<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 21, 2000
Metawave Communications Corporation
(Exact name of Registrant as specified in its charter)
Delaware 0-24673 91-1673152
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation or Identification No.)
organization)
10735 Willows Road NE
Redmond, WA 98052
(Address of principal executive offices) (Zip code)
(425) 702-5600
(Registrant's telephone number, including area code)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
This Amendment No. 1 to the Current Report on Form 8-K dated September 21,
2000 of Metawave Communications Corporation relates to Metawave's acquisition of
Adaptive Telecom, Inc. (ATI), a California Corporation pursuant to the Amended
and Restated Agreement and Plan of Merger dated as of September 20, 2000. The
purpose of this amendment is to provide the financial statements of ATI required
by Item 7(a) of Form 8-K and the pro forma financial information required by
Item 7(b) of Form 8-K, which information was excluded from the original filing
in reliance upon Item 7(a)(4) of Form 8-K.
<TABLE>
<CAPTION>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS Page
----
<S> <C>
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
ADAPTIVE TELECOM, INC.
(i) Report of Mohler, Nixon & Williams Accountancy Corporation, Independent
Accountants............................................................. 3
(ii) Balance Sheets.......................................................... 4
(iii) Statements of Operations................................................ 5
(iv) Statements of Shareholders' Equity...................................... 6
(v) Statements of Cash Flows................................................ 7
(vi) Notes to Financial Statements........................................... 8
(b) PRO FORMA FINANCIAL INFORMATION
METAWAVE COMMUNICATIONS CORPORATION
(i) Unaudited Pro Forma Combined Condensed Financial Statements............. 17
(ii) Unaudited Pro Forma Combined Condensed Statements of Operations......... 18
(iii) Unaudited Pro Forma Combined Condensed Balance Sheet.................... 20
(iv) Notes to Unaudited Pro Forma Combined Condensed Financial Statements.... 21
</TABLE>
2
<PAGE>
REPORT OF MOHLER, NIXON & WILLIAMS ACCOUNTANCY CORPORATION
INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholders of
Adaptive Telecom, Inc.
We have audited the accompanying balance sheets of Adaptive Telecom, Inc. as
of December 31, 1998 and 1999, and the related statements of operations,
shareholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Adaptive Telecom, Inc. as
of December 31, 1998 and 1999, and the results of its operations, shareholders'
equity and cash flows for the years then ended, in conformity with accounting
principles generally accepted in the United States.
MOHLER, NIXON & WILLIAMS
Accountancy Corporation
/s/ Mohler, Nixon & Williams
Campbell, California
September 25, 2000
3
<PAGE>
ADAPTIVE TELECOM, INC.
BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
December 31,
-------------- June 30,
1998 1999 2000
------ ------ -----------
(unaudited)
<S> <C> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents........................ $2,883 $1,961 $ 579
Prepaid expenses and other....................... 40 35 66
------ ------ --------
Total current assets........................... 2,923 1,996 645
Property and equipment, net........................ 412 384 367
Other noncurrent assets, net....................... 109 78 55
------ ------ --------
Total assets................................... $3,444 $2,458 $ 1,067
====== ====== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable................................. 210 332 62
Accrued liabilities.............................. 7 11 --
Accrued compensation and benefits................ 127 229 147
Customer deposits................................ 1,329 161 166
Deferred revenues................................ 136 21 --
Shareholder loans................................ -- 59 59
------ ------ --------
Total current liabilities...................... 1,809 813 434
Shareholder loans.................................. 59 --
Commitments
Shareholders' equity:
Series A convertible preferred stock, $0.001 par
value:
Authorized shares--1,500,000 in 1998, 1999 and
at June 30, 2000; issued and outstanding
shares--1,500,000 in 1998, 1999 and at June 30,
2000 (liquidating value $1,500)................ 2 2 2
Common stock, no par value:
Authorized shares--13,500,000 in 1998, 1999 and
June 30, 2000; issued and outstanding shares--
5,349,065, 5,785,490, and 5,885,959 in 1998,
1999 and June 30, 2000, respectively........... 178 204 207
Additional paid-in capital....................... 1,465 1,465 15,070
Deferred stock compensation...................... -- -- (13,375)
Accumulated deficit.............................. (69) (26) (1,271)
------ ------ --------
Total shareholders' equity..................... 1,576 1,645 633
------ ------ --------
Total liabilities and shareholders' equity..... $3,444 $2,458 $ 1,067
====== ====== ========
</TABLE>
See accompanying notes.
4
<PAGE>
ADAPTIVE TELECOM, INC.
STATEMENTS OF OPERATIONS
(In thousands)
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, June 30,
-------------- -----------------
1998 1999 1999 2000
------ ------ -------- --------
(unaudited)
<S> <C> <C> <C> <C>
Revenues.................................... $2,651 $3,550 $ 1,604 $ 508
Cost of revenues............................ 2,348 2,595 1,136 390
------ ------ ------- --------
Gross profit................................ 303 955 468 118
Operating expenses:
Research and development.................. 155 321 106 940
Sales and marketing....................... 104 414 198 241
General and administrative................ 263 285 137 216
------ ------ ------- --------
Total operating expenses.................... 522 1,020 441 1,397
------ ------ ------- --------
Income (loss) from operations............... (219) (65) 27 (1,279)
Interest income............................. 170 115 58 37
Other expense............................... (6) (7) (3) (3)
------ ------ ------- --------
Other income, net........................... 164 108 55 34
------ ------ ------- --------
Net income (loss)........................... $ (55) $ 43 $ 82 $ (1,245)
====== ====== ======= ========
</TABLE>
See accompanying notes.
