<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from ______________ to ________________
Commission file number __000-_________
WESTERN MULTIPLEX CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 52-2198231
(State of Incorporation) (I.R.S. Employer
Identification No.)
1196 Borregas Avenue
Sunnyvale, California 94089
(408) 542-5200
(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 Class A common stock as of
September 14, 2000 was 52,869,123.
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
----
<S> <C> <C>
Item 1. Financial Statements
Condensed Balance Sheets at June 30, 2000 and December 31, 1999 1
Condensed Income Statements for the three and six months ended
June 30, 2000 and June 30, 1999 2
Condensed Statements of Cash Flows for the six months ended
June 30, 2000 and June 30, 1999 3
Notes to Condensed Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signature 18
Exhibit Index
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WESTERN MULTIPLEX CORPORATION
CONDENSED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
--------- --------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 284 $ 1,913
Accounts receivable, net.................................. 13,713 8,830
Inventory................................................. 12,153 5,543
Prepaid expenses and other................................ 1,218 301
Deferred tax assets....................................... 1,057 1,057
-------- --------
Total current assets................................... 28,425 17,644
Equipment and leasehold improvements, net................... 3,353 2,496
Deferred tax assets......................................... 3,640 3,882
Deferred financing costs.................................... 652 748
Goodwill and other intangible assets, net................... 24,378 18,552
-------- --------
Total assets........................................... $ 60,448 $ 43,322
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving line of credit.................................. $ 5,500 $ 2,000
Long-term debt--current portion........................... 3,756 2,847
Accounts payable.......................................... 6,734 3,059
Accrued liabilities....................................... 4,128 3,848
Payable to parent company................................. 690 1,409
-------- --------
Total current liabilities.............................. 20,808 13,163
Long-term liabilities....................................... 17,382 19,153
-------- --------
Total liabilities...................................... 38,190 32,316
-------- --------
Stockholders' equity:
Common stock.............................................. 862 800
Paid-in capital........................................... 48,640 31,433
Treasury stock............................................ (21,000) (21,000)
Deferred stock compensation............................... (6,152) --
Retained earnings (deficit)............................... 1,087 (227)
Employee stock subscription receivable.................... (1,179) --
-------- --------
Total stockholders' equity............................. 22,258 11,006
-------- --------
Total liabilities and stockholders' equity............. $ 60,448 $ 43,322
======== ========
</TABLE>
1
<PAGE>
WESTERN MULTIPLEX CORPORATION
CONDENSED INCOME STATEMENTS
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue.............................................. $ 20,944 $ 8,588 $ 37,964 $ 17,298
Cost of revenue...................................... 9,340 4,437 17,065 9,452
----------- ----------- ----------- -----------
Gross profit.................................... 11,604 4,151 20,899 7,846
----------- ----------- ----------- -----------
Operating expenses:
Research and development........................... 2,828 1,407 4,769 2,628
Sales and marketing................................ 3,202 1,336 5,751 2,610
General and administrative......................... 1,463 454 2,552 892
Amortization of goodwill........................... 751 182 938 362
Amortization of deferred stock
compensation..................................... 1,082 -- 1,968 --
----------- ----------- ----------- -----------
Total operating expenses........................ 9,326 3,379 15,978 6,492
----------- ----------- ----------- -----------
Income from operations.......................... 2,278 772 4,921 1,354
Interest income (expense)............................ (627) 1 (1,224) --
----------- ----------- ----------- -----------
Income before taxes............................. 1,651 773 3,697 1,354
Income tax provision................................. 1,100 292 2,383 514
----------- ----------- ----------- -----------
Net income...................................... $ 551 $ 481 $ 1,314 $ 840
=========== =========== =========== ===========
Basic and diluted earnings per share................. $.01 $.01 $.03 $.01
=========== =========== =========== ===========
Shares used to compute basic earnings per share...... 42,709,145 80,000,000 41,454,483 80,000,000
=========== =========== =========== ===========
Shares used to compute diluted earnings per
Share............................................... 50,797,779 80,000,000 48,858,593 80,000,000
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
2
<PAGE>
WESTERN MULTIPLEX CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------
2000 1999
------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income ..................................................... $ 1,314 $ 840
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ............................... 3,340 651
Deferred financing costs amortization ....................... 96 --
Provision for bad debt ...................................... 149 --
Deferred taxes .............................................. 242 (742)
Assets and liabilities:
Accounts receivable ...................................... (5,032) (1,495)
Inventory ................................................ (6,610) 1,902
Prepaid expenses and other ............................... (917) 70
Accounts payable and accrued liabilities ................. 3,955 (1,620)
Payable to parent company ................................ (719) 2,647
