<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended March 31, 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 000-23387
NETRO CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
CALIFORNIA 77-0395029
(State of incorporation) (IRS Employer Identification No.)
</TABLE>
3860 NORTH FIRST STREET, SAN JOSE, CA 95134
(408) 216-1500
(Address, including zip code, and telephone
number, including area code, of Registrant's principal
executive offices)
-------------------------------
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 [ ]
The number of shares outstanding of the Registrant's Common Stock as of May 8,
2000 was 50,174,290.
================================================================================
<PAGE> 2
INDEX
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<CAPTION>
PAGE NO.
--------
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 2000
and December 31, 1999 2
Condensed Consolidated Statements of Operations and
Comprehensive Loss for the three months ended March 31,
2000 and March 31, 1999 3
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 2000 and March 31, 1999 4
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities and Use of Proceeds 12
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURE 15
EXHIBIT INDEX 16
</TABLE>
1
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PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NETRO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .......................... $386,615 $ 7,450
Short-term investments ............................. 2,976 37,887
Trade accounts receivable, net ..................... 11,605 6,925
Inventory, net ..................................... 8,484 7,909
Prepaid expenses and other ......................... 942 814
-------- --------
Total current assets ....................... 410,622 60,985
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net ............ 4,405 4,569
OTHER ASSETS ......................................... 267 260
-------- --------
Total assets ............................... $415,294 $ 65,814
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt and capital
Leases .......................................... $ 7,135 $ 6,764
Trade accounts payable ............................. 5,853 5,064
Accrued liabilities ................................ 5,381 4,740
-------- --------
Total current liabilities .................. 18,369 16,568
LONG-TERM DEBT AND CAPITAL LEASES,
net of current portion ..................... 3,412 3,633
DEFERRED FACILITIES RENT ............................. 56 57
-------- --------
Total liabilities .......................... 21,837 20,258
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 4)
SHAREHOLDERS' EQUITY:
Common Stock ....................................... 500,364 146,490
Note receivable from shareholder ................... -- (800)
Deferred stock compensation ........................ (3,433) (3,730)
Accumulated deficit ................................ (103,474) (96,404)
-------- --------
Total shareholders' equity ................. 393,457 45,556
-------- --------
Total liabilities and shareholders' equity.. $415,294 $ 65,814
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
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NETRO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
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<CAPTION>
THREE MONTHS ENDED
MARCH 31,
2000 1999
-------- --------
<S> <C> <C>
REVENUES ............................. $ 10,454 $ 2,142
COST OF REVENUES ..................... 8,248 1,649
-------- --------
GROSS PROFIT ......................... 2,206 493
-------- --------
OPERATING EXPENSES:
Research and development ........... 5,784 4,224
Sales and marketing ................ 2,040 1,332
General and administrative ......... 1,916 1,752
Amortization of deferred stock
compensation .................. 297 168
-------- --------
Total operating expenses ... 10,037 7,476
-------- --------
LOSS FROM OPERATIONS ................. (7,831) (6,983)
Other income (expense), net ........ 761 (39)
-------- --------
NET LOSS AND COMPREHENSIVE LOSS ...... $ (7,070) (7,022)
======== ========
Basic and diluted net loss per share . $ (0.15) $ (0.86)
======== ========
Shares used to compute basic and
diluted net loss per share ........... 45,883 8,205
======== ========
Pro forma basic and diluted net loss
per share ........................... $ (0.19)
========
Shares used to compute pro forma basic
and diluted net loss per share ...... 37,266
========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 5
NETRO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
2000 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .................................................. $ (7,070) $ (7,022)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization .......................... 565 864
Provision for doubtful accounts ........................ 100 --
Amortization of deferred stock compensation ............ 297 168
Changes in operating assets and liabilities:
Trade accounts receivable ............................ (4,780) (620)
Inventory ............................................ (575) 311
Prepaid expenses and other ........................... (135) (254)
Trade accounts payable and accrued liabilities 1,429 1,508
--------- ---------
Net cash used in operating activities ............. (10,169) (5,045)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and leasehold improvements ......... (401) (555)