5
<PAGE>
ADAPTIVE TELECOM, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1998 and 1999
(In thousands, except share data)
<TABLE>
<CAPTION>
Series A
convertible
preferred stock Common stock Additional Deferred Total
---------------- ----------------- paid-in stock Accumulated shareholders'
Shares Amount Shares Amount capital compensation deficit equity
--------- ------ --------- ------ ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1998................... 1,400,000 $ 1 4,789,835 $159 $ 1,366 $ -- $ (14) $ 1,512
Issuance of common
stock at $0.033 per
share upon purchase of
restricted stock...... -- -- 555,000 19 -- -- -- 19
Issuance of common
stock at $0.067 per
share................. -- -- 4,230 -- -- -- -- --
Issuance of preferred
stock at $1.00 per
share upon exercise of
warrant............... 100,000 1 -- -- 99 -- -- 100
Net loss .............. -- -- -- -- -- -- (55) (55)
--------- --- --------- ---- ------- -------- ------- -------
Balance at December 31,
1998................... 1,500,000 2 5,349,065 178 1,465 -- (69) 1,576
Issuance of common
stock at $0.033 per
share upon exercise of
options............... -- -- 102,500 4 -- -- -- 4
Issuance of common
stock at $0.067 per
share upon exercise of
options............... -- -- 299,875 20 -- -- -- 20
Issuance of common
stock at $0.067 per
share................. -- -- 34,050 2 -- -- -- 2
Net income ............ -- -- -- -- -- -- 43 43
--------- --- --------- ---- ------- -------- ------- -------
Balance at December 31,
1999................... 1,500,000 2 5,785,490 204 1,465 -- (26) 1,645
Issuance of common
stock at $0.033 per
share upon exercise of
options (unaudited)... -- -- 143,594 5 -- -- -- 5
Repurchase of common
stock (unaudited)..... -- -- (43,125) (2) -- -- -- (2)
Deferred stock
compensation
(unaudited)........... -- -- -- -- 13,605 (13,605) -- --
Stock compensation
expense (unaudited)... -- -- -- -- -- 230 -- 230
Net loss (unaudited)... -- -- -- -- -- -- (1,245) (1,245)
--------- --- --------- ---- ------- -------- ------- -------
Balance at June 30, 2000
(unaudited)............ 1,500,000 $ 2 5,885,959 $207 $15,070 $(13,375) $(1,271) $ 633
========= === ========= ==== ======= ======== ======= =======
</TABLE>
See accompanying notes.
6
<PAGE>
ADAPTIVE TELECOM, INC.
STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year Ended Six Months
December 31, Ended June 30,
--------------- ---------------
1998 1999 1999 2000
------ ------- ------ -------
(unaudited)
<S> <C> <C> <C> <C>
Operating activities
Net income (loss)........................... $ (55) $ 43 $ 82 $(1,245)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Depreciation and amortization expense..... 79 158 71 96
Stock compensation expense................ -- -- -- 230
Changes in operating assets and
liabilities:
Decrease (increase) in prepaid expenses
and other.............................. (40) 5 3 (31)
Decrease (increase) in other noncurrent
assets................................. (47) 14 -- 15
Increase (decrease) in accounts
payable................................ 170 122 (103) (270)
Increase (decrease) in accrued
liabilities............................ 4 4 (7) (11)
Increase (decrease) in accrued
compensation and benefits.............. 127 102 4 (82)
Increase (decrease) in customer
deposits............................... 1,314 (1,168) (283) 5
Increase (decrease) in deferred
revenue................................ 136 (115) (49) (21)
------ ------- ------ -------
Net cash provided by (used in) operations... 1,688 (835) (282) (1,314)
Investing activities
Purchases of equipment...................... (475) (113) (63) (71)
------ ------- ------ -------
Net cash used in investing activities....... (475) (113) (63) (71)
Financing activities
Net proceeds from issuance of common stock.. 19 26 1 5
Net proceeds from issuance of preferred
stock upon exercise of warrant............. 100 -- -- --
Repurchase of common stock.................. -- -- -- (2)
------ ------- ------ -------
Net cash provided by financing activities... 119 26 1 3
Net increase (decrease) in cash............. 1,332 (922) (344) (1,382)
Cash and cash equivalents at beginning of
period..................................... 1,551 2,883 2,883 1,961
------ ------- ------ -------
Cash and cash equivalents at end of period.. $2,883 $ 1,961 $2,539 $ 579
====== ======= ====== =======
Supplemental disclosures
Income taxes paid during the period......... $ 4 $ 1 $ -- $ --
Deferred stock compensation................. $ -- $ -- $ -- $13,605
</TABLE>
See accompanying notes.
7
<PAGE>
ADAPTIVE TELECOM, INC.
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies
Description of Business
Adaptive Telecom, Inc. (the Company) was incorporated in California in 1997.
The Company develops, markets, produces and licenses spatial filtering
solutions for wireless telecommunication applications. The proprietary
technology reduces the infrastructure and operating costs of wireless Cellular
and Personal Communication System (PCS) networks by increasing the capacity and
performance of the network. The Company operates in one business segment and
currently markets their technology to wireless network infrastructure providers
and directly to network operators.
A customer's equipment and software must be customized prior to the use of
the Company's technology. Accordingly, the Company enters into an agreement
with a customer that identifies the customization specifications and provides
for milestones and payment for the customization. Upon successful completion of
the customization, the customer may then license the technology upon the
payment of the licensing fee, usually in the form of a royalty payment.
During 1998, 1999, and for the six months ended June 30, 2000 substantially
all revenues were derived from the customization portion of one such agreement
between the Company and NEC Corporation (NEC)). At the conclusion of the
customization phase in 2000, NEC elected not to license the technology.
