York, NY 10022    |  | 2,905,650           | (3)    |  | 8.5                
|                                                                    
|Orbiter Fund Ltd. 375 Park Avenue Suite 2006 New York, NY 10022      |  | 109,600             | (3)    |  | *                  
|                                                                    
|Ferruccio Commetto c/o RUSP Holdings S.A. C.So. Dante, Turin, Italy  |  | 3,500,000           | (5)(6) |  | 11.2               
|                                                                    
|RUSP Holdings S.A. C.So. Dante, Turin, Italy                         |  | 2,500,000           | (5)    |  | 8.0                
|                                                                    
|Elkron International S.p.A. Via Carducci Turin, Italy                |  | 650,000             | (5)    |  | 2.1                
|                                                                    
|Tanalux S.A. 5 Rue Emil Bian L-1235 Luxembourg                       |  | 350,000             | (5)    |  | 1.1                
|                                                                    
|Capital Research Ltd. 10 Ebony Glade Laguna Niguel, California 92677 |  | 2,675,324           | (7)    |  | 8.0                



34



---

---

* Less than one percent.



|(1) |  | Unless otherwise indicated, this column reflects shares owned beneficially and of record and as to which the named party has sole voting power and sole investment
power. This column also includes shares issuable upon the exercise of options or similar rights which are exercisable within 60 days after December 31, 2002.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) |  | In computing the percentage of shares beneficially owned by any person, shares which the person has the right to acquire upon the exercise of options or other rights
held by such person within 60 days after December 31, 2002 are deemed outstanding. Such shares are not deemed to be outstanding in computing the percentage ownership of any other person.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) |  | Of these shares, none is owned of record or by Michael Lauer in street name; 4,880,662 are held directly and of record by Lancer Offshore, Inc. plus warrants to
purchase 1,900,000 shares of the Companys Common Stock issued as of December 31, 2002 (but excludes the additional warrants to purchase 905,000 shares of the Companys Common Stock as of such date and the additional warrants to purchase
105,000 shares of such stock as of February 6, 2003); 2,305,650 are held directly and of record by Lancer Partners, L.P. plus warrants to purchase 600,000 shares of the Common Stock issued as of December 31, 2002; and 109,541 are held directly and
of record by The Orbiter Fund Ltd. Mr. Lauer is believed to control the voting and disposition of these shares by virtue of being the investment manager for these entities. He is also the general partner of Lancer Partners L.P These amounts exclude
all of the 133,200,000 shares of our Common Stock issuable as of December 31, 2002 pursuant to the potential mandatory conversion of the 2001 Notes, but include the detachable warrants to purchase only a total of 2,500,000 shares of our Common Stock
(since shareholder approval is required for exercise of the warrants to purchase shares of our Common Stock in excess of 2,500,000 shares of our common Stock.)
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



If Lancer Offshore Inc. and Lancer Partners L.P. (i) loan the Company a total sum of $7,020,000, (ii) the
stockholders approve the mandatory conversion of the 2001 Notes (which they did on March 15, 2002 up to the then applicable ceiling amount of $5,000,000 but not any excess thereof) and (iii) if the Company receives $7,020,000 in equity from sources
other than Michael Lauer and his affiliates, including Lancer Offshore, Inc., Lancer Partners L.P. and The Orbiter Fund Ltd. on or before July 1, 2003, such parties would acquire, in the aggregate, an additional 140,400,000 (as of February 6, 2003)
shares of the Companys Common Stock in addition to their current holdings of 7,186,312 shares as a result of and upon such mandatory conversion, based upon the conversion rate of one share for each $0.05 of debt. Since Lancer Offshore, Inc.
and Lancer Partners L.P. loaned the Company a total of $7,020,000, such parties would also be entitled, in the aggregate, to receive warrants to purchase 3,510,000 shares of the Companys Common Stock, although such parties could not exercise
the warrants without prior stockholder approval (which was received on March 15, 2002 up to then applicable ceiling amount of 2,500,000 shares of our Common Stock but not any excess thereof). If such parties exercise all of the warrants at the
exercise price of $0.30 per share, such parties would acquire, in the aggregate, an additional 3,510,000 shares of the Companys Common Stock. Moreover, as a result of the four-month extension of the maturity date of the 2001 Notes until June
30, 2002 and the further two three-month extensions until September 30, 2002 and December 31, 2002, respectively, such parties would be entitled to receive an additional 17,800,000 shares of the Companys Common Stock (which was approved by our
stockholders up to a ceiling amount of 12,500,000 shares) of our Common Stock.



In the case of the $7,020,000 loan analysis stated above, such acquisitions (including the assumed exercise of the above-described warrants) would increase the ownership of the group consisting of
Michael Lauer, Lancer Offshore, Inc., Lancer Partners L.P. and The Orbiter Fund Ltd. of the shares of the Companys Common Stock from 28.8% to 87.7% (excluding the potential issuance of any additional shares of the Companys Common Stock)
or from 28.8% to 37.7% (assuming the (i) issuance of 30,000,000 shares of the Companys Common Stock upon the conversion of our shares of Senior Preferred Stock if such issuance is approved by the Companys stockholders, (ii) the Company
sells 30 units of its Senior Preferred Stock pursuant to its current offering thereof to raise up to $4,500,000 in additional equity and (iii) the Company applies $1,400,000 therefrom to the reduction of $2,400,000 in principal amount of the 2001
Notes (which would then reduce the principal amount from $7,020,000 to $4,620,000) and $100,000 therefrom to the elimination of all outstanding interest thereon).



35



---

Under the $7,020,000 loan scenario described above, such increase in
ownership by the group consisting of Michael Lauer, Lancer Offshore, Inc., Lancer Partners L.P. and The Orbiter Fund Ltd. Would, in either such case, give such group the most significant influence in the election of all of the members of the Board
of Directors of the Company and control of all major corporate decisions involving the vote of stockholders of the Company.



In the alternative, if the Company sells 30 units of its Senior Secured Preferred Stock pursuant to its current offering
thereof and applies $1,500,000 to the reduction of our senior secured indebtedness with the two affiliates of our largest stockholder pursuant to the Restructuring Agreement, the influence of the group consisting of Michael Lauer, Lancer Offshore,
Inc., Lancer Partners L.P. and The Orbiter Fund Ltd. would potentially be reduced, but nevertheless the Company believes that such group might still retain the most significant influence in all major corporate decisions, depending upon the number of
person or persons who purchase the Senior Preferred Stock and whether they act in concert.



|(4) |  | Michael Lauer is deemed to be an indirect beneficial owner of these shares.
|--- |  | ---------------------------------------------------------------------------



|(5) |  | Of these shares, none is owned of record by Dr. Ferruccio Commetto. He is believed to control the voting and the disposition of the shares owned by the three foreign
corporations by virtue of his being the president thereof.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(6) |  | Dr. Ferruccio Commetto is deemed to be in indirect beneficial owner of these shares.
|--- |  | ------------------------------------------------------------------------------------



|(7) |  | Includes 2,000,000 issuable upon the exercise of a warrant granted in November, 2001, in recognition of financing services rendered.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------



(c) Set forth below is information as of December 31, 2002
pertaining to ownership of our shares of Common Stock by all of our directors and executive officers:



|(i) Name and Address of Beneficial Owner                                                                                                                                        |  | Number of Shares(1) |     |  | Percent of Class(2)
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------- | --- |  | -------------------
|David D. Singer, President, Chief Executive Officer and Director World Wireless Communications, Inc. 5670 Greenwood Plaza Boulevard Suite 340 Greenwood Village, Colorado 80111 |  | 570,000             | (3) |  | 1.8                
|                                                                                                                                                                               
|Charles Taylor World Wireless Communications, Inc 5670 Greenwood Plaza Boulevard Suite 340 Greenwood Village, Colorado 80111                                                    |  | 77,500              | (4) |  | *                  
|                                                                                                                                                                               
|Malcolm P. Thomas Building Technology Engineers 1560 Brookhollow Drive Suite 220 Santa Ana, CA 92705                                                                            |  | 79,500              | (5) |  | *                  
|                                                                                                                                                                               
|M. Robert Carr 815 Connecticut Avenue, N.W. Washington D.C. 20006                                                                                                               |  | 78,500              | (6) |  | *                  
|                                                                                                                                                                               
|Richard L. Stoneburner 5670 Greenwood Plaza Boulevard Suite 340 Greenwood Village, Colorado 80111                                                                               |  | 69,222              | (7) |  |                    
|                                                                                                                                                                               
|Robert W. Hathaway World Wireless Communications, Inc. 5670 Greenwwod Plaza Boulevard Suite 340 Greenwood Village, Colorado 80111                                               |  | 20,100              | (8) |  | *                  
|                                                                                                                                                                               
|(ii) All Directors and Executive Officers as a Group                                                                                                                            |  | 895,322             |     |  | 2.8                



36



---

---

|(1) |  | Unless otherwise indicated, this column reflects shares owned beneficially and of record and as to which the named party has sole voting power and sole investment
power. This column also includes shares issuable upon the exercise of options or similar rights which are exercisable within 60 days after December 31, 2002.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | In computing the percentage of shares beneficially owned by any person, shares which the person has the right to acquire upon the exercise of options or other rights
held by such person within 60 days after December 31, 2002 are deemed outstanding. Such shares are not deemed to be outstanding in computing the percentage ownership of any other person.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | Includes 332,500 shares issuable upon presently exercisable and fully vested option granted under our 1998 stock option plan, respectively, but excludes 237,500
shares which he transferred to his wife in 1999 as part of a divorce settlement.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) |  | Includes 15,000 shares issuable upon the exercise of options granted in November, 1999, in recognition of services as a director and 62,500 shares issuable pursuant
to the Outside Directors Compensation Plan approved in July 2002.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) |  | Includes 15,000 shares issuable upon the exercise of options granted in November 1999, in recognition of services as a director, and 62,500 shares issuable pursuant
to the Outside Directors Compensation Plan approved in July 2002.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) |  | Includes 6,000 shares issuable upon the exercise of options granted in November 2000, in recognition of services as a director and 62,500 shares issuable pursuant to
the Outside Directors Compensation Plan approved in July 2002.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(7) |  | Includes 52,222 shares issuable pursuant to the Outside Directors Compensation Plan approved in July 2002.
|--- |  | -----------------------------------------------------------------------------------------------------------

|(8) |  | Includes 1,300 shares issuable upon the exercise of options granted in October, 2000 in recognition of services, 3,000 shares issuable upon exercise of options
granted in July, 2001, and 15,000 shares issuable upon exercise of options granted in June, 2002 in recognition of services.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS



None.



