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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 Quarterly Period Ended SEPTEMBER 30, 2000
-------------------
[ ] 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 _______
TRITON NETWORK SYSTEMS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 59-3434350
------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8529 South Park Circle Orlando, Florida 32819
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(Address of principal executive offices) (Zip Code)
(407) 903-0900
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Registrant's telephone number, including area code
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 period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of issuer's classes of common
stock, as of the latest practicable date.
Common Stock, $0.001 par value 34,860,048 Shares
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Class Outstanding at October 31, 2000
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Triton Network Systems, Inc.
Index
Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 1999 and
September 30, 2000 3
Consolidated Statements of Operations for the Three
and Nine Months Ended September 30, 1999 and 2000 4
Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1999 and 2000 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures about Market
Risk 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Change in Securities and Use of Proceeds 14
Item 3. Defaults in Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signature 15
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Item 1. Financial Statements
Triton Network Systems, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 2000
------------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................... $ 46,130,279 $ 66,493,873
Short-term investments........................ -- 20,673,178
Trade receivables............................. -- 3,993,601
Inventory..................................... 7,244,874 16,639,016
Other current assets.......................... 1,017,565 1,172,903
------------- -------------
Total current assets..................... 54,392,718 108,972,571
Property and equipment, net....................... 7,970,374 18,792,714
Restricted cash................................... 650,000 1,443,315
Intangible assets................................. -- 34,929,987
Long-term investments............................. -- 3,000,000
Other non-current assets.......................... 687,353 982,563
------------- -------------
Total assets............................. $ 63,700,445 $ 168,121,150
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................. $ 5,207,524 $ 7,077,261
Accrued compensation.......................... 1,338,156 2,652,722
Other accrued expenses........................ 2,227,802 4,616,655
Current portion of capital leases............. 1,279,862 1,605,961
Current portion of notes payable.............. 159,140 1,194,527
------------- -------------
Total current liabilities................ 10,212,484 17,147,126
Capital leases, net of current portion............ 1,967,690 1,273,550
Notes payable, net of current portion............. 187,440 4,437,908
Other long-term liabilities....................... -- 244,317
Commitments and contingencies
Stockholders' equity:
Series A, B and C, voting, convertible
preferred stock, $.001 par value;
21,602,500 shares authorized,
18,806,469 issued and outstanding
at December 31, 1999 and none issued
and outstanding at September 30, 2000...... 37,613 --
Common stock, $.001 par value; 120,000,000
shares authorized, 6,795,832 shares
issued and outstanding at December 31,
1999 and 34,857,298 issued and
outstanding at September 30, 2000.......... 13,592 63,154
Additional paid-in capital.................... 105,366,954 235,086,725
Notes receivable from stockholders............ (606,624) (431,624)
Deferred compensation......................... (1,925,998) (2,791,926)
Accumulated deficit........................... (51,552,706) (86,908,080)
------------- -------------
Total stockholders' equity............... 51,332,831 145,018,249
------------- -------------
Total liabilities and stockholders'
equity................................. $ 63,700,445 $ 168,121,150
============= =============
</TABLE>
See accompanying notes to financial statements.
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Triton Network Systems, Inc.