Other long-term obligations .............................. 47 --
------- -------
Net cash provided by (used in) operating activities..... (4,135) 2,253
------- -------
Cash flows from investing activities:
Purchases of equipment and leasehold improvements.................. (1,291) (277)
------- -------
Net cash used in investing activities ................... (1,291) (277)
------- -------
Cash flows from financing activities:
Net proceeds from issuance of shares ............................. 2,385 --
Repayment of long-term debt ....................................... (909) --
Borrowings on line of credit ..................................... 3,500 --
Net cash transfers to Glenayre ................................... -- (1,780)
Employee subscription receivable ................................. (1,179) --
------- -------
Net cash provided by (used in)
financing activities ................................... 3,797 (1,780)
------- -------
Net increase (decrease) in cash .................................... (1,629) 196
Cash, beginning of period .......................................... 1,913 1,377
------- -------
Cash, end of period ................................................ $ 284 $ 1,573
======= =======
Supplemental Disclosures:
Cash paid during the year for:
Interest ...................................................... $ 1,219 $ --
======= =======
Income taxes .................................................. $ 3,975 $ 35
======= =======
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
3
<PAGE>
WESTERN MULTIPLEX CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Organization and Operations of the Company
Western Multiplex Corporation (the "Company") was founded in 1979 in
Sunnyvale, California. In 1992, the Company launched the Lynx broadband wireless
access systems, which are primarily used by wireless operators to connect their
base stations to other base stations and to existing wire line networks. In
1999, the Company introduced the Tsunami broadband wireless access systems,
which are primarily used by service providers, businesses and other enterprises
to expand or establish private networks carrying Internet traffic among multiple
facilities.
The Company was acquired by GTI Acquisition Corporation ("GTI") in 1995, a
wholly-owned subsidiary of Glenayre Technologies Inc. ("Glenayre").
Effective November 1, 1999, a recapitalization of the Company was executed
that included the following transactions, in accordance with the terms of the
Amended and Restated Acquisition Agreement by and among GTI Acquisition Corp.,
Glenayre Technologies, Inc., the Company and WMC Holding Corp. dated September
30, 1999 (the "Agreement"):
. The Company borrowed $22.0 million under two term loan arrangements and
drew down $2.0 million on a $10.0 million revolving credit facility with
Credit Suisse First Boston.
. The Company redeemed 42 million shares of Class B common stock from GTI for
$21.0 million of the 80 million then outstanding shares.
. WMC Holding Corp. ("Purchaser") acquired approximately 36 million shares of
Class B common stock from GTI, or approximately 94.6% of the remaining
outstanding shares of the Company, for approximately $16.5 million.
. The Company incurred approximately $0.8 million in financing costs that
were capitalized and $3.1 million in transaction costs related to the
equity transactions that were classified as recapitalization costs in the
income statement for 1999.
On March 24, 2000, the Company acquired Ubiquity Communication, Inc.
("Ubiquity"), located in Petaluma, California. Ubiquity was a development stage
company, which designs and develops point-to-multipoint broadband wireless
systems. The Company issued 692,772 shares of Class A common stock in the
acquisition and reserved 137,727 shares for issuance upon the exercise of the
Ubiquity options assumed. The acquisition was accounted for as a purchase
transaction. The total purchase price was valued at $6.4 million. Purchased
intangibles and goodwill related to the acquisition totaled approximately $6.8
million and is being amortized on a straight-line basis over the estimated
useful life of three years. The Company subsequently granted to certain Ubiquity
employees an additional 350,000 options at an exercise price of $.50 under the
Western Multiplex Corporation 1999 Stock Incentive Plan. Additionally, certain
Ubiquity employees purchased 300,000 shares of WMC Holding Corp.
2. Basis of Presentation
In the opinion of management, the unaudited interim condensed financial
statements furnished in this report reflect all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of the results
of operations for the interim periods covered and of the Company's financial
position as of the interim balance sheet date. The results of operations for
the interim periods are not necessarily indicative of the results for the entire
year. These condensed financial statements should be read in conjunction with
the Company's audited financial statements and the accompanying notes for the
year ended December 31, 1999 included in the Company's Registration Statement on
Form S-1, 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.
3. Summary of Significant Accounting Policies
Inventory
Inventory is stated at the lower of cost (first-in, first-out), consisting of
materials, labor and overhead or market and consists of the following (in
thousands):
4
<PAGE>
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------- -------
(unaudited)
<S> <C> <C>
Raw materials ............................................................. $ 2,118 $1,327
Work-in-process ........................................................... 3,396 2,079
Finished goods ............................................................ 6,639 2,137
------- ------
$12,153 $5,543
======= ======
</TABLE>
Goodwill and Other Intangible Assets
Goodwill represents the excess of cost over the fair market value of net
assets acquired. Goodwill pushed down from the 1995 acquisition of the Company
by GTI totals $22.0 million. This goodwill is being amortized on a straight-line
basis over its estimated useful life of 30 years, or $0.7 million per year.
