<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 AND EXCHANGE ACT OF 1934
For Quarterly Period Ended September 30, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
Commission File Number: 000-31885
SignalSoft Corporation
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 84-1268226
--------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1495 Canyon Blvd, Boulder, Colorado 80302
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(303) 381-3000
--------------------------------------------------------------------------------
(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 NO X
----- -----
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Class Outstanding at November 8, 2000
----- -------------------------------
<S> <C>
Common Stock, $0.001 par value 23,504,397
</TABLE>
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<PAGE> 2
SignalSoft Corporation
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements:
Unaudited Condensed Consolidated Balance Sheets at December 31,
1999 and September 30, 2000.................................... 3
Unaudited Condensed Consolidated Statements of Operations for
the three and the nine months ended September 30, 1999
and 2000....................................................... 4
Unaudited Condensed Consolidated Statements of Cash Flows for
the nine months ended September 30, 1999 and 2000.............. 5
Unaudited Consolidated Statement of Stockholders' Equity
(Deficit) for the nine months ended September 30, 2000......... 6
Notes to Unaudited Condensed Consolidated Financial Statements.. 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................ 10
Item 3. Quantitative and Qualitative Disclosures about Market Risk...... 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings................................................. 15
Item 2. Change in Securities and Use of Proceeds.......................... 15
Item 3. Defaults Upon Senior Securities................................... 15
Item 4. Submission of Matters to a Vote of Security Holders............... 15
Item 5. Other Information................................................. 15
Item 6. Exhibits and Reports on Form 8-K.................................. 16
SIGNATURES.................................................................. 17
</TABLE>
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<PAGE> 3
SIGNALSOFT CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
December 31, September 30,
1999 2000
------------ -------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents ........................................ $ 18,051,349 $ 92,771,350
Trade accounts receivable ........................................ 425,993 5,461,960
Prepaid expenses and other ....................................... 307,966 1,146,097
------------ -------------
Total current assets .......................................... 18,785,308 99,379,407
Equipment and leasehold improvements, net ........................... 652,730 2,911,829
Intangible assets, net .............................................. -- 4,059,693
Other assets, net ................................................... -- 86,715
------------ -------------
Total assets .................................................. $ 19,438,038 $ 106,437,644
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable ..................................................... $ 41,667 $ 4,167
Current portion of capital lease obligation ...................... 56,232 49,800
Trade accounts payable ........................................... 1,752,903 812,778
Accrued compensation payable ..................................... 542,067 1,283,139
Other accrued expenses ........................................... 55,353 560,223
Deferred revenue ................................................. 50,833 1,040,977
------------ -------------
Total current liabilities ..................................... 2,499,055 3,751,084
Capital lease obligations, less current portion .................... 25,971 975
------------ -------------
Total liabilities ............................................. 2,525,026 3,752,059
------------ -------------
Mandatorily redeemable, convertible preferred stock:
Series A, par value $.001, 1,571,700 shares authorized, issued
and outstanding; aggregate liquidation
preference of $2,000,000 and redemption value of $2,546,667
at December 31, 1999 .......................................... 2,525,442 --
Series B, par value $.001, 3,835,148 shares authorized, issued
and outstanding; aggregate liquidation preference of $9,650,000
and redemption value of $11,065,334 at December 31, 1999 ...... 11,015,837 --
Series C, par value $.001, 5,574,324 shares authorized 3,370,806
shares issued and outstanding in 1999 aggregate liquidation
preference of $19,955,172 and redemption value of $20,017,254
at December 31, 1999 .......................................... 18,663,841 --
------------ -------------
32,205,120 --
------------ -------------
Stockholders' equity (deficit):
Common stock, par value, $.001 in 1999 and 2000; 20,000,000, and
65,000,000 shares authorized in 1999 and 2000, respectively;
6,393,636 and 23,506,828 shares issued and outstanding in
1999 and 2000, respectively ...................................... 6,394 23,507
Preferred stock, par value $.001, 10,000,000 shares authorized,
none issued and outstanding in 1999 and 2000 .................. -- --
Additional paid-in capital .......................................... 1,420,846 133,803,260
Deferred stock option compensation .................................. (467,210) (3,515,482)
Accumulated deficit ................................................. (16,252,138) (27,583,517)
Treasury shares (5,370 shares, par value, $.001) .................... -- (28,622)
Accumulated other comprehensive loss ................................ -- (13,561)
------------ -------------
Total stockholders' equity (deficit) .......................... (15,292,108) 102,685,585
------------ -------------
Total liabilities and stockholders' equity (deficit) .......... $ 19,438,038 $ 106,437,644
============ =============
</TABLE>
See accompanying notes.