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- -------------------------------
1999 2000 1999 2000
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues..................................... $ -- $ 8,031,876 $ -- $ 16,728,561
Cost of revenues............................. -- 6,973,848 -- 17,721,306
------------ ------------ ------------ ------------
Gross profit (loss).......................... -- 1,058,028 -- (992,745)
Operating expenses:
Manufacturing and operations.............. 2,007,042 -- 5,434,494 --
Research and development.................. 3,029,229 6,229,511 8,656,228 15,996,337
Selling, general and administrative....... 2,524,681 4,554,072 7,290,619 14,876,844
Amortization of intangible assets......... -- 1,939,009 -- 3,881,110
Amortization of deferred compensation..... 407,812 521,237 1,182,514 1,129,422
------------ ------------ ------------ ------------
Total operating expenses............. 7,968,764 13,243,829 22,563,855 35,883,713
------------ ------------ ------------ ------------
Loss from operations......................... (7,968,764) (12,185,801) (22,563,855) (36,876,458)
Other income (expenses):
Interest income........................... 180,567 1,366,898 745,407 2,300,541
Interest and other expense................ (117,422) (412,868) (295,288) (779,457)
------------ ------------ ------------ ------------
Total other income................... 63,145 954,030 450,119 1,521,084
------------ ------------ ------------ ------------
Net loss..................................... $ (7,905,619) $(11,231,771) $(22,113,736) $(35,355,374)
============ ============ ============ ============
Net loss per share--basic and diluted........ $ (1.61) $ (0.36) $ (4.75) $ (2.53)
============ ============ ============ ============
Shares used in per share calculations--
basic and diluted......................... 4,925,500 30,857,013 4,657,186 13,990,900
============ ============ ============ ============
Pro forma net loss per common share:
Net loss per share--basic and diluted..... $ (0.42) $ (0.34) $ (1.21) $ (1.25)
============ ============ ============ ============
Shares used in per share calculations
basic and diluted....................... 18,679,469 33,462,740 18,212,742 28,323,862
============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
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Triton Network Systems, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1999 2000
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss............................................... $(22,113,736) $(35,355,374)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization..................... 838,908 2,904,981
Amortization of intangible assets................. -- 3,881,110
Amortization of deferred compensation............. 1,182,514 1,129,422
Other............................................. -- 265,204
Changes in operating assets and liabilities, net of
effects of acquisition:
Increase in trade receivables..................... -- (3,993,601)
Increase in inventory............................. (3,498,120) (8,804,833)
Increase in other current assets.................. (174,170) (373,038)
Increase in restricted cash and other
non-current assets.............................. (880,887) (863,106)
Increase in accounts payable, accrued
compensation and other accrued expenses......... 3,144,301 5,738,340
------------ ------------
Net cash used in operating activities.................. (21,501,190) (35,470,895)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment.................... (1,991,859) (10,791,467)
Sales (purchases) of investments....................... 11,003,876 (23,673,178)
------------ ------------
Net cash provided by (used in) investing activities.... 9,012,017 (34,464,645)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of preferred and
common stock........................................ 10,705,121 85,886,086
Proceeds from notes payable............................ 462,872 5,906,179
Payments on capital leases and notes payable........... (499,513) (1,493,132)
------------ ------------
Net cash provided by financing activities.............. 10,668,480 90,299,133
------------ ------------
Net decrease (increase) in cash and cash equivalents... (1,820,693) 20,363,593
Cash and cash equivalents at beginning
of period........................................... 10,323,758 46,130,279
------------ ------------
Cash and cash equivalents at end of period............. $ 8,503,065 $ 66,493,872
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid.......................................... $ 294,354 $ 656,397
============ ============
NON-CASH FINANCING AND INVESTING ACTIVITIES
Fixed assets acquired under capital
lease obligations................................... $ 1,753,784 654,764
============ ============
Common stock issued for notes
receivable from stockholders........................ $ 106,150 $ --
============ ============
Common stock warrants issued in connection
with lease and credit agreements.................... $ -- $ 360,000
============ ============
</TABLE>
See accompanying notes to financial statements.
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Triton Network Systems, Inc.
Notes To Consolidated Financial Statements
(Unaudited)
Basis of Presentation
The financial information as of September 30, 2000 and for the three and nine
months ended September 30, 1999 and 2000 is unaudited. In the opinion of
management, such interim financial information includes all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation
of the results for such interim periods. The consolidated financial statements
do not include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. These unaudited
consolidated financial statements should be read in conjunction with the
Company's 1999 audited consolidated financial statements and footnotes included
in the Company's Registration Statement on Form S-1, as amended (File No.
333-31434). The December 31, 1999 consolidated balance sheet data was derived
from the audited consolidated financial statements, but does not include all
disclosures required by generally accepted accounting principles. The
consolidated results of operations for the three and nine months ended
September 30, 2000 are not necessarily indicative of the results to be expected
for any future period.
Inventory
Inventories consisted of the following:
DECEMBER 31, SEPTEMBER 30,
1999 2000
---------- -----------
(UNAUDITED)
Raw materials............................... $3,347,540 $11,913,494
Work in process............................. 1,535,916 3,104,584
Finished goods.............................. 2,361,418 1,620,938
---------- -----------
Total inventory.......................... $7,244,874 $16,639,016
========== ===========
July 2000 Initial Public Offering
On July 17, 2000, the Company completed an initial public offering in which it
sold 6,325,000 shares of common stock (including the underwriters overallotment
exercise of 825,000 shares) at $15.00 per share resulting in proceeds of
approximately $86,000,000, net of underwriting discounts and estimated offering
expenses. Upon the completion of the offering, all the Company's convertible
preferred stock converted into 21,556,469 shares of common stock. In February
2000, the Company's board of directors approved an increase in authorized
shares when the initial public offering was completed. As a result, in July
2000, the Company's authorized capital was increased to 120,000,000 shares of
common stock, $0.001 par value, and 10,000,000 shares of preferred stock,
$0.001 par value.
