<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period From_______________To_______________
Commission File Number 0-24673
METAWAVE COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 91-1673152
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10735 Willows Road NE, Redmond, WA 98052
(Address of principal executive officers) (Zip Code)
Registrant's telephone number, including area code: (425) 702-5600
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months(or for such shorter periods 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 [ ].
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of the latest practical date.
As of September 30, 2000, there were outstanding 43,201,368 shares of the
Registrant's common stock.
<PAGE>
METAWAVE COMMUNICATIONS CORPORATION
FORM 10-Q
For the Quarter Ended September 30, 2000
INDEX
Part I. Financial Information
Item 1. Financial Statements Page
----
Consolidated Balance Sheets - September 30,
2000 and December 31, 1999.................................. 3
Consolidated Statements of Operations - Three months ended
September 30, 2000 and 1999; Nine months ended September
30, 2000 and 1999........................................... 4
Consolidated Statements of Cash Flows - Nine months ended
September 30, 2000 and 1999................................. 5
Notes to Consolidated Financial Statements.................. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 10
Item 3. Quantitative and Qualitative Disclosure of Market Risk...... 15
Part II. Other Information
Item 2. Changes In Securities and Use of Proceeds................... 15
Item 6. Exhibits and Reports on Form 8-K............................ 16
Signatures................................................................. 18
<PAGE>
PART I Financial Information
Item 1. Financial Statements
METAWAVE COMMUNICATIONS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------------- ---------------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 49,042 $ 20,165
Accounts receivable, net 19,783 10,127
Inventories 9,676 4,149
Prepaid expenses and other assets 3,051 613
------------------- ---------------------
Total current assets 81,552 35,054
Property and equipment, net 6,395 5,701
Intangibles and goodwill, net 85,972 -
Other noncurrent assets 202 191
------------------- ---------------------
Total assets $ 174,121 $ 40,946
=================== =====================
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Accounts payable 11,685 3,758
Accrued liabilities 3,198 2,493
Accrued compensation 2,776 1,511
Current portion of notes payable 8 75
Current portion of capital lease obligations 2,425 2,692
Deferred revenues 1,246 1,766
------------------- ---------------------
Total current liabilities 21,338 12,295
Notes payable, less current portion 22 8
Capital lease obligations, less current portion 2,003 2,479
Other long-term liabilities 16 16
Commitments
Convertible and redeemable preferred stock - issued and
outstanding shares: 0 and 32,027,203 at September 30, 2000
and December 31, 1999, respectively, at liquidating value - 143,945
Convertible and redeemable preferred stock warrants - 157
Stockholder's equity (deficit):
Preferred stock, $.0001 par value:
Authorized shares - 10,000,000 and 37,000,000 at
September 30, 2000 and December 31, 1999;
Outstanding shares designated as convertible
redeemable preferred stock - 0 and 32,027,203 at
September 30, 2000 and December 31, 1999, respectively - -
Common stock, $.0001 par value :
Authorized shares - 150,000,000 and 50,000,000;
issued and outstanding shares - 43,201,368 and
2,390,910 at September 30, 2000 and December 31,
1999, respectively 321,338 3,573
Deferred stock compensation (18,302) (906)
Accumulated other comprehensive income (36) 19
Accumulated deficit (152,258) (120,640)
------------------- ---------------------
Total stockholders' equity (deficit) 150,742 (117,954)
------------------- ---------------------
Total liabilities and stockholders' equity $ 174,121 $ 40,946
=================== =====================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
METAWAVE COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except earnings per share and share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
--------------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Revenues $ 15,140 $ 5,725 $ 35,833 $ 14,112
Cost of revenues 10,732 5,768 25,924 14,687
--------------------- ---------------- ---------------- ----------------
Gross profit (loss) 4,408 (43) 9,909 (575)
Operating expenses:
Research and development 6,314 5,301 19,002 16,344
Sales and marketing 3,371 2,434 8,247 7,850
General and administrative 1,867 1,360 4,813 4,294
In-process research and development 10,400 - 10,400 -
Amortization of intangibles and goodwill 499 - 499 -
--------------------- ---------------- ---------------- ----------------
Total operating expenses 22,451 9,095 42,961 28,488
--------------------- ---------------- ---------------- ----------------
Operating loss (18,043) (9,138) (33,052) (29,063)
Other income, net 886 426 1,897 784
Interest expense (179) (133) (463) (4,213)
--------------------- ---------------- ---------------- ----------------
Other income (expense), net 707 293 1,434 (3,429)
--------------------- ---------------- ---------------- ----------------
Net loss $ (17,336) $ (8,845) $ (31,618) $ (32,492)
===================== ================ ================ ================
Basic and diluted net loss per share $(0.45) $(3.94) $(1.41) $(14.79)
===================== ================ ================ ================
Weighted average shares used in computation
of basic and diluted net loss per share 38,330,345 2,245,483 22,420,573 2,197,325
===================== ================ ================ ================
Pro forma weighted average shares
outstanding 38,330,345 30,218,428 34,875,680 21,778,678
===================== ================ ================ ================
Pro forma basic and diluted net loss per share $(0.45) $(0.29) $(0.91) $(1.49)
===================== ================ ================ ================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
METAWAVE COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
2000 1999
--------------------------- ----------------------------
<S> <C> <C>
Operating Activities
Net Loss $(31,618) $(32,492)
Adjustments to reconcile net loss to net cash provided by
Operating activities:
Depreciation and amortization 2,766 2,296
In-process research and development 10,400 -
(Gain)Loss on disposal of assets (1) -
Stock compensation expense 2,486 704
Debt financing amortization - 2,321
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable (9,656) (2,408)
Decrease (increase) in inventories (5,527) (1,603)
Decrease (increase) in prepaids and other noncurrent assets (2,319) (87)
Increase (decrease) in accounts payable,
accrued liabilities, and other liabilities 9,505 (2,993)
Increase (decrease) in deferred revenues (520) 62
--------------------------- ----------------------------