Page 3
<PAGE> 4
SIGNALSOFT CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER
COMPREHENSIVE LOSS
(unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
---------------------------- ----------------------------
1999 2000 1999 2000
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Revenue:
License fees ........................................ $ 752,676 $ 2,869,732 $ 804,228 $ 6,406,793
Maintenance fees .................................... 38,500 84,453 248,800 235,854
Professional services and other ..................... 92,321 871,462 233,908 2,009,317
----------- ------------ ----------- ------------
Total revenue ..................................... 883,497 3,825,647 1,286,936 8,651,964
Cost of revenue (exclusive of stock option
compensation expense of $7,724, $119,119, $22,383
and $217,112 for the three months ended September
30, 1999, and 2000, and nine months ended September
30, 1999 and 2000, respectively)................... 407,351 1,053,889 1,213,785 2,669,220
----------- ------------ ----------- ------------
Gross profit ...................................... 476,146 2,771,758 73,151 5,982,744
Operating expenses:
Selling, general and administrative (exclusive of
stock option compensation expense of $30,995,
$124,540, $86,977 and $305,123 for the three
months ended September 30, 1999, and 2000, and
nine months ended September 30, 1999 and 2000,
respectively)..................................... 928,724 3,434,274 2,822,182 8,352,268
Research and development (exclusive of stock option
compensation expense of $28,502, $48,904, $79,561
and $136,268 for the three months ended September
30, 1999, and 2000, and nine months ended
September 30, 1999 and 2000, respectively)........ 837,675 2,593,278 2,436,110 6,729,728
Depreciation and amortization ....................... 47,621 504,459 141,333 957,089
Stock option compensation expense ................... 67,220 292,563 188,920 658,503
----------- ------------ ----------- ------------
Total operating expenses .......................... 1,881,240 6,824,574 5,588,545 16,697,588
----------- ------------ ----------- ------------
Loss from operations .............................. (1,405,094) (4,052,816) (5,515,394) (10,714,844)
Other income, net .................................... 3,558 1,012,651 88,964 1,593,237
----------- ------------ ----------- ------------
Loss before minority interest ..................... (1,401,536) (3,040,165) (5,426,430) (9,121,607)
Minority interest in loss of subsidiary .............. -- -- -- 50,453
----------- ------------ ----------- ------------
Net loss .......................................... (1,401,536) (3,040,165) (5,426,430) (9,071,154)
Other comprehensive loss ---
Foreign currency translation adjustment ........... $ -- $ (6,787) $ -- $ (13,561)
----------- ------------ ----------- ------------
Comprehensive loss ................................ $(1,401,536) $ (3,046,952) $(5,426,430) $ (9,084,715)
=========== ============ =========== ============
Preferred stock dividend requirements and accretion
of mandatorily redeemable convertible preferred
stock to redemption value ......................... $ (237,871) $ (369,020) $ (713,612) $ (2,260,225)
----------- ------------ ----------- ------------
Net loss attributable to common stockholders $(1,639,407) $ (3,415,972) $(6,140,042) $(11,344,940)
=========== ============ =========== ============
Basic and diluted loss per share ..................... $ (.26) $ (.20) $ (.96) $ (1.09)
=========== ============ =========== ============
Weighted average number of common shares outstanding -
basic and diluted ................................ 6,386,666 17,292,201 6,386,666 10,412,684
</TABLE>
See accompanying notes.
Page 4
<PAGE> 5
SIGNALSOFT CORPORATION
AND SUBSIDIARIES
CONDENSED 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 ................................................................... $ (5,426,430) $ (9,071,154)
Adjustments to reconcile net loss to net cash from operating activities:
Depreciation and amortization ............................................. 158,058 1,017,239
Amortization of discount on advance under research and
development arrangement ............................................... 13,212 --
Compensation and interest expense related to issuance of common stock
options and warrants .................................................. 188,920 658,503
Minority interest in loss of subsidiary ................................... -- (50,453)
Changes in operating assets and liabilities:
Trade accounts receivable ................................................. (174,000) (5,006,466)
Prepaid expenses and other assets ......................................... 399,645 (610,038)
Trade accounts payable .................................................... 5,732 (986,941)
Accrued expenses .......................................................... 319,704 1,202,895
Deferred revenue .......................................................... (44,831) 865,968
Other, net ................................................................ -- (41,455)
------------ ------------
Net cash used by operating activities ................................. (4,559,990) (12,021,902)
------------ ------------
Cash flows from investing activities:
Additions to equipment and leasehold improvements .......................... (108,525) (2,755,962)
Acquisition costs .......................................................... -- (301,865)
Cash paid in purchase of wholly owned subsidiary, net of cash acquired ..... -- (1,347,039)
------------ ------------
Net cash used by investing activities ................................. (108,525) (4,404,866)
------------ ------------
Cash flows from financing activities:
Purchase of treasury stock ................................................. -- (28,622)
Proceeds from exercise of warrants ......................................... -- 10,922
Proceeds from exercise of stock options .................................... -- 103,312
Proceeds from initial public offering, net of offering costs of $7.1 million -- 78,905,917
Proceeds from issuance of mandatorily redeemable
convertible preferred stock ............................................. -- 12,122,295
Proceeds for issuance of debt .............................................. 3,000,000 --
Repayment of stockholder loans ............................................. -- 109,103
Principal payments on debt and capital lease obligations ................... (95,072) (76,158)
------------ ------------
Net cash provided by financing activities ............................. 2,904,928 91,146,769
------------ ------------
Net increase (decrease) in cash and cash equivalents .................. (1,763,587) 74,720,001
Cash and cash equivalents at beginning of period ............................ 5,119,918 18,051,349
------------ ------------
Cash and cash equivalents at end of period .................................. $ 3,356,331 $ 92,771,350
============ ============
Supplemental disclosures of cash flow information:
Cash paid for interest .................................................. $ 32,194 $ 9,593
Non-cash financing activities:
Conversion of mandatorily redeemable, convertible preferred stock
to common stock....................................................... -- $ 46,587,639
</TABLE>
See accompanying notes.
