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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 June 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 June 30, 2000, there were outstanding 37,824,959 shares of the
Registrant's common stock.
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METAWAVE COMMUNICATIONS CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 2000
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 2000 and December 31, 1999................... 1
Consolidated Statements of Operations-Three months ended June 30, 2000 and
1999; Six months ended June 30, 2000 and 1999....................................... 2
Consolidated Statements of Cash Flows - Six months ended June 30, 2000 and 1999..... 3
Notes to Consolidated Financial Statements June 30, 2000............................ 4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 6
Item 3. Quantitative and Qualitative Disclosure of Market Risk.............................. 10
Part II. Other Information
Item 2. Changes In Securities and Use of Proceeds........................................... 11
Item 4. Submission of Matters to a Vote of Security Holders................................. 11
Item 6. Exhibits and Reports on Form 8-K.................................................... 12
Signatures...................................................................................... 13
</TABLE>
<PAGE>
PART I Financial Information
Item 1. Financial Statements
METAWAVE COMMUNICATIONS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
June 30,
2000 December 31,
ASSETS (Unaudited) 1999
------ ----------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 61,356 $ 20,165
Accounts receivable, net 14,142 10,127
Inventories 6,566 4,149
Prepaid expenses and other assets 947 613
--------- ---------
Total current assets 83,011 35,054
Property and equipment, net 5,892 5,701
Other noncurrent assets 185 191
--------- ---------
Total assets $ 89,088 $ 40,946
========= =========
LIABILITIES AND STOCKHOLDER'S DEFICIT
-------------------------------------
Current liabilities:
Accounts payable 6,547 3,758
Accrued liabilities 2,489 2,493
Accrued compensation 1,910 1,511
Current portion of notes payable 8 75
Current portion of capital lease obligations 2,709 2,692
Deferred revenues 355 1,766
--------- ---------
Total current liabilities 14,018 12,295
Notes payable, less current portion 23 8
Capital lease obligations, less current portion 2,651 2,479
Other long-term liabilities 16 16
Commitments:
Convertible and redeemable preferred stock - issued and
outstanding shares: 0 and 32,027,203 at June 30, 2000 and
December 31, 1999 - 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
June 30, 2000 and December 31, 1999; outstanding
shares - none - -
Common stock, $.0001 par value :
Authorized shares - 150,000,000 and 50,000,000;
issued and outstanding shares - 37,824,959 and
2,390,910 at June 30, 2000 and December 31, 1999,
respectively 209,541 3,573
Deferred stock compensation (2,181) (906)
Accumulated other comprehensive income (59) 19
Accumulated deficit (134,921) (120,640)
--------- ---------
Total stockholders' equity(deficit) 72,380 (117,954)
--------- ---------
Total liabilities and stockholders' equity $ 89,088 $ 40,946
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
1
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METAWAVE COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except earnings per share and share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 11,365 $ 1,553 $ 20,694 $ 8,387
Cost of revenues 8,099 1,860 15,193 8,919
----------- ----------- ----------- -----------
Gross profit(loss) 3,266 (307) 5,501 (532)
Operating expenses:
Research and development 6,313 5,651 12,687 11,043
Sales and marketing 2,533 2,722 4,876 5,416
General and administrative 1,620 1,654 2,945 2,934
----------- ----------- ----------- -----------
Total operating expenses 10,466 10,027 20,508 19,393
----------- ----------- ----------- -----------
Operating loss (7,200) (10,334) (15,007) (19,925)
Other income, net 795 228 1,011 358
Interest expense (131) (842) (285) (4,080)
----------- ----------- ----------- -----------
Other income(expense), net 664 (614) 726 (3,722)
----------- ----------- ----------- -----------
Net loss $ (6,536) $ (10,948) $ (14,281) $ (23,647)
=========== =========== =========== ===========
Basic and diluted net loss per share $ (0.25) $ (4.92) $ (0.99) $ (10.88)
=========== =========== =========== ===========
Weighted average shares used in computation
of basic and diluted net loss per share 26,187,483 2,227,458 14,378,271 2,172,848
=========== =========== =========== ===========