Net cash used in operating activities (24,484) (34,200)
Investing Activities
Acquisition of Adaptive Telecom, Inc. (2,500) -
Purchases of equipment (1,081) (1,470)
--------------------------- ----------------------------
Net cash used in investing activities (3,581) (1,470)
Financing activities
Net proceeds from issuance of preferred stock - 82,507
Net proceeds from issuance of common stock 58,880 -
Net proceeds from exercise of common stock options 444 85
Payments on notes payable (53) (31,795)
Principal payments on capital lease obligations (2,274) (1,802)
--------------------------- ----------------------------
Net cash provided by financing activities 56,997 48,995
--------------------------- ----------------------------
Net increase in cash 28,932 13,325
Effect of exchange rate changes on cash (55) (24)
Cash and cash equivalents at beginning of period 20,165 10,763
--------------------------- ----------------------------
Cash and cash equivalents at end of period $ 49,042 $ 24,064
=========================== ============================
Noncash transactions and supplemental disclosures
Capital lease obligations incurred to purchase assets $ 1,531 $ 471
Noncash conversion of preferred stock to common stock 143,945 -
Noncash conversion of preferred stock warrants to preferred stock - 4,966
Noncash conversion of preferred warrants to common stock warrants 157 -
Noncash issuance of common stock for acquisition 93,436 -
Noncash issuance of common stock options for acquisition 1,022 -
Deferred stock compensation 19,882 -
Interest paid 369 1,822
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
METAWAVE COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business
Metawave Communications Corporation provides smart antenna systems and
embedded solutions to wireless network operators facing capacity constraints in
the wireless communications industry. Our SpotLight smart antenna systems
consist of antennas that improve the reception and transmission of radio signals
dynamically through the use of our proprietary software. We believe that
wireless operators can increase overall network capacity, improve or maintain
network quality, reduce network operating costs and better manage network
infrastructure by implementing our SpotLight systems. As the demand for wireless
services continues to grow, we will develop embedded solutions based on our
proprietary technologies that address the associated network capacity problems
faced by wireless network operators.
On September 2, 1998, the Company formed Metawave International
Communications Corporation ("MICC"), a wholly owned Delaware subsidiary. On
October 5, 1998, the Company formed a Hong Kong subsidiary, Metawave
Communications (Asia) Limited, which is now owned by Metawave Communications
(Cayman Islands). On December 7, 1998, the Company formed Metawave
Communications (Cayman Islands), a wholly owned subsidiary of MICC. On April 2,
1999 Metawave Communications (Cayman Islands) formed a Taiwan subsidiary,
Metawave Communications Taiwan Co. Ltd.
In the third quarter of 2000, the Company added subsidiaries in Brazil
(Mexico do Brasil Ltda.), China (Metawave Communications (Shanghai) Co., Ltd.,
and Mexico (Metawave de Mexico, S. de R.L. de C.V. and Metawave Services de
Mexico, S. de R.L. de C.V.). All of these subsidiaries are majority owned by
MICC, and minority owned by Metawave Cayman, except for Metawave Shanghai which
is wholly owned by Metawave Cayman.
2. Basis of Presentation
The accompanying consolidated financial statements of Metawave
Communications Corporation have been prepared in conformity with United States
generally accepted accounting principles for interim financial information and
with the instructions for form 10-Q and Article 10 of Regulation S-X.
Accordingly, certain information and footnote disclosures normally included have
been condensed or omitted. The financial information at December 31, 1999 is
derived from our audited consolidated financial statements. The financial
information for the three months and nine months ended September 30, 2000 and
1999 is unaudited, but, in the opinion of management, reflects all adjustments
(consisting only of normal recurring adjustments and accruals) necessary for a
fair presentation of the financial position, results of operations and cash
flows for the interim periods. We have used estimates in determining certain
provisions, including the allowance for doubtful accounts receivable, inventory
reserve, useful lives for property and equipment, and warranty accruals. Actual
results may differ from these estimates. Interim results are not necessarily
indicative of results for a full year. The information included in this Form 10-
Q should be read in conjunction with Management's Discussion and Analysis and
financial statements and notes thereto included in our Registration Statement on
Form S-1 (File No. 333-48976) dated October 31, 2000 filed with the Securities
and Exchange Commission.
In 1998, we adopted a 52-week fiscal year ending on the Sunday closest to
December 31, 1999. The 1999 fiscal year ended on January 2, 2000, with each of
the fiscal quarters representing a 13-week period. The third quarter of 2000
ended on October 1, 2000. For convenience of presentation, all fiscal periods
in these financial statements are treated as ending on a calendar month end.
3. Acquisition of Adaptive Telecom, Inc.
On September 21, 2000, we completed the acquisition of privately held
Adaptive Telecom located in Campbell, California. Adaptive Telecom is a
developer of 3G compatible, adaptive embedded smart antenna technology. In
accordance with the Amended and Restated Agreement and Plan of Merger among
Metawave, Malibu Acquisition Corporation and Adaptive Telecom, Adaptive Telecom
became a wholly-owned subsidiary of Metawave. The acquisition was accounted for
under the purchase method of accounting.
6
<PAGE>
METAWAVE COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
3. Acquisition of Adaptive Telecom, Inc.-(continued)
In connection with the acquisition, we issued 5,361,803 shares of Metawave
common stock and 124,377 shares of Metawave common stock options in exchange for
all the outstanding capital stock and stock options of Adaptive Telecom. This
included 786,336 shares of restricted stock issued to employees, subject to
vesting requirements that may be repurchased by Metawave upon termination at a
weighted average price of $0.11 per share. The acquisition, including
acquisition related costs was valued at $114.3 million. The $10.4 million
allocated to in-process research and development was expensed immediately in the
quarter ended September 30, 2000. A total of $103.8 million was recorded on our
balance sheet for goodwill, other intangible assets and deferred stock
compensation. Goodwill and other intangible assets will be amortized over their
respective useful lives of between three to five years. Deferred stock
compensation will be amortized over the remaining related vesting periods.