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In June 2000, in contemplation of the initial public offering, the Company's
stockholders approved a one-for-two reverse stock split of all outstanding
shares, which became effective on July 10, 2000. All share and per share
information included in these consolidated financial statements have been
retroactively adjusted to reflect this stock split.
Net Loss per Share
Basic and diluted net loss per share is based on the weighted-average number of
common shares outstanding for the reporting period. Restricted shares issued
are not included in basic or diluted loss per share in accordance with
Statement of Financial Accounting Standards Board Statement No. 128, Earnings
Per Share. Potentially dilutive securities, consisting of outstanding preferred
stock, stock options and common stock warrants, have been excluded from the
diluted loss per share calculation because their effects would have been
anti-dilutive.
Pro forma basic and diluted loss per share gives effect to the conversion of
the convertible preferred stock, which automatically converted to common stock
upon the closing of the Company's initial public offering, from the original
date of issuance.
The following table sets forth the computation of actual and pro forma basic
and diluted loss per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- ------------------------------
1999 2000 1999 2000
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Actual:
Net loss................................. $(7,905,619) $(11,231,771) $(22,113,736) $(35,355,374)
=========== ============ ============ ============
Weighted-average shares used in
basic and diluted loss per share....... 4,925,500 30,857,013 4,657,186 13,990,900
=========== ============ ============ ============
Basic and diluted net loss per share..... $ (1.61) $ (0.36) $ (4.75) $ (2.53)
=========== ============ ============ ============
Pro forma:
Net loss................................. $(7,905,619) $(11,231,771) $(22,113,736) $(35,355,374)
=========== ============ ============ ============
Shares used above........................ 4,925,500 30,857,013 4,657,186 13,990,900
Adjustment to reflect weighted-
average effect of assumed conversion
of convertible preferred stock......... 13,753,969 2,605,727 13,555,556 14,332,962
----------- ------------ ------------ ------------
Weighted-average shares used in
pro forma basic and diluted loss
per share.............................. 18,679,469 33,462,740 18,212,742 28,323,862
=========== ============ ============ ============
Pro forma basic and diluted net loss
per share.............................. $ (0.42) $ (0.34) $ (1.21) $ (1.25)
=========== ============ ============ ============
</TABLE>
Acquisition
On March 31, 2000, the Company acquired the broadband modem product line from
International Business Machines for 2,750,000 shares of Series C preferred
stock. The total purchase price was approximately $41,300,000, with
approximately $2,300,000 being allocated to net assets and approximately
$39,000,000 to intangible assets, which consist of patent and patent
application licenses and patent disclosures. The purchase price was based on
the fair value of the series C preferred stock using the Company's initial
public offering price of $15.00 per share. The intangible assets are being
amortized over their estimated useful life of five years.
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<PAGE> 8
Debt
In February 2000, the Company entered into an agreement with a financial
institution to borrow up to $9,000,000 in 2000 for capital equipment purchases,
furniture and software. As of September 30, 2000, outstanding borrowings were
approximately $6,000,000 bearing interest at an annual rate of approximately 13
%, and available borrowings were approximately $2,700,000.
2000 Employee Stock Purchase Plan
In March 2000, the stockholders approved the Company's 2000 employee stock
purchase plan (the "Plan"). A total of 250,000 shares of common stock have been
reserved for the Plan. The Plan permits eligible participants to purchase
common stock at 85% of the fair market value at the beginning or end of the
offering period (whichever is lower), through payroll deductions of up to 10%
of the participant's compensation. The first offering period commenced on July
13, 2000, which was the first day of trading subsequent to the Company's
initial public offering.
Deferred Compensation
In connection with the grant of certain stock options to employees during 1998,
1999 and 2000, the Company recorded deferred compensation of approximately
$5,800,000 representing the difference between the deemed value of the common
stock for accounting purposes and the stock option exercise price of such stock
options at the date of grant. Such amount is presented as a reduction of
stockholders' equity and amortized as charges to operations on an accelerated
basis over the vesting period (generally four years) consistent with the method
described in Financial Accounting Standards Board Interpretation No. 28.
Amortization was approximately $408,000, $521,000, $1,183,000 and $1,129,000
for the three months ended September 30, 1999 and 2000 and the nine months
ended September 30, 1999 and 2000, respectively.