Purchases of short-term investments ....................... (2,954) (14,935)
Maturities of short-term investments ...................... 37,865 9,075
--------- ---------
Net cash provided by (used in) investing activities 34,510 (6,415)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable and
sale-leaseback transactions ............................. 759 2,265
Payments on notes payable and capital leases .............. (609) (787)
Proceeds from issuance of Preferred Stock, net of
issuance costs ........................................... -- 11,780
Proceeds from issuance of Common Stock, net of
issuance costs ........................................... 353,874 66
Repayments of notes receivable from shareholder ............ 800 --
Repurchases of Common Stock ................................ -- (4)
--------- ---------
Net cash provided by financing activities ......... 354,824 13,320
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS ................... 379,165 1,860
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD .............. 7,450 6,094
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD .................... $ 386,615 $ 7,954
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest .................................... $ 275 $ 254
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 6
Notes to Condensed Consolidated Financial Statements (unaudited)
1. DESCRIPTION OF BUSINESS:
Netro Corporation (collectively, with its subsidiaries, the "Company") was
incorporated in California on November 14, 1994. Netro is a leading provider of
broadband wireless access equipment to competitive communications service
providers worldwide. Netro's AirStar broadband access system derives its
price-performance benefits from dynamic bandwidth allocation and a
point-to-multipoint architecture that provides integrated voice and high-speed
packet data services. The Company operates in one business segment.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The condensed consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and in accordance with the rules and regulations of Form 10-Q and
Article 10 of Regulation S-X of the Securities and Exchange Commission.
Accordingly, they do not include all the information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of the management, all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the financial
statements at March 31, 2000 and March 31, 1999 have been included.
The unaudited condensed consolidated financial statements include the
accounts of Netro Corporation and its wholly owned subsidiaries.
Results of operations for the three months ended March 31, 2000 are not
necessarily indicative of results that may be expected for any other interim
period or for the full fiscal year ending December 31, 2000. These financial
statements should be read in conjunction with the Company's audited consolidated
financial statements and the accompanying notes included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1999 filed with the
Securities and Exchange Commission. The condensed balance sheet at December 31,
1999 is derived from audited financial statements as of that date.
CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash and cash equivalents consist of short-term, highly liquid investments
with original maturities of less than three months. The Company classifies its
short-term investments in debt securities as "held-to-maturity." Accordingly,
these investments, which mature at various dates through June 2000, are valued
using the amortized cost method.
INVENTORY
Inventory includes materials and labor, is stated at the lower of cost
(first-in, first-out) or market and consists of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
<S> <C> <C>
Raw materials................... $5,002 $3,865
Work-in-process.................. 2,174 2,185
Finished goods................... 1,308 1,859
------ ------
$8,484 $7,909
====== ======
</TABLE>
5
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NET LOSS PER SHARE AND PRO FORMA NET LOSS PER SHARE
Basic and diluted net loss per share has been computed using the weighted
average number of shares of common stock outstanding. Potential common shares
from the conversion of convertible preferred stock and the exercise of stock
options and warrants are excluded from diluted net loss per share because they
would be antidilutive. The total number of options, warrants, and preferred
stock excluded from diluted net loss per share computation for the three months
ended March 31, 2000 and 1999 were as follows (in thousands):
<TABLE>
<CAPTION>
2000 1999
----- ------
<S> <C> <C>
Shares of convertible preferred stock ......... -- 29,902
Shares issuable pursuant to warrants to
purchase common stock ...................... 57 57
Shares issuable under stock option plans ...... 7,026 4,639
----- ------
7,083 34,598
===== ======
</TABLE>
On March 17, 2000, the Company completed a public offering and issued
4,504,111 shares of common stock upon the closing of the offering. The pro forma
net loss per share computation has been appropriately weighted to reflect this
issuance.
Pro forma basic and diluted net loss per share is calculated assuming the
conversion of convertible preferred stock into an equivalent number of shares of
common stock, as if the shares had converted on the dates of their issuance.