Common stock issued by Metawave was valued at $20.37 per share. The value
of options issued was determined by estimating their fair market value using the
Black-Scholes option pricing model. A summary of the consideration issued by
Metawave and the estimated direct and incremental costs of the acquisition were
as follows (in thousands):
Common stock $ 90,582
Restricted common stock 20,204
Estimated fair value of stock options 1,022
Estimated direct and incremental acquisition costs 2,500
----------------
114,308
Less: amounts attributable to future services
for unvested Stock options and restricted stock (17,350)
----------------
Net purchase price $ 96,958
================
Based on the assessment of the fair value of net assets acquired, the
purchase price allocated to the acquired assets of Adaptive Telecom as of
September 21, 2000 were as follows:
<TABLE>
<CAPTION>
Purchase
Price Amortization
Allocation Life
------------------- -----------------
(In thousands)
<S> <C> <C>
Purchase price allocation:
Tangible net assets acquired............................... $ 87 --
Intangible net assets acquired:
In-process research and development...................... 10,400 immediate
Assembled workforce...................................... 1,380 3
Patents.................................................. 5,570 3
Goodwill................................................. 79,521 5
-------------------
Total.................................................. $96,958
===================
</TABLE>
Tangible net assets acquired included the estimated fair value of cash and
cash equivalents, prepaid expenses, and property and equipment. Liabilities
assumed principally included accounts payable, accrued compensation, customer
deposits and shareholder loans.
The value allocated to in-process research and development was charged to
expense during the quarter ended September 30, 2000. Values assigned to in-
process research and development were determined with the assistance of an
independent appraiser using a discounted cash flow analysis which considered,
among other factors, the state of development of each project, the time and cost
needed to complete each project, expected income and associated risks.
The value allocated to the assembled workforce was attributable to the
Adaptive Telecom workforce in place after the acquisition which eliminated the
need to hire new replacement employees. The value was determined by estimating
the cost involved in assembling a new workforce including costs of salaries,
benefits, training and recruiting. The value of the assembled workforce will be
amortized on a straight-line basis over three years.
7
<PAGE>
METAWAVE COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
3. Acquisition of Adaptive Telecom, Inc.-(continued)
The acquired patents were developed through years of experience in
designing and developing embedded solutions for wireless network operators
facing capacity constraints. The value allocated to patents will be amortized on
a straight-line basis over the estimated remaining useful lives of three years.
Goodwill was determined based on the residual difference between the net
purchase price and the values assigned to identified tangible and intangible
assets. The goodwill will be amortized on a straight-line basis over five years.
The value allocated to deferred stock compensation of $17,350,000
represented the excess of the fair value over the exercise price for options and
unvested restricted stock which had been issued to employees of Adaptive Telecom
and were outstanding at September 21, 2000. The value of the deferred
compensation will be amortized over the related remaining vesting periods using
a graded vesting approach.
Assuming the acquisition had taken place on January 1, 1999, the unaudited
pro forma results of operations for the nine months ended September 30, 2000 and
1999 would have been as follows:
Nine Months Ended
September 30,
2000 1999
-------- --------
(In thousands)
Revenues $ 36,531 $ 16,113
Net loss $(37,590) $(59,193)
Net loss per share $ (1.37) $ (8.53)
4. Cash Equivalents
We consider all highly liquid investments with a maturity of three months
or less at the date of purchase to be cash equivalents. In accordance with our
company policy, we invest in U.S. Government obligations and high quality
commercial paper with maturities of less than three months. We account for our
marketable securities under the provisions of Statement of Financial Accounting
Standards ("SFAS") Statement No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." All marketable securities are classified as
available-for-sale and are carried at fair value, with the unrealized gains and
losses, net of tax, reported as a separate component of stockholder's equity. As
of September 30, 2000 and December 31, 1999, unrealized holding gains and losses
were not significant.
5. Inventories
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------------ ----------------------
(In thousands)
<S> <C> <C>
Purchased parts $6,719 $2,251
Subassemblies 1,391 1,144
Finished goods 1,566 754
------------------ ----------------------
$9,676 $4,149
================== ======================
</TABLE>
Purchased parts include purchased components and partially assembled units.
Subassemblies primarily represent components that are assembled and ready for
final configuration pending the detailed requirements for the specific customer.
Finished goods are units representing projects-in-process at customer locations.
8
<PAGE>
METAWAVE COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
6. Property and Equipment
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------------ -------------------
(In thousands)
<S> <C> <C>
Equipment $12,954 $10,100
Furniture and fixtures 1,048 976
Leasehold improvements 910 910
------------------ -------------------
14,912 11,986
Accumulated depreciation and amortization (8,517) (6,285)
------------------ -------------------
$ 6,395 $ 5,701
================== ===================
</TABLE>
Included in property and equipment are assets acquired under capital lease
obligations with an original cost of $10,421,000 and $8,920,000 at September 30,
2000 and December 31, 1999, respectively. Accumulated depreciation on the leased
assets was $7,181,000 and $3,749,000 at September 30, 2000 and December 31,
1999, respectively.
7. Line of Credit Agreement
We have a credit facility with Imperial Bank. The facility provides for a
revolving credit line of $10.0 million to support working capital with a $2.5
million sublimit for issuance of trade-related commercial and standby letters of
credit. Outstanding balances on the credit line bear interest at the bank's
prime rate (9.5% as of September 30, 2000 and 8.5% as of December 31, 1999), and
are secured by our accounts receivable. At December 31, 1999, $2.5 million was
outstanding related to the issuance of a standby letter of credit. We are
required to comply with certain covenants set forth in the line of credit
agreement. We are currently in compliance with these covenants. As of September
30, 2000, we had no balances outstanding on this credit line.