ITEM 14.    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 Acting 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 Acting 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. 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 15.    EXHIBITS, FINANCIAL STATEMENT
SCHEDULES AND REPORTS ON FORM 8-K



a.1.
Consolidated Financial Statements of World Wireless Communications, Inc. and Subsidiaries:  See Index to Consolidated Financial Statements on Page F-1.



2. Financial Statement Schedules: All schedules are omitted because they are not applicable or the required information is shown in the
consolidated financial statements or notes thereto.



3. Exhibits:



See the Exhibit
Index attached hereto.



b. Reports on Form 8-K



None.





37



---



SIGNATURES



Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.





WORLD WIRELESS
COMMUNICATIONS, INC.

(Registrant)



By:

/S/    ROBERT W.
HATHAWAYRobert W. Hathaway Acting Chief Executive Officer




Dated: May 5, 2003



Pursuant to
the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.



|Name                                                |  | Title                                                                                                                                                |  | Date       
|--------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------
|                                                   
|/S/    M. ROBERT
CARRM.
Robert Carr                 |  | Director                                                                                                                                             |  | May 5, 2003
|                                                   
|/S/    CHARLES
TAYLORCharles Taylor                 |  | Director                                                                                                                                             |  | May 5, 2003
|                                                   
|/S/    MALCOLM P.
THOMASMalcolm P.
Thomas           |  | Director                                                                                                                                             |  | May 5, 2003
|                                                   
|/S/    RICHARD L.
STONEBURNERRichard L. Stoneburner |  | Director                                                                                                                                             |  | May 5, 2003
|                                                   
|/S/    ROBERT W.
HATHAWAYRobert Hathaway            |  | Acting Chief Executive Officer and Vice PresidentFinance and Chief Financial Officer (Principal Financial Officer
and Principal Accounting Officer) |  | May 5, 2003





38



---



CERTIFICATION



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



1. I have reviewed this annual report on Form 10-K of the Company;



2. Based on my knowledge, this annual 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 annual report;



3. Based
on my knowledge, the financial statements, and other financial information included in this annual 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 annual 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:



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 annual report is being prepared;
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 annual report (the Evaluation Date); and presented in this annual 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):



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



6. The registrants other certifying officers and I have indicated in this annual 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: May 5, 2003





Robert W. Hathaway

Acting Chief Executive Officer and

Vice President of Finance and

Chief Financial Officer





39



---



WORLD
WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES



TABLE OF CONTENTS



|                                                                                                               |  | PAGE
|-------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                              
|Independent Auditors Report                                                                                   |  | F-2 
|                                                                                                              
|Consolidated Balance SheetsDecember 31, 2002 and 2001                                                         |  | F-3 
|                                                                                                              
|Consolidated Statements of Operations for the Years Ended December 31, 2002, 2001, and
2000                    |  | F-4 
|                                                                                                              
|Consolidated Statements of Stockholders Equity (Deficit) for the Years Ended
December 31, 2002, 2001 and 2000 |  | F-5 
|                                                                                                              
|Consolidated Statements of Cash Flows for the Years Ended December 31, 2002, 2001 and
2000                     |  | F-7 
|                                                                                                              
|Notes to Consolidated Financial Statements                                                                     |  | F-8 





F-1



---



INDEPENDENT
AUDITORS REPORT







To be incorporated by amendment





F-2



---



WORLD
WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES



CONSOLIDATED BALANCE SHEETS



|                                                                                                                           |  | December 31, |            
|-------------------------------------------------------------------------------------------------------------------------- |  | ------------ | -----------
|                                                                                                                           |  | 2002         |            
|                                                                                                                           |  | (unaudited)  |            
|ASSETS                                                                                                                     |  |              |            
|Current Assets                                                                                                             |  |              |            
|Cash                                                                                                                       |  | $            | 14,896     
|Investment in securities available for sale                                                                                |  |              | 375        
|Trade receivables, net of allowance for doubtful accounts                                                                  |  |              | 64,863     
|Other receivables                                                                                                          |  |              | 18,417     
|Inventory                                                                                                                  |  |              | 411,625    
|Prepaid expenses                                                                                                           |  |              | 39,534     
|Total Current Assets                                                                                                       |  |              | 549,710    
|Equipment, net of accumulated depreciation                                                                                 |  |              | 214,616    
|Deferred debt placement fees                                                                                               |  |              |           
|Other assets                                                                                                               |  |              | 13,131     
|                                                                                                                           |  |              |            
|Total Assets                                                                                                               |  | $            | 777,457    
|                                                                                                                           |  |              |            
|LIABILITIES AND STOCKHOLDERS
DEFICIT                                                                                      |  |              |            
|Current Liabilities                                                                                                        |  |              |            
|Trade accounts payable                                                                                                     |  | $            | 990,357    
|Accounts payablerelated parties                                                                                           |  |              | 182,496    
|Accrued liabilities                                                                                                        |  |              | 527,831    
|Accrued interest                                                                                                           |  |              | 989,235    
|Deferred revenue                                                                                                           |  |              | 30,000     
|Notes payablerelated party                                                                                                |  |              | 6,810,000  
|Obligations under capital leasecurrent portion                                                                            |  |              | 9,693      
|                                                                                                                           |  |              |            
|Total Current Liabilities                                                                                                  |  |              | 9,529,919  
|                                                                                                                           |  |              |            
|Long-Term Obligations Under Capital Lease                                                                                  |  |              | 17,140     
|                                                                                                                           |  |              |            
|Commitments and Contingencies                                                                                              |  |              |           
|                                                                                                                           |  |              |            
|Mandatorily Redeemable 10% Preferred Stock$0.001 par value; 1,000 and 0 shares
authorized;0 shares issued and outstanding |  |              |           
|                                                                                                                           |  |              |            
|Stockholders Equity (Deficit)                                                                                             |  |              |            
|Common stock payable                                                                                                       |  |              | 3,304,456  
|Common stock$0.001 par value; 50,000,000 shares authorized; issued and
outstanding:                                       |  |              |            
|31,459,945 shares in 2002 and 31,447,087 shares in 2001                                                                    |  |              | 31,459     
|Additional paid-in capital                                                                                                 |  |              | 48,439,913 
|Accumulated deficit                                                                                                        |  |              | (60,547,401
|Accumulated other comprehensive loss                                                                                       |  |              | (7,722     
|                                                                                                                           |  |              |            
|Total Stockholders Deficit                                                                                                |  |              | (8,779,295 
|                                                                                                                           |  |              |            
|Total Liabilities and Stockholders Deficit                                                                                |  | $            | 777,457    
|                                                                                                                           |  |              |            



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



F-3



---

WORLD WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF OPERATIONS



|                                                                       |  | Years Ended December 31, |           
|---------------------------------------------------------------------- |  | ------------------------ | ----------
|                                                                       |  | 2002                     |           
|                                                                       |  | (unaudited)              |           
|Revenues:                                                              |  |                          |           
|Services                                                               |  | $                        | 25,000    
|Royalties                                                              |  |                          |          
|Product sales                                                          |  |                          | 710,124   
|                                                                       |  |                          |           
|Total revenues                                                         |  |                          | 735,124   
|Cost of Sales:                                                         |  |                          |           
|Services                                                               |  |                          | 35,232    
|Products                                                               |  |                          | 306,040   
|Inventory write-down                                                   |  |                          |          
|                                                                       |  |                          |           
|Total cost of sales                                                    |  |                          | 341,272   
|                                                                       |  |                          |           
|Gross profit                                                           |  |                          | 393,852   
|Operating Expenses:                                                    |  |                          |           
|Research and development                                               |  |                          | 666,428   
|Sales and marketing                                                    |  |                          | 709,918   
|General and administrative                                             |  |                          | 3,547,574 
|Manufacturing activity exit costs                                      |  |                          |          
|Amortization of goodwill                                               |  |                          |          
|                                                                       |  |                          |           
|Total operating expenses                                               |  |                          | 4,923,920 
|                                                                       |  |                          |           
|Loss from operations                                                   |  |                          | (4,530,068
|Other income (expense)                                                 |  |                          |           
|Interest expense                                                       |  |                          | (5,357,518
|Other income                                                           |  |                          | 41,004    
|                                                                       |  |                          |           
|Net loss                                                               |  |                          | (9,846,582
|Preferred dividends                                                    |  |                          |          
|                                                                       |  |                          |           
|Loss applicable to common shares                                       |  | $                        | (9,846,582
|                                                                       |  |                          |           
|Basic and diluted loss per common share                                |  | $                        | (0.31     
|                                                                       |  |                          |           
|Weighted average number of common shares used in per share calculation |  |                          | 31,456,873
|                                                                       |  |                          |           