Unaudited Interim Financial Information
The financial information as of June 30, 2000 and for the six months ended
June 30, 1999 and 2000 is unaudited, but includes all adjustments, consisting
only of normal recurring adjustments, that the Company considers necessary for
a fair presentation of the financial position at those dates and of the
operations and cash flows for the periods then ended. Operating results for the
six months ended June 30, 2000 are not necessarily indicative of results that
may be expected for the entire year.
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 of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
Revenues from the customization of an original equipment manufacturer (OEM)
telecommunications system are recognized using contract accounting over the
period that services are performed under the percentage-of-completion method.
For agreements accounted for using the percentage-of-completion method, the
Company determines progress-to-completion using input measures based on labor
hours incurred. Customer billing occurs in accordance with contract terms.
Amounts billed to customers in excess of revenue recognized are recorded as
deferred revenues and customer advances are recorded as customer deposits on
uncompleted contracts.
Upon completion of the customization of the Company's technology to the
OEM's telecommunications system, the Company's revenues would be derived from
licenses of its intellectual property. For each license arrangement, the
Company would determine whether persuasive evidence of an agreement exists,
delivery of the product has occurred, there are not significant remaining
Company obligations, the fee is fixed or determinable and collectibility is
probable. If any of these criteria are not met, revenue recognition would be
8
<PAGE>
ADAPTIVE TELECOM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
1. Significant Accounting Policies--(continued)
deferred until such time as the criteria are met. Through December 31, 1999,
the Company has not recorded any revenue from license fees.
Risks and Uncertainties
The Company is subject to a number of risks including the marketing of a new
technology, the need to maintain adequate financing, competition from
competitors with greater financial resources and dependence on key personnel.
The telecommunications industry is characterized by rapid technological
developments, frequent product introductions, evolving industry standards,
changes in customer requirements and short product life cycles. Significant
technological changes or the emergence of competitive products with new
capabilities could adversely affect the Company's operating results.
Major Customer
Substantially all revenues recorded by the Company in 1998, 1999, and for
the six months ended June 30, 2000 are from one agreement with NEC. Development
and testing in accordance with provisions of the agreement was completed in
2000, and NEC elected not to exercise its right to license the technology under
the agreement. The Company has not entered into any new contracts upon the
completion of this contract in 2000.
In connection with the completion of the agreement, the Company is obligated
to return certain equipment borrowed from NEC and unused parts acquired in
connection with the contract. In addition, any technology developed under the
contract that was not otherwise specified in the contract becomes the joint
property of NEC and the Company.
Cash Equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents. Cash equivalents are
invested in money market funds.
The Company has classified all investments as available-for-sale. Available-
for-sale securities are carried at fair market value based on quoted market
prices with unrealized gains and losses, net of tax, reported in shareholders'
equity, if material. Realized gains and losses and declines in value judged to
be other than temporary on available-for-sale securities are included in
interest income.
Unrealized holding gains and losses on available-for-sale securities at
December 31, 1998 and 1999 were not material.
Cash equivalents include the following as of December 31:
<TABLE>
<CAPTION>
1998 1999
------ ------
(In thousands)
<S> <C> <C>
Money market funds........................................... $2,883 $1,955
====== ======
</TABLE>
Property and Equipment
Property and equipment are stated at cost net of accumulated depreciation
and amortization. Depreciation and amortization are computed on the straight-
line method based on the estimated useful lives of three to five years of the
respective assets. Leasehold improvements are amortized over the shorter of
their estimated useful lives or the lease term.
9
<PAGE>
ADAPTIVE TELECOM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
1. Significant Accounting Policies--(continued)
Intangible assets principally consist of patent fees that are being
amortized on the straight-line method over five years.
Research and Development
In accordance with Statements of Financial Accounting Standards (SFAS) No.
86, "Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed," all costs incurred to establish the technological
feasibility of computer software products are expensed as research and
development costs. The Company determines technological feasibility based upon
coding and testing in accordance with detailed program designs. Costs incurred
subsequent to the establishment of technological feasibility and prior to the
general availability of the product to customers will be capitalized, if
significant. To date, no software development costs have been capitalized.
Income Taxes
The provision for income taxes is based on income reported in the financial
statements. Deferred income taxes are provided for temporary differences
between the financial reporting and tax basis of the Company's assets and
liabilities.
Stock-Based Compensation
As permitted under Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123), the Company has elected
to follow APB Opinion No. 25 and related interpretations in accounting for
stock-based awards to employees and to adopt the "disclosure only" alternative
described in SFAS 123. Under APB Opinion No. 25, when the exercise price of the
Company's employee stock options equals the market price of the underlying
stock on the date of grant, no compensation expense is recognized.
Stock options or warrants granted to non-employees are accounted for in
accordance with SFAS 123 and the Emerging Issues Task Force Consensus No. 96-
18, "Accounting for Equity Instruments That are Issued to Other Than Employees
for Acquiring, or in Conjunction with Selling, Goods or Services." The fair
value of such options or warrants is determined using the Black-Scholes model.
Other Comprehensive Income
In June 1997, the Financial Accounting Standards Board (FASB) released SFAS
No. 130, "Reporting Comprehensive Income" (SFAS 130). SFAS 130 established
standards for the reporting and display of comprehensive income (loss) and its
components. The Company had no items, other than net income (loss), of other
comprehensive income (loss) to report in any of the years presented.
New Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133 (SFAS 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
133 is effective for fiscal years beginning after June 15, 2000. The Company
does not
10
<PAGE>
ADAPTIVE TELECOM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
1. Significant Accounting Policies--(continued)
anticipate that the adoption of this new standard will have a material effect
on earnings or the financial position of the Company, but continues to evaluate
the impact of SFAS 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. The Company believes that its revenue
recognition principles comply with SAB 101. The Company will continue to
evaluate interpretations of SAB 101.
2. Property and Equipment
<TABLE>
<CAPTION>
December 31,
-------------- June 30,
1998 1999 2000
------ ------ -----------
(unaudited)
(In thousands)
<S> <C> <C> <C>
Lab and test equipment........................ $ 229 $ 272 $ 273
Computers..................................... 207 271 339
Office equipment.............................. 37 42 43
Leasehold improvements........................ 1 3 3
------ ------ -----
474 588 658
Accumulated depreciation and amortization..... (62) (204) (291)
------ ------ -----
$ 412 $ 384 $ 367
====== ====== =====
</TABLE>
The Company issued 2,190,350 shares of common stock to a founder during May
1997 in exchange for a patent. The patent, which is recorded in other
noncurrent assets, is valued at approximately $73,000 and is being amortized
over five years. Annual amortization totaled approximately $17,000 in 1998 and
1999 and $8,500 for the six months ended June 30, 2000.
Depreciation and amortization expense for 1998 and 1999 and for the six
months ended June 30, 2000 was approximately $79,000, $158,000, and $96,000,
respectively.
3. Shareholder Notes
The Company has two unsecured notes payable to shareholders totaling $59,000
at December 31, 1998 and 1999, and at June 30, 2000. The notes bear interest at
8% per annum. The principal, together with accrued and unpaid interest, is due
July 10, 2000. Interest expense was approximately $5,000 in 1998 and 1999 and
$2,000 for the six months ended June 30, 2000.
4. Shareholders' Equity
Preferred Stock
In March 1997, the Company issued 1,400,000 shares of Series A preferred
stock in accordance with the provisions of a Securities Purchase Agreement
which also provided for the sale of a warrant to purchase an additional 100,000
Series A preferred shares at $1.00 per share, which was exercised in 1998.
11
<PAGE>
ADAPTIVE TELECOM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
4. Shareholders' Equity--(continued)
The rights, privileges and preferences of the preferred shareholders are as
follows:
. Dividends--Preferred shareholders are entitled to receive dividends of $0.05
per share in preference and priority to payment of any dividend to common
shareholders, payable only if and when declared by the Company. Thereafter,
preferred shareholders will share any shareholder distributions equally on
an as-converted basis with common shareholders.
. Liquidation--In the event of any liquidation, dissolution, sale, merger
or winding up of the Company, preferred shareholders will be entitled to
receive, in preference to common shareholders, an amount equal to the
original amount of investment ($1.00 per share) plus all declared but
unpaid dividends. All remaining assets will be distributed equally to the
holders of preferred and common shares until preferred shareholders have
received $2.00 per share, including the preferred liquidation preference.
Thereafter, preferred shareholders will share distributions equally on an
as-converted basis with common shareholders.
. Voting--Each preferred share is entitled to vote on an "as-converted"
basis along with common shareholders. Preferred shareholders, voting as a
separate class, are entitled to elect one member of the Company's Board
of Directors, and common shareholders, voting as a group, are entitled to
elect two members of the Board.
. Conversion--Preferred shares are convertible into common shares at any
time at the option of the holders at the conversion rate of one and one-
half common shares for each preferred share, subject to antidilution.
Preferred shares shall be automatically converted into common shares at
the then applicable conversion rate (a) upon the closing of a firm
commitment underwritten public offering at a price per share of not less
than $3.00 per share with aggregate proceeds to the Company of
$10,000,000 or greater, or (b) upon the approval of a majority of the
preferred shareholders. The Company has reserved sufficient unissued
common shares in the event of conversion.
Common Stock
The Company is authorized to issue 13,500,000 shares of common stock. As of
December 31, 1999, 5,785,490 shares of common stock were outstanding.
As of December 31, 1999, common stock was reserved for issuance as follows:
<TABLE>
<S> <C>
Conversion of outstanding preferred stock........................ 2,250,000
Exercise of stock options........................................ 797,625
</TABLE>
In 1998, the Company issued 4,230 shares of common stock to an employee at
$0.067 per share, and in 1999 the Company issued 34,050 shares of common stock
to employees and consultants at $0.067 per share. All other outstanding shares
of the Company's common stock issued in 1998 and 1999 have been issued under
provisions of the 1997 Stock Plan.
1997 Stock Plan
The Board of Directors adopted the 1997 Stock Plan (the Plan) that
authorizes the granting of stock options to purchase up to 1,200,000 shares of
common stock. The Plan provides for the granting of incentive stock options to
employees, non-statutory stock options to Company service providers, and the
issuance of Restricted Stock Purchase Agreements alone or in tandem with the
granting of stock options.
The Board of Directors determines the number of options granted, the
effective date of the grants, the vesting period, price and term of the
options. Option terms may not exceed ten years from the date of grant. Shares
purchased under Restricted Stock Purchase Agreements are subject to vesting
with certain limitations on transferability, including rights of first refusal
and repurchase options in favor of the Company at the original
12
<PAGE>
ADAPTIVE TELECOM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
4. Shareholders' Equity--(continued)
share purchase price. The Company's right to repurchase shares of restricted
stock lapses over the vesting period. Options generally vest and repurchase
options generally lapse over four years from the initial grant or purchase
date.
Restricted Common Stock
During 1997, the Board of Directors issued 4,548,071 shares of restricted
common stock for cash at $0.033 per share to employees subject to restricted
stock purchase agreements. In 1998, the Board of Directors issued 555,000
restricted shares for cash at $0.033 per share to employees, Board members and
a consultant. Under the initial terms of the related Restricted Stock Purchase
Agreement, the Company's repurchase rights lapse ratably over 48 months.