8. Comprehensive Income
SFAS No. 130 establishes the standards for reporting and displaying
comprehensive income (loss) and its components in the financial statements. As
the unrealized gains and losses from marketable securities were insignificant,
the other comprehensive income (loss) which we currently report is for foreign
currency translation adjustments. Comprehensive loss was $31.7 million and $32.5
million for the nine months ended September 30, 2000 and 1999, respectively.
9. Net Loss Per Share
Basic and diluted net loss per share is calculated using the weighted
average number of shares of common stock outstanding. The effect of stock
options, warrants and convertible and redeemable preferred stock have not been
included in the calculation of diluted net loss per share as their effect is
antidilutive. Pro forma basic and diluted net loss per share is computed on the
basis of the weighted average number of shares of common stock outstanding plus
the pro forma effect of convertible preferred shares as if such shares were
converted to common stock at the time of issuance.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
--------------- -------------- --------------- --------------
(In thousands, except per share data)
(Unaudited)
<S> <C> <C> <C> <C>
Net loss $(17,336) $(8,845) $(31,618) $(32,492)
=============== ============== =============== ==============
Weighted average shares outstanding:
Common Stock 38,330 2,245 22,421 2,197
Convertible and redeemable preferred stock - 27,973 12,455 19,582
--------------- -------------- --------------- --------------
Pro forma weighted average shares outstanding 38,330 30,218 34,876 21,779
=============== ============== =============== ==============
Basic and diluted net loss per share $ (0.45) $ (3.94) $ (1.41) $ (14.79)
=============== ============== =============== ==============
Pro forma net loss per share $ (0.45) $ (0.29) $ (0.91) $ (1.49)
=============== ============== =============== ==============
</TABLE>
9
<PAGE>
METAWAVE COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
10. Segment Disclosures
We have adopted Statement of Financial Accounting Standards No. 131 ("SFAS
No. 131"), "Disclosures about Segments of an Enterprise and Related
Information". We operate in a single segment as a provider of wireless
telecommunication equipment and services. SFAS No. 131 also establishes
standards for related disclosures about systems and services, geographic areas
and major customers. While certain expenses for sales and marketing activities
are incurred in various geographical regions, substantially all of our assets
are located and the majority of our operating expenses are incurred at our
corporate headquarters. The following table sets forth revenues by geographic
region for the three months and nine months ended September 30, 2000 and 1999,
respectively.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
-------------- --------------- -------------- --------------
(In thousands)
(Unaudited)
<S> <C> <C> <C> <C>
Revenues:
United States $11,395 $5,725 $22,239 $14,112
Mexico 3,381 - 12,959 -
Peru 332 - 603 -
Russia 32 - 32 -
-------------- --------------- -------------- --------------
Total $15,140 $5,725 $35,833 $14,112
============== =============== ============== ==============
</TABLE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following information should be read in conjunction with the historical
financial information and the notes thereto included in this quarterly report on
Form 10-Q and "Management's Discussion and Analysis" included in our
Registration Statement on Form S-1 (File No. 333-48976), which was previously
filed with the Securities and Exchange Commission.
This Form 10-Q contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, including, without limitation, statements regarding our
expectations, beliefs, intentions or future strategies that are signified by the
words "expect", "anticipate", "intend", "believe", or similar language. All
forward-looking statements included in this document are based on information
available to us on the date hereof and we assume no obligation to update any
such forward-looking statements. Actual results could differ materially from
those projected in the forward-looking statements.
Our business and financial performance are subject to substantial risks and
uncertainties. In evaluating our business, you should carefully consider various
factors that might cause actual results to differ materially from stated
expectations. These risks include, among others, that substantially all of our
revenues are dependent upon a limited number of wireless network operators; a
substantial amount of our revenues is derived from foreign sales; our smart
antenna systems and embedded solutions are complex and may have errors or
defects that are detected only after deployment in complex network environments;
and our ability to raise capital and achieve our expansion plans may
10
<PAGE>
METAWAVE COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
be adversely impacted by market conditions. These and other risks are described
in detail in this Form 10-Q and in our Registration Statement on Form S-1 (File
No. 333-48976).
Overview
We provide smart antenna systems and embedded solutions to wireless network
operators facing capacity constraints in the wireless communications industry.
From inception in January 1995 through December 31, 1997, our operating
activities related primarily to conducting research and development, building
market awareness, recruiting management and technical personnel and building an
operating infrastructure. Shipment for commercial sale of our initial SpotLight
system began late in the fourth quarter of 1997 and we first recognized revenues
for the sale of our SpotLight system in the first quarter of 1998. Since the
beginning of 1998, our operating activities have been focused on increasing
sales, new product development and expanding manufacturing capacity. Since
inception, we have incurred significant losses and as of September 30, 2000, had
an accumulated deficit of $152.3 million.
Our revenues are derived primarily from sales of our SpotLight systems,
which includes the sale of hardware and the licensing of software, and from
related installation and optimization services. We believe that substantially
all of our revenues in the near and medium term will be derived from sales of
our SpotLight systems. Our sales cycles can be lengthy and the related contracts
typically include performance specifications and customer acceptance conditions
in connection with the sale of each system to a new customer.
The emergence of Third Generation (3G) air interface standards will lead
wireless infrastructure manufacturers to develop a new generation of equipment.
In addition to providing increased voice capacity, this 3G infrastructure will
also enhance wireless data transmission rates. This may lead to the
proliferation of mobile Internet services. In addition to sales of our Spotlight
systems, we intend to offer embedded smart antenna solutions to wireless
equipment manufacturers that we believe will enhance wireless voice and data
capacity. Although we are currently in discussions with a number of wireless
equipment manufacturers, we have not signed any definitive agreements regarding
the embedding of our technology in their products.
Acquisition of Adaptive Telecom, Inc.