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







F-4



---



WORLD
WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)



|                                                            |  | Common Stock |  |        |        |                            |   |            |                                                  |  |   |                     |   |  |                                      |             |                                               |  |  
|----------------------------------------------------------- |  | ------------ |  | ------ | ------ | -------------------------- | - | ---------- | ------------------------------------------------ |  | - | ------------------- | - |  | ------------------------------------ | ----------- | --------------------------------------------- |  | -
|                                                            |  | Shares       |  | Amount |        | Additional Paid-In Capital |   |            | Unearned Compensation And Shareholder Receivable |  |   | Accumulated Deficit |   |  | Common Stock Payable-Related Parties |             | Accumulated Other Comprehensive Income (loss) |  |  
|BalanceDecember 31, 1999                                   |  | 21,250,016   |  | $      | 21,250 |                            | $ | 33,394,207 |                                                  |  | $ | (66,829             | ) |  | $                                    | (37,884,343 | )                                             |  | $
|Comprehensive Loss:                                         |  |              |  |        |        |                            |   |            |                                                  |  |   |                     |   |  |                                      |             |                                               |  |  
|Net loss                                                    |  |             |  |        |       |                            |   |           |                                                  |  |   |                    |   |  |                                      | (4,769,804  |                                               |  |  
|Decrease in unrealized gain on securities                   |  |             |  |        |       |                            |   |           |                                                  |  |   |                    |   |  |                                      |            |                                               |  |  
|Adjustment from foreign currency translation                |  |             |  |        |       |                            |   |           |                                                  |  |   |                    |   |  |                                      |            |                                               |  |  
|                                                            |  |              |  |        |        |                            |   |            |                                                  | 
|Comprehensive Loss for the Year                             |  |              |  |        |        |                            |   |            |                                                  |  |   |                     |   |  |                                      |             |                                               |  |  
|                                                            |  |              |  |        |        |                            |   |            |                                                  | 
|Compensation adjustment relating to stock options           |  |             |  |        |       |                            |   | (382,364   | )                                                |  |   |                    |   |  |                                      |            |                                               |  |  
|Shares issued for cash, net of placement fees of $1,512,782 |  | 4,548,667    |  |        | 4,549  |                            |   | 12,128,669 |                                                  |  |   |                    |   |  |                                      |            |                                               |  |  
|Exercise of warrants                                        |  | 5,393,690    |  |        | 5,394  |                            |   | 1,343,029  |                                                  |  |   |                    |   |  |                                      |            |                                               |  |  
|Cashless exercise of stock options                          |  | 16,474       |  |        | 16     |                            |   | 23,016     |                                                  |  |   |                    |   |  |                                      |            |                                               |  |  
|Shares issued for consulting services                       |  | 60,000       |  |        | 60     |                            |   | 195,240    |                                                  |  |   |                     |   |  |                                      |             |                                               |  |  
|Preferred dividends                                         |  |             |  |        |       |                            |   | (6,400     | )                                                |  |   |                    |   |  |                                      |             |                                               |  |  
|Write-off of receivable                                     |  |             |  |        |       |                            |   |           |                                                  |  |   | 66,829              |   |  |                                      |            |                                               |  |  
|                                                            |  |              |  |        |        |                            |   |            |                                                  |  |   |                     |   |  |                                      |             |                                               |  |  
|                                                           
|BalanceDecember 31, 2000                                   |  | 31,268,847   |  | $      | 31,269 |                            | $ | 46,695,397 |                                                  |  | $ |                    |   |  | $                                    | (42,654,147 | )                                             |  | $
|Comprehensive Loss:                                         |  |              |  |        |        |                            |   |            |                                                  |  |   |                     |   |  |                                      |             |                                               |  |  
|Net loss                                                    |  |             |  |        |       |                            |   |           |                                                  |  |   |                    |   |  |                                      | (8,046,672  | )                                             |  |  
|Decrease in unrealized loss on securities                   |  |             |  |        |       |                            |   |           |                                                  |  |   |                    |   |  |                                      |            |                                               |  |  
|Adjustment from foreign currency translation                |  |             |  |        |       |                            |   |           |                                                  |  |   |                    |   |  |                                      |            |                                               |  |  
|                                                            |  |              |  |        |        |                            |   |            |                                                  | 
|Comprehensive Loss                                          |  |              |  |        |        |                            |   |            |                                                  |  |   |                     |   |  |                                      |             |                                               |  |  
|                                                            |  |              |  |        |        |                            |   |            |                                                  | 
|Compensation adjustment relating to stock options           |  |             |  |        |       |                            |   | (28,243    | )                                                |  |   |                    |   |  |                                      |            |                                               |  |  
|Exercise of warrants for cash                               |  | 157,044      |  |        | 157    |                            |   | 39,104     |                                                  |  |   |                    |   |  |                                      |            |                                               |  |  



F-5



---

|Exercise of options for cash              |  | 13,334     |  |   | 13     |  |   | 17,454     |  |   |  |  |   |            |   |  |   |          |  |   |       |   |  |   | 17,467     |  
|----------------------------------------- |  | ---------- |  | - | ------ |  | - | ---------- |  | - | - |  | - | ----------- | - |  | - | --------- |  | - | ------ | - |  | - | ---------- | -
|Stock issued for consulting services      |  | 7,862      |  |   | 8      |  |   | 11,992     |  |   |  |  |   |            |   |  |   |          |  |   |       |   |  |   | 12,000     |  
|Options granted for consulting services   |  |           |  |   |       |  |   | 9,025      |  |   |  |  |   |            |   |  |   |          |  |   |       |   |  |   | 9,025      |  
|Debt discount from warrants issued        |  |           |  |   |       |  |   | 556,454    |  |   |  |  |   |            |   |  |   |          |  |   |       |   |  |   | 556,454    |  
|Debt placement fee paid in stock warrants |  |           |  |   |       |  |   | 722,000    |  |   |  |  |   |            |   |  |   |          |  |   |       |   |  |   | 722,000    |  
|                                          |  |            |  |   |        |  |   |            |  |   |   |  |   |             |   |  |   |           |  |   |        |   |  |   |            |  
|BalanceDecember 31, 2001                 |  | 31,447,087 |  | $ | 31,447 |  | $ | 48,023,183 |  | $ |  |  | $ | (50,700,819 | ) |  | $ |          |  | $ | (7,409 | ) |  | $ | (2,653,598 | )
|Comprehensive Loss:                       |  |            |  |   |        |  |   |            |  |   |   |  |   |             |   |  |   |           |  |   |        |   |  |   |            |  
|Net loss                                  |  |           |  |   |       |  |   |           |  |   |  |  |   | (9,846,582  | ) |  |   |          |  |   |       |   |  |   | (9,846,582 | )
|Decrease in unrealized loss on securities |  |           |  |   |       |  |   |           |  |   |  |  |   |            |   |  |   |          |  |   | (313   | ) |  |   | (313       | )
|Comprehensive Loss                        |  |           |  |   |       |  |   |           |  |   |  |  |   |             |   |  |   |           |  |   |        |   |  |   | (9,846,895 | )
|Stock issued for consulting services      |  | 12,858     |  |   | 12     |  |   | 11,237     |  |   |  |  |   |            |   |  |   |           |  |   |       |   |  |   | 11,249     |  
|Stock payable for debt modification       |  |            |  |   |        |  |   |            |  |   |   |  |   |             |   |  |   | 3,238,900 |  |   |        |   |  |   |            |  
|Stock payable to directors                |  |            |  |   |        |  |   |            |  |   |   |  |   |             |   |  |   | 34,150    |  |   |        |   |  |   |            |  
|Stock payable to employees                |  |            |  |   |        |  |   |            |  |   |   |  |   |             |   |  |   | 31,406    |  |   |        |   |  |   |            |  
|Debt discount from warrants issued        |  |           |  |   |       |  |   | 405,493    |  |   |  |  |   |            |   |  |   |           |  |   |       |   |  |   | 405,493    |  
|BalanceDecember 31, 2001                 |  | 31,459,945 |  | $ | 31,459 |  | $ | 48,439,913 |  | $ |  |  | $ | (60,547,401 | ) |  | $ | 3,304,456 |  | $ | (7,722 | ) |  | $ | (8,779,295 | )