Pro forma weighted average shares
outstanding 35,716,728 21,535,121 33,129,366 17,488,860
=========== =========== =========== ===========
Pro forma basic and diluted net loss per
share $ (0.18) $ (0.51) $ (0.43) $ (1.35)
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
2
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METAWAVE COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
2000 1999
-------- --------
<S> <C> <C>
Operating Activities
Net Loss $(14,281) $(23,647)
Adjustments to reconcile net loss to net cash provided by
Operating activities:
Depreciation and amortization 1,515 1,568
(Gain)/Loss on disposal of assets (1) -
Stock compensation expense 1,257 476
Debt financing amortization - 2,321
Changes in operating assets and liabilities:
Decrease(increase) in accounts receivable (4,015) (1,959)
Decrease(increase) in inventories (2,417) (4,387)
Decrease(increase) in prepaids and other noncurrent
assets (328) 47
Increase(decrease) in accounts payable,
accrued liabilities, and other liabilities 3,184 1,930
Increase(decrease) in deferred revenues (1,411) 3,842
--------- ---------
Net cash used in operating activities (16,497) (19,809)
Investing Activities
Purchases of equipment (174) (1,083)
--------- ---------
Net cash used in investing activities (174) (1,083)
Financing Activities
Proceeds from issuance of preferred stock - 82,507
Proceeds from issuance of common stock 58,887 -
Proceeds from exercise of common stock options 447 76
Payments on notes payable (52) (31,760)
Principal payments on capital lease obligations (1,343) (1,285)
--------- ---------
Net cash provided by financing activities 57,939 49,538
--------- ---------
Net increase in cash 41,268 28,646
Effect of exchange rate changes on cash (77) (48)
Cash and cash equivalents at beginning of period 20,165 10,763
--------- ---------
Cash and cash equivalents at end of period $ 61,356 $ 39,361
========= =========
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 -
Interest paid 226 1,703
Deferred stock compensation 2,532 -
</TABLE>
See accompanying notes to consolidated financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying consolidated financial statements of Metawave Communications
Corporation have been prepared in conformity with 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 six months ended June 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.
333-30568) dated April 25, 2000 filed with the Securities and Exchange
Commission in connection with our initial public offering.
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 second quarter of 2000
ended on July 2, 2000. For convenience of presentation, all fiscal periods in
these financial statements are treated as ending on a calendar month end.
2. Nature of Operations
Metawave Communications Corporation designs, develops, manufactures and markets
smart antenna for the wireless communications industry. Our capacity and
quality solutions, consisting of smart antenna systems, applications software
and engineering services, enable wireless network operators to increase overall
network capacity, improve or maintain network quality, reduce network operating
costs and better manage network infrastructure. Using our proprietary
technologies, we have developed systems that address the capacity and call
quality problems faced by wireless network operators.
3. Initial Public Offering
On April 27, 2000, we announced the initial public offering of 6,250,000 shares
of our common stock which began trading at the offering price of $9.00 per
share. Merrill Lynch & Co., Salomon Smith Barney and U.S. Bancorp Piper Jaffray
were the managing underwriters for this offering. On May 2, 2000, the
underwriters exercised their option to purchase the entire over-allotment of
937,500 shares of our common stock. The net proceeds from the sale were $58.9
million after deducting the underwriting discounts, commissions and offering
expenses. We intend to use the net proceeds for general corporate purposes,
including working capital to fund anticipated operating losses, research and
development, and expansion of our manufacturing facilities.
4. Reverse Stock Split and Preferred Stock Conversion
On April 12, 2000, the Board of Directors approved a two-for-three reverse stock
split of our common stock. As a result of the split, all shares of preferred
stock and preferred stock warrants were adjusted based on the applicable
conversion rate to reflect this split. On May 2, 2000, all preferred stock and
preferred stock warrants were converted to 27,972,907 shares of common stock and
90,870 shares of common stock warrants, respectively.