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This discussion and analysis should be read in conjunction with our
consolidated financial statements and accompanying notes included in this
report and the financial statements and notes thereto for the year ended
December 31, 1999 included in the Company's Registration Statement on Form S-1,
as amended (File No. 333-31434) which was declared effective by the Securities
and Exchange Commission on July 12, 2000. Operating results are not necessarily
indicative of results that may occur in future periods.
Except for the historical information contained herein, the matters discussed
in the following discussion are forward-looking statements involving risks and
uncertainties that could cause actual results to differ materially from those
in such forward-looking statements. Examples of such forward looking statements
include statements about our future losses, research and development expenses
and capital expenditures, statements about anticipated improvements in our
product cost per unit, statements about increases in interest income,
statements about future hiring needs, and statements about the sufficiency of
existing cash and cash equivalents and investments and amounts available under
our capital equipment financing line to fund our operations for at least the
next twelve months. The Company assumes no obligation to update these
forward-looking statements to reflect events or circumstances after the date
hereof. Further information regarding these and other risks is included in
Triton Network Systems' prospectus dated July 12, 2000, and its other filings
with the Securities and Exchange Commission.
OVERVIEW
We provide broadband wireless equipment that enables communications service
providers to deliver high-speed, cost-effective voice, video and data services
to their business customers. We currently offer two product lines: our
Invisible Fiber Internet product line for Internet service providers and our
Invisible Fiber SONET product line for communications service providers.
From our inception in March 1997 through late 1999, our operations consisted
primarily of start-up activities, including raising capital, recruiting
personnel, conducting research and development, establishing the market for our
initial products and purchasing operating assets. In addition, we developed our
final product assembly and testing capabilities, entered into manufacturing
agreements with third-parties and developed our sales, marketing and
administrative organizations.
We began supplying our Invisible Fiber products for use in field trials during
the second half of 1999. We first began recognizing revenues from sales of our
products during the first quarter of 2000. We currently depend on a limited
number of customers for substantially all of our revenues and the loss of one
or more of them, or any future customer on whom we may depend for significant
portion of our revenues, could significantly reduce our revenues. Additionally,
the volume of shipments to any of these customers can vary significantly from
quarter to quarter, which could unfavorably impact revenues from quarter to
quarter.
Some of our current and potential customers will require additional financing
to support the buildout of their networks in the future. Should one or more
of these current or potential customers be unable to secure such financing,
future revenues will be impacted.
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Historically, we have incurred significant losses. As of September 30, 2000, we
had an accumulated deficit of approximately $86.9 million. We expect to incur
substantial losses for the foreseeable future. We also expect to incur
significant research and development, selling, marketing and general and
administrative expenses. As a result, we will need to generate significant
revenues to achieve and maintain profitability. We may never achieve
profitability.
RECENT ACQUISITION
On March 31, 2000, we acquired certain assets and hired employees associated
with IBM's broadband modem product line in exchange for 2.75 million shares of
Series C preferred stock. This IBM unit developed and sold custom modems to us
for use in our products. During 1999, the majority of this unit's sales were to
us, with minor sales to one other customer. With the completion of this
transaction, we have secured intellectual property and engineering expertise
for future modem development, and we believe we will lower the cost of
manufacturing our products.
The total purchase price was approximately $41.3 million, with approximately
$2.3 million being allocated to net assets and approximately $39.0 million to
intangible assets, which consist of patent and patent application licenses and
patent disclosures. If the transaction had taken place on January 1, 1999, on a
pro forma basis, our revenue and net loss for 1999 would have increased by
approximately $0.3 million and $11.2 million or $2.34 per share, respectively.
The pro forma revenue and net loss does not purport to indicate what would have
occurred if the purchase had actually occurred on January 1, 1999 or to
indicate the results that may occur in the future. We plan to focus on further
development of the modem technology we have acquired from IBM to improve and
enhance our products. We believe that future research and development expenses
of the broadband modem products group subsequent to our acquisition of the
group will be significantly higher than the pro forma amount for 1999.
Additionally, the intangible assets are being amortized over their useful life
of five years, or approximately $1.9 million per quarter.
THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
Revenues. Revenues were $8.0 million for the quarter ended September 30, 2000,
a growth of 54% over the $5.2 million recorded in the second quarter of 2000.
We had no revenues in the quarter ended September 30, 1999, as we first began
recognizing revenues from shipment of our products in 2000. The revenue growth
from the second quarter of 2000, included a higher volume of Invisible Fiber
unit shipments and increased delivery of modem chips and services to support a
wireline equipment customer. We shipped Invisible Fiber units to all four of
our existing customers in the third quarter of 2000, with two customers
accounting for approximately 65% of our total revenue.