Page 5
<PAGE> 6
SIGNALSOFT CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(unaudited)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL DEFERRED OTHER TOTAL
--------------------- PAID IN STOCK OPTION ACCUMULATED TREASURY COMPREHENSIVE STOCKHOLDERS'
SHARES AMOUNT CAPITAL COMPENSATION DEFICIT STOCK LOSS DEFICIT
--------- -------- ------------ ------------ ------------ -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at
December 31, 1999 6,393,636 $ 6,394 $ 1,420,846 $ (467,210) $(16,252,138) $ -- $ -- $ (15,292,108)
Exercise of
common stock
options ......... 489,584 490 211,924 -- -- -- -- 212,414
Issuance of
common stock in
purchase of
wholly-owned
subsidiary ...... 558,323 558 2,975,303 -- -- -- -- 2,975,861
Conversion of
warrants to
common stock .... 24,113 24 10,897 -- -- -- -- 10,921
Issuance of
common stock
(net) ........... 5,060,000 5,060 78,900,857 -- -- -- -- 78,905,917
Conversion of
mandatorily
redeemable
preferred stock
in initial
public offering . 10,981,172 10,981 46,576,658 -- -- -- -- 46,587,639
Purchase of
Treasury stock .. -- -- -- -- -- (28,622) -- (28,622)
Accretion of
mandatorily
redeemable
convertible
preferred stock
to redemption
value ........... -- -- -- -- (2,260,225) -- -- (2,260,225)
Issuance of
common stock
options at less
than fair value . -- -- 3,706,775 (3,706,775) -- -- -- --
Amortization of
deferred stock
option
compensation .... -- -- -- 658,503 -- -- -- 658,503
Foreign currency
translation
adjustment ...... -- -- -- -- -- -- (13,561) (13,561)
Net loss ........ -- -- -- -- (9,071,154) -- -- (9,071,154)
---------- ------- ------------ ----------- ------------ -------- -------- -------------
Balance at
September 30,
2000 (unaudited) 23,506,828 $23,507 $133,803,260 $(3,515,482) $(27,583,517) $(28,622) $(13,561) $ 102,685,585
========== ======= ============ =========== ============ ======== ======== =============
</TABLE>
See accompanying notes.
Page 6
<PAGE> 7
SIGNALSOFT CORPORATION
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation
(a) Business and Basis of Presentation
SignalSoft Corporation (the "Company") is a Boulder, Colorado
based developer of location-based software services for wireless
intelligent networks. The Company operates in one business segment.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ
significantly from those estimates.
The accompanying unaudited financial information as of September
30, 2000 and for the three and nine months ended September 30, 1999 and
2000, has been prepared in accordance with generally accepted accounting
principles for interim financial information. All significant
adjustments, consisting of only normal and recurring adjustments, that,
in the opinion of management, are necessary for a fair presentation of
the results of operations and cash flows for the nine months ended
September 30, 1999 and 2000 have been included. Operating results for the
three and nine months ending September 30, 2000 are not necessarily
indicative of the results that may be expected for the year ended
December 31, 2000. These condensed consolidated financial statements
should be read in conjunction with the financial statements and notes
thereto for the year ended December 31, 1999 included in the Form S-1
filed August 2000.
(b) Revenue Recognition
In accordance with the provisions of Statement of Position
American Institute of Certified Public Accountants ("AICPA") SOP 97-2,
Software Revenue Recognition ("AICPA SOP 97-2"), the Company recognizes
software license revenue when persuasive evidence of an arrangement
exists, delivery has occurred, the fee is fixed or determinable and
collectibility is probable. In addition, AICPA SOP 97-2 requires that
revenue recognized from software arrangements be allocated to each
element of a multiple element arrangement based on vendor specific
objective evidence of each element. The Company records revenue from
licensing fees as individual products are delivered and accepted by the
customer. Revenue relating to separate maintenance and service contracts
is recognized ratably over the service period. Professional services are
recognized as services are provided. Effective January 1, 1999, the
Company adopted the provisions of AICPA SOP 98-9, Modification of AICPA
SOP 97-2, Software Revenue Recognition with Respect to Certain
Transactions (AICPA SOP 98-9). AICPA SOP 98-9 clarifies certain
provisions of AICPA SOP 97-2 and effectively deferred the required
adoption of those provisions to the fiscal year beginning January 1,
2000. The adoption of AICPA SOP 98-9 had no impact on the Company's
results of operations, financial position or cash flows.
(c) Software Development Costs and Research and Development Costs
The Company may capitalize costs related to the development of
certain software products. In accordance with Statement of Financial
Accounting Standards No. 86, Accounting for the Costs of Computer
Software to Be Sold, Leased or Otherwise Marketed, capitalization of
costs begins when technological feasibility has been established and
ceases when the product is available for general release to customers, at
which time amortization begins on a product by product basis. Capitalized
costs will be amortized over the estimated useful life of the product. No
software development costs were capitalized during 1999 or 2000, as costs
incurred between attainment of technological feasibility and general
release were de minimis.
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<PAGE> 8
(d) Loss Per Share
Loss per share is presented in accordance with the provisions of
SFAS No. 128, Earnings Per Share. Under SFAS No. 128, basic earnings
(loss) per share (EPS) excludes dilution for potential common stock
issuances and is computed by dividing earnings or loss available to
common stockholders by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution
that would occur if securities or other contracts to issue common stock
were exercised or converted into common stock. Basic and diluted EPS are
the same for all periods, as all potential common stock instruments,
consisting of common stock options and warrants and convertible preferred
stock, are anti-dilutive.