5. 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
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carried at fair value, with the unrealized gains and losses, net of tax,
reported as a separate component of stockholder's equity. As of June 30, 2000
and December 31, 1999, unrealized holding gains and losses were not significant.
6. Inventories (in thousands)
<TABLE>
<CAPTION>
June 30,
2000 December 31,
(Unaudited) 1999
----------- ------------
<S> <C> <C>
Purchased parts $4,037 $2,251
Subassemblies 1,351 1,144
Finished goods 1,178 754
------ ------
$6,566 $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.
7. Property, Plant and Equipment (in thousands)
<TABLE>
<CAPTION>
June 30,
2000 December 31,
(Unaudited) 1999
----------- ------------
<S> <C> <C>
Equipment $11,778 $10,100
Furniture and fixtures 985 976
Leasehold improvements 911 910
------- -------
13,674 11,986
Accumulated depreciation and amortization (7,782) (6,285)
------- -------
$ 5,892 $ 5,701
======= =======
</TABLE>
Included in property and equipment are assets acquired under capital lease
obligations with an original cost of $8,776,000 and $8,920,000 at June 30, 2000
and December 31, 1999, respectively. Accumulated amortization on the leased
assets was $5,506,000 and $3,749,000 at June 30, 2000 and December 31, 1999,
respectively.
In connection with the Master Lease Agreement with Transamerican Business Credit
Corporation, on June 30, 2000 we entered into a three-year capital lease for
testing equipment and computer hardware and a two-year capital lease for
software for $702,863 and $372,831, respectively.
8. Line of Credit Agreement
In June 2000, we renewed our line of credit with Imperial Bank increasing
available funds from $7.5 million to $10.0 million to support our working
capital requirements. The line of credit has a maturity date of one year with
interest payable monthly and principal at maturity. As of June 30, 2000, we had
an outstanding balance of $30,250 on this credit line.
9. 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.
10. 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
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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 Six Months Ended
June 30, June 30,
2000 1999 2000 1999
-------- -------- -------- --------
(In thousands, except per share data)
(Unaudited)
<S> <C> <C> <C> <C>
Net loss $(6,536) $(10,948) $(14,281) $(23,647)
======= ======== ======== ========
Weighted average shares outstanding:
Common Stock 26,187 2,227 14,378 2,173
Convertible and redeemable preferred stock 9,530 19,308 18,751 15,316
------- -------- -------- --------
Pro forma weighted average shares outstanding 35,717 21,535 33,129 17,489
======= ======== ======== ========
Basic and diluted net loss per share $ (0.25) $ (4.92) $ (0.99) $ (10.88)
======= ======== ======== ========
Pro forma net loss per share $ (0.18) $ (0.51) $ (0.43) $ (1.35)
======= ======== ======== ========
</TABLE>
11. 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 six months ended June 30, 2000 and 1999, respectively.
<TABLE>
<CAPTION>
Revenues (in thousands) Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
------- ------ ------- ------
(Unaudited)
<S> <C> <C> <C> <C>
United States $ 6,794 $1,553 $10,863 $8,387
Mexico 4,302 - 9,562 -
Peru 269 - 269 -
------- ------ ------- ------
Total $11,365 $1,553 $20,694 $8,387
======= ====== ======= ======
</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. 333-30568), 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
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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 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 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. 333-30568).
Overview
We provide smart antenna systems 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 hardware and
software. Our SpotLight systems reduce the need for more costly infrastructure
upgrades and additional cell site deployments, allowing wireless network
operators to more cost-effectively keep pace with subscriber growth and
increased demand for digital services. Our technology is designed to be
implemented in a variety of market segments in the wireless communications
industry and currently supports CDMA, GSM and analog standards.
We were incorporated in 1995 and were in development stage until late 1997.