The Board of Directors amended the consultant's Restricted Stock Purchase
Agreement in May 1999 to provide for the immediate vesting of 92,813 shares and
the vesting of the remaining shares based on hours worked thereafter. In
addition to the shares of restricted stock, the consultant was paid cash
consideration for his services. The Company determined that the compensation
cost associated with the vested restricted stock was not material.
As of December 31, 1998 and 1999, unvested shares of restricted stock
totaled 2,289,363 and 1,035,521, respectively.
Stock Options
Information with respect to stock option activity is as follows:
<TABLE>
<CAPTION>
Weighted
Number of average
Available options price
for grant outstanding per share
--------- ----------- ---------
<S> <C> <C> <C>
Balance at December 31, 1997................ 1,200,000 -- --
Options granted........................... (607,500) 607,500 $0.033
--------- --------
Balance at December 31, 1998................ 592,500 607,500 $0.033
Options granted........................... (241,750) 241,750 $0.067
Options exercised......................... -- (402,375) $0.058
Options cancelled......................... 46,875 (46,875) $0.067
--------- --------
Balance at December 31, 1999................ 397,625 400,000 $0.041
========= ========
</TABLE>
Options for a total of 135,156 shares were exercisable at December 31, 1999.
No options were exercisable at December 31, 1998.
13
<PAGE>
ADAPTIVE TELECOM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
4. Shareholders' Equity--(continued)
The following table summarizes information about stock options outstanding
and exercisable at December 31, 1999:
<TABLE>
<CAPTION>
Weighted
average
remaining
Options Options contractual Exercise
outstanding exercisable life price
----------- ----------- ----------- --------
<S> <C> <C> <C>
310,000 135,156 8.49 $0.033
90,000 -- 8.64 $0.067
------- -------
400,000 135,156 8.52 $0.041
======= =======
</TABLE>
Pro forma information regarding net income (loss) is required by SFAS 123,
and is determined as if the Company had accounted for its employee stock
options granted under the fair value method of SFAS 123. The fair value for
options and unvested restricted stock was estimated at the grant/sale date
using the minimum value method with the following weighted average assumptions:
a risk-free rate of 5.04% for 1998 and 5.5% for 1999, no dividend yield for all
years and a weighted average expected option life of three years. The
difference between the reported net income (loss) and the pro forma net income
(loss) for the years ended December 31, 1998 and 1999 was an increase in the
net loss of $18,000 and a reduction in the net income of $11,000, respectively.
The options' weighted average grant-date fair value, which is the value
assigned to the options under SFAS 123, was $0.005 and $0.009 for options
granted in 1998 and 1999, respectively.
Deferred Stock Compensation
During the six months ended June 30, 2000, the Company issued stock options
to employees with exercise prices that it believed represented the fair value
of the options. Subsequent to the Company's acquisition, the Company
reevaluated the fair value of its common stock options as of June 30, 2000.
Accordingly, in connection with such stock option grants, the Company recorded
deferred stock-based compensation of $13.6 million. This deferred stock
compensation represents the excess of the estimated fair value of the common
stock on the date of the grant over the exercise price. Deferred amortization
was determined over the vesting period of the respective options, generally
four years, beginning with the exercise date, which for the majority of the
options was June 16, 2000.
5. Income Taxes
Due to operating losses and tax credits and the inability to recognize the
benefits therefrom in 1998 and the utilization of net operating losses and tax
credits in 1999, there is no provision for income taxes for the years ended
December 31, 1998 and 1999.
14
<PAGE>
ADAPTIVE TELECOM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
5. Income Taxes--(continued)
The income tax expense differed from the amounts computed by applying the
U.S. statutory federal income tax rate (34%) to pretax income as a result of
the following:
<TABLE>
<CAPTION>
Year Ended
December 31,
----------------
1998 1999
------- -------
(In thousands)
<S> <C> <C>
Computed expected tax expense (benefit).................. $ (18) $ 14
Net operating losses or temporary differences for which
no tax benefit is recognized............................ 18 --
Utilization of net operating loss and tax credits
previously reserved..................................... -- (14)
------- -------
Total income tax provision............................. $ -- $ --
======= =======
</TABLE>
Significant components of the Company's deferred tax assets are as follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
----------------
1998 1999
------- -------
(In thousands)
<S> <C> <C>
Deferred tax assets:
Net operating losses and tax credits..................... $ 31 $ 17
Accruals................................................. 6 16
------- -------
Total deferred tax assets.................................. 37 33
Deferred tax liabilities:
Depreciation............................................. -- (11)
Valuation allowance...................................... (37) (22)
------- -------
Net deferred tax assets.................................... $ -- $ --
======= =======
</TABLE>
The Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (SFAS 109), provides for the
recognition of deferred tax assets if realization of such assets is more likely
than not. Because of the uncertainty of future earnings, a full valuation
allowance was provided at December 31, 1998 and 1999. Although the Company
generated net income in 1999, management has determined that the valuation
allowance continues to be necessary. The net valuation allowance decreased by
$15,000 for the year ended December 31, 1999.
Utilization of net operating loss and tax credit carryforwards may be
subject to substantial annual limitation provided by the Internal Revenue Code
and similar state provisions. The annual limitation may result in the
expiration of net operating loss and tax credit carryforwards before
utilization.
6. Commitments
The Company occupies facilities under an operating lease that expires in
January 2001. Pursuant to the lease agreement, certain operating expenses are
allocated to the Company in addition to base rents. Total rent expense for all
operating leases was approximately $154,000 in 1998, $179,000 in 1999 and
$88,000 for the six months ended June 30, 2000.