The following table presents the calculation of basic and diluted and pro
forma basic and diluted net loss per share (in thousands, except per share
data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
2000 1999
------- -------
<S> <C> <C>
HISTORICAL:
Net loss ............................................. $(7,070) $(7,022)
======= =======
Weighted average shares of common
stock outstanding ................................ 45,883 8,554
Less: Weighted average shares of common stock
subject to repurchase ............................ -- (349)
------- -------
Weighted average shares used to compute basic and
diluted net loss per share ....................... 45,883 8,205
======= =======
Basic and diluted net loss per share ................. $ (0.15) $ (0.86)
======= =======
PRO FORMA:
Net loss ............................................. $(7,022)
=======
Shares used above .................................... 8,205
Pro forma adjustment to reflect weighted average
effect of assumed conversion of convertible
preferred stock ................................. 29,061
-------
Weighted average shares used to compute pro forma
basic and diluted net loss per share.............. 37,266
=======
Pro form basic and diluted net loss per share............ $ (0.19)
=======
</TABLE>
6
<PAGE> 8
2. SHAREHOLDERS' EQUITY:
PUBLIC OFFERING
On August 24, 1999, the Company completed its initial public offering of
5,750,000 shares of common stock at a public offering price of $8.00 per share.
The offering resulted in net proceeds to the Company of $41.6 million after
payment of the underwriter's commission and deduction of offering expenses.
Simultaneously with the closing of the initial public offering, all of the
Company's then outstanding convertible preferred stock was automatically
converted into an aggregate of 29,902,283 shares of common stock.
On March 17, 2000, the Company completed a public offering for the sale of
6,000,000 shares of common stock at a price of $82.50 per share. Of the
6,000,000 shares offered, the Company sold 4,504,111 shares and selling
shareholders sold 1,495,889 shares. The offering resulted in net proceeds to the
Company of $352.3 million after payment of the underwriter's commission and
other offering expenses.
3. DEBT AND CAPITAL LEASES:
The following table summarizes obligations under long-term debt and capital
leases (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
------------- ------------
<S> <C> <C>
Borrowings under bank line of credit ....... $ 4,725 $4,338
Secured note payable to lender, due in
monthly installments of $90,942 with
interest at 12.5% ........................ 1,665 1,882
Capital leases, due through 2003 ........... 4,157 4,177
------- ------
10,547 10,397
Less: current portion ...................... (7,135) (6,764)
------- ------
$ 3,412 $3,633
======= ======
</TABLE>
In January 1998, the Company entered into a bank line of credit under which
up to $6,000,000 is available for borrowings and letters of credit. This
arrangement was renewed in September 1999 and expires in January 2001.
Borrowings are limited to an aggregate amount equaling approximately 80% and 90%
of domestic and foreign eligible trade accounts receivables, respectively, and
50% of eligible foreign inventories. The line of credit is secured by the
Company's outstanding trade accounts receivable and inventory. The borrowings
under the line are due in January 2001 and accrue interest at the 30-day LIBOR
rate plus 2.25% or the bank's prime rate, at the Company's option. Under the
agreement, the Company must comply with certain financial and other covenants.
As of March 31, 2000, borrowings outstanding under this agreement were
$4,725,000 and amounts utilized for outstanding letters of credit were $275,000.
In March 1999, the Company entered into an equipment lease agreement, under
which the Company can finance equipment purchases of up to $3,000,000. As of
March 31, 2000, the Company had borrowed approximately $2,334,835 under this
agreement.
7
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4. COMMITMENTS AND CONTINGENCIES:
COMMITMENTS
The Company issued a standby letter of credit of $400,000 to secure certain
of the Company's warranty obligations to one customer. The letter of credit is
secured by a certificate of deposit for $125,000. The letter of credit is
subject to draw if the Company fails to meet its obligations to the customer.