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



F-6



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WORLD WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                                            |  | Years Ended December 31, |           
|--------------------------------------------------------------------------- |  | ------------------------ | ----------
|                                                                            |  | 2002                     |           
|                                                                            |  | (Unaudited)              |           
|Cash Flows From Operating Activities                                        |  |                          |           
|Net loss                                                                    |  | $                        | (9,846,582
|Adjustments to reconcile net loss to net cash used by operating
activities: |  |                          |           
|Amortization of goodwill                                                    |  |                          |          
|Impairment of goodwill and patent                                           |  |                          |          
|Depreciation and amortization                                               |  |                          | 196,209   
|Manufacturing activity exit costs                                           |  |                          |          
|Impairment of inventory                                                     |  |                          |          
|Amortization of debt discount                                               |  |                          | 517,277   
|Debt extension chargerelated party                                         |  |                          | 3,238,900 
|Amortization of deferred debt placement fees                                |  |                          | 770,150   
|Stock issued for services                                                   |  |                          | 11,250    
|Compensation adjustments relating to stock and stock options                |  |                          | 65,556    
|Realized (gain) loss on marketable securities                               |  |                          |          
|Loss on disposal of assets                                                  |  |                          |          
|Write-off of receivable from shareholder                                    |  |                          |          
|Provision for doubtful accounts receivable                                  |  |                          | (6,900    
|Changes in operating assets and liabilities:                                |  |                          |           
|Accounts receivable                                                         |  |                          | 11,124    
|Inventory                                                                   |  |                          | 34,351    
|Accounts payable                                                            |  |                          | 426,154   
|Accrued liabilities                                                         |  |                          | 1,060,595 
|Deferred revenue                                                            |  |                          |          
|Other                                                                       |  |                          | 29,199    
|                                                                            |  |                          |           
|Net Cash and Cash Equivalents Used By Operating Activities                  |  |                          | (3,492,717
|                                                                            |  |                          |           
|Cash Flows From Investing Activities                                        |  |                          |           
|Payments for the purchase of property and equipment                         |  |                          | (42,018   
|Proceeds from sale of business assets and property                          |  |                          | 645       
|Proceeds from sale of marketable securities                                 |  |                          |          
|                                                                            |  |                          |           
|Net Cash and Cash Equivalents Used By Investing Activities                  |  |                          | (41,373   
|                                                                            |  |                          |           
|Cash Flows From Financing Activities                                        |  |                          |           
|Proceeds from issuance of common stock                                      |  |                          |          
|Proceeds from borrowings, net of discount                                   |  |                          | 3,738,331 
|Deferred placement fees                                                     |  |                          | (292,500  
|Proceeds from issuance of mandatorily                                       |  |                          |           
|Redemption of preferred stock                                               |  |                          |          
|Payment of preferred dividends                                              |  |                          |          
|Proceeds from exercise of warrants                                          |  |                          |          
|Proceeds from exercise of options                                           |  |                          |          
|Principal payments on obligation under capital lease                        |  |                          | (8,083    
|Principal payments on notes payable                                         |  |                          | (112,500  
|                                                                            |  |                          |           
|Net Cash and Cash Equivalents Provided By Financing Activities              |  |                          | 3,325,248 
|                                                                            |  |                          |           
|Effect of Exchange Rate on Cash and Cash Equivalents                        |  |                          |          
|                                                                            |  |                          |           
|Net Increase (Decrease) In Cash and Cash Equivalents                        |  |                          | (208,842  
|Cash and Cash EquivalentsBeginning of Year                                 |  |                          | 223,738   
|                                                                            |  |                          |           
|Cash and Cash EquivalentsEnd of Year                                       |  | $                        | 14,896    
|                                                                            |  |                          |           





Supplemental cash flow information and non-cash investing and financing activities  see Note 8

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



F-7



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WORLD WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1ORGANIZATION AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES



STATUS OF
INDEPENDENT AUDITORSThe financial statements presented have not been audited by the Companys independent auditors, nor any other independent accountants, using professional standards and procedures for conducting such audits, 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.



ORGANIZATION AND NATURE OF BUSINESSWorld Wireless Communications, Inc. and its subsidiaries (collectively, the Company) design and develop wired and wireless communications systems. The Company has developed
technology to monitor and control various remote devices through the internet, known as X-traWebTM. The
Companys primary efforts are on marketing and further enhancing X-traWebTM.



During June, 2000 the Company formed an operating subsidiary,
X-traWeb Europe S.p.A., based in Milan, Italy. This subsidiary was responsible for the development and sale of X-traWebTMproducts through European markets. In November 2001, this subsidiary was liquidated as part of a planned reduction in operating costs. The Company has two additional subsidiaries, X-traWeb Services Corp. and X-traWeb Financial
Corp., which are designed to offer various services of X-traWeb products and to provide financing capability of sales of X-traWeb products or services, respectively, but which have engaged in no activities to date.



Since November 1997, the Company has operated its subsidiary
TWC Ltd. doing business as Austin Antenna for the manufacture and sale of its antenna products.



PRINCIPLES OF CONSOLIDATIONThe consolidated financial statements include the accounts of World Wireless Communications, Inc. and its wholly owned subsidiaries. Intercompany accounts and
transactions have been eliminated in consolidation.



USE OF ESTIMATESThe preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts in these financial
statements and accompanying notes. In particular, estimates are required in the evaluation of allowances for impaired inventory and for doubtful accounts. Actual results could differ from those estimates.



CONCENTRATION OF RISK AND SEGMENT INFORMATIONThe Company
operates solely in the electronics industry and has assets solely within the United States. The concentration of business in one industry subjects the Company to a concentration of credit risk relating to trade accounts receivable. The Company
operates in two reportable business segments, X-traWebTMproducts and radio products (see Note 12).



FINANCIAL INSTRUMENTSThe Company has, from time to time,
a concentration of risk from cash in banks in excess of insured limits. The amounts reported as cash, investments in securities available-for-sale, and notes payable are considered to be reasonable approximations of their fair values. The fair value
estimates presented herein were based on market information available to management at the time of the preparation of the financial statements.



TRADE ACCOUNTS RECEIVABLE AND SIGNIFICANT CUSTOMERSSales to significant customers are defined as sales to any one customer which
exceeded 10% of total sales in any of the three reporting years. Sales to significant customers represented 40%, 13%, and 56% of total net revenue for the years ended December 31, 2002, 2001, and 2000, respectively. Sales to the four significant
customers during each of the years presented were as follows: Customer A$0, $0, and $724,083, respectively; Customer B$132,807, $0, and $0, respectively; Customer C$0, $135,607 and $240,915,
respectively, and Customer D $163,826, $0, and $0, respectively. Sales to significant customers subject the Company to the risk that the Company may not be able to continue the current level of sales if there were a loss of a
significant customer.



At December 31, 2002 and
2001, an allowance for doubtful accounts of 15,477 and $22,377, respectively, was provided against trade and other receivables. The Company recorded no charge offs for the year ended December 31, 2002. For the years ended December 31, 2002, 2001 and
2000 provisions for doubtful accounts charged to expense totaled $(6,900),



F-8



---

$110,276, and $124,397 respectively. Trade receivables and the allowance for doubtful accounts are
reviewed periodically and adjusted, accordingly. The Company generally does not require collateral from its customers with respect to trade receivables.



INVENTORYInventory is stated at the lower of cost or market. Cost is determined using the first-in, first-out method. In 2001,
elements of the inventory were deemed obsolete as the result of continued product design improvements. These inventory components were written-down to their estimated liquidation value, resulting in a $198,000 charge to cost of sales.



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



RESEARCH AND DEVELOPMENT EXPENSECurrent operations are charged with all research, engineering and product development expenses.



GOODWILL AND LONG-LIVED ASSETSGoodwill and other long-lived assets are evaluated periodically for
impairment when indicators of impairment are present and undiscounted cash flows estimated to be generated by those assets are less than their carrying amounts.



EQUIPMENTEquipment is stated at cost. Depreciation, including amortization of leased assets, is
computed using the straight-line method over the estimated useful lives of the equipment of three to seven years. Leased equipment is amortized over the shorter of the useful life of the equipment or the term of the lease. Maintenance and repair of
equipment are charged to operations and major improvements are capitalized. Upon retirement, sale, or other disposition of equipment, the cost of the equipment and accumulated depreciation are eliminated from the accounts and gain or loss is
included in operations.



INVESTMENTSAt
December 31, 2002, investment in securities consisted of common stock of customers classified as available-for-sale and carried at fair value of $375, compared to $688 at December 31, 2001. The cost of the securities was $8,097. The unrealized loss
as of December 31, 2002 was $7,722 which is shown as a separate component of stockholders equity. The change in net unrealized gains on securities during 2002 was a decrease in the holding loss of $313. The changes in net unrealized gains on
the securities during the years ended December 31, 2001 and 2000 was $(39,424) and $(102,236) respectively.



REVENUE RECOGNITIONRevenues are recognized upon delivery of products or services and acceptance by the customer. Because purchasers
of the radio products typically test the radios application using a developer kit prior to placing an order, sales returns are negligible. Sales of X-traWebTMproducts are custom applications, subject to the terms of individual contracts, and are not subject to return.



As a result of design and technology contracts, the Company has a right to receive royalties which will be recognized upon the related
sales by customers.



STOCK-BASED
COMPENSATIONStock-based compensation to employees is measured by the intrinsic value method. This method recognizes compensation expense related to fixed plan stock options granted to employees based on the difference between the fair value of
the underlying common stock and the exercise price of the stock option on the date granted. For options accounted for under variable plan accounting, an adjustment is made at each balance sheet date to reflect changes in the price of the stock
relative to the exercise price of the options. Stock-based compensation to non-employees is measured by the fair value of the stock options and warrants on the grant date as determined by the Black-Scholes option pricing model.