Future annual minimum lease payments under all operating leases are
approximately $187,000 in 2000 and $9,000 in 2001.
15
<PAGE>
ADAPTIVE TELECOM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
7. Employee Benefit Plans
The Company sponsors an employee savings plan for all eligible employees. No
Company contributions were made to the plan in 1998 or 1999.
8. Subsequent Event
On September 21, 2000, the Company was acquired by Metawave Communications
Corporation (Metawave). Under the terms of the acquisition agreement, the
common stock of Metawave was exchanged for all of the issued and outstanding
common stock of the Company, which includes the conversion of the Series A
preferred stock to common stock. All of the Company stock options and
outstanding unvested restricted stock was assumed by Metawave with the same
terms and conditions that currently exist, except that stock grants and stock
subject to vesting will be for Metawave common stock, adjusted for the
acquisition exchange ratio.
16
<PAGE>
METAWAVE COMMUNICATIONS CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
The following unaudited pro forma combined condensed financial statements
for Metawave Communications Corporation consist of the Unaudited Pro Forma
Combined Condensed Statement of Operations for the year ended December 31, 1999
and the six months ended June 30, 2000, and the Unaudited Pro Forma Combined
Condensed Balance Sheet as of June 30, 2000. These pro forma financial
statements give effect to Metawave Communications Corporation's acquisition of
Adaptive Telecom, Inc. (Adaptive Telecom) in a business combination accounted
for as a purchase, which closed on September 21, 2000. In exchange for the
acquisition of all of Adaptive Telecom's outstanding capital stock and stock
options, Metawave issued Adaptive Telecom shareholders 5,361,803 shares of its
common stock and stock options for 138,166 shares of Metawave common stock.
The Unaudited Pro Forma Combined Condensed Statement of Operations combine
Metawave's historical results of operations for the year ended December 31,
1999 with Adaptive Telecom's historical results of operations for the year
ended December 31, 1999 and Metawave's historical results of operations for the
six months ended June 30, 2000 with Adaptive Telecom's historical results of
operations for the six months ended June 30, 2000. These Unaudited Pro Forma
Combined Condensed Statements present the pro forma operating results as if
Adaptive Telecom had been acquired on January 1, 1999. The Unaudited Pro Forma
Combined Condensed Balance Sheet combines Metawave's historical balance sheet
at June 30, 2000 and Adaptive Telecom's historical balance sheet at June 30,
2000 as if Adaptive Telecom had been acquired on June 30, 2000. The pro forma
financial statements are not necessarily indicative of what the actual
operating results or financial position would have been for the combined
company had the transaction taken place on the dates indicated, nor is it
necessarily indicative of the future operating results or financial position of
the combined company.
Basis of Presentation
The unaudited pro forma combined condensed financial statements reflect the
Adaptive Telecom acquisition which was consummated on September 21, 2000 and
will be accounted for using the purchase method of accounting in accordance
with APB Opinion No. 16 as described in the notes herein. Under the purchase
method of accounting, the purchase price is allocated to the assets acquired
and liabilities assumed based on their estimated fair market values. The
estimated fair market values contained herein are based on assessment performed
by an independent appraiser. Metawave expects to record a charge of $10.4
million to operations related to in-process research and development. The
Unaudited Pro Forma Combined Condensed Balance Sheet includes the effect of
this charge but the Unaudited Pro Forma Combined Condensed Statement of
Operations does not reflect this charge because of its nonrecurring nature. The
charge related to in-process research and development will be reflected in
Metawave's consolidated financial statements for the quarter ended September
30, 2000.
The pro forma combined condensed financial statements should be read in
conjunction with the related notes thereto and the audited consolidated
financial statements and notes of Metawave and the audited financial statements
and notes of Adaptive Telecom included elsewhere in this registration
statement. Pro forma basic and diluted earnings per share reflects the pro
forma effect of Metawave convertible and redeemable preferred stock as if such
shares were converted to Metawave common stock at the time of issuance.
17
<PAGE>
METAWAVE COMMUNICATIONS CORPORATION
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
Six Months Ended June 30, 2000
(Unaudited)
(In thousands, except share data)
<TABLE>
<CAPTION>
Historical
--------------------
Adaptive Pro Forma Pro Forma
Metawave Telecom Adjustments Combined
---------- -------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues....................... $ 20,694 $ 508 $ -- $ 21,202
Cost of revenues............... 15,193 390 -- 15,583
---------- ------- --------- ----------
Gross profit................... 5,501 118 -- 5,619
Operating expenses:
Research and development..... 12,687 940 (230) (J) 14,549
1,152 (K)
Sales and marketing.......... 4,876 241 176 (K) 5,293
General and administrative... 2,945 216 243 (K) 3,404
Amortization of intangibles
and goodwill................ -- -- 9,061 (L) 9,061
---------- ------- --------- ----------
Total operating expenses... 20,508 1,397 10,402 32,307
---------- ------- --------- ----------
Loss from operations........... (15,007) (1,279) (10,402) (26,688)
Other income (expense), net.... 726 34 -- 760
---------- ------- --------- ----------
Net loss....................... $ (14,281) $(1,245) $ (10,402) $ (25,928)
========== ======= ========= ==========
Basic and diluted net loss per
share......................... $ (0.99) $ (1.33)
========== ==========
Weighted average shares used in
computation of basic and
diluted net loss per share.... 14,378,271 5,159,097 (M) 19,537,368
========== ========= ==========
Pro forma basic and diluted net
loss per share................ $ (0.43) $ (0.68)
========== ==========
Weighted average shares used in
computation of pro forma net
loss per share................ 33,129,366 5,159,097 (M) 38,288,463
========== ========= ==========
</TABLE>
See accompanying notes.