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
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. As of June 30, 2000, we have sold an aggregate
of 185 CDMA SpotLight systems worldwide. In the second quarter of 2000, we
completed the testing of our GSM SpotLight systems in our Redmond facility, and
these units are currently undergoing tests as field trials in China, Hong Kong
and Taiwan.
Results of Operations - For the Three Months and Six Months Ended June 30, 2000
and 1999
Revenues:
Net revenue for the second quarter of 2000 increased 612% to $11.4 million from
$1.6 million over the second quarter of 1999. Net revenue for the six months
ended June 30, 2000 increased 146% to $20.7 million from $8.4 million for the
same period in 1999. In the second quarter of 1999, revenues declined compared
to previous quarters as we transitioned our SpotLight systems from analog to
CDMA digital-based systems. The increases in the second quarter of 2000 were
primarily due to increased unit sales of our CDMA SpotLight systems and
increased revenues from sales of optional equipment. The two largest customers
for our company were Verizon Wireless and Grupo Iusacell Celular S.A. de C.V. of
Mexico which accounted for 54% and 38% of our revenues, respectively, in the
second quarter of 2000. We sold product to six of the seven U.S. regions of
Verizon Wireless in the second quarter of 2000. Iusacell operates in four of the
nine Mexican regions, and we sold product to those four regions, including the
most populous region, Mexico City, for the first time in the second quarter of
2000. International sales of our systems for the three months and six months
ended June 30, 2000 accounted for 40% and 48%, respectively, of total revenues .
Gross Profit:
Gross profit for the second quarter of 2000 increased to $3.3 million from a
negative gross margin of $0.3 million in the second quarter of 1999. For the
six months ended June 30, 2000, gross profit increased to $5.5 million from a
negative gross margin of $0.5 million for the six months ended June 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 second 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% in the second quarter of 2000 compared to a
negative gross margin of 20% in the second quarter of 1999. And, as a
percentage of sales, gross margin was 27% in the first six months of 2000,
compared to a negative gross margin of 6% in the first six 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 11% from $5.7
million for the second quarter in 2000 over the comparable period in 1999.
Research and development expense increased 15% to $12.7 million from
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$11.0 million for the six months ended June 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. In addition, 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 decreased 7% from $2.7 million to $2.5 million for
the three months ended June 30, 2000 as compared to the same period in 1999.
Sales and marketing expense decreased 9% from $5.4 million to $4.9 million for
the six months ended June 30, 2000 as compared to the same period in 1999. The
decrease was primarily due to staffing realignment and adjusted sales
compensation structure in the year 2000.
General and Administrative:
General and administrative expenses consist primarily of salaries and benefits,
fees for professional services, rent and general office expenses. General and
administrative expenses for the three months ended June 30, 2000 was $1.6
million, a decrease of 6% from $1.7 million for the three months ended June 30,
1999. General and administrative expenses for the six months ended June 30,
2000 and 1999 remained constant at $2.9 million.
Other Income(Expense), Net:
Our total other income(expense), net amounted to an income of $0.7 million in
the three months ended June 30, 2000 compared to an expense of $0.6 million in
the three months ended June 30, 1999. For the six months ended June 30, 2000,
total other income(expense), net amounted to an income of $0.7 million compared
to an expense of $3.7 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,
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 $0.8 million and $1.0 million for the three and six months ended June
30, 2000, respectively.
Liquidity and Capital Resources
At June 30, 2000, we had $61.4 million in cash and cash equivalents. For the
six months ended June 30, 2000, we used net cash in operating activities of
$16.5 million compared to $19.8 million over the same period in 1999. Our
operating activities included major uses of cash to fund our net loss of $14.3
million, increased inventories of $2.4 million, increased accounts receivable of
$4.0 million and decreased deferred revenues of $1.4 million. We partially
offset cash uses with increases in accounts payable and accrued liabilities of
$3.2 million.
Our net cash used in investing activities for the six months ended June 30, 2000
and 1999 were $0.2 million and $1.1 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.