On September 21, 2000, we acquired Adaptive Telecom, Inc. by issuing
5,361,803 shares of Metawave common stock and stock options for 124,377 shares
of Metawave common stock in exchange for all outstanding capital stock and the
assumption of all outstanding options to acquire Adaptive Telecom common stock.
This acquisition, valued at $114.3 million, resulted in a charge for in-process
research and development of $10.4 million, goodwill of $79.5 million, other
intangible assets of $7.0 million, and deferred stock compensation of $17.4
million. The $10.4 million in-process research and development was expensed
immediately. Goodwill and other intangible assets have estimated useful lives of
between three to five years and will be amortized on a straight-line basis.
For the years ended December 31, 1998 and 1999, Adaptive Telecom had total
revenues of $2.7 million and $3.6 million, respectively. Cost of revenues
increased slightly from $2.3 million in 1998 to $2.6 million in 1999 and
operating expenses increased from $522,000 to $1.0 million As of December 31,
1998 and 1999 Adaptive Telecom had accumulated losses of $69,000 and $26,000,
respectively.
Results of Operations - For the Three Months and Nine Months Ended September 30,
2000 and 1999
Revenues:
Net revenue for the third quarter of 2000 increased 164.9% to $15.1 million
from $5.7 million for the third quarter of 1999. Net revenue for the nine months
ended September 30, 2000 increased 153.9% to $35.8 million from $14.1 million
for the same period in 1999. The increases in the third quarter of 2000 were
primarily due to increased unit sales of our CDMA SpotLight systems. The two
largest customers for our company were Verizon Wireless and Grupo Iusacell
Celular S.A. de C.V. of Mexico which accounted for 75.2% and 22.3% of our
revenues, respectively, in the third quarter of 2000. We sold our systems to six
of the seven U.S. regions of Verizon Wireless in the third quarter of 2000.
Iusacell operates in four of the nine Mexican regions, and we sold our systems
to those four
11
<PAGE>
regions, including the most populous region, Mexico City in the third quarter of
2000. International sales of our systems for the three months and nine months
ended September 30, 2000 accounted for 24.7% and 37.9%, respectively, of total
revenues.
Gross Profit:
Gross profit for the third quarter of 2000 increased to $4.4 million from a
negative gross margin of $43,000 in the third quarter of 1999. For the nine
months ended September 30, 2000, gross profit increased to $9.9 million from a
negative gross margin of $575,000 for the nine months ended September 30, 1999.
These increases were primarily due to (1) decreased product cost due to design
changes over the last year, (2) increased overhead absorption due to higher
business volumes in the third quarter of 2000, (3) lower material product cost
due to purchasing volumes and overall lower component costs and (4) higher
margin product mix of CDMA digital products in the year 2000. As a percentage of
sales, gross margin was 29.1% in the third quarter of 2000 compared to a
breakeven gross margin in the third quarter of 1999. And, as a percentage of
sales, gross margin was 27.7% in the nine months of 2000, compared to a negative
gross margin of 4.1% in the nine months of 1999. The increased margin
percentages are the result of previously discussed margin impacts.
Research and Development:
Research and development expense was $6.3 million, an increase of 18.9%
from $5.3 million for the third quarter in 2000 over the comparable period in
1999. Research and development expense increased 16.6% to $19.0 million from
$16.3 million for the nine months ended September 30, 2000 over the same period
in 1999. The increase in research and development expense was primarily due to
continuing development and testing of our SpotLight 2000 CDMA and our SpotLight
GSM systems, and the cost of embedded product development and testing from the
Adaptive Telecom acquisition. In addition, we recorded $421,000 for stock
compensation expense as a result of the acquisition of Adaptive Telecom. We also
recorded $10.4 million for in-process research and development related to the
acquisition of Adaptive Telecom as a one-time charge in the third quarter of
2000.
We are continuing to develop new features and technologies which will be
marketed as enhancements to the existing offerings and as new smart antenna
products.
Sales and Marketing:
Sales and marketing expense increased 41.7% to $3.4 million for the three
months ended September 30, 2000 from $2.4 million for the same period in 1999.
Sales and marketing expense increased 3.8% from $7.9 million to $8.2 million for
the nine months ended September 30, 2000 as compared to the same period in 1999.
The increase was primarily due to staffing realignments, adjusted sales
compensation structure, and additional services to customers in the year 2000.
General and Administrative:
Our general and administrative expenses consist primarily of salaries and
benefits, fees for professional services, deferred compensation, rent and
general office expenses. General and administrative expenses for the three
months ended September 30, 2000 was $1.9 million, an increase of 35.7% from $1.4
million for the three months ended September 30, 1999. We had an additional
$404,000 charge in the third quarter of 2000 for stock compensation expense as a
result of the acquisition of Adaptive Telecom. General and administrative
expenses for the nine months ended September 30, 2000 and 1999 were $4.8 million
and $4.3 million, respectively. The increase is mainly due to expenses related
to professional services and stock compensation from the acquisition of Adaptive
Telecom.
We recorded $499,000 in the third quarter of 2000 for the amortization of
intangibles and goodwill related to the acquisition of Adaptive Telecom
completed on September 21, 2000.
Other Income (Expense), Net:
Our total other income (expense), net amounted to an income of $707,000 in
the three months ended September 30, 2000 compared to $293,000 income in the
three months ended September 30, 1999. For the nine months ended September 30,
2000, total other income (expense), net amounted to an income of $1.4 million
compared to an expense of $3.4 million for the same period in 1999. The change
from expense to income was primarily due to (1) the reduction of interest
expense as a result of the repayment of our $29.0 million Senior Secured Bridge
Notes,
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bearing interest at 13.75% with final payment on this note being paid on April
28, 2000 and (2) the receipt of $58.9 million from an initial public offering of
7,187,500 shares of common stock in the second quarter of 2000. All proceeds
were invested in high quality short-term investments. We received interest
income of $886,000 and $1.9 million for the three and nine months ended
September 30, 2000, respectively.