5. SEGMENT REPORTING:
In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information." The
Company adopted SFAS No. 131 in fiscal 1998. SFAS No. 131 establishes standards
for disclosures about operating segments, products and services, geographic
areas and significant customers. The Company is organized and operates as one
operating segment: the design, development, manufacturing, marketing and selling
of broadband wireless point-to-multipoint access systems.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
This Management's Discussion and Analysis of Financial Condition and
Results of Operations and other parts of this Form 10-Q contain forward-looking
statements that involve risks and uncertainties. The statements contained in
this report that are not purely historical are forward-looking statements,
including statements regarding our expectations, beliefs, intentions or
strategies regarding the future. 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. Our actual
results could differ substantially from those described in our forward-looking
statements. Factors that could cause or contribute to such differences include,
but are not limited to, those discussed in the Management's Discussion and
Analysis of Financial Condition and Results of Operations and the Risk Factors
section of our Registration Statement on Form S-1 declared effective on March
17, 2000 by the Securities and Exchange Commission (File No. 333-30738) and
those discussed in the Management's Discussion and Analysis of Financial
Condition and Results of Operations section of our Annual Report on Form 10-K
for the fiscal year ended December 31, 1999. The following discussion should be
read together with our consolidated financial statements and related notes
included elsewhere in this Form 10-Q.
OVERVIEW
We are a leading provider of wireless broadband access equipment used by
telecommunications service providers to provide businesses with high-speed
internet access. The Company's product, the AirStar system, allows multiple
subscribers to communicate with a single base station radio in a
point-to-multipoint architecture using packet based technology. We began initial
sales of an early 26 GHz AirStar system in Europe in early 1998. With the
successful trial shipments of the AirStar system, we discontinued AirMAN in
September 1998. We shipped the first trial AirStar systems for 26 GHz in the
third quarter of 1998. We then shipped a trial version of a 10 GHz AirStar
product in November 1998. Based on our success in field trials and the receipt
of limited quantities of AirStar subsystems from our contract manufacturers, we
made the 26 GHz AirStar product commercially available in January 1999 and the
10 GHz AirStar product commercially available in October 1999. However, the
products were, and continue to be, available only in limited quantities due to
manufacturing and capacity constraints. Additionally, we shipped a trial version
of a 38 GHz product in September 1999 and a trial version of a 28 GHz AirStar
product in March of 2000.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
Revenues. Current revenues primarily consist of product revenues from the
sale of the AirStar system. Revenues increased to $10.5 million for the three
8
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months ended March 31, 2000 from $2.1 million for the same period in 1999. Sales
to one customer represented 92% of revenues, for the three months ended March
31, 2000. Sales to two customers represented 51% and 37% of revenues, for the
three months ended March 31, 1999. The increase was a result of increasing unit
sales of the AirStar products. Substantially all of the revenues for these
periods were generated from installations in international locations.
Gross Profit (loss). Gross profit represents total revenue less the cost of
revenue. Cost of revenues consists of contract manufacturing costs, material
costs, compensation costs, manufacturing overhead, warranty reserves and other
direct product costs. Gross profit increased to $2.2 million for the three
months ended March 31, 2000 from $493,000 for the same period in 1999. Gross
profit, as a percentage of revenues, decreased from 23% for the three months
ended March 31, 1999 to 21% for the three months ended March 31, 2000. The
decrease in gross profit on a percentage basis was primarily due to
manufacturing variances associated with initial costs incurred to attain higher
volume production. We are pursuing cost reductions in our products but also
expect continued decreases in the average sales prices of our products. It is
anticipated that these price decreases could offset, at least partially, any
cost reductions that we achieve. The customer sales mix also influences our
gross profit margin. Sales to indirect (OEM) customers generate lower gross
profit margins than sales to direct customers. Sales for the three months ended
March 31, 2000, generated lower gross profit margins due to the higher
concentration of indirect customers. The lower gross profit margins on indirect
customer sales was partially offset by the generally more favorable gross profit
margins associated with base station sales. We expect that the introduction of
new customers, channel mix and product mix will result in fluctuations in our
gross profit margin in future quarters.
Research and Development. Research and development expenses consist of
compensation costs, the cost of some software development tools, consultant fees
and prototype expenses related to the design, development and testing of our
products. Research and development expenses increased to $5.8 million for the
three months ended March 31, 2000 from $4.2 million for the same period in 1999.
Research and development expenses increased in the quarter ended March 31, 2000
primarily due to an increase in our research and development personnel and usage
of prototype materials with no offset from third party engineering funding.
Gross research and development expenses increased to $5.8 million for the three
months ended March 31, 2000 from $4.7 million for the same period in 1999. We
expect research and development expenses to continue to increase during future
periods.