Cost of Revenues. Concurrent with the recognition of revenues beginning in the
first quarter of 2000, we began classifying manufacturing and operations costs
as cost of revenues. Prior to 2000, manufacturing and operations costs were
separately classified. Gross margins as a percentage of revenues were
approximately 13 % in the third quarter compared to (7%) in the second quarter
of 2000. This improvement was due primarily from a higher volume of product
shipments, a higher mix of modem chip shipments, which have a higher gross
margin, and component part cost reductions.
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Research and Development. Research and development expenses of $ 6.2 million
for the third quarter of 2000 were $3.2 million higher than the third quarter
of 1999. This increase was due primarily to development costs associated with
the broadband modem product line acquired at the end of the first quarter of
2000, which accounted for 45% of the increase. Additionally, other engineering
personnel increases and higher depreciation expenses on new development
equipment accounted for 31% of the increase.
Selling, General and Administrative. Selling, general and administrative
expenses of $4.6 million for the third quarter of 2000 were $2.0 million higher
than the second quarter of 1999. This increase was due primarily to a
significant growth in sales and marketing personnel, opening several sales
offices, higher advertising and marketing costs and costs associated with
several customer field trials. Personnel related costs accounted for 67% of the
increase. Additionally, 15% of the increase was due to costs to support
customer field trials.
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
Revenues. Revenues were $16.7 million for the nine months ended September 30,
2000. We had no revenues in 1999 as we first began recognizing revenues from
shipment of our products in the first quarter of 2000. Revenues in 2000
included shipments of Invisible Fiber units and delivery of modem chips and
services to support a wireline equipment customer.
Cost of Revenues. Concurrent with the recognition of revenues during the first
quarter of 2000, we began classifying manufacturing and operations costs as
cost of revenues. Prior to 2000, manufacturing and operations costs were
separately classified. During the first nine months of 2000, cost of revenues
exceeded revenues by approximately $993,000. Gross margin as a percent of
revenues improved from (47%) in the first quarter of 2000, to (7%) in the
second quarter and 13% in the third quarter of 2000. This improvement was due
primarily to higher volumes of shipments each quarter, component part cost
reductions and increased shipment of higher margin modem chips. We believe that
if the volume of shipments increases as expected in the future; we are
successful in redesigning component parts to reduce cost; and our transceiver
module factory production increases, our product costs per unit will improve.
However, there can be no assurance these cost improvements will be realized in
the future.
Research and Development. Research and development expenses of $16.0 million
for the nine months of 2000 were $7.3 million higher than the first nine months
of 1999. This increase was due primarily to development costs associated with
the broadband modem product line acquired at the end of the first quarter of
2000, which accounted for 44% of the increase. Additionally, other engineering
personnel increases and higher depreciation expense on new development
equipment accounted for 42% of the increase.
Selling, General and Administrative. Selling, general and administrative
expenses of $14.9 million for the first nine months of 2000 were $7.6 million
higher than the first nine months of 1999. The increase was due to significant
growth in sales and marketing and general and administrative personnel, opening
sales offices, growth in advertising and marketing costs, professional services
costs and costs associated with several customer field trials. Personnel
related costs accounted for 66% of the increase. Additionally, 24% of the
increase was due to costs to support customer field trials and professional
services costs.
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LIQUIDITY AND CAPITAL RESOURCES
In July 2000, we received net proceeds of approximately $86 million from the
sale of 6.3 million common shares in an initial public offering. In addition,
all outstanding convertible preferred shares were converted into 21,556,469
shares of common stock. The net proceeds from the public offering were
initially invested in short-term and long-term securities. Until our initial
public offering, we had financed our operations primarily through private sales
of approximately $97.7 million of convertible preferred stock as well as
through capital leases for capital equipment, furniture and software. As of
September 30, 2000, cash and cash equivalents and investments were $90.2
million, including $3.0 million classified as long-term investments.
For the nine months ended September 30, 2000, we used approximately $35.5
million of cash from operations primarily due to our loss, before depreciation
and amortization, of $27.4 million and growth of receivables and inventory of
$12.8 million, partially offset by a $5.7 million increase in accounts payable
and accrued expenses. For the nine months ended September 30, 1999, we used
approximately $21.5 million of cash from operations primarily due to our net
loss, before depreciation and amortization, of $20.1 million.