INCOME TAXESDeferred tax assets and liabilities are
recognized for the future tax consequences of differences between the carrying amounts of assets and liabilities in the financial statements and their respective tax bases, and for net operating loss carry forwards. To the extent realization is not
likely, valuation allowances are provided for deferred tax assets.



LOSS PER SHAREBasic loss per common share is computed by dividing net loss attributable to common shareholders 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 preferred stock resulted in the issuance of common stock. For all years presented,
diluted loss per share is the same as basic loss per share because the inclusion of 7,463,062, 5,407,475, and 2,474,729 potentially issuable common shares at December 31, 2002, 2001 and 2000, respectively, would have decreased the loss per share and
have been excluded from the calculation.





F-9



---



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.



RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTSThe Company
adopted Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities on January 2001. The statement establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. The adoption of SFAS No. 133, as amended did not have any impact on the Companys financial condition or operations.



In June 2001, the Financial Accounting Standards
Board (FASB) issued SFAS No. 141, Business Combinations. SFAS No. 141 requires the purchase method of accounting for business combinations initiated after June 30, 2001 and eliminates the pooling-of-interest method. The
adoption of SFAS No. 141 did not have any impact on the Companys financial statements.



Effective January 2002, the Company adopted SFAS No. 142, Goodwill and Other Intangible Assets. Under the provisions of SFAS No. 142, goodwill is no longer subject to amortization over its
estimated useful life. Instead, goodwill is assessed for impairment on an annual basis (or more frequently if circumstances indicate a possible impairment) by means of a fair-value-based test. As of December 31, 2002, the Company had no unamortized
goodwill. The implementation of SFAS No. 142 will not have a material adverse effect on its future results of operations.



The Company adopted SFAS No. 143, Accounting for Asset Retirement Obligations, January 1, 2003. Under SFAS No. 143, the fair
value of a liability for an asset retirement obligation covered under the scope of SFAS No. 143 would be recognized in the period in which the liability is incurred, with an offsetting increase in the carrying amount of the related long-lived asset.
Over time, the liability would be accreted to its present value, and the capitalized cost would be depreciated over the useful life of the related asset. Upon settlement of the liability, an entity would either settle the obligation for its recorded
amount or incur a gain or loss upon settlement. Management anticipates that the adoption of SFAS 143 will not have a material impact on the Companys financial statements.



The Company adopted SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets,
January 1, 2002. SFAS No. 144 supercedes SFAS No. 121 and addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The adoption of SFAS No. 144 did not have any impact on the Companys financial
statements.



In June 2002, the FASB issued SFAS
No. 146, Accounting for Exit or Disposal Activities. This statement addresses the recognition, measurement, and reporting of costs associated with exit and disposal activities. SFAS No. 146 is applicable to restructuring activities and
costs related to terminating a contract that is not a capital lease and one time benefit arrangements received by employees who are involuntarily terminated. SFAS No. 146 supersedes 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). Under SFAS No. 146 the cost associated with an exit or disposal activity is recognized in the periods in which it is
incurred rather than at the date the Company committed to the exit plan. This statement is effective for exit or disposal activities initiated after December 31, 2002, with earlier adoption encouraged. Previously issued financial statements will not
be restated. The provisions of EITF Issue No. 94-3 will continue to apply for exit plans initiated prior to the adoption of SFAS No. 146. Management anticipates that the adoption of SFAS 146 will not have a material impact on the Companys
financial statements.



RECLASSIFICATIONSCertain prior year amounts have been reclassified to conform to the current year presentation.



NOTE 2GOING CONCERN



The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has
sustained recurring losses from operations, and has a working capital deficiency, a stockholders deficit and does not have the necessary funds or operating cash flow to repay its debt, which is all due on July 1, 2003. The Companys
liquidity at December 31, 2002 consisted of cash and cash equivalents of $14,896, and as of that date, the Company had a working capital deficit of $8,980,209. As operations have not generated sufficient amounts of cash, the Company has relied upon
financing from affiliates of the Companys largest shareholder, Lancer Offshore, Inc. and Lancer Partners L.P. to fund recent operations. These affiliates have extended the due dates of the notes several times during 2001, once during 2002 and
one during 2003 (although a further two-year extension until June 30, 2005 is subject to the condition that we receive at least $750,000 in equity (or possibly subordinated debt)). There is no guarantee that debt holders will continue to do so in
the



F-10



---

future. The timing of the Companys attainment of profitable operations and sufficient additional
financing cannot be determined at this time. The Company has suspended most business operations while it continues to seek additional funding. These uncertainties raise substantial doubt about the Companys ability to continue as a going
concern.



Based on the Companys current
cash position and plans for 2003, management believes that additional capital will be required immediately. The Company recently received additional loans of $210,000 from affiliates of its largest stockholder during the first quarter of 2003, which
management believes is inadequate to fund operations. As the result of the foregoing events and since the current $7,020,000 loan from the affiliates matures on July 1, 2003, the Company is currently seeking funding from other sources.



The Company has obtained an oral financing commitment totaling
$4,500,000 from a third party, to be provided as a six-month loan of $4,500,000 at a simple interest rate of 3% per annum, which management believes would be adequate to fund operations for at least the next six months. However, the funding party
has not provided the financing yet, and to date, no funds have been received thereunder. The Company is currently attempting to close such loan in whole or in part immediately, since we need additional capital now. As a result of the foregoing
events, we are currently exploring the availability of funding from other sources.





NOTE 3EXIT FROM MANUFACTURING ACTIVITIES



During the fourth quarter of 1999, the Company executed a plan to focus its efforts primarily on enhancing
and marketing its

X-traWebTMproducts whereby production of the Companys continuing products would be outsourced, contract manufacturing discontinued, and the Company would move its executive offices to the Denver, Colorado
area. The plan also involved liquidating the Companys raw materials and work in process inventory and selling all equipment used in production and contract manufacturing. The exit was not considered the disposal of a segment because the change
did not encompass a separate major line of business or class of customer, and because the Company only had one segment prior to 1999. The Company recognized as exit costs the related non-cancelable obligation under a lease agreement for office and
manufacturing facilities in Salt Lake City, Utah through 2005. Future minimum lease payments of $1,756,924 under the lease were charged to operations during the year ended December 31, 1999.



The Company completed its relocation to the Denver, Colorado
area in March 2000. Pursuant to a Lease Termination Agreement, dated May 1, 2000, the Company paid a $75,000 settlement payment and transferred its security deposit in the amount of $27,742 to the benefit of a new tenant in the Salt Lake City, Utah
manufacturing and office facilities and the lease agreement was terminated as of the May 1, 2000 date. Incident to the lease termination, the settlement funds described above were charged to the outstanding lease liability on the Companys
balance sheet resulting in a remaining liability balance of $1,598,342. This balance was reversed and credited to operations as manufacturing exit recoveries income during the six months ended June 30, 2000.





NOTE 4INVENTORY



Inventory consisted of the following:



|                |  | December 31,
|--------------- |  | ------------
|                |  | 2002        
|Materials       |  | $           
|Work in process |  |             
|Finished goods  |  |             
|                |  |             
|Total           |  | $           
|                |  |             





NOTE 5EQUIPMENT



Equipment consisted of the following:





F-11



---



|                         |  | December 31, |          
|------------------------ |  | ------------ | ---------
|                         |  | 2002         |          
|Computer equipment       |  | $            | 517,116  
|Lab & test equipment     |  |              | 133,342  
|Office furniture         |  |              | 300,014  
|Software                 |  |              | 81,570   
|Leasehold improvements   |  |              | 20,078   
|                         |  |              |          
|Total                    |  |              | 1,052,120
|Accumulated depreciation |  |              | (837,504 
|                         |  |              |          
|Net Equipment            |  | $            | 214,616  
|                         |  |              |          



During
2001, the Company removed $534,788 in assets and accumulated depreciation related to the retirement and disposal of various assets.



NOTE 6NOTES PAYABLE



Notes payable, before unamortized discount are as follow:



|                                                                                                                                                     |  | December 31,
|---------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------
|                                                                                                                                                     |  | 2002        
|15% senior secured notes payable; mandatorily convertible into common stock at $0.05 per
share; dueJuly 1, 2003, secured by substantially all assets |  | $           
|                                                                                                                                                     |  |             
|Total Notes Payable                                                                                                                                  |  | $           
|                                                                                                                                                     |  |             



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



F-12



---

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 Debt
|------------------ |  | --------------------------------------------------------------------------
|May 17, 2001       |  | $   866,051                                                               
|August 7, 2001     |  | 285,864                                                                   
|September 6, 2001  |  | 100,000                                                                   
|September 18, 2001 |  | 157,233                                                                   
|October 03, 2001   |  | 93,418                                                                    
|October 09, 2001   |  | 147,992                                                                   
|October 29, 2001   |  | 150,473                                                                   
|November 14, 2001  |  | 852,515                                                                   
|                   |  |                                                                           
|Total              |  | $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)



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 $3,600,000 from affiliates of its largest stockholder, bringing the total amount of the 2001 Notes to $6,810,000. The Company issued warrants to purchase an additional 1,800,000 shares of the Companys common stock in
connection with the loans. 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 $6,810,000 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



F-13



---

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.