(e) Reclassifications
Certain 1999 amounts have been reclassified to conform with the
2000 financial statement presentation.
2. Debt
The Company has entered into a revolving line-of-credit agreement
which provides for borrowings of up to $400,000 through April 20, 2001.
Interest on the line-of-credit accrues at the bank's prime rate (8.5% and
9.5% on December 31, 1999 and September 30, 2000, respectively) and is
payable monthly. If borrowings are made, $1,000,000 is required to be
maintained on account with the bank as a compensating balance. The
Company had no borrowings under the line of credit at December 31, 1999
or September 30, 2000.
3. Initial Public Offering and Redeemable Preferred Stock Conversion
At December 31, 1999, the Company had three classes of mandatorily
redeemable, convertible preferred stock including Series A, Series B and
Series C outstanding. The mandatorily redeemable convertible preferred
shares provided for voting rights on an as converted basis and
liquidation preferences equal to the face amount of the preferred shares
sold, plus all declared but unpaid dividends.
In August 2000, the Company completed its initial public offering
for approximately 5,060,000 shares of the Company's common stock,
including underwriters' over-allotments of 660,000 shares, at $17.00 per
share raising net proceeds of approximately $78.9 million. Accordingly,
as provided for in the Preferred Stock Agreement, approximately 11.0
million shares, or $46.6 million, of mandatorily redeemable, convertible
preferred stock was converted, one-for-one, into the Company's common
stock.
4. Stock Options and Warrants
(a) Stock Options and Grants
At December 31, 1999, the Company had in effect a Non-Qualified
Stock Option Plan. Under the Non-Qualified Stock Option Plan, the
Company's Board of Directors may grant common shares, non-qualified stock
options and non-statutory stock options to employees, directors and
consultants. The options generally vest over 50 months and expire upon
the earlier of three months after termination of employment or ten years
from the date of grant. As of September 30, 2000, approximately 2.0
million shares were granted under the plan and approximately 1.5 million
shares were outstanding.
In August 2000, upon the effective date of the closing of the
Company's initial public offering, the Company adopted the SignalSoft
Corporation Equity Incentive Plan (the "Plan"). Under the Plan, the
Company's Board of Directors may grant non-qualified stock options,
incentive stock options, stock appreciation rights, stock units, and
other stock grants to its employees, consultants, and non-employee
directors. The maximum number of shares of common stock that may be
subject to award under the equity incentive plan is 3,400,000. The number
of shares or other awards that may be granted in any calendar year is
limited to 1,000,000. To the extent that 1.0 million shares is not
granted in any given year, up to 800,000 shares may be carried over to
the next year. Options granted under the Plan vest over
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<PAGE> 9
50 months and expire upon the earlier of three months after termination
of employment or ten years from the date of grant. At September 30, 2000
approximately 0.1 million shares were granted and outstanding under the
plan.
The Company utilizes APB Opinion No. 25 to account for its
employee stock options. During the nine months ended September 30, 2000
and 1999, the Company granted options with exercise prices less than the
fair value of common stock on the date of grant based on recent stock
transactions. Accordingly, the Company is recognizing related
compensation expense over the vesting period of these options.
Compensation expense relating to these options for the quarter ended
September 30, 2000 and 1999 was $0.3 million and $67,220, respectively,
and $0.7 million and $0.2 million for the nine months ended September 30,
2000 and 1999.
5. Significant Customers and Concentration or Credit Risk
Revenue earned from significant customers is as follows:
For the three months ended September 30, 2000, the percent of
revenue earned from significant customers is as follow: Siemens 29.4%,
Compaq 24.4%, Lucent 19.7%, AT&T 17% and diAx 3.8% of revenue.
For the three months ended September 30, 1999, the percent of
revenue earned from significant customers is as follow: Lucent 84.9%,
Compaq 7.4% and AT&T 2.3% of revenue.
For the nine months ended September 30, 2000, the percent of
revenue earned from significant customers is as follow: Lucent 39.7%,
Siemens 14.0%, diAx 13.0%, Compaq 11.1% and AT&T 8.8% of revenue.
For the nine months ended September 30, 1999, the percent of
revenue earned from significant customers is as follow: Lucent 59.4%,
Compaq 17.3% and AT&T 4.6% of revenue.
During the nine months ended September 30, 2000, approximately 80%
of the Company's revenue resulted from sales outside the United States,
predominantly in Europe.
At December 31, 1999 and September 30, 2000, receivables from
these customers represented 59% and 92%, respectively, of trade accounts
receivable.
As of September 30, 2000, the Company has approximately $57.5
million on deposit with a single financial institution.
6. Purchase of Subsidiary
In February 2000, the Company agreed to acquire all of the capital
stock of BFound.com Services, Inc. On April 4, 2000, 75% of the
outstanding shares of BFound.com (BFound) were acquired in exchange for
approximately $1.0 million in cash and 423,151 shares of the Company's
common stock. The remainder of the common stock of BFound was acquired on
May 16, 2000 for an additional 135,172 shares and $450,000 in cash. The
business combination has been accounted for using the purchase method of
accounting and is reflected from April 4 forward. Minority interest in
loss of subsidiary represents the loss applicable to the 24% stockholder
for the period from April 4, 2000 through May 16, 2000.