Sales and Marketing. Sales and marketing expenses consist primarily of
compensation costs, commissions, travel and related expenses for marketing,
sales, customer advocacy and field service support personnel, as well as product
management, trade show and promotional expenses. Sales and marketing expenses
increased to $2.0 million for the three months ended March 31, 2000 from $1.3
million for the same period in 1999. Sales and marketing expenses increased in
the quarter ended March 31, 2000 primarily due to an increase in personnel to
support both the pre-sale and post-sale activities associated with the AirStar
system. We expect sales and marketing expenses to continue to increase in future
periods as we expand our sales, marketing, technical assistance and field
capabilities necessary to support increased sales and product offerings.
General and Administrative. General and administrative expenses consist
primarily of compensation costs and related expenses for executive, finance,
management information systems, human resources and administrative personnel and
amortization of deferred stock compensation. These expenses also include
professional fees, facilities and other general corporate expenses. Amortization
of deferred stock compensation results from the granting of stock options to
employees with exercise prices per share determined to be below the estimated
fair values per share of our common stock at dates of grant. The deferred
compensation that results is being amortized to expense over the vesting periods
of the individual options, generally four years. We have recorded total deferred
stock compensation of $4.8 million through December 31, 1999. General and
administrative expenses increased to $2.2 million for the three months ended
March 31, 2000 from $1.9 million for the same period in 1999. The increases were
due to increased cost associated with being a public company and growth in our
infrastructure. General and administrative expenses for March 31, 1999 included
a reserve to settle an arbitration claim from a contract manufacturer of the
discontinued Airman system. We expect the growth of our business and operation
as a public company will require additional personnel and costs resulting in
increases in our general and administrative expenses.
9
<PAGE> 11
Other Income (expense), Net. Other income (expense), net consists primarily
of interest income earned on low-risk, short-term investments and interest paid
on outstanding debt. Other income, net increased to $761,000 for the three
months ended March 31, 2000 from an expense of $39,000 for the same period in
1999. This increase was primarily due to greater interest earned on higher
average cash balances resulting from the public offerings' proceeds.
Net Loss. Net loss increased to $7.1 million for the three months ended
March 31, 2000 from $7.0 million for the same period in 1999. This decrease was
primarily due to an increase in gross profit, which was offset in part by
increases in operating expenses.
We believe that period-to-period comparisons of our operating results are
not necessarily meaningful. You should not rely on them to predict future
performance. The amount and timing of our operating expenses may fluctuate
significantly in the future as a result of a variety of factors. We face a
number of risks and uncertainties encountered by early stage companies,
particularly those in rapidly evolving markets such as the telecommunications
and data communications equipment industries. We may not be able to address
these risks and difficulties successfully. In addition, although we have
experienced revenue growth recently, our revenue growth may not continue, and we
may not achieve or maintain profitability in the future.
Our quarterly and annual operating results have fluctuated in the past and
are likely to fluctuate significantly in the future. It is likely that in some
future quarter our operating results will fall below the expectations of
securities analysts and investors. In this event, the market price of our common
stock could significantly decline.
Some of the factors that could affect our quarterly or annual operating
results include:
- Our ability to reach the required production volumes and quality
levels for our products;
- Our ability to obtain sufficient supplies of sole source or long
lead-time components for our products;
- Our ability to achieve cost reductions;
- The size, timing and frequency of network buildouts, which are
typically large and infrequent;
- The timing and amount of, or cancellation or rescheduling of, orders
for our products, particularly large orders from system integrators;
- Our ability to introduce and support new products and to manage
product transitions; and
- A decrease in the average selling prices of our products.
Our sales cycle, which is typically between six and twelve months,
contributes to fluctuations in our quarterly operating results. Further, the
emerging and evolving nature of the market for systems such as AirStar may lead
prospective customers to postpone their purchasing decisions.
Most of our expenses, such as employee compensation and lease payments for
facilities and equipment, are relatively fixed in the near term. In addition,
our expense levels are based, in part, on our expectations regarding future
revenues. As a result, any shortfall in revenues relative to our expectations
could cause significant changes in our operating results from quarter to
quarter. Due to the foregoing factors, we believe period-to-period comparisons
of our revenue levels and operating results are not meaningful. You should not
rely on our quarterly revenues and operating results to predict our future
performance.