On October 3, 2002 the maturity date of the
entire principal balance comprising the 2001 Notes was extended to December 31, 2002 from September 30, 2002, unless mandatorily converted into shares of the Companys common stock prior to such date. The Company agreed to issue an additional
5,300,000 shares of common stock to its lenders in consideration for the modification of terms.



The contingent beneficial conversion feature on each of the notes issued during the year ended December 31, 2002 is as follows:



|Note Date         |  | Value of Beneficial Conversion Feature at One Share for Each $0.05 of Debt
|----------------- |  | --------------------------------------------------------------------------
|January 25, 2002  |  | $   264,051                                                               
|February 8, 2002  |  | 211,149                                                                   
|March 8, 2002     |  | 175,747                                                                   
|March 11, 2002    |  | 88,261                                                                    
|March 27, 2002    |  | 139,147                                                                   
|April 12, 2002    |  | 245,755                                                                   
|April 25, 2002    |  | 886,132                                                                   
|July 23, 2002     |  | 273,975                                                                   
|August 19, 2002   |  | 279,408                                                                   
|September 4, 2002 |  | 139,047                                                                   
|October 3, 2002   |  | 23,381                                                                    
|October 15, 2002  |  | 116,367                                                                   
|October 31, 2002  |  | 93,091                                                                    
|November 13, 2002 |  | 46,858                                                                    
|December 3, 2002  |  | 70,123                                                                    
|December 11, 2002 |  | 70,284                                                                    
|December 24, 2002 |  | 71,731                                                                    
|                  |  |                                                                           
|Total             |  | $3,194,507                                                                
|                  |  |                                                                           



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



NOTE 7INCOME TAXES



The components of the net deferred tax asset are shown below:



|                              |  | 2002 |            | 2001
|----------------------------- |  | ---- | ---------- | ----
|Operating loss carry forwards |  | $    | 16,946,000 |     
|Accrued liabilities and other |  |      | 47,000     |     
|                              |  |      |            |     
|Total Deferred Tax Assets     |  |      | 16,993,000 |     



F-14



---



|Valuation Allowance    |  |   | (16,993,000 | ) |  |   | (13,374,000 | )
|---------------------- |  | - | ----------- | - |  | - | ----------- | -
|                       |  |   |             |   |  |   |             |  
|Net Deferred Tax Asset |  | $ |            |   |  | $ |            |  
|                       |  |   |             |   |  |   |             |  



For tax
reporting purposes, the Company has net operating loss carryforwards of approximately $45,308,000 which will expire beginning in the year 2012. Of this amount, $1,246,871 related to losses of a company prior to its acquisition, and the availability
of this amount to offset future taxable income is limited.



The following is a reconciliation of the amount of tax (benefit) that would result from applying the federal statutory rate to pretax loss with the provision for income taxes.



|                                             |  | For the Years Ended December 31, |           
|-------------------------------------------- |  | -------------------------------- | ----------
|                                             |  | 2002                             |           
|Tax at statutory rate (34%)                  |  | $                                | (3,348,000
|Other differences, net                       |  |                                  | 54,000    
|Change in valuation allowance                |  |                                  | 3,619,000 
|State tax benefit, net of federal tax effect |  |                                  | (325,000  
|                                             |  |                                  |           
|Net Income Taxes                             |  | $                                |          
|                                             |  |                                  |           



NOTE
8SUPPLEMENTAL CASH FLOW INFORMATION AND NONCASH

INVESTING AND FINANCING ACTIVITIES



SUPPLEMENTAL CASH FLOW INFORMATION



|              |  | Years Ended December 31,
|------------- |  | ------------------------
|              |  | 2002                    
|Interest Paid |  | $                       



NONCASH INVESTING AND FINANCING ACTIVITIES



During 2002, the Company sold assets to a vendor and an employee for the deemed payment of $18,400 and $750 of trade and accrued obligations respectively, and recorded the issuance of 12,858 shares of common stock valued at
$11,250 for consulting services.



During 2001,
the Company sold assets to a vendor for the deemed payment of $23,200 of trade payables and $2,000 in cash.



In connection with the liquidation of X-traWeb Europe S.p.A., the Company surrendered all of the assets of the subsidiary in consideration
of a portion of its liabilities. These assets were valued at $18,682.



The Company recorded a deferred debt placement fee of $722,000 related to the warrants issued as a finders fee on the November 14, 2001 debt issuance.



Discounts related to warrants issued with the 2001 Notes of $405,494 and $556,455 were recorded during 2002
and 2001 respectively.



In January, 2000 the
Company issued 60,000 shares of common stock valued at $195,300 for consulting services.



In March, 2000 the Company recorded $947,203 related to the cashless exercise of warrants as a deemed payment of the principal of the 1999 Notes, as discussed in Note 6.



F-15



---

NOTE 9MANDATORILY REDEEMABLE PREFERRED STOCK AND WARRANTS



On May 14, 1999 the Company authorized 950 shares of senior
liquidating mandatorily redeemable 10% preferred stock with a liquidation preference of $1,000 per share and detachable five-year warrants to purchase 4,750,000 common shares at $0.25 per share, and issued such 950 shares of preferred stock and the
related warrants between May 15, 1999 and October 5, 1999. By their terms, the preferred shares had to be redeemed within one year at their par value plus accrued dividends. The preferred stock cash dividend requirement was $95,000 annually. The
preferred stock was issued for proceeds of $950,000 consisting of $700,000 cash and the deemed payment of $250,000 principal amount of notes issued in 1998. The beneficial conversion feature of the warrants was valued at $950,000 and recognized as a
preferred dividend.



On February 25, 2000, the
Company redeemed the mandatorily redeemable preferred stock for cash of $950,000 for the principal balance and $57,378 for the preferred dividends accrued to date.



On June 8, 2001 the Company authorized 1,000 shares of 8% senior cumulative convertible preferred stock and
detachable warrants to purchase 8,333,333 shares of common stock at $0.30 per share, expiring on September 15, 2002. Each share of preferred stock is convertible into 16,666 shares of common stock. No shares of such preferred stock were issued.



NOTE 10STOCKHOLDERS EQUITY



In November 2001, the Company made a grant
of shares of common stock to employees. The stock award was contingent on the employees voluntary continued employment for a one year period from the grant date, at which time the employees interest in the stock would vest 100%. As of the
vesting date, 209,375 shares were issuable to employees under the terms of the stock Grant. The shares were valued at their market value on the vesting date and reported as common stock payable pending the issuance of the shares to the employees.



During the first quarter of 2000, the Company
issued 4,548,667 common shares for gross cash proceeds of $13,646,000 to 45 accredited investors in a private placement offering. A total of $1,512,782 was incurred as placement costs.



During March, 2000, the Company issued 5,393,690 common shares upon the exercise of warrants to purchase
common stock at $.25 per share. The Company received $401,220 in cash and recorded $947,203 related to the cashless exercise of warrants as a deemed payment of the principal of the 1999 Notes. The warrants exercised totaled $1,348,423.



As of December 31, 2002, the Company had warrants outstanding
as follows:



|Common shares subject to warrants |  | Exercise price |  | Expiration
Date  
|--------------------------------- |  | -------------- |  | -----------------
|379,526                           |  | $0.25          |  | May 14, 2004     
|562,500                           |  | 0.30           |  | May 16, 2006     
|225,000                           |  | 0.30           |  | August 6, 2006   
|87,500                            |  | 0.30           |  | September 8, 2006
|55,000                            |  | 0.30           |  | October 2, 2006  
|87,500                            |  | 0.30           |  | October 8, 2006  
|87,500                            |  | 0.30           |  | October 28, 2006 
|500,000                           |  | 0.30           |  | November 13, 2006
|2,000,000                         |  | 0.05           |  | November 13, 2006
|175,000                           |  | 0.30           |  | January 24, 2007 
|125,000                           |  | 0.30           |  | February 7, 2007 
|100,000                           |  | 0.30           |  | March 7, 2007    
|50,000                            |  | 0.30           |  | March 11, 2007   
|75,000                            |  | 0.30           |  | March 26, 2007   
|137,500                           |  | 0.30           |  | April 11, 2007   
|500,000                           |  | 0.30           |  | April 24, 2007   
|150,000                           |  | 0.30           |  | July 22, 2007    
|150,000                           |  | 0.30           |  | August 18, 2007  



F-16



---



|      |  | 75,000    |  | 0.30  |  | September 3, 2007
|----- |  | --------- |  | ----- |  | -----------------
|      |  | 12,500    |  | 0.30  |  | October 3, 2007  
|      |  | 62,500    |  | 0.30  |  | October 14, 2007 
|      |  | 50,000    |  | 0.30  |  | October 30, 2007 
|      |  | 25,000    |  | 0.30  |  | November 12, 2007
|      |  | 37,500    |  | 0.30  |  | December 2, 2007 
|      |  | 37,500    |  | 0.30  |  | December 10, 2007
|      |  | 37,500    |  | 0.30  |  | December 23, 2007
|      |  | 150,000   |  | 1.00  |  | May 14, 2004     
|      |  | 150,000   |  | 1.75  |  | May 15, 2003     
|      |  | 200,000   |  | 1.75  |  | March 4, 2004    
|      |  | 223,000   |  | 3.00  |  | May 14, 2003     
|      |  | 25,000    |  | $5.00 |  | May 31, 2003     
|      |  |           |  |       |  |                  
|Total |  | 6,532,526 |  |       |  |                  
|      |  |           |  |       |  |                  



NOTE
11STOCK OPTIONS



The Company has
granted stock options under stock option plans and has granted other options to employees, directors and consultants.