Goodwill and other intangible assets related to the acquisition of Ubiquity (see
Note 1) total $6.8 million. Of the $6.8 million, $6.5 million has been allocated
to goodwill and $300,000 has been allocated to the patents acquired in the
transaction. These intangibles are related to the acquisition and are being
amortized on a straight-line basis over their estimated useful lives of three
years. The carrying amount of goodwill would be reviewed if facts and
circumstances suggest that it may be impaired. If the review indicates that
goodwill would not be recoverable, as determined based on the expected future
undiscounted cash flows of the Company over the remaining amortization period,
the carrying amount of the goodwill would be reduced by the estimated shortfall.
The Company has recorded no such write-downs of goodwill in any of the periods
presented.
Segment Reporting
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information" (SFAS No.
131). SFAS No. 131 establishes standards for disclosures about operating
segments, products and services, geographic areas and major customers. The
Company is organized and operates as one operating segment: providing wireless
access products. Revenues by geographic area are attributed to the country from
which the sale is made. To date, all of the Company's transactions have
originated in one geographic location, the United States, even though many of
the Company's customers may operate in foreign as well as domestic markets.
Major Customers
Two customers accounted for 20.5% and 18.0% of total revenue for the second
quarter of 2000, and one customer accounted for 13.4% for the second quarter of
1999. Two customers accounted for 18.9% and 13.1% of total revenue for the
first half of 2000, and one customer accounted for 13.3% of total revenue for
the first half of 1999.
Earnings Per Share of Common Stock
Basic and diluted net income per share are presented in conformity with
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS
No. 128). Basic earnings per share under SFAS 128 were computed using the
weighted average number of shares outstanding of 42,709,145 and 41,454,483 for
the three and six months ended June 30, 2000, respectively, and 80,000,000 for
the three and six months ended June 30, 1999. Diluted earnings per share is
determined in the same manner as basic earnings per share except that the number
of shares is increased assuming dilutive stock options and warrants using the
treasury stock method. Diluted earnings per share were computed using the
weighted average number of shares outstanding of 50,797,779 and 48,858,593 for
the three and six months ended June 30, 2000, respectively. For the three and
six months ended June 30, 1999, the treasury stock method resulted in no
dilutive securities and, accordingly, basic and dilutive earnings per share were
the same.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS No.
133), which establishes accounting and reporting standards for derivative
instruments and hedging activities. The statement requires recognition of all
derivatives at fair value in the financial statements. FASB Statement No. 137,
"Accounting for Derivative Instruments and Hedging Activities--Deferral of the
Effective Date of FASB Statement No. 133," an amendment of FASB Statement No.
133, defers implementation of SFAS No. 133 until fiscal years beginning after
June
5
<PAGE>
15, 2000. To date, the Company has not entered into any derivative financial
instrument contracts. Thus, the Company anticipates that SFAS No. 133 will not
have a material impact on its financial statements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, Revenue Recognition. SAB No. 101 provides guidance
on applying generally accepted accounting principles to revenue recognition in
financial statements. We believe that our current accounting policies are in
accordance with SAB No. 101.
In March 2000, the Financial Accounting Standards Board issued Interpretation
No. 44, Accounting for Certain Transactions involving Stock Compensation--an
interpretation of APB No. 25. Interpretation No. 44 is effective July 1, 2000.
Interpretation No. 44 clarifies the application of APB No. 25 for various
issues, including:
. the definition of an employee;
. the criteria for determining whether a plan qualifies as a non-compensatory
plan; the accounting consequences of various modifications to the terms of
a previously fixed stock option or award; and
. the accounting for an exchange of stock compensation awards in a business
combination.
Starting July 1, 2000, the Company adopted Interpretation No. 44, the adoption
of which did not result in a material impact on our financial position or the
results of the Company's operations through June 30, 2000.
4. Long-Term Debt
On November 1, 1999, the Company entered into a credit agreement with Credit
Suisse First Boston, as agent. Long-term debt obligations under the credit
agreement, less current portion due within one year, are summarized as follows
(in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------- -------
(unaudited)
<S> <C> <C>
Term note A, interest at LIBOR plus 2.50% or prime plus 1.50%, as
periodically elected by the Company (9.1% at June 30, 2000),
maturing in November 2002 ....................................................... $ 9,091 $10,000
Term note B, interest at LIBOR plus 5.00% or prime plus 4.00%, as
periodically elected by the Company (11.6% at June 30, 2000),
maturing in November 2004 ....................................................... 12,000 12,000
------- -------
21,091 22,000
Less: Current portion due within one year ........................................ 3,756 2,847
------- -------
Total long-term debt ........................................................... $17,335 $19,153
======= =======
</TABLE>
The credit agreement also included a $10 million revolving credit facility
maturing in 2002. Interest rates for borrowings under the revolving credit
facility are at LIBOR plus 2.5% or prime plus 1.5%, as periodically elected by
the Company. At June 30, 2000, there were $5.5 million of borrowings outstanding
under the revolving credit facility. The weighted average interest rate for the
six-month period ending June 30, 2000 was 8.7%.