Our net cash provided by financing activities for the six months ended June 30,
2000 was $57.9 million compared to $49.5 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 six months ended June 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 June 30, 2000, we had $61.4 million in cash and cash equivalents. We also
had a revolving line of credit of $10.0 million with Imperial Bank. Other than
contract renewal fees of $30,250, 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 $0.2 million remained available as of
June 30, 2000. Please see Part II, Item 2 for discussions on Changes in
Securities and Use of Proceeds.
8
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Recent Accounting Pronouncements
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.
In March 2000, the FASB issued FASB Interpretation No. 44 , "Accounting for
Certain Transactions Involving Stock Compensation , an interpretation of APB
Opinion No. 25". Interpretation No. 44 clarifies the application of APB No. 25
in certain situations as defined. Interpretation 44 is effective July 1, 2000
but is retroactive for certain events that occurred after December 15, 1998. We
do not expect that the adoption of Interpretation No. 44 will have a material
effect on our consolidated financial statements.
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 Statement on Form S-1 (File No. 333-
30568) filed with the Securities and Exchange Commission. These risks may
impair our business prospects, operating results, and the market price of our
stock.
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 is so new and wireless
technologies change so rapidly. Because our smart antenna systems 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 Grupo
Iusacell Celular S.A. de C.V. 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
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. 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
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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 recently
completed its first field trial, 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.
Risks Related to Limited Number of Suppliers
Our reliance on a limited number of suppliers for our smart antenna systems
could impair our ability to manufacture and deliver our systems on a timely
basis. Some parts and components used in our smart antenna systems 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.
International Market Risks
Our substantial sales of our SpotLight systems in international markets subject
us to various risks and costs which may harm our business. We anticipate that
international sales of our SpotLight systems 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;
. 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;
. political and economic instability in the regions where we sell our SpotLight
systems;
. 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.
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.
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PART II. Other Information
Item 2. Changes in Securities and Use of Proceeds
(a) In the second quarter of 2000, the Board of Directors approved a two-for-
three reverse stock split of our common stock. As a result of the split, all
five series of preferred stock and preferred stock warrants were adjusted based
on the applicable conversion rate to reflect this split. On May 2, 2000, all
preferred stock and preferred stock warrants were converted to 27,972,907 shares
of common stock and 90,870 shares of common stock warrants, respectively.
(c) In the quarter ended June 30, 2000, we issued 42,667 shares of unregistered
common stock to employees pursuant to the exercise of stock options under our
1995A and 1998 Stock Option Plans. These options were exercised at a weighted
average price of $2.62 per share. In addition, we issued 315 shares of
unregistered common stock to Insight Investments Corporation upon the exercise
of their stock warrants at $8.32 per share. The issuance of these securities
were deemed to be exempt from registration under the Securities Act in
accordance with Rule 701 of the Securities Act and Section 4(2) of the
Securities Act, respectively.
(d) Use of Proceeds from Sale of Registered Securities
On April 27, 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. All 6,250,000 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 underwriters for the offering. On May 2, 2000, the underwriters
exercised their option to purchase the entire over-allotment of 937,500 shares
of our common stock at $9.00 per share. 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. Approximately $1.2 million was applied toward working capital
expenditures.
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.
We may, if the opportunity arises, use a portion of the proceeds to acquire or
invest in complementary businesses, products or technologies.
Item 4. Submission of Matters to a Vote of Security Holders
Effective March 30, 2000, a majority of the holders of capital stock of Metawave
Communications Corporation approved the following items in an action by written
consent:
- Prior to the closing of the Public Offering, an amendment and
restatement of the Certificate of Incorporation to effect a reverse
stock split;
- In connection with the closing of the Public Offering, an amendment and
restatement of the Certificate of Incorporation to delete all references
to the prior series of Preferred Stock, authorize undesignated Preferred
Stock consisting of 10,000,000 shares, eliminate the ability of
stockholders to take action by written consent and provide for certain
other matters;
- Adoption of the 2000 Stock Option Plan;
- Adoption of the 2000 Employee Stock Purchase Plan;
- Amendment and restatement of the 1995 Stock Option Plan;
- Amendment and restatement of the 1998 Stock Option Plan;
- Amendment and restatement of the 1998 Directors' Stock Option Plan; and
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- Conversion of Preferred Stock into Common Stock upon the closing of the
Public Offering.