Options to purchase up to 2,200,000 and 1,000,000 shares of the Companys common shares are authorized under the 1998 Employee
Incentive Stock Option Plan and 1998 Non-Qualified Stock Option Plan, respectively. The exercise price of options granted under the 1998 Employee Incentive Stock Option Plan must be the fair value of the common stock on the date granted (110% of
fair value if granted to a shareholder who owns 10% or more of the total combined voting power of all classes of stock of the Company). Options may be exercised by payment of cash or for shares of common stock equal to the in-the-money value of the
options provided that the shares of stock being tendered as payment have been held for at least six months and one day. Accordingly, the options granted under the plans have been accounted for as fixed options. Options granted under the plans are
generally exercisable over three to five years and expire five years from the date of grant.



A summary of the status of the Companys stock options as of December 31, 2002, 2001 and 2000, and changes during the years then ended are presented below:



|                                                              |  | 2002   |          | 2001 |                                 | 2000
|------------------------------------------------------------- |  | ------ | -------- | ---- | ------------------------------- | ----
|                                                              |  | Shares |          |      | Weighted Average Exercise Price |     
|Outstanding at beginning of year                              |  |        | 674,950  |      |                                 | $   
|Granted                                                       |  |        | 414,642  |      |                                 |     
|Exercised                                                     |  |        |         |      |                                 |     
|Forfeited or canceled                                         |  |        | (159,055 | )    |                                 |     
|                                                              |  |        |          |      |                                 |     
|Outstanding at end of year                                    |  |        | 930,537  |      |                                 |     
|                                                              |  |        |          |      |                                 |     
|Options exercisable at year-end                               |  |        | 421,249  |      |                                 |     
|                                                              |  |        |          |      |                                 |     
|Weighted-average fair value of options granted duringthe year |  | $      | 0.25     |      |                                 |     
|                                                              |  |        |          |      |                                 |     







F-17



---

The following table summarizes information about stock options outstanding at December 31,
2002:



|                |  | Options Outstanding |  | Options Exercisable                |  | Weighted Average Exercise Price
|--------------- |  | ------------------- |  | ---------------------------------- |  | --------------------------------
|Range of Prices |  | Shares              |  | Average Remaining Contractual Life |  | Weighted Average Exercise Price
|$0.20$0.39     |  | 397,992             |  | 4.26 years                         |  | $                               
|$1.63$1.75     |  | 30,000              |  | 2.10 years                         |  |                                 
|$2.09$2.81     |  | 451,795             |  | 2.22 years                         |  |                                 
|$3.00$3.00     |  | 3,250               |  | 2.47 years                         |  |                                 
|$4.00$4.00     |  | 47,500              |  | 2.30 years                         |  |                                 
|                |  |                     |  |                                    |  |                                 
|$0.35$6.50     |  | 930,537             |  | 3.45 years                         |  |                                 
|                |  |                     |  |                                    |  |                                 



The
Company measures compensation under stock-based options and plans using the intrinsic value method prescribed in Accounting Principles Board Opinion 25, Accounting for Stock Issued to Employees, and related interpretations, for stock
options granted to employees, and determines compensation cost granted to non-employees based on the fair value at the grant dates consistent with the alternative method set forth under SFAS 123, Accounting for Stock-Based Compensation.
Stock-based compensation charged to operations was $65,556, $(28,243), and $(359,331), for the years ended December 31, 2002, 2001 and 2000, respectively. Had compensation cost for all of the Companys options been determined based upon SFAS
123, net loss and loss per share would have increased to the pro forma amounts indicated below:



|                                         |  | For the Years Ended December 31, |            
|---------------------------------------- |  | -------------------------------- | -----------
|                                         |  | 2002                             |            
|Net loss:                                |  |                                  |            
|As reported                              |  | $                                | (9,846,582 
|Pro forma                                |  |                                  | (10,039,373
|Basic and diluted loss per common share: |  |                                  |            
|As reported                              |  | $                                | (0.31      
|Pro forma                                |  |                                  | (0.32      



The fair
value of each option granted was estimated as of the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 2002, 2001, and 2000, respectively: dividend yield of 0.0% for all
years; expected volatility of 159%, 149%, and 143%, risk-free interest rate of 4.9%, 4.6%, and 6.0%; and expected lives of the options of 5.0 years, 5.0 years, and 4.8 years.



NOTE 12BUSINESS SEGMENT INFORMATION



As of December 31, 2002, the Companys operations are classified into two reportable business segments:
X-traWeb products and radio products.



The
Companys business was conducted primarily in the United States during 2002, 2001 and 2000. In 2000 the Company established a European subsidiary to facilitate international expansion. Less than $1,000 of revenue was realized from European
operations in 2001, and in November of 2001 the European subsidiary was placed into liquidation, and its operations were discontinued.



Segment operating loss is total segment revenue reduced by operating expenses identifiable with or allocable to that business segment.
Corporate includes general corporate assets Not allocable or not yet allocated to either of the two segments.



The Company evaluates performance of its segments based on revenues and operating income (loss). The accounting policies of the reportable
segment are the same as those described in the summary of significant accounting policies. There are no inter-segment sales.



F-18



---

|                         |  | 2002 |            |   | 2001 |   |            | 2000 | 
|------------------------ |  | ---- | ---------- | - | ---- | - | ---------- | ---- | 
|Revenues:                |  |      |            |   |      |   |            |      | 
|X-traWeb                 |  | $    | 25,000     |   |      | $ | 270,372    |      | 
|Radio products           |  |      | 710,124    |   |      |   | 764,442    |      | 
|Corporate                |  |      |           |   |      |   | 17,540     |      | 
|                         |  |      |            |   |      |   |            |      | 
|Total sales              |  | $    | 735,124    |   |      | $ | 1,052,354  |      | 
|Operating income (loss): |  |      |            |   |      |   |            |      | 
|X-traWeb                 |  | $    | (1,841,351 | ) |      | $ | (3,767,293 | )    | 
|Radio products           |  |      | (2,688,717 | ) |      |   | (3,161,943 | )    | 
|Corporate                |  |      |           |   |      |   | 61,855     |      | 
|                         |  |      |            |   |      |   |            |      | 
|Total operating loss     |  | $    | (4,530,068 | ) |      | $ | (6,867,381 | )    | 
|Assets:                  |  |      |            |   |      |   |            |      | 
|X-traWeb                 |  | $    | 176,675    |   |      | $ | 293,442    |      | 
|Radio products           |  |      | 600,782    |   |      |   | 1,184,904  |      | 
|Corporate                |  |      |           |   |      |   | 208,526    |      | 
|                         |  |      |            |   |      |   |            |      | 
|Total assets             |  | $    | 777,457    |   |      | $ | 1,686,872  |      | 



NOTE
13RELATED PARTY TRANSACTIONS



During
2002 and 2001, the Company borrowed $3,600,000 and $3,210,000 respectively from affiliates of its largest shareholder as discussed in Note 6.



During 2002 and portions of 2001 various related parties, including the officers and directors of the Company have elected to defer
elements of their compensation and thereby become creditors of the Company. As of December 31, 2002 and 2001 the Company owed $182,496 and $75,647 respectively, to related parties.



In 2000, the Company deemed a $66,829 receivable from a shareholder to be uncollectible, and the balance was
written off.



NOTE 14COMMITMENTS AND
CONTINGENCIES



LEASE COMMITMENTSThe
Company leases office facilities and equipment under agreements accounted for as operating leases. Lease expense for 2002, 2001, and 2000 was $245,840, $361,800, and $310,338 respectively. The Company also leases office equipment under capital
leases with a weighted average interest rate of 25.76 percent. The following is a schedule by years of the future minimum lease payments required under operating and capital leases together with the present value of net minimum lease payments as of
December 31, 2002:



|Years Ending December 31,                   |  | Capital Leases |        | Capital Leases
|------------------------------------------- |  | -------------- | ------ | --------------
|2003                                        |  | $              | 15,029 |               
|2004                                        |  |                | 11,754 |               
|2005                                        |  |                | 11,330 |               
|                                            |  |                |        |               
|Total Minimum Lease Payments                |  |                | 38,113 |               
|                                            |  |                |        |               
|Less amount representing interest           |  |                | 11,280 |               
|                                            |  |                |        |               
|Present Value of Net Minimum Lease Payments |  |                | 26,833 |               
|Less Current Portion                        |  |                | 9,693  |               
|                                            |  |                |        |               
|Long-Term Obligations Under Capital Lease   |  | $              | 17,140 |               



F-19



---

LEGAL MATTERS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 sought rescission of the transaction and/or damages, including treble damages, which
they allege arose out of the Companys failure to file a registration statement on or before December 31, 2000



In mid-December 2001, the United States District Court in Utah approved the plaintiffs 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 Company settled such lawsuit in December, 2002, without
its admission of any wrongdoing or liability. Such settlement did not have any material adverse effect on the Companys business or financial position.