The term notes and revolving credit facility are secured by substantially all
of the assets of the Company. The loans also include certain financial
covenants, as follows: maximum leverage of no more than 4.5 for fiscal 2000
declining to 3.5 for fiscal 2001 and thereafter; minimum interest coverage ratio
of 2.5 for fiscal 2000 increasing to 3.5 for fiscal 2002 and thereafter; minimum
fixed charge ratio 1.05 through fiscal 2001 increasing to 1.10 thereafter;
minimum EBITDA of $5.5 million through fiscal 2001 increasing to $9.5 million in
fiscal 2001; quick ratio of at least 1.25 through fiscal 2001 increasing to 1.50
thereafter.
The Company may prepay the term notes at any time upon adequate notice to the
lender. The term notes also call for mandatory prepayments in the event of an
initial public offering of the Company. In August 2000, subsequent to the
Company having completed its initial public offering, the Company repaid the
term notes and all borrowings outstanding under the revolving credit facility
(see Note 6).
The fair value of the long-term debt and borrowings under the revolving credit
facility approximates the carrying amounts at June 30, 2000.
6
<PAGE>
4. Income Taxes
The effective income tax rates were 66.6% and 37.8% for the three months ended
June 30, 2000 and 1999, respectively, and 64.5% and 38.0% for the six months
ended June 30, 2000 and 1999, respectively. For the three and six months ended
June 30, 2000, the provision for income taxes differs from the amounts which
would result by applying the applicable Federal statutory income tax rate to
income before taxes by increases in taxes primarily resulting from nondeductible
amortization of deferred stock compensation of $1.1 million and $2.0 million,
respectively.
5. Stockholders' Equity
Common Stock
The Company's common stock consists of Class A and Class B common stock.
Holders of Class A common stock are entitled to one vote per share. Holders of
Class B common stock are entitled to ten votes per share. Each share of Class B
common stock is convertible into one share of Class A common stock at the
election of the shareholder or automatically in the event of an initial public
offering of the Company. As of June 30, 2000, there were 6,244,123 shares of
Class A common stock and 38,000,000 shares of Class B common stock issued and
outstanding.
In conjunction with the recapitalization transaction discussed in Note 1, the
Company repurchased 42,000,000 shares of Class B common stock for $21.0 million
from Glenayre. The repurchased shares are held as treasury shares as of June 30,
2000.
Warrants
In connection with the recapitalization discussed in Note 1, the Company
issued 4,370,000 warrants to a holding company, owned by the Chief Executive
Officer of the Company, and a trust, of which a director of the Company is
trustee and beneficiary. Each warrant is convertible into one share of Class A
common stock of the Company at an exercise price of $.50 per share. The warrants
expire on the tenth anniversary from date of issuance. Of the total warrants
issued, 1,710,000 were exercised prior to June 30, 2000. The remaining 2,660,000
warrants outstanding as of June 30, 2000 are exercisable upon completion of an
initial public offering, which occurred August 1, 2000.
1999 Stock Incentive Plan
In November 1999, the Company adopted the Western Multiplex Corporation 1999
Stock Incentive Plan (the "1999 Plan") for key employees, officers, directors,
and consultants. The Company has reserved for issuance 10,500,000 shares of
Class A common stock under the 1999 Plan. The type of awards that may be made
under the 1999 Plan are incentive stock options, non-qualified options, stock
appreciation rights, and other stock-based awards.
The exercise price for stock options may not be less than 100% of the fair
market value of the Company's common stock on the date of the grant (110% for
any option granted to any stockholder who owns more than 10% of the total
combined voting power of all classes of stock of the Company or its parent or
subsidiary corporation), as determined by the Compensation Committee. An option
may not vest at less than 20% per year over five years, as determined by the
Compensation Committee.
During 1999, the Company granted 3,372,000 options to employees at an exercise
price of $0.50 per share of which none were exercised. These options have a term
of ten years.
During the first six months of 2000, the Company granted 2,345,000 options at
an exercise price ranging from $0.50 to $10.00 per share. These options have
a term of ten years.
None of the options granted under the 1999 plan have been exercised or are
vested as of June 30, 2000. Approximately 684,000 of these options are
exercisable upon completion of an initial public offering, which occurred August
1, 2000.
Ubiquity Communication Plan
In connection with our organization of Ubiquity Communication, Inc. on March
24, 2000, the Company assumed the
7
<PAGE>
obligations under Ubiquity Communication's equity incentive plans. As a result,
all options granted under the Ubiquity Communication equity incentive plans
became options to purchase shares of our common stock. As of June 30, 2000, the
Company had granted 137,727 options at an exercise price ranging from $1.67 to
$3.20 of which 56,576 have vested and none have been exercised.