Page 9
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Except for the historical information contained herein, the following
discussion contains certain forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed herein. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in this section, as well as in
the section "Risk Factors" and "Business" in the Company's Form S-1 filed August
2000. Readers are cautioned not to place undue reliance on these forward-looking
statements which reflect management's analysis only as of the date hereof. The
Company undertakes no obligation to publicly release the results of any revision
to these forward-looking statements which may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
OVERVIEW
Since 1995, we have been developing and marketing mobile location services
products to the wireless industry. We have focused our efforts on designing a
software platform and building related applications that help carriers generate
new revenue from one of their key assets -- the location of their subscribers.
Our software products enable the delivery of location-based voice and data
services to wireless operators and assist operators to capitalize on the growing
trend toward mobile use of the Internet. We were incorporated in Colorado in
1994 and reincorporated in Delaware in 1998. We have a limited operating
history. From our inception until 1997, our efforts were primarily devoted to
research and development, raising capital, recruiting personnel and establishing
key industry partnerships. We generated total revenue of approximately $1.4
million in 1997, $1.1 million in 1998, $2.0 million in 1999 and $8.7 million for
the nine months ended September 30, 2000. We incurred net losses of
approximately $1.4 million in 1997, $4.5 million in 1998, $7.6 million in 1999
and $9.1 million for the nine months ended September 30, 2000. We expect that
net losses will continue on a quarterly basis for at least the next 12 months.
In 1996, the Federal Communications Commission mandated that all wireless
carriers offer a 911 service with features equivalent in many respects to those
of wireline 911 services. We used this mandate as an opportunity to develop a
mobile location services product called Wireless 911 that met the requirements
of the telecommunications industry. Although we realized that the revenue
potential for Wireless 911 was somewhat limited, we believed that our
development and rollout of Wireless 911 was an opportunity to capture market
share in mobile location services and to develop valuable partnerships in the
wireless industry. We introduced Wireless 911 in 1997. Although actual
deployment of the product has been slow, which we believe is due primarily to
contractual and liability issues among carriers, local safety agencies and local
exchange carriers, Wireless 911 accounted for all of our revenue in 1997,
approximately 86% of our revenue in 1998 and approximately 14% of our revenue in
1999. Following our launch of Wireless 911, we focused on our core strategy of
developing mobile location services products that help wireless carriers
differentiate their service offerings, build subscriber loyalty and generate
additional revenue. We launched two products in 1998 -- local.info and Location
Sensitive Billing. In addition, we opened our first international office in the
United Kingdom, and began actively marketing our services to network operators
in Europe. In 1999, we continued our strategy of establishing partnerships
throughout the industry, expanding our selling and marketing efforts in Europe
and the United States and adding features to our products. We also gained our
first customer for a product other than Wireless 911, by licensing local.info to
diAx, a Swiss wireless network joint venture between SBC Communications Inc. and
diAx Holding AG.
Our very limited operating history makes it difficult to forecast future
operating results. Since our inception, we have continued to invest
substantially in research and development, marketing, domestic and international
sales channels, professional services and our operational and administrative
infrastructure, resulting in losses and negative cash flows since our inception.
These activities have significantly increased our operating expenses,
contributing to net losses in each year since our inception.
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<PAGE> 11
Although our revenue has grown in recent quarters, our revenue may not increase
at a rate sufficient to achieve and maintain profitability, if at all. Also, if
our customers continue to purchase our products with perpetual licenses, then
our revenue will continue to vary significantly from quarter to quarter. We
anticipate that our operating expenses will increase substantially for the
foreseeable future as we expand our product development, sales and marketing,
professional services and operational and administrative staff.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1999
REVENUE
Total revenue increased $2.9 million, from $0.9 million for the three
months ended September 30, 1999 to $3.8 million for the three months ended
September 30, 2000. The increase in revenue during the three months ended
September 30, 2000 resulted primarily from an increase in license fees
associated with the sale of licenses for various products under our reseller
agreements and an increase in related professional services performed under our
reseller agreements and in association with the direct sale of our local.info
product. During the three months ended September 30, 2000, approximately 29% and
24%,respectively, of our revenue resulted from sales to Siemens and to Compaq.
License fees. License fee revenue increased $2.1 million, from
approximately $0.8 million in the three months ended September 30, 1999 to $2.9
million in the three months ended September 30, 2000. The increase in license
fee revenue during the three months ended September 30, 2000 resulted primarily
from the increase in the sale of licenses for various products under our
reseller agreements.
Maintenance fees. Maintenance fee revenue increased approximately $46,000,
from approximately $38,000 during the three months ended September 30, 1999 to
approximately $84,000 during the three months ended September 30, 2000. The
increase in maintenance fee revenue is attributable primarily to the maintenance
associated with the sale of licenses for our local.info product.
Professional services and other. Professional services and other revenue
increased $0.8 million, from approximately $0.1 million in the three months
ended September 30, 1999 to approximately $0.9 million in the three months ended
September 30, 2000. The increase resulted primarily from installation, training,
consultation services and sale of third-party software provided for in the sale
of various products under our reseller agreements and in the performance of
introductory trials and demonstrations.