18
<PAGE>
METAWAVE COMMUNICATIONS CORPORATION
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
Year Ended December 31, 1999
(Unaudited)
(In thousands, except share data)
<TABLE>
<CAPTION>
Historical
--------------------
Adaptive Pro Forma Pro Forma
Metawave Telecom Adjustments Combined
---------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Revenues..................... $ 22,596 $3,550 $ -- $ 26,146
Cost of revenues............. 22,236 2,595 -- 24,831
---------- ------ --------- ----------
Gross profit................. 360 955 -- 1,315
Operating expenses:
Research and development... 22,787 321 7,827 (K) 30,935
Sales and marketing........ 11,080 414 766 (K) 12,260
General and
administrative............ 5,732 285 5,827 (K) 11,844
Amortization of intangibles
and goodwill.............. -- -- 18,122 (L) 18,122
---------- ------ --------- ----------
Total operating expenses..... 39,599 1,020 32,542 73,161
---------- ------ --------- ----------
Loss from operations......... (39,239) (65) (32,542) (71,846)
Other income (expense), net.. (3,174) 108 -- (3,066)
---------- ------ --------- ----------
Net loss..................... $ (42,413) $ 43 $ (32,542) $ (74,912)
========== ====== ========= ==========
Basic and diluted net loss
per share................... $ (18.98) $ (10.61)
========== ==========
Weighted average shares used
in computation of basic and
diluted net loss per share... 2,234,798 4,824,765 (M) 7,059,563
========== ========= ==========
Pro forma basic and diluted
net loss per share.......... $ (1.77) $ (2.61)
========== ==========
Weighted average shares used
in computation of pro forma
net loss per share........... 23,931,291 4,824,765 (M) 28,756,056
========== ========= ==========
</TABLE>
See accompanying notes
19
<PAGE>
METAWAVE COMMUNICATIONS CORPORATION
PRO FORMA COMBINED CONDENSED BALANCE SHEET
June 30, 2000
(Unaudited)
(In thousands, except share data)
<TABLE>
<CAPTION>
Historical
-------------------
Adaptive Pro Forma Pro Forma
Metawave Telecom Adjustments Combined
--------- -------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents.... $ 61,356 $ 579 $ -- $ 61,935
Accounts receivable, net..... 14,142 -- -- 14,142
Inventories.................. 6,566 -- -- 6,566
Prepaid expenses and other
assets...................... 947 66 -- 1,013
--------- -------- ------- ---------
Total current assets....... 83,011 645 -- 83,656
Property and equipment, net.... 5,892 367 (17)(A) 6,242
Purchased technology, goodwill
and other intangibles, net.... -- -- 85,979 (B) 85,979
Other noncurrent assets........ 185 55 (37)(C) 203
--------- -------- ------- ---------
Total assets............... $ 89,088 $ 1,067 $85,925 $ 176,080
========= ======== ======= =========
LIABILITIES AND STOCKHOLDER'S
EQUITY (DEFICIT)
-----------------------------
Current liabilities:
Accounts payable............. 6,547 62 -- 6,609
Accrued liabilities.......... 2,489 -- 2,500 (D) 4,989
Accrued compensation......... 1,910 147 -- 2,057
Current portion of notes
payable..................... 8 -- -- 8
Current portion of capital
lease obligations........... 2,709 -- -- 2,709
Customer deposits............ -- 166 -- 166
Deferred revenues............ 355 -- -- 355
Shareholder loans............ -- 59 -- 59
--------- -------- ------- ---------
Total current liabilities.. 14,018 434 2,500 16,952
Notes payable, less current
portion....................... 23 -- -- 23
Capital lease obligations, less
current portion............... 2,651 -- -- 2,651
Other long-term liabilities.... 16 -- -- 16
Stockholder's equity:
Capital stock................ 209,541 15,279 96,529 (E) 321,349
Deferred stock compensation.. (2,181) (13,375) 13,375 (F) (19,531)
(17,350) (G)
Accumulated other
comprehensive income........ (59) -- -- (59)
Accumulated deficit.......... (134,921) (1,271) 1,271 (H) (145,321)
(10,400) (I)
--------- -------- ------- ---------
Total stockholders'
equity.................... 72,380 633 83,425 156,438
--------- -------- ------- ---------
Total liabilities and
stockholders' equity...... $ 89,088 $ 1,067 $85,925 $ 176,080
========= ======== ======= =========
</TABLE>
See accompanying notes
20
<PAGE>
METAWAVE COMMUNICATIONS CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
1. Basis of Pro forma Presentation
The pro forma combined financial statements give effect to Metawave's
acquisition of Adaptive Telecom, in a business combination accounted for as a
purchase, which was consummated on September 21, 2000. Upon the effective date
of the acquisition, all outstanding common stock of Adaptive Telecom were
converted into shares of Metawave common stock based on the applicable exchange
ratio as specified in the merger agreement. All outstanding stock options to
purchase shares of Adaptive Telecom common stock were converted into options to
purchase shares of Metawave stock based on the exchange ratio.
The pro forma combined financial statements have been prepared based on the
assessment by the independent appraiser of the estimated fair market value of
the assets and liabilities of Adaptive Telecom. In the opinion of Metawave's
management, all adjustments necessary to present fairly such pro forma combined
financial statements have been made based on the terms and structure of the
Adaptive Telecom acquisition. The Unaudited Pro Forma Combined Condensed
Statements of Operations for the year ended December 31, 1999 and the six
months ended June 30, 2000 give effect to these transactions as if they had
taken place on January 1, 1999, and these statements omit non-recurring
charges. The Unaudited Pro Forma Combined Condensed Balance Sheet as of June
30, 2000 gives effect to the transaction as if it had taken place on June 30,
2000.