Employee Stock Purchase Plan
In June 2000, the Company adopted the Western Multiplex Corporation Employee
Stock Purchase Plan, which is intended to qualify as an employee stock purchase
plan under Section 423 of the Internal Revenue Code of 1986. The Company has
initially reserved for issuance under the plan 1,000,000 shares. An annual
increase in shares reserved will occur on the first day of each of the Company's
fiscal years beginning in 2001, 2002, 2003, 2004 and 2005 as defined in the
plan.
In August 2000, subsequent to the completion of the initial public offering
(see Note 6), the Company began to administer the plan by enrolling participants
in the plan and processing payroll deductions. The first day of the offering
period was July 31, 2000.
2000 Stock Option Plan for Non-Employee Directors
In June 2000, the Company adopted the Western Multiplex Corporation 2000 Stock
Option Plan for Non-Employee Directors. The Company has reserved for issuance a
maximum of 1,500,000 shares of common stock pursuant to the grant of non-
qualified stock options to newly elected members of the board of directors who
are not employees of our Company.
The exercise price of any option granted under this plan is the per share fair
market value of our common stock on the date the option is granted except with
respect to the initial grants made as of June 8, 2000 for which the exercise
price is $8.50. An individual who becomes a director will receive an initial
grant of an option to purchase 100,000 shares of our common stock, which option
will be immediately vested upon grant as to one-third of the shares subject to
the option. The option will then become vested as to one-third of the shares on
each of the first and second anniversaries of the date of the initial grant, so
long as the director continues to serve on our board of directors on each
vesting date. In addition, so long as a director continues to serve on our board
of directors, the director will, as of the third anniversary of the date of the
initial grant and triennially thereafter, receive an additional option to
purchase 15,000 shares, the terms of which will be the same as those described
above.
As of June 30, 2000, we had granted options for the purchase of 400,000 shares
of our common stock under the Stock Option Plan for Non-Employee Directors, of
which 133,333 have vested and none have been exercised.
Stock Sales
During the three months ended March 31, 2000, certain Western Multiplex
employees and consultants entered into co-investment agreements with WMC
Holding Corp. Under the co-investment agreements, 3,830,351 shares were
purchased of WMC Holding at $0.50 per share and WMC Holding used the proceeds
to purchase 3,830,351 shares of Class A common stock of the Company at $0.50
per share. In connection with the stock sales, the Company granted
subscription loans to a few employees. As a result, the Company had $1.2
million of employee subscription receivables outstanding as of June 30, 2000.
Deferred Stock Compensation
In connection with the grant of certain stock options and sales of certain
stock to employees and directors during fiscal 2000, the Company recorded
deferred stock compensation within stockholders' equity of $8.1 million,
representing the difference between the estimated fair value of the common stock
for accounting purposes and the option exercise price of these options at the
date of grant or the stock sale price at the date of sale. Such amount is
presented as a reduction of stockholders' equity. The portion of deferred stock
compensation associated with the stock options will be amortized over the
vesting period of the applicable options using an accelerated method of
amortization. Under the accelerated method, each vested tranche of options is
accounted for as a separate option grant awarded for past services. Accordingly,
the compensation expense is recognized over the period during which the services
will be provided; however, the method results in a front-loading of the
compensation expense. For the portion of deferred stock compensation associated
with stock sales, the Company records the expense over the period the shares are
vested under the accelerated method. The Company recorded amortization of
deferred compensation of $1.1 million and $2.0 million for the three and six
months ended June 30, 2000, respectively.
8
<PAGE>
6. Subsequent Events
On August 4, 2000, the Company completed its initial public offering of
7,500,000 shares of Class A common stock at a public offering price of $12.00
per share. On August 31, 2000, the underwriters exercised their option to
purchase 1,125,000 additional shares of Class A common stock to cover over-
allotments. The initial public offering and subsequent exercise of 1,125,000
shares by the underwriters resulted in net proceeds to the Company of
approximately $91.5 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 38,000,000 shares of
Class B common stock and 42,000,000 shares of Class B treasury stock were
automatically converted into 38,000,000 shares of Class A common stock and
42,000,000 shares of Class A treasury stock.
In August 2000, the Company used a portion of the net proceeds from the
initial public offering to repay outstanding indebtedness. The Company made the
mandatory prepayment of its term notes to Credit Suisse First Boston and also
repaid all borrowings outstanding under the revolving credit facility. The total
repayment including accrued interest was $28.9 million. In connection with the
prepayment of its term notes, the Company wrote off deferred financing costs of
$394,000, net of income taxes.
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 contain forward-looking statements, which reflect our current
views with respect to future events and future financial performance. These
forward-looking statements are subject to certain risks and uncertainties.