Item. 6 Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number
3.1 Seventh Amended and Restated Certificate of Incorporation of the
Registrant (Incorporated by reference to exhibit number 3.4 to
Metawave Communications Corporation's registration statement on Form
S-1 (File No. 333-30568)
3.2 Bylaws of the Registrant (Incorporated by reference to exhibit
number)
4.1 Form of Stock Certificate (Incorporated by reference to exhibit
number)
4.2 Fifth Amended and Restated Investors Rights Agreement dated April
28, 1999 by and among the Registrant and certain holders of the
Registrant's capital stock (Incorporated by reference to exhibit
number 10.7 to Metawave Communications Corporation's registration
statement on Form S-1 (File No. 333-30568)
10.1 1995 Stock Option Plan, as amended (Incorporated by reference to
exhibit number 10.2 to Metawave Communications Corporation's
registration statement on Form S-1 (File No. 333-30568)
10.2 1998 Stock Option Plan, as amended (Incorporated by reference to
exhibit number 10.3 to Metawave Communications Corporation's
registration statement on Form S-1 (File No. 333-30568)
10.3 2000 Employee Stock Purchase Plan (Incorporated by reference to
exhibit number 10.4 to Metawave Communications Corporation's
registration statement on Form S-1 (File No. 333-30568)
10.4 1998 Amended and Restated Directors' Stock Option Plan
((Incorporated by reference to exhibit number 10.5 to Metawave
Communications Corporation's registration statement on Form S-1
(File No. 333-30568)
10.5 2000 Stock Plan (Incorporated by reference to exhibit number 10.26
to Metawave Communications Corporation's registration statement on
Form S-1 (File No. 333-30568)
27.1 Financial Data Schedule - (filed only with the electronic submission
of Form 10-Q).
(b) Reports on Form 8(K)
The Company did not file any reports on Form 8-K during the three months
ended June 30, 2000.
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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: August 11, 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
3.1 Seventh Amended and Restated Certificate of Incorporation of the
Registrant (Incorporated by reference to exhibit number 3.4 to Metawave
Communications Corporation's registration statement on Form S-1 (File No.
333-30568)
3.2 Bylaws of the Registrant (Incorporated by reference to exhibit number)
4.1 Form of Stock Certificate (Incorporated by reference to exhibit number)
4.2 Fifth Amended and Restated Investors Rights Agreement dated April 28, 1999
by and among the Registrant and certain holders of the Registrant's
capital stock (Incorporated by reference to exhibit number 10.7 to
Metawave Communications Corporation's registration statement on Form S-1
(File No. 333-30568)
10.1 1995 Stock Option Plan, as amended (Incorporated by reference to exhibit
number 10.2 to Metawave Communications Corporation's registration
statement on Form S-1 (File No. 333-30568)
10.2 1998 Stock Option Plan, as amended (Incorporated by reference to exhibit
number 10.3 to Metawave Communications Corporation's registration
statement on Form S-1 (File No. 333-30568)
10.3 2000 Employee Stock Purchase Plan (Incorporated by reference to exhibit
number 10.4 to Metawave Communications Corporation's registration
statement on Form S-1 (File No. 333-30568)
10.4 1998 Amended and Restated Directors' Stock Option Plan ((Incorporated by
reference to exhibit number 10.5 to Metawave Communications Corporation's
registration statement on Form S-1 (File No. 333-30568)
10.5 2000 Stock Plan (Incorporated by reference to exhibit number 10.26 to
Metawave Communications Corporation's registration statement on Form S-1
(File No. 333-30568)
27.1 Financial Data Schedule - (filed only with the electronic submission of
Form 10-Q).
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