COST OF REVENUE
Cost of revenue increased $0.7 million, or 159%, from $0.4 million in the
three months ended September 30, 1999 to $1.1 million in the three months ended
September 30, 2000. The dollar increase in cost of sales was due primarily to
the costs associated with the growth in operations personnel from 12 at
September 30, 1999 to 25 at September 30, 2000, which accounted for
approximately $0.2 million of the change, and an increase of $0.4 million
relating to increased operations consulting and travel costs. As a percentage of
total revenue, cost of revenue decreased to 28% in the three months ended
September 30, 2000 from 46% in the three months ended September 30, 1999. This
decrease resulted from greater revenue in the 2000 period to cover fixed costs
and due to additional revenue in excess of the incremental costs of revenue.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative costs increased $2.5 million, from
$0.9 million in the three months ended September 30, 1999 to $3.4 million in the
three months ended September 30, 2000. The change was due primarily to the costs
associated with the growth in selling, general and administrative personnel from
26 as of September 30, 1999 to 73 as of September 30, 2000, which accounted for
approximately $1.7 million of the change, an increase of $0.4 million in travel
and consulting costs, an increase of
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$0.2 million in incremental operating costs resulting from the purchase of
Bfound.com Services, Inc., completed in May 2000, and an increase of $0.1 in
marketing expenses.
RESEARCH AND DEVELOPMENT
Research and development expenses increased $1.8 million, from $0.8
million in the three months ended September 30, 1999 to $2.6 million in the
three months ended September 30, 2000. The change in research and development
costs was due primarily to the costs associated with the growth in research and
development personnel from 26 as of September 30, 1999 to 72 as of September 30,
2000, which accounted for approximately $0.9 million of the change, an increase
of $0.4 million in consulting costs resulting from the use of project specific
contract consultants to accelerate development efforts, an increase in travel
costs of $0.2 million and an increase of $0.2 million in incremental operating
costs resulting from the purchase of BFound.com Services, Inc., completed in May
2000.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased approximately $0.4 million, from
approximately $48,000 in the three months ended September 30, 1999 to
approximately $0.5 million in the three months ended September 30, 2000. The
increase was due primarily to an increase of $0.2 million in the amortization of
intangible assets during the three months ended September 30, 2000, resulting
from the acquisition of BFound.com Services, Inc., completed in May 2000.
Depreciation expense increased as a result of the change in equipment and
leasehold improvements from $0.6 million at September 30, 1999 to $3.0 million
at September 30, 2000.
STOCK OPTION COMPENSATION EXPENSE
Stock option compensation expense increased approximately $0.2 million,
from $67,000 in the three months ended September 30, 1999 to $0.3 million in the
three months ended September 30, 2000. These costs relate to options granted in
1997, 1998, 1999 and 2000 under our stock option plans with exercise prices at
less than fair value of the common stock at the date of grant. Unrecognized
compensation expense as of September 30, 2000 totaled approximately $3.5
million.
OTHER INCOME, NET
Other income increased $1.0 million, from approximately $4,000 in the
three months ended September 30, 1999 to $1.0 million in the three months ended
September 30, 2000. The increase results primarily from interest income derived
from higher cash and cash equivalent balances resulting from the receipt of net
proceeds of approximately $78.9 million in the initial public offering in August
2000 and net proceeds received from completion of a private placement offering
in December 1999 and January 2000.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1999
REVENUE
Total revenue increased $7.4 million, from $1.3 million for the nine
months ended September 30, 1999 to $8.7 million for the nine months ended
September 30, 2000. The increase in revenue during the nine months ended
September 30, 2000 resulted primarily from an increase in license fees
associated with the sale of licenses for various products under our reseller
agreements and the direct sale of our local.info product. The increase in
related professional services results primarily from professional services
contracted under our reseller agreements and from the sale of our local.info
product. During the nine months ended September 30, 2000, approximately 40% and
14%,respectively, of our revenue resulted from sales to Lucent Technologies and
to Siemens.
License fees. License fee revenue increased $5.6 million, from
approximately $0.8 million in the nine months ended September 30, 1999 to $6.4
million in the nine months ended September 30, 2000. The increase in license fee
revenue during the three months ended September 30, 2000 resulted primarily from
the increase in the sale of licenses for various products under our reseller
agreements and the direct sale of our local.info product.
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Maintenance fees. Maintenance fee revenue decreased approximately $13,000,
from approximately $249,000 during the nine months ended September 30, 1999 to
approximately $236,000 during the nine months ended September 30, 2000. The
decrease in maintenance fee revenue is attributable primarily to the change in
mid-1999 by one of our industry partners from a fixed quarterly maintenance fee
based on estimated customers to a fee based on actual customers.
Professional services and other. Professional services and other revenue
increased $1.8 million, from approximately $0.2 million in the nine months ended
September 30, 1999 to approximately $2.0 million in the nine months ended
September 30, 2000. The increase resulted primarily from installation, training,
consultation services and sale of third-party software provided for in the sale
of various products under our reseller agreements, the direct sale of our
local.info product and in the performance of introductory trials and
demonstrations.