Actual results may differ materially from those described in such forward-
looking statements or from historical results. Readers are cautioned not to
place undue reliance on these forward-looking statements.
The following discussion should be read together with our financial
statements, notes to those financial statements included elsewhere in this Form
10-Q, and Management's Discussion and Analysis of Financial Condition and
Results of Operations in our Registration Statement on Form S-1 declared
effective on July 31, 2000 by the Securities and Exchange Commission.
Overview
We were founded in 1979 in Sunnyvale, California as a vendor of radio
components and related services. In 1992, we changed our strategy, became a
designer and manufacturer of broadband wireless systems and launched our Lynx
broadband wireless systems. These point-to-point systems are primarily used by
wireless operators to connect their base stations to other base stations and to
existing wire line networks. In 1999, we introduced our Tsunami point-to-point
broadband wireless systems, which primarily enable service providers, businesses
and other enterprises to expand or establish private networks by bridging
Internet traffic among multiple facilities. Based on our core technologies and
the technology acquired through our purchase of Ubiquity Communication, Inc. in
March 2000, we are currently developing point-to-multipoint systems that will
enable service providers, businesses and other enterprises to connect multiple
facilities within a geographic area to a central hub.
On August 4, 2000, the Company completed its initial public offering of
7,500,000 shares of Class A common stock at a public offering price of $12.00
per share. On August 31, 2000, the underwriters exercised their option to
purchase 1,125,000 additional shares of Class A common stock to cover over-
allotments. The initial public offering and subsequent exercise of 1,125,000
shares by the underwriters resulted in net proceeds to the Company of
approximately $91.5 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 38,000,000 shares of
Class B common stock and 42,000,000 shares of Class B treasury stock were
automatically converted into 38,000,000 shares of Class A common stock and
42,000,000 shares of Class A treasury stock.
In August 2000, the Company used a portion of the net proceeds from the
initial public offering to repay outstanding indebtedness. The Company made the
mandatory prepayment of its term notes to Credit Suisse First Boston and also
repaid all borrowings outstanding under the revolving credit facility. The
total repayment including accrued interest was $28.9 million. In connection
with the prepayment of its term notes, the Company wrote off deferred financing
costs of $394,000, net of income taxes, and recorded an extraordinary loss on
early extinguishment of debt.
9
<PAGE>
Revenue. We primarily generate revenue from the sale of our Lynx and Tsunami
systems. We introduced the Tsunami product line at the end of the fourth quarter
of 1999. While our Tsunami products and Lynx products have similar pricing for
comparable models, our Lynx product line contributes the largest part of our
revenue. Our Ubiquity systems are still under development and we expect to begin
offering these systems for sale in 2001. We also generate a small percentage of
our revenue from the sale of services and parts and rentals of our systems. We
recognize revenue from the sale of our systems and parts when all the following
conditions are met: the system or part has been shipped, we have the right to
invoice the customer, the collection of the receivable is probable, and we have
no significant obligations remaining. Revenue from services is recognized over
the period for which the services are performed, which is less than one month.
Revenue from product rentals is recognized over the period of the rental.
The majority of our direct sales are currently to wireless operators, and we
believe that the majority of the products that we sell through distributors and
value-added resellers are eventually sold to wireless operators.
We sell our products worldwide to service providers, businesses and other
enterprises directly through our sales force and indirectly through distributors
and value-added resellers. Our sales force focuses on key strategic accounts and
also develops relationships with end-users that purchase through distributors
and value-added resellers. Distributors sell our products, and value-added
resellers not only sell our products, but also assist end-users in network
design, installation and testing. We also market our products through strategic
relationships we have with systems integrators, which design and install
networks that incorporate our systems. Any significant decline in direct sales
to end-users or in sales to our distributors or value-added resellers, or the
loss of any of our distributors, or value-added resellers could materially
adversely affect our revenue.
During 1999 and the first half of 2000, as a percentage of total sales
international sales accounted for approximately 23% and 29%, respectively. We
expect international sales to increase in the future. Currently, all of our
sales are denominated in U.S. dollars. Accordingly, we are not exposed to
currency exchange risks other than the risk that exchange rate fluctuations may
make our products more expensive for customers outside the United States and, as
a result, could decrease international sales. In addition, we face risks
inherent in conducting global business. These risks include extended collection
time for receivables, reduced ability to enforce obligations and reduced
protection for our intellectual property.
As we have increased sales through our distributors and value-added resellers,
we have experienced a decline in the average selling price of our products. This
is because the prices of the products that we sell indirectly through
distributors and value-added resellers are lower than the prices of the products
we sell directly through our sales force to end-users. We have also lowered our
prices for older products as we introduce additional products that provide
faster data rates. These newer products have higher prices than our older
products. Our international sales also have lower average selling prices when
compared to our United States and Canadian sales. This is primarily due to our
reliance on distributors and value-added resellers for international sales, and
also because our lower speed products, with significantly lower prices, are
being sold in larger quantities internationally than domestically. As indirect
sales and sales in our international markets increase, we expect that our
average selling prices will further decrease.