10
<PAGE> 12
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2000, cash and cash equivalents were $386.6 million and
short-term investments were $3.0 million. We have a $6.0 million bank line of
credit. As of March 31, 2000, borrowings outstanding were $4.7 million and
amounts utilized for outstanding letters of credit were $275,000 under this
agreement. The line of credit is secured by eligible outstanding accounts
receivable and inventory. The borrowings under the line are due in January 2001
and accrue interest at the 30-day LIBOR plus 2.25% or the bank's prime rate, at
our option. In addition, we have secured equipment financing with lenders which
allows a maximum borrowing of $3.0 million of which $665,000 was available as of
March 31, 2000. See note 3 of notes to condensed consolidated financial
statements.
In March 2000 the Company completed a public offering. Of the 6,000,000
shares of common stock offered , the Company sold 4,504,111 shares and selling
shareholders sold 1,495,889, at a price of $82.50 per share. We received net
aggregate proceeds of approximately $352.3 million after deducting underwriting
discounts and commission and estimated offering costs.
Cash used in operating activities was $10.2 million for the three months
ended March 31, 2000 and $5.0 million for the same period in 1999. Cash used for
operations for both periods was primarily due to the net loss, partially offset
by non-cash charges.
Cash provided by investing activities was $34.5 million for the three
months ended March 31, 2000, primarily due to maturities of short-term
investments re-invested in thirty day treasury bills. Cash used in investing
activities was $6.4 million for the three months ended March 31, 1999, primarily
due to excess cash invested in short-term investments.
Cash provided by financing activities was $354.8 million for the three
months ended March 31, 2000. Cash provided by financing activities was $13.3
million for the three months ended March 31, 1999. Cash provided by financing
activities for both periods were primarily due to issuances of preferred and
common stock.
We have no material commitments other than obligations under our credit
facilities and operating and capital leases. Our future capital requirements
will depend upon many factors, including the timing of research and product
development efforts and expansion of our marketing efforts. We expect to
continue to expend significant but smaller amounts on property and equipment
related to the expansion of our facilities, and on research and development
laboratory and test equipment, as the capital required for volume manufacturing
is being committed by our contract manufacturers. We provide six or twelve-month
forecasts to our contract manufacturers. We generally commit to purchase
products to be delivered within the most recent 60 days covered by these
forecasts with cancellation fees. As of March 31, 2000, we had committed to make
purchases totaling $8 million from these manufacturers in the next 60 days. In
addition, in specific instances we may agree to assume liability for limited
quantities of specialized components with lead times beyond this 60-day period.
In future periods, we generally anticipate significant increases in our
working capital needs on a period-to-period basis primarily as a result of
planned increased product revenues. In conjunction with the expected increases
in revenues, we expect higher levels of inventory and trade accounts receivable.
While we also expect an increase in trade accounts payable and other
liabilities, we do not expect that they will offset the increases in inventory
and trade accounts receivable.
We believe that our cash and cash equivalents balances, short-term
investments and funds available under our existing line of credit will be
sufficient to satisfy our cash requirements for at least the next twelve months.
Our management intends to invest our cash in excess of current operating
requirements in short-term, interest-bearing, investment-grade securities.
11
<PAGE> 13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FOREIGN CURRENCY HEDGING INSTRUMENTS. We transact business in various
foreign currencies and, accordingly, we are subject to exposure from adverse
movements in foreign currency exchange rates. To date, the effect of changes in
foreign currency exchange rates on revenues and operating expenses have not been
material. Basically, all of our revenues are earned in U.S. dollars. Operating
expenses incurred by our German subsidiary are denominated primarily in European
currencies. We currently do not use financial instruments to hedge these
operating expenses. We intend to assess the need to utilize financial
instruments to hedge currency exposures on an ongoing basis.
We do not use derivative financial instruments for speculative trading
purposes.
FIXED INCOME INVESTMENTS. Our exposure to market risks from changes in
interest rates relates primarily to corporate debt securities. We place our
investments with high credit quality issuers and, by policy, limit the amount of
the credit exposure to any one issuer.