Liquidity and Capital Resources
For the nine months ended September 30, 2000, we used net cash in operating
activities of $24.5 million compared to $34.2 million for the same period in
1999. Our operating activities included major uses of cash to fund our net loss
of $31.6 million, increased inventories of $5.5 million, increased accounts
receivable of $9.7 million and decreased deferred revenues of $520,000. We
partially offset cash uses with increases in accounts payable and accrued
liabilities of $9.5 million, and non-cash charges to income of in-process
research and development of $10.4 million, depreciation and amortization of $2.8
million, and stock compensation expenses of $2.5 million.
Our net cash used in investing activities for the nine months ended
September 30, 2000 and 1999 were $3.6 million and $1.5 million, respectively.
These investing activities were primarily for purchasing of capital and testing
equipment, manufacturing facilities and leasehold improvements to support our
research and development and manufacturing efforts. We also spent $2.5 million
in investment banking, legal, consulting, and audit fees related to our
investment in the acquisition of Adaptive Telecom in the third quarter of 2000.
Our net cash provided by financing activities for the nine months ended
September 30, 2000 was $57.0 million compared to $49.0 million in the same
period in 1999. In May 2000, we received net proceeds of $58.9 million from the
initial public offering of our common stock. For the nine months ended September
30, 1999, we issued Series E preferred stock and received net proceeds of $82.5
million. In April 1999, we repaid $29.0 million in Senior Secured Bridge Notes
plus interest of $4.1 million.
As of September 30, 2000, we had $49.0 million in cash and cash
equivalents. We also had a revolving line of credit of $10.0 million with
Imperial Bank. Currently there is no balance outstanding on the credit line. In
addition, we have a $3.0 million equipment lease arrangement with Transamerica,
of which $232,000 remained available as of September 30, 2000. We are in the
process of increasing the equipment lease arrangement with Transamerica to $6.0
million. Please see Part II, Item 2 for discussions on Changes in Securities and
Use of Proceeds.
Recent Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivatives and
Hedging Activities, which requires that all derivative instruments be recorded
on the balance sheet at their fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or other comprehensive
income, depending on whether a derivative is designed as part of a hedge
transaction and, if it is, the type of hedge transaction. SFAS No. 133 is
effective for fiscal years beginning after June 15, 2000. We do not anticipate
that the adoption of this new standard will have a material effect on earnings
or the financial position of Metawave, but continues to evaluate the impact of
SFAS No. 133.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin Number 101 ("SAB 101"). This summarized certain areas of the
staff's views in applying generally accepted accounting principles as it applies
to revenue recognition. We believe that our revenue recognition principles
comply with SAB 101. We will continue to evaluate interpretations of SAB 101.
Factors Affecting Our Business Prospects and Operating Results
In addition to other information provided in this report, investors
evaluating our company should carefully consider the following risk factors as
well as the risk factors included in our Registration Statements on Form S-1
(File Nos. 333-30568 and 333-48976) filed with the Securities and Exchange
Commission. These risks may impair our business prospects, operating results,
and the market price of our stock.
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Limited Operating History
We have a limited operating history which makes it difficult for you to
evaluate our business and your investment. We were incorporated in 1995 and were
in the development stage until late 1997, when we commenced shipment for
commercial sale of our first SpotLight smart antenna system. We therefore have a
limited operating history upon which an investor may evaluate our operations and
future prospects. The revenue and profit potential of our business is unproven
and our limited operating history makes our future operating results difficult
to predict, because the market for smart antenna systems and embedded solutions
is so new and wireless technologies change so rapidly. Because our smart antenna
systems and embedded solutions were introduced relatively recently, we are
unable to predict with any degree of certainty whether our smart antenna systems
will achieve widespread market acceptance. In view of our limited operating
history, an investment in our common stock must be considered in light of the
risks and uncertainties that may be encountered by early stage companies in the
wireless communications equipment market. In addition, period-to-period
comparisons of operating results may not be meaningful and operating results
from prior periods may not be indicative of future performance.
Concentration of Customers
We depend on a limited number of wireless network operators for
substantially all of our revenues, so the loss of a customer or a delay in an
order from a customer could impair our operating results. Due to the highly
concentrated nature of the wireless industry and industry consolidation, we
believe that the number of potential customers for future systems will be
limited. Six customers have accounted for substantially all of our system sales
to date. The U.S. wireless operations of three of our customers, Vodaphone-
AirTouch, Bell Atlantic and GTE combined their wireless business operations into
an entity named Verizon Wireless in the second quarter of 2000. Bell Atlantic
owns 47.2% of Iusacell. Effective April 1, 2000, ALLTEL acquired Southwestco
Wireless d.b.a. CellularOne properties that are located in Arizona and New
Mexico. Failure by us to capture a significant percentage of the wireless
network operators as customers could cause our operating results to be
significantly less than anticipated and lead to a decline in our stock price.
Moreover, due to this customer concentration, any loss or reduced demand from
our customer could cause our sales to fall significantly.
Complex and Lengthy Sales Cycle
Because our contracts with new customers are subject to satisfying
performance criteria, the timing of purchases is difficult to predict, and as a
result, our revenue is unpredictable. We believe that the purchase of our
SpotLight systems and embedded solutions is typically a strategic decision that
requires approval at senior levels of customers' organizations, significant
technical evaluation and a substantial commitment of customers' personnel,
financial and other resources. Our contracts with new customers typically
contain conditional acceptance provisions for the initial system sales, and we
delay recognition of revenue until all conditions are satisfied, which causes
our sales cycle to last up to 18 months and to vary substantially from customer
to customer. This variability makes predicting our revenues difficult.
Typically, performance of our systems must be accepted in an initial cell site
or cluster of cell sites in a field trial prior to completing any additional
sales to a particular wireless network operator. This makes the sales process
associated with the purchase of our systems complex, lengthy and subject to a
number of significant risks. We may incur substantial expenses and expend
significant management and personnel resources in the process of a field trial.