Cost of revenue. Cost of revenue consists primarily of outsourced
manufacturing costs, component costs, labor and overhead costs, costs of
acquiring finished parts from original equipment manufacturers, customer service
and accrued warranty costs. We currently outsource the majority of our
manufacturing and supply chain management to a limited number of independent
contract manufacturers, who obtain components for our products from suppliers.
Accordingly, a significant portion of our cost of revenue consists of payments
to these contract manufacturers and component suppliers. The remainder of our
cost of revenue is related to our in-house manufacturing operations, which
consist primarily of quality control, final assembly, testing and product
integration. We expect to realize lower per unit product costs as we continue to
outsource more of our in-house manufacturing. However, we cannot assure you when
or if cost reductions will occur. The failure to achieve these cost reductions
could materially adversely affect our gross margins and operating results.
Gross profit. Our gross profit is affected by both the average selling prices
of our systems and our cost of revenue. Historically, decreases in our average
selling prices have generally been offset by reductions in our per unit product
cost. We cannot assure you, however, that we will achieve any reductions in per
unit product cost in the future or that any reductions will offset a reduction
in our average selling prices.
Research and development. Research and development expenses consist primarily
of salaries and related personnel expenses, prototype development expenses,
consultant fees and allocated overhead related to the design, development,
testing and enhancement of our products and underlying technologies. We expense
all research and development expenses as incurred. We expect to increase our
research and development expenses as we continue to develop new products and
improve our core technologies. In particular, we expect research and development
expenses to increase in connection with our acquisition of
10
<PAGE>
Ubiquity Communication Inc. and our development of point-to-multipoint broadband
wireless access systems.
Sales and marketing. Sales and marketing expenses consist of salaries,
commissions and related expenses for personnel engaged in sales, product
marketing, sales support functions, advertising, trade show and other
promotional expenses and allocated overhead. We intend to increase our sales and
marketing expenditures as we add sales and marketing personnel, increase the
number of distributors and value-added resellers that sell our products and
increase marketing programs. In particular, we expect sales and marketing
expenses to increase as we substantially expand our sales operations to support
and develop leads for our distributors and value-added resellers.
General and administrative. General and administrative expenses consist
primarily of salaries and related expenses for executive, finance and
administrative personnel, professional fees, other general corporate expenses
and allocated overhead. We expect general and administrative expenses to
increase as we add personnel, increase spending on our information systems and
incur additional costs related to the growth of our business and operation as a
public company.
Stock option programs. We have implemented stock option programs for employees
and members of our board of directors to attract and retain business and
technical personnel. During the first and second quarter of 2000, we recorded
deferred stock compensation for the difference between the exercise price and
the deemed fair value of our common stock on the date the stock options were
granted. This amount is included as a reduction of stockholders' equity and is
being amortized by charges to operations over the vesting period. The
amortization expense relates to options awarded to employees in all operating
expense categories.
Acquisition of Ubiquity Communication, Inc.
On March 24, 2000, we acquired Ubiquity Communication, Inc., located in
Petaluma, California. Through the acquisition, we acquired technology that will
enable us to develop our point-to-multipoint systems. At the time of the
acquisition, Ubiquity Communication had seven employees, including six
engineers. In connection with our acquisition of Ubiquity Communication, we
issued 692,772 shares of our Class A common stock to its former owners and
reserved 137,727 shares of our Class A common stock for issuance upon the
exercise of the Ubiquity Communication options we assumed. We believe the value
of the consideration paid for the acquisition of Ubiquity Communication was $6.4
million. We accounted for the transaction using the purchase method of
accounting. Accordingly, we have recorded purchased intangibles and goodwill of
$6.8 million to be amortized over three years. We intend to treat the
acquisition of Ubiquity Communication as a tax-free reorganization.
Recapitalization
On November 1, 1999, Ripplewood Partners, L.P. and affiliates acquired 94.6%
of our capital stock from Glenayre Technologies, Inc. through a wholly-owned
subsidiary, WMC Holding Corp., in a transaction accounted for as a
recapitalization. Prior to the recapitalization, we were an indirect wholly-
owned subsidiary of Glenayre Technologies, Inc., which had previously acquired
us in 1995. As part of Glenayre's acquisition of us, Glenayre recognized $21.6
million of goodwill, amortized over a 30-year useful life. This goodwill amount
is reflected on our historical financial statements. As of December 31, 1999,
there was $18.6 million to be amortized over the remaining 25-year term.
We intend to treat the recapitalization as an asset acquisition for federal
income tax purposes. As a result, we recorded a deferred tax asset in the amount
of $3.9 million which will offset future tax liabilities during the next 15
years, assuming that we have sufficient income to realize the full benefit of
this deduction.