For the nine months ended September 30, 2000 and 1999, our investing activities
included the purchase of approximately $10.8 million and $1.9 million,
respectively, of property and equipment. This increase was primarily due to the
purchase of equipment to complete the transceiver module production factory as
well as other factory production and research and development equipment.
Additionally, our investing activities for the 2000 and 1999 periods included
the purchase of approximately $23.7 million and the sale of $11.0 million of
investments, respectively.
Cash provided by financing activities for the nine months ended September 30,
2000 and 1999 generated approximately $90.3 million and $10.7 million,
respectively. Financing activities for the 2000 period included net proceeds of
approximately $86 million from the initial public offering and net borrowings
of $4.4 million under loans for capital equipment. For the 1999 period
financing activities included proceeds from the sale of approximately 2.1
million shares of convertible preferred stock for $10.5 million.
In February 2000, we entered into an agreement with a financial institution to
borrow up to $9.0 million in 2000 for capital equipment purchases, furniture
and software. Up to $5.0 million of the borrowings are repayable over four
years and will bear interest at an annual rate of 13 % and up to $4.0 million
is repayable over three years with an annual rate of interest of 10.4 %. The
agreement includes no financial covenants and the specific equipment, furniture
and software purchased with the borrowings will serve as security for the
loans. Under the agreement, we issued 26,667 warrants to purchase our common
stock with an exercise price of $13.50. As of September 30, 2000, we had
approximately $2.7 million of available borrowings under this agreement.
We are obligated to pay lease payments of approximately $9.0 million over the
lease periods of our operating leases, with $2.2 million due over the next 12
months. The lease obligations include approximately $6.2 million for a
seven-year lease for our new manufacturing and office space we
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occupied in the first quarter of 2000. In conjunction with this lease
agreement, we secured a $1.4 million letter of credit in favor of the landlord
with cash.
We anticipate capital expenditures for the next twelve months will be in the
range of $10 to $15 million, including amounts for expansion of our final
assembly and testing capacity, additional software tools and necessary
expenditures to support expected headcount growth. However, the timing and
extent of any future capital expenditures is dependent upon future business
growth.
We expect our cash requirements will continue to increase over the next 12
months, as we continue our research and development efforts, hire and expand
our sales, support, marketing and product development organizations, grow our
administrative support activities, and expand our leased facilities.
Additionally, as our business volumes grow we anticipate a significant cash
requirement for working capital growth and capital expenditures. The amount and
timing of cash requirements will depend on market acceptance of our products
and the resources we devote to researching and developing, marketing, selling
and supporting our products. We believe that our current cash and cash
equivalents and investments on hand and availability under our capital
equipment financing line should be sufficient to fund our operations for at
least the next 12 months.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standard Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS No. 133). SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument be recorded in
the balance sheet as either an asset or liability measured at its fair value.
SFAS No. 133, as recently amended, is effective for fiscal years beginning
after June 15, 2000. Management believes the adoption of SFAS No. 133 will not
have a material effect on our financial position or results of operations.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No.101 ("SAB 101"), "Revenue Recognition in Financial
Statements". SAB 101 summarizes the SEC's views in applying generally accepted
accounting principles to revenue recognition in financial statements. We are
required to adopt SAB 101 in the fourth quarter of 2000. Management does not
expect the adoption of SAB 101 to have a material effect on our operations or
financial position.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The primary objective of our investment activities is to preserve principal
while at the same time maximizing the income we receive from our investments
without significantly increasing risk. Some of the securities that we may
invest in may be subject to market risk. This means that a change in prevailing
interest rates may cause the principal amount of the investment to fluctuate.
For example, if we hold a security that was issued with a fixed interest rate
at the then-prevailing rate and the prevailing interest rate later rises, the
principal amount of our investment will probably decline. To minimize this
risk, we maintain the our portfolio of cash equivalents and investments in a
variety of securities, including commercial paper, money market funds,
government and investment grade non-government debt securities. These
securities are of a short-term nature with an immaterial portion invested in
long-term securities. As a result, we do not believe that near-term changes in
interest rates will have a material effect on our future results of operations.
13
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
------ -----------
27 Financial Data Schedule.
(b) Reports on Form 8-K
None
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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.
Triton Network Systems, Inc.
(Registrant)
Date: November 14, 2000 /s/ Kenneth R. Vines
--------------------------------
Senior Vice President and
Chief Financial Officer
15
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Triton Network Systems, Inc.
Index of Exhibits
-----------------
Exhibit No
----------
27 Financial Data Schedule.
16