If we do not satisfy conditions in these contracts or if satisfaction of these
conditions were delayed for any reason, revenues in any particular period could
fall significantly below our expectations.
Uncertainties Related to Market Acceptance
We believe that substantially all of our revenues in the foreseeable
future will be derived from sales of our SpotLight systems. If our SpotLight
systems fail to achieve broad market acceptance among our customers and
potential customers, our revenues could fall below our and analysts'
expectations which could cause our stock price to decline. In light of the
relatively recent introduction of our SpotLight systems, in particular our
SpotLight GSM system which is currently in field trials in China, Taiwan and
Australia, and the rapidly evolving nature of the wireless communications
industry, we cannot predict with any degree of assurance whether our current or
future smart antenna systems will achieve broad market acceptance. We have not
yet completed any commercial sales of our SpotLight GSM system. We must
demonstrate that our systems and embedded solutions provide a cost-effective
spectrum management solution that expands wireless network operators' capacity
within each operator's unique network configuration and specifications. If our
smart antenna systems do not achieve widespread acceptance with wireless network
operators, we will be unable to increase our revenues as expected.
In addition, we may not be able to secure any agreements with manufacturers
to integrate our technology in their base station products. We intend to develop
partnerships with existing and emerging wireless equipment manufacturers to
integrate our technology in their next generation base station equipment.
Although we are currently in discussions with several equipment manufacturers,
we have not signed any definitive agreements to sell or license our embedded
technology for use in their products and we have only completed one field trial
of our embedded smart antenna solutions. Failure of our embedded smart antenna
solutions either to successfully integrate with next generation base station
equipment or to significantly enhance wireless voice and data capacity could
significantly reduce demand for these solutions. Given the rapidly evolving
nature of the wireless communications industry, we cannot predict whether our
embedded smart antenna solutions will achieve broad market acceptance. Our
future growth is dependent in part upon the acceptance and success of our
embedded smart antenna solutions. If our embedded smart antenna solutions do not
achieve widespread acceptance with wireless network operators, our prospects for
future growth will be adversely affected.
Risks Related to Limited Number of Suppliers
Our reliance on a limited number of suppliers for our smart antenna systems
and embedded solutions could impair our ability to manufacture and deliver our
systems on a timely basis. Some parts and components used in our smart antenna
systems and embedded solutions are presently available only from sole sources
including linear power amplifiers supplied by Powerwave Technologies, Inc. and
integrated duplexer low-noise amplifiers supplied by Filtronics Comtek, Ltd.
Some other parts and components used in our systems are available from a limited
number of sources. Our reliance on these sole or limited source suppliers
involves certain risks and uncertainties, including the possibility of a
shortage or the discontinuation of certain key components. Any reduced
availability of these parts or components when required could materially impair
our ability to manufacture and deliver our systems on a timely basis and result
in the cancellation of orders, which could significantly harm our business and
operating results.
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International Market Risks
Our substantial sales of our SpotLight systems and embedded solutions in
international markets subject us to various risks and costs which may harm our
business. We anticipate that international sales of our SpotLight systems and
embedded solutions in Asia, Latin America and other international markets will
continue to account for a significant portion of our revenues for the
foreseeable future. Risks and associated costs inherent in our international
business activities include:
. difficulties obtaining foreign regulatory approval for our smart antenna
systems and embedded solutions;
. unexpected changes in regulatory requirements relating to the
telecommunications industry;
. greater difficulties collecting delinquent or unpaid accounts;
. lack of suitable export financing for our SpotLight systems;
. dependence upon independent sales representatives and other indirect
channels of distribution of our SpotLight systems and embedded
solutions;
. political and economic instability in the regions where we sell our
SpotLight systems and embedded solutions;
. enforceability of contracts with foreign customers and distributors
governed by foreign laws; and
. lack of experienced technical personnel familiar with our products in
foreign markets.
The Integration of Adaptive Telecom into Our Operation May Be Unsuccessful
Our acquisition of Adaptive Telecom could adversely affect combined
financial results. If the benefits of the merger of Adaptive Telecom into our
company do not exceed the costs associated with the merger, including any
dilution to our stockholders resulting from the issuance of shares in connection
with the merger, our financial results, including earnings per share, could be
adversely affected. In addition, we have recorded goodwill and intangible assets
of approximately $86.5 million in connection with the merger, which will be
amortized over a period of between three to five years and we have recorded
deferred stock compensation of approximately $17.4 million in connection with
the merger which will be amortized over the remaining vesting periods of related
stock options and restricted stock of up to four years.
The market price of our common stock may also decline as a result
of the merger of Adaptive Telecom if:
. the integration of our company and Adaptive Telecom is unsuccessful;
. we do not achieve the perceived benefits of the merger as rapidly or to
the extent anticipated by financial or industry analysts or investors;
or
. the effect of the merger on our financial results is not consistent with
the expectations of financial or industry analysts or investors.
In addition, the market price of our common stock could also decline as a
result of factors related to the merger which may currently be unforeseen. A
decline in the market price of our common stock could materially and adversely
affect our operating results.
Item 3. Quantitative and Qualitative Disclosure of Market Risk
In accordance with our company policy, we do not use derivative financial
instruments in our investment portfolio. We invest in high quality marketable
securities, primarily U.S. Government obligations and corporate obligations with
maturities of less than three months. Such securities are subject to interest
rate risk and will rise and fall in value if market interest rates change. We do
not expect any material loss from our marketable security investments and
therefore believe that our potential interest rate exposure is not material.