Metawave issued 5,361,803 shares of its common stock, valued at $20.37 per
share, the average market price per share of Metawave common stock in a range
three trading days before and after the announcement date (September 5, 2000)
of the acquisition. Additionally, Metawave issued 138,166 options to purchase
shares of its common stock in exchange for all options and grants to purchase
shares of Adaptive Telecom common stock. The value of options and grants to be
issued by Metawave was determined by estimating their fair market value as of
September 5, 2000 using the Black-Scholes option pricing model. The total
estimated fair value of all consideration, including acquisition related costs,
is $114,308,000, of which $17,350,000 has been recorded as deferred stock
compensation.
Below is a table of the estimated purchase price allocation and annual
amortization of the intangible assets and goodwill acquired:
<TABLE>
<CAPTION>
Annual
Purchase Price Amortization Amortization
Allocation Life of Intangibles
-------------- ------------ --------------
(In thousands) (In thousands)
<S> <C> <C> <C>
Purchase price allocation:
Tangible net assets acquired.. $ 579 -- $ --
Intangible net assets acquired:
In-process research and
development.................. 10,400 -- --
Assembled workforce........... 1,380 3 460
Patents....................... 5,570 3 1,856
Goodwill...................... 79,029 5 15,806
------- -------
Total....................... $96,958 $18,122
======= =======
</TABLE>
Tangible net assets acquired includes cash and cash equivalents, prepaid
expenses, and property and equipment. Liabilities assumed principally include
accounts payable, accrued compensation, customer deposits and shareholder
loans.
The value allocated to in-process research and development will be charged
to expense during the quarter ending September 30, 2000 but has not been
reflected in the Metawave Unaudited Pro forma Combined Condensed Statements of
Operations as it is non-recurring in nature.
21
<PAGE>
METAWAVE COMMUNICATIONS CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(Continued)
1. Basis of Pro forma Presentation--(continued)
The value allocated to the assembled workforce is attributable to the
Adaptive Telecom workforce in place after the acquisition which eliminates 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.
The acquired patents are developed through years of experience in designing
and developing embedded solutions for wireless network operators facing
capacity constraints. Our smart antenna systems and Adaptive Telecom's embedded
solutions will enable network operators to increase network capacity and
improve network quality. The value allocated to patents will be amortized on a
straight-line basis over three years.
Goodwill is determined based on the residual difference between the amount
of consideration paid 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 represents
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 stock
compensation will be amortized over the related remaining vesting periods using
a graded vesting approach. Such amortization amounts assume that all vesting
periods are completed by all employees, to the extent that unvested options are
forfeited by an employee, previously recorded amortization related to the
unvested options will be credited to stock-based compensation expense.
2. Pro Forma Adjustments
A. To reflect the write-down of acquired property and equipment to
estimated fair market value.
B. To record acquired intangible assets of $6,950,000 and goodwill of
$79,029,000.
C. To reflect the write-off of patents recorded on Adaptive Telecom's
financial statements which is included in the allocation of intangibles
in connection with the acquisition.
D. To reflect the accrual of direct acquisition costs arising from the
Adaptive Telecom acquisition, including legal, consulting, and
accounting fees.
E. To eliminate Adaptive Telecom's outstanding capital stock of $15,279,000
and record the aggregate value of $111,808,000 for the issuance of
5,361,803 shares of Metawave's common stock and 138,166 shares of stock
options to purchase Metawave's common stock in connection with the
acquisition.
F. To eliminate deferred stock compensation recorded on Adaptive Telecom's
financial statements of $13,375,000.
G. To record deferred stock compensation in connection with the acquisition
of $17,350,000.
H. To eliminate accumulated deficit of $1,271,000 recorded on Adaptive
Telecom's financial statements.
I. To record the in-process research and development charge of $10,400,000.
J. To eliminate the amortization of deferred stock compensation recorded on
Adaptive Telecom's financial statements during the six months ended June
30, 2000 of $230,000.
K. To record by its functional department, the amortization of deferred
stock compensation of $14,420,000 for the twelve months ended December
31, 1999 and $1,571,000 for the six months ended June 30, 2000,
resulting from the acquisition of Adaptive Telecom, Inc.
22
<PAGE>
METAWAVE COMMUNICATIONS CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(Continued)
2. Pro Forma Adjustments--(continued)
L. To record the amortization of intangible assets and goodwill of
$18,122,000 for the twelve months ended December 31, 1999 and $9,061,000
for the six months ended June 30, 2000.
M. Reflects the impact of 5,361,803 weighted average shares of common stock
issued in connection with the purchase of Adaptive Telecom less common
stock which is subject to restrictions which lapse upon continuing
employment.
23
<PAGE>
(c) EXHIBITS.
--------
2.1* Amended and Restated Agreement and Plan of Merger dated
September 20, 2000 among the Company, Company Sub and Target
23.1 Consent of Mohler, Nixon and Williams Accountancy
Corporation, Independent Accountants.
------------
* Previously filed as an exhibit to The Form 8-K filed with
The commission by The Registrant on October 5, 2000 (File
No. 000-24673), and incorporated herein by reference.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
METAWAVE COMMUNICATIONS
CORPORATION
(Registrant)
Date: November 3, 2000 By: /s/ Stuart W. Fuhlendorf
--------------- ------------------------
Stuart W. Fuhlendorf
Senior Vice President and
Chief Financial Officer
25