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, although there can be
no assurance 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.



401K PROFIT SHARING PLANThe Company sponsors a 401K profit sharing plan but has no commitment to match employees contributions
to the plan, nor has the Company made any contributions to the plan to date.





NOTE 15  SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)



|                                                   |  | 2002 Fiscal Quarter |            |   | Year |  
|-------------------------------------------------- |  | ------------------- | ---------- | - | ---- | -
|                                                   |  | 1                   |            |   | 2    |  
|Net sales                                          |  | $                   | 203,122    |   |      | $
|Gross profit (loss)                                |  |                     | 118,823    |   |      |  
|Net loss applicable to common shares               |  |                     | (2,150,225 | ) |      |  
|Basic and diluted loss applicable to common shares |  | $                   | (0.07      | ) |      | $
|                                                  
|                                                   |  | 2001 Fiscal Quarter |            |   | Year |  
|                                                   |  | 1                   |            |   | 2    |  
|Fiscal 2000                                        |  |                     |            |   |      |  
|Net sales                                          |  | $                   | 258,491    |   |      | $
|Gross profit                                       |  |                     | 128,020    |   |      |  
|Net loss applicable to common shares               |  |                     | (1,615,406 | ) |      |  
|Basic and diluted loss applicable to common shares |  | $                   | (0.05      | ) |      | $



F-20



---

NOTE 16SUBSEQUENT EVENTS



During January, February and March, 2003 the Company received
additional loans of $210,000 from affiliates of the Companys largest stockholder, bringing the total amount of the 2001 Note to $7,020,000.



The Company also received an extension of the maturity date of the 2001 Notes from December 31, 2002 to July 1, 2003 from its two senior
secured creditors without the payment of cash or shares or additional consideration.



The Company entered into the Restructuring Agreement with our two secured creditors, Lancer Offshore, Inc. and Lancer Partners L.P., who are affiliates of the Companys largest stockholder,
subject to the condition precedent that it receives an equity investment of at least $750,000. The key terms of such agreement are set forth below:



1 The Company would pay such creditors $1,400,000 for $2,400,000 principal amount of the 2001 Notes, which would result in
the elimination of $1,000,000 of indebtedness and leave an outstanding principal amount of $4,620,000.



2 The Company would pay such creditors the sum of $100,000 in full payment of all interest accrued on the 2001 Notes to
date (which is in excess of $1,375,000).



3. The maturity date of the 2001 Notes would be extended from July 1, 2003 until June 30, 2005.



4. The 2001 Notes would carry no further interest thereon in the future.



5. The 2001 Notes held by such creditors
would become mandatorily convertible at the rate of one share for each $0.50 of debt, instead of the current rate of one share for each $0.05 of debt. Such mandatory conversion of the 2001 Notes would occur upon (i) the approval of such mandatory
conversion by the Companys shareholders at a meeting of shareholders (which was given up to the then applicable ceiling amount of $5,000,000 but not for any excess thereof), and (ii) the Companys receipt of equity in an amount equal to
the then outstanding principal balance of the 2001 Notes from persons 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, 2005
(instead of the current date of July 1, 2003).



6. Such creditors would surrender 5,000,000 shares of Common Stock for the prior extensions of the maturity date of the 2001 Notes.



7. Michael Lauers affiliates (i.e. Lancer Offshore, Inc., Lancer Partners L.P. and The Orbiter Fund Ltd.) as the
owners of the Companys Common Stock, would agree to vote all of their shares of the Companys Common Stock for the approval of the shares of Common Stock issuable upon the conversion of the Senior Preferred Stock issued pursuant to the
offering of such stock being undertaken by the Company.



As of the date hereof, the Company has not received the $750,000 equity investment required to implement the Restructuring Agreement, and is currently seeking such financing, although there can be no assurance that such efforts will
be successful.



The Company has an oral agreement
from a third party to provide a six-month loan of $4,500,000 bearing simple interest at 3% per annum, which would be subordinated to its senior secured debt totaling $7,020,000 as of February 6, 2003, have a second security interest in the assets of
the Company pledged to it senior secured creditors and a first security interest in the proceeds from its sale of any of its shares of Senior Preferred Stock which the Company is offering in a private placement transaction to raise up to $4,500,000
therefrom on or before June 30, 2003. The Company hopes to be able to close such new debt financing, but, since it has not been able to do so for almost two months, it cannot be assured of doing so.



In February 2003, the Company authorized 300 shares of 4%
senior non-cumulative convertible preferred stock. Each share of such preferred stock is non-voting and is convertible into 100,000 shares of common stock. No shares of such preferred stock have been issued as of the date hereof.



The Companys landlord, WHPTRI Real Estate, L.P., filed a
lawsuit against it in Arapahoe County, Colorado in March 2003, seeking to collect unpaid rent on our executive and administrative offices in Greenwood Village, Colorado totaling approximately $75,000 and to evict us from such premises. The court
granted the plaintiff a judgment for the unpaid rent and for eviction in late April, 2003 which the landlord agreed to stay until May 7, 2003, at which point we would be evicted from our premises. If such eviction were to occur, we plan to relocate
our offices to another nearby location, although no alternative space has been leased as of the date hereof.



F-21



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EXHIBIT INDEX



|EXHIBIT NUMBER |  | DESCRIPTION                                                                                                                                                                                                                                               
|-------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1            |  | 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*



F-22



---

|EXHIBIT NUMBER |  | DESCRIPTION                                                                                                                                                                                                                                                                                                                                          
|-------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.21          |  | Separation and Mutual Release Agreement between the Registrant and William E. Chipman, Sr. dated as of May 26,
1998*                                                                                                                                                                                                                                 
|              
|10.22          |  | Registration Rights Agreement by and among the Registrant and the purchasers of common stock issued pursuant to the
Registrants Confidential Private Placement Memorandum dated September 9, 1998, as amended*                                                                                                                                       
|              
|10.23          |  | Employment Agreement between the Registrant and James OCallaghan dated May 20, 1998*                                                                                                                                                                                                                                                                
|              
|10.24          |  | Lease agreement between the Registrant and NP#2 dated as of July 29, 1998 relating to the premises at 2441 South 3850
West, West Valley City, Utah 84120*                                                                                                                                                                                            
|              
|10.25          |  | Agreement between KME and the Registrant dated October 19, 1998 relating to the Registrants providing of
technical assistance and development relating to the Gigarange telephone*                                                                                                                                                                  
|              
|10.26          |  | Agreement between KME and the Registrant dated as of March 1, 1998 relating to the Panasonic MicroCast
System*                                                                                                                                                                                                                                       
|              
|10.27          |  | General and Mutual Release Agreement between the Registrant and Phil Acton dated November 2,
1998*                                                                                                                                                                                                                                                   
|              
|10.28          |  | Agreement and Waiver Agreement by and among the Registrant and the Bridge Noteholders dated November 25,
1998*                                                                                                                                                                                                                                       
|              
|10.29          |  | 1998 Employee Incentive Stock Option Plan*                                                                                                                                                                                                                                                                                                           
|              
|10.30          |  | 1998 Non-qualified Stock Option Plan*                                                                                                                                                                                                                                                                                                                
|              
|10.31          |  | Amendment of Agreement by and among the Registrant and the Bridge Noteholders dated as of March 26,
1999*                                                                                                                                                                                                                                            
|              
|10.32          |  | Loan Agreement by and among the Registrant and the Senior Secured Noteholders dated as of May 14, 1999, together with
the Notes, Pledge/Security Agreement, Pledgee Representative Agreement, Subordination and Registration Rights Agreement*                                                                                                       
|              
|10.33          |  | Two separate Agreements by and among the Registrant and the 1999 Bridge Noteholders dated August 19,
1999*                                                                                                                                                                                                                                           
|              
|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.*                                                                                                                                                                                                                                                                             



F-23



---

|EXHIBIT NUMBER |  | DESCRIPTION                                                                                                                            
|-------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------
|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.* 
|              
|10.58          |  | Amendment of Agreements by and among the Registrant and Lancer Offshore, Inc, and Lancer Partners L.P. dated as of
December 3, 2002.** 
|              
|10.59          |  | Amendment of Agreements by and among the Registrant and Lancer Offshore, Inc, and Lancer Partners L.P. dated as of
December 3, 2002.** 
|              
|10.60          |  | Amendment of Agreements by and among the Registrant and Lancer Offshore, Inc, and Lancer Partners L.P. dated as of
December 11, 2002.**
|              
|10.61          |  | Amendment of Agreements by and among the Registrant and Lancer Offshore, Inc, and Lancer Partners L.P. dated as of
December 24, 2002.**
|              
|10.62          |  | Amendment of Agreements by and among the Registrant and Lancer Offshore, Inc, and Lancer Partners L.P. dated as of
January 9, 2003.**  
|              
|10.63          |  | Amendment of Agreements by and among the Registrant and Lancer Offshore, Inc, and Lancer Partners L.P. dated as of
January 22, 2003.** 
|              
|10.64          |  | Amendment of Agreements by and among the Registrant and Lancer Offshore, Inc, and Lancer Partners L.P. dated as of
February 6, 2003.** 
|              
|99.1           |  | Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.                 

---

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

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

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



F-24