PART II. Other Information
Item. 2 Changes in Securities and Use of Proceeds
(c)(d) On September 21, 2000, we completed the acquisition of Adaptive
Telecom and issued 5,361,803 shares of unregistered Metawave common stock and
124,377 shares of unregistered Metawave common stock options in exchange for all
the outstanding capital stock and stock options of Adaptive Telecom. We did not
receive any proceeds from this issuance. All proceeds in the form of Metawave
common stock and stock options were received by the selling stockholders of
Adaptive Telecom. In connection with the acquisition, we paid approximately $2.5
million in acquisition related transaction costs. The issuance of these
securities were deemed to be exempt from registration under the Securities Act
in accordance with Section 4(2) of the Securities Act and Rule 701 of the
Securities Act, respectively as transactions by an issuer not involving any
public offering. In addition, in the third quarter ended September 30, 2000, we
issued 14,606 shares of registered common stock to employees pursuant to the
exercise of stock options under our 1995, 1998, and 2000 Stock Option Plans.
These options were exercised at a weighted average price of $3.60 per share.
(f) Use of Proceeds from Sale of Registered Securities
In the second quarter of 2000, we completed an initial public offering of
our common stock pursuant to our Registration Statement on Form S-1 (File No.
333-30568) as filed with the Securities Exchange Commission on April 25, 2000. A
total of 7,187,500 shares of our common stock offered in our prospectus were
sold at $9.00 per share. Merrill Lynch and Co., Salomon Smith Barney and U.S.
Bancorp Piper Jaffray were the managing
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underwriters for the offering. The aggregate gross proceeds from the sale were
$64.7 million. In connection with our initial public offering, we paid $4.5
million for the underwriters' discounts and an aggregate amount of $1.3 million
for the Nasdaq National Market listing fee, printing and engraving, legal,
accounting, travel and other related expenses. Net proceeds from the offering
amounted to $58.9 million and are invested in high quality short-term
investments. As of September 30, 2000, we used approximately $2.5 million for
acquisition related expenses and $7.4 million for working capital expenditures
and equipment purchases.
We anticipate an increase in our capital expenditures and lease
commitments, consistent with our projected growth in operations, infrastructure
and personnel. We expect to use approximately $2.8 million of the proceeds to
fund the expansion of our manufacturing facilities. In addition, we plan to use
approximately $22.6 million in 2000 to fund research and development activities.
Item. 6 Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number
2.1* Amended and Restated Agreement and Plan of Merger between the
Registrant and Adaptive Telecom, Inc. dated as of September 20,
2000.
3.1** Certificate of Incorporation of the Registrant.
3.2** Bylaws of the Registrant.
3.3** Seventh Amended and Restated Certificate of Incorporation of the
Registrant.
4.1** Form of Stock Certificate.
10.21***+ Amendment No.1 to Supply Agreement between the Registrant and
Grupo IUSACELL S.A.
10.22*** Registration Rights Agreement dated September 22, 2000 by and
between the Registrant and the Shareholders of Adaptive Telecom,
Inc.
10.23*** Adaptive Telecom, Inc. 1997 Stock Plan.
23.2*** Consent of Counsel.
24.1*** Power of Attorney.
27.1 Financial Data Schedule - (filed only with the electronic
submission of Form 10-Q)
------------
* Previously filed as an exhibit to the Form 8-K filed with the Commission by
the Registrant on October 5, 2000, and incorporated herein by reference.
** Previously filed as an exhibit to Registrant's registration statement on
Form S-1, File No. 333-30568, originally filed with the Commission on
February 17, 2000, as subsequently amended, and incorporated herein by
reference.
*** Previously filed as an exhibit to Registrant's registration statement on
Form S-1, File No. 333-48976, filed with the Commission on October 31, 2000
and incorporated herein by reference.
+ Certain information in these exhibits has been omitted and filed separately
with the Securities and Exchange Commission pursuant to a confidential
treatment request under 17 C.F.R. Sections 200.80(b)(4), 200.83 and
230.406.
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(b) Reports on Form 8-K
1. Report on Form 8-K as filed on October 5, 2000 announcing the
acquisition of Adaptive Telecom, Inc.
2. Report on Form 8-K/A as filed on November 3, 2000 providing the
required historical audited financial statements of Adaptive Telecom,
Inc. as well as the unaudited pro forma financial information of
Adaptive Telecom, Inc.
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SIGNATURE
Pursuant to the requirements 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.
METAWAVE COMMUNICATIONS CORPORATION
Date: November 14, 2000 By: /s/ Stuart W. Fuhlendorf
Stuart W. Fuhlendorf
Senior Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
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INDEX TO EXHIBITS
Exhibit Number
2.1* Amended and Restated Agreement and Plan of Merger between the
Registrant and Adaptive Telecom, Inc. dated as of September 20,
2000.
3.1** Certificate of Incorporation of the Registrant.
3.2** Bylaws of the Registrant.
3.3** Seventh Amended and Restated Certificate of Incorporation of the
Registrant.
4.1** Form of Stock Certificate.
10.21***+ Amendment No.1 to Supply Agreement between the Registrant and
Grupo IUSACELL S.A.
10.22*** Registration Rights Agreement dated September 22, 2000 by and
between the Registrant and the Shareholders of Adaptive Telecom,
Inc.
10.23*** Adaptive Telecom, Inc. 1997 Stock Plan.
23.2*** Consent of Counsel.
24.1*** Power of Attorney.
27.1 Financial Data Schedule - (filed only with the electronic
submission of Form 10-Q)
------------
* Previously filed as an exhibit to the Form 8-K filed with the Commission by
the Registrant on October 5, 2000, and incorporated herein by reference.
** Previously filed as an exhibit to Registrant's registration statement on
Form S-1, File No. 333-30568, originally filed with the Commission on
February 17, 2000, as subsequently amended, and incorporated herein by
reference.
*** Previously filed as an exhibit to Registrant's registration statement on
Form S-1, File No. 333-48976, filed with the Commission on October 31, 2000
and incorporated herein by reference.
+ Certain information in these exhibits has been omitted and filed separately
with the Securities and Exchange Commission pursuant to a confidential
treatment request under 17 C.F.R. Sections 200.80(b)(4), 200.83 and
230.406.
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