Our general policy is to limit the risk of principal loss and ensure the
safety of invested funds by limiting market and credit risk. All highly liquid
investments with a maturity of less than three months at the date of purchase
are considered to be cash equivalents; all investments with maturities of three
months or greater are classified as held-to-maturity and considered to be
short-term investments.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
On August 18, 1999, in connection with the Company's initial public
offering, a Registration Statement on Form S-1 (No. 333-81325) was declared
effective by the Securities and Exchange Commission, pursuant to which 5,750,000
shares of the Company's Common Stock were offered and sold for the account of
the Company at a price of $8.00 per share, generating gross offering proceeds of
$46.0 million. The managing underwriters were Merrill Lynch, Pierce, Fenner &
Smith Incorporated, BancBoston Robertson Stephens Inc. and Dain Rauscher
Wessels, a division of Dain Rauscher Incorporated.
The Company incurred the following expenses in connection with the
offering:
<TABLE>
<S> <C>
Underwriting discounts and commissions $3,220,000
Other expenses 1,175,000
----------
Total Expenses $4,395,000
==========
</TABLE>
All of such expenses were direct or indirect payments to others.
The net offering proceeds to the Company after deducting the total expenses
above were approximately $41,605,000. From August 18, 1999 to December 31, 1999,
the Company used such net offering proceeds, in direct or indirect payments to
others, as follows:
12
<PAGE> 14
<TABLE>
<S> <C>
Investment in short-term, interest-bearing obligations $37,887,000
Working Capital 3,718,000
-----------
Total $41,605,000
===========
</TABLE>
Each of such amounts is a reasonable estimate of the application of the net
offering proceeds. This use of proceeds does not represent a material change in
the use of proceeds described in the prospectus of the Registration Statement.
On March 17, 2000, in connection with the Company's public offering, a
Registration Statement on Form S-1 (No. 333-30738) was declared effective by the
Securities and Exchange Commission, pursuant to which 6,000,000 shares of the
Company's Common Stock were offered and sold for the account of the Company at a
price of $82.50 per share. Of the 6,000,000 shares sold in the offering,
4,504,111, shares were sold by the Company and 1,495,889 shares were sold by
shareholders. The offering resulted in gross offering proceeds of $371.6
million. The managing underwriters were Goldman Sachs, Lehman Brothers,
BancBoston Robertson Stephens Inc. and Dain Rauscher Wessels, a division of Dain
Rauscher Incorporated. After deducting approximately $18.6 million in
underwriting discounts and $725,000 in other related expenses, the net proceeds
of the offering were approximately $352.3 million. The $352.3 million has been
invested in investment grade, interest bearing securities. The Company intends
to use such remaining proceeds for capital expenditures and for general
corporate purposes, including working capital to fund anticipated operating
losses.
ITEM 3. DEFAULT UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION.
None.
13
<PAGE> 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by Netro Corporation during the
quarter ended March 31, 2000.
14
<PAGE> 16
NETRO CORPORATION
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.
NETRO CORPORATION
Date: May 10, 2000 By: /s/ MICHAEL T. EVERETT
------------------------------------------
Michael T. Everett
Executive Vice President, Finance, Chief
Financial Officer and Assistant Secretary
(Duly Authorized Officer and Principal
Financial and Accounting Officer)
15
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 386,615
<SECURITIES> 2,976
<RECEIVABLES> 11,855
<ALLOWANCES> 250
<INVENTORY> 8,484
<CURRENT-ASSETS> 410,622
<PP&E> 13,415
<DEPRECIATION> 9,010
<TOTAL-ASSETS> 415,294
<CURRENT-LIABILITIES> 18,369
<BONDS> 0
0
0
<COMMON> 500,364
<OTHER-SE> (106,907)
<TOTAL-LIABILITY-AND-EQUITY> 415,294
<SALES> 10,454
<TOTAL-REVENUES> 10,454
<CGS> 8,248
<TOTAL-COSTS> 10,037
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (292)
<INCOME-PRETAX> (7,070)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,070)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,070)
<EPS-BASIC> (0.15)
<EPS-DILUTED> (0.15)
</TABLE>