COST OF REVENUE
Cost of revenue increased $1.5 million, or 120%, from $1.2 million in the
nine months ended September 30, 1999 to $2.7 million in the nine months ended
September 30, 2000. The dollar increase in cost of sales was due primarily to
costs associated with the growth in operations personnel from 12 at September
30, 1999 to 25 at September 30, 2000, which accounted for approximately $0.9
million of the increase, an increase of $0.4 million relating to increased
operations consulting and travel costs and an increase of $0.2 million resulting
from the cost of third party products associated with the introductory product
trials and the sale of our local.info product. As a percentage of total revenue,
cost of revenue decreased to 31% in the nine months ended September 30, 2000
from 94% in the nine months ended September 30, 1999. This decrease resulted
from greater revenue in the 2000 period to cover fixed costs and additional
revenue in excess of the incremental costs of revenue.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative costs increased $5.6 million, from
$2.8 million in the nine months ended September 30, 1999 to $8.4 million in the
nine months ended September 30, 2000. The change was due primarily to costs
associated with the growth in selling, general and administrative personnel from
26 as of September 30, 1999 to 73 as of September 30, 2000, which accounted for
approximately $3.2 million of the change, an increase of $0.7 million in
consulting costs, an increase of $0.8 million in travel expenses, an increase of
$0.3 million in recruiting costs, an increase of $0.3 million in incremental
operating costs resulting from the purchase of BFound.com, Inc. completed in May
2000 and an increase of $0.2 in marketing expenses.
RESEARCH AND DEVELOPMENT
Research and development expenses increased $4.3 million, from $2.4
million in the nine months ended September 30, 1999 to $6.7 million in the nine
months ended September 30, 2000. The change in research and development costs
was due primarily to costs associated with the growth in research and
development personnel from 26 as of September 30, 1999 to 72 as of September 30,
2000, which accounted for approximately $2.1 million of the change, an increase
of $1.2 million in consulting costs resulting from the use of project specific
contract consultants to accelerate development efforts, an increase in travel
costs of $0.2 million, an increase of $0.3 million in recruiting costs and an
increase of $0.2 million in incremental operating costs resulting from the
purchase of BFound.com Services, Inc., completed in May 2000.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased $0.9 million, from approximately
$0.1 million in the nine months ended September 30, 1999 to $1.0 million in the
nine months ended September 30, 2000. The increase was due primarily to an
increase of $0.5 million in the amortization of intangible assets during the
nine months ended September 30, 2000, resulting from the acquisition of
Bfound.com Services, Inc., completed in May 2000. Depreciation expense increased
as a result of a change in equipment and leasehold improvements from $0.6
million at September 30, 1999 to $3.0 million at September 30, 2000.
STOCK OPTION COMPENSATION EXPENSE
Stock option compensation expense increased approximately $0.5 million,
from $0.2 million in the nine months ended September 30, 1999 to $0.7 million in
the nine
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months ended September 30, 2000. These costs relate to options granted in 1997,
1998, 1999 and 2000 under our stock option plans with exercise prices at less
than fair value of the common stock at the date of grant. During the nine months
ended September 30, 2000, additional options were granted with exercise prices
at less than fair value resulting in $3.7 million in deferred compensation,
which will be recognized ratably over the vesting period of the options.
OTHER INCOME, NET
Other income increased $1.5 million, from approximately $90,000 in the
nine months ended September 30, 1999 to $1.6 million in the nine months ended
September 30, 2000. The increase results primarily from interest income derived
from higher cash and cash equivalent balances resulting from proceeds from the
private placement offering in January 2000 and net proceeds of approximately
$78.9 million received upon the completion of an initial public offering in
August 2000.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended September 30, 2000, cash and cash
equivalents increased $74.7 million from $18.1 million at December 31, 1999 to
$92.8 million at September 30, 2000. The increase in cash and cash equivalents
resulted primarily from cash provided by financing activities of $91.1 million
offset by cash used in operating activities of $12.0 million and cash used in
investing activities of $4.4 million.
Net cash used in operations of $12.0 million for the nine months ended
September 30, 2000 resulted primarily from operating losses which reflect our
continuing investment in our growth, and from cash expended for prepaid expenses
and other assets.
Net cash used in investing activities of $4.4 million for the nine
months ended September 30, 2000 resulted primarily from capital expenditures of
$2.8 million for computer equipment and leasehold improvements expended in
connection with our expansion efforts and increased personnel from 70 at
December 31, 1999 to 170 at September 30, 2000 and from our $1.7 million cash
investment in the acquisition of Bfound.com, completed in May 2000.
Net cash provided by financing activities of $91.1 million for the nine
months ended September 30, 2000 resulted primarily from net proceeds of
approximately $78.9 million received from our initial public common stock
offering in August 2000 and the completion of a private placement offering in
January 2000 that raised net proceeds of $12.1 million in January 2000 and
$16.2 million in December 1999.
Prior to our initial public offering, we financed our operations
primarily through private placement offerings and, to a lesser extent, proceeds
from loans. Upon completion of our initial public offering of common stock in
August 2000, a total of 5,060,000 shares were sold to the public, and resulted
in all mandatorily redeemable, convertible preferred stock converting to common
stock and net proceeds to the Company after expenses of approximately $78.9
million. We also receive funds from time to time from the exercise of options or
similar rights to purchase shares of our company stock. Except for our revenue
and other income, we have no other material external sources of liquidity. We
expect that funds raised in the Initial Public Offering will support our working
capital requirements for the foreseeable future.
Due to our very limited operating experience, we do not yet know if we
should expect seasonality in our sales. It is possible that our sales in the
United States may be higher in the fourth quarter, and consequently lower in the
first quarter due to our customers' desires to spend their full budget by year
end. In addition, sales in Europe may be lower in the third quarter due to
summer vacations.
Our principal commitments consist of obligations under operating
leases, an equipment loan and capital lease obligations. In addition, we have a
revolving line of credit agreement providing for borrowings of up to $400,000
through April 2001. No borrowings were outstanding under this line of credit as
of September 30, 2000. We believe we have adequate liquid resources to finance
our operations thru at least fiscal year 2001.
ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standard Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," which
defines derivatives, requires that all derivatives be carried at fair value, and
provides for hedging accounting when certain conditions are met. SFAS No. 133,
which has been amended by SFAS 137, is effective for the Company's fiscal year
ending December 31, 2000. The Company does not believe adoption of SFAS No. 133
will have a material impact on the Company's financial position, results of
operations, or cash flows. In December 1999, the SEC released Staff Accounting
Bulletin No. 101 ("SAB 101") "Revenue Recognition in Financial Statements",
which provides guidance on the recognition, presentation and disclosure of
revenue in financial statements filed with the SEC. Subsequently, the SEC
released SAB 101B, which delayed the implementations date of SAB 101 for
registrants with fiscal years beginning between December 16, 1999 and March 15,
2000. The Company has not yet assessed the impact, if any, that SAB 101 might
have on its financial position or results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We expect that as a result of our partner sales channel strategy that
we will be paid in United States dollars for the majority of our international
sales. Some of our customers, including one of our current largest customers,
may pay us in currency other than United States dollars. During the nine months
ended September 30, 2000, approximately 80% of our revenue resulted from sales
outside the United States, predominantly in Europe. Fluctuations in the value of
foreign currencies relative to the United States dollar could cause us to incur
currency exchange losses. To the extent our international revenue increases and
we are paid in currency other than United States dollars, we will be exposed to
greater foreign currency exchange risk. We experience some fluctuation in the
value of payments made to us in currencies other than Untied States dollars.
Although these fluctuations have not materially affected our financial results,
these types of fluctuations subject us to potential foreign currency gains and
losses that my have a material effect on our financial results in the future. We
do not engage in commodity futures trading activities and do not enter into
derivative financial instrument transactions for trading or other speculative
purposes. We have no experience with any such activities or transactions, and if
we enter into them in the future, we could incur substantial losses on these
activities.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are not party to any material legal proceedings, nor are we currently
aware of any threatened material legal proceedings. From time to time, we may
become involved in litigation relating to claims arising out of our operations
in the normal course of our business.
ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS
In August 2000 we completed our initial public offering of 5,060,000
shares of our Common Stock, including underwriters' over-allotments, at $17.00
per share pursuant to a registration statement declared effective on August 2,
2000. The managing underwriters were Salomon Smith Barney, Donaldson, Lufkin &
Jenrette, and Lehman Brothers. Aggregate gross proceeds from the offering were
approximately $86.0 million.
We incurred the following expenses in connection with the offering:
underwriters' discounts and commissions of $6.0 million and approximately $1.1
of other expenses. After deducting expenses of the offering, we received net
offering proceeds of approximately $78.9 million. The net proceeds were invested
in short-term financial instruments. No payments constituted direct or indirect
payments to any of our directors, officers or general partners or their
associates, to persons owning 10% or more of any class of our equity securities
or to any of our affiliates.
During the three and nine months ended September 30, 2000, net proceeds
from the initial public offering were utilized primarily for research and
development activities, general corporate activities and capital expenditures.
We intend to spend approximately $20.0 million to $30.0 million on research and
development expenditures and approximately $5.0 million to $10.0 million on
capital expenditures from the beginning of 2000 through the end of 2001. We
intend to spend the remainder of the net proceeds for general corporate
purposes, although we have not identified amounts to be spent for any specific
purpose. The actual amount of net proceeds we spend on a particular use will
depend on many factors, including our future revenue growth; additional
financing sources, if any; availability and desirability of acquisition
candidates; the amount of expenditures required for other uses; and the amount
of cash generated or used by our operations. Many of these factors are beyond
our control. Therefore, our management will have broad discretion in the use of
the net proceeds. Until we use the net proceeds of the offering as described
above, we intend to continue to invest the net proceeds in short-term
investment-grade marketable securities.
During the nine months ended September 30, 2000, the Company issued
489,584 shares of common stock upon the exercise of employee stock options
granted under the Company's Non-Qualified Stock Option Plan. Additionally, in
August 2000, 25,336 warrants were converted into 24,113 shares of the Company's
common stock and approximately 11.0 million shares of mandatorily redeemable,
convertible preferred stock was converted, one-for-one, into the Company's
common stock.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
We have not yet selected the final date for our 2001 Annual Meeting of
Stockholders, but anticipate that it will be held on approximately May 10, 2001.
Rule 14a-8 under the Securities Exchange Act of 1934, as amended, requires that
any stockholder proposals be submitted for action at our annual meeting and be
submitted by us not less than 120 calendar days before the date of any proxy
statement that we released to stockholders last year, or, if we did not send
such a proxy (which we did not, since we were then a private company with a
limited number of stockholders), a reasonable time before we begin to print and
mail our proxy for this year's annual meeting. We believe that we will mail our
proxy on or about April 15, 2001 for next year's annual meeting and that,
therefore, a reasonable time before such mailing for the purpose of any
stockholder proposals would be a deadline of December 20, 2000.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 -- Financial Data Schedule
(b) Reports on Form 8-K
None.
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SIGNATURES
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.
SIGNALSOFT CORPORATION
Date: November 14, 2000 By: /s/ Andrew M. Murray
------------------ --------------------------------
Andrew M. Murray, Senior Vice
President of Finance and Chief
Financial Officer
<PAGE> 18
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
27 Financial Data Schedule