11
<PAGE>
Results of Operations
The following table provides results of operations data as a percentage of
revenue for the periods presented.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30,
------------------------- ---------------------------
<S> <C> <C> <C> <C>
2000 1999 2000 1999
----- ----- ----- -----
Revenue..................................................... 100.0% 100.0% 100.0% 100.0%
Cost of revenue............................................. 44.6 51.7 45.0 54.6
----- ----- ----- -----
Gross profit................................................ 55.4 48.3 55.0 45.4
Operating expenses:
Research and development.................................. 13.5 16.4 12.6 15.2
Sales and marketing....................................... 15.3 15.6 15.1 15.1
General and administrative................................ 7.0 5.3 6.7 5.2
Amortization of goodwill.................................. 3.6 2.1 2.5 2.1
Amortization of deferred stock compensation............... 5.2 -- 5.2 --
----- ----- ----- -----
Total operating expenses............................... 44.5 39.3 42.1 37.5
----- ----- ----- -----
Income from operations...................................... 10.9 9.0 13.0 7.8
Interest income (expense), net.............................. (3.0) -- (3.2) --
----- ----- ----- -----
Income before taxes......................................... 7.9 9.0 9.7 7.8
Income tax provision........................................ 5.3 3.4 6.3 3.0
----- ----- ----- -----
Net income.................................................. 2.6 5.6 3.5 4.9
</TABLE>
Comparison of Three and Six Months Ended June 30, 2000 and 1999
Revenue. Revenue increased 143.9% from $8.6 million in the second quarter of
1999 to $20.9 million in the second quarter of 2000. Revenue increased
primarily due to a 135.7% increase in the volume of products shipped in the
second quarter of 2000 as compared to the second quarter of 1999, combined with
an increase of 8.0% in average selling price of our products in the second
quarter of 2000 as compared to the second quarter of 1999. For the second
quarter of 2000, Somera Communications Inc. and PDC Telecom, Inc., two of our
distributors, accounted for 20.5% and 18.0% of total revenue. In the second
quarter of 1999, only one customer Somera Communications Inc. (13.3% of total
revenue) accounted for more than 10% of total revenue.
Revenue increased 119.5% from $17.3 million in the first half of 2000 to $38.0
million in the first half of 1999. Revenue increased primarily due to a 117.7%
increase in the volume of products shipped in the first half of 2000 as compared
to the first half of 1999, combined with an increase of 3.0% in average selling
price of our products in the first half of 2000 as compared to the second half
of 1999. For the first half of 2000, Somera Communications Inc. and PDC Telecom,
Inc., two of our distributors, accounted for 18.9% and 13.1% of total revenue.
In the first half of 1999, only one customer Somera Communications Inc. (13.3%
of total revenue) accounted for more than 10% of total revenue.
Cost of revenue. Cost of revenue increased 110.5% from $4.4 million in the
second quarter of 1999 to $9.3 million in the second quarter of 2000. As a
percentage of revenue, cost of revenue decreased from 51.7% in the second
quarter of 1999 to 44.6% in the second quarter of 2000. Cost of revenue
increased 80.5% from $9.5 million in the first half of 1999 to $17.1 million in
the first half of 2000. As a percentage of revenue, cost of revenue decreased
from 54.6% in the first half of 1999 to 45.0% in the first half of 2000. The
increase in cost of revenue for both comparable periods was primarily
attributable to increased sales. The decrease in cost of revenue as a percentage
of revenue for both comparable periods was primarily due to lower costs of
components and increased reliance on outsourced manufacturing, which has lower
costs relative to our in-house manufacturing.
Research and development. Research and development expenses increased 101.0%
from $1.4 million in the second quarter of 1999 to $2.8 million in the second
quarter of 2000. Research and development expenses increased 81.5% from $2.6
million in the first half of 1999 to $4.8 million in the first half of 2000.
The increase in research and development expenses for both comparable periods
was primarily attributable to the cost of increased personnel and prototype
spending for the development of new products and enhancements to existing
products. As a percentage of revenue, research and development expenses
decreased from 16.4% in the second quarter of 1999 to 13.5% in the second
quarter of 2000. As a percentage of revenue, research and development expenses
decreased from 15.2% in the first half of 1999 to 12.6% in the first half of
2000.
Sales and marketing. Sales and marketing expenses increased 139.7% from $1.3
million in the second quarter of 1999 to $3.2 million in the second quarter of
2000. Sales and marketing expenses increased 120.3% from $2.6 million in the
first half of 1999 to $5.8 million in the first half of 2000. The increase in
sales and marketing expenses for both comparable periods is primarily
attributable to increases in sales and marketing personnel expenses,
advertising, tradeshow, and public relations
12
<PAGE>
expenses. As a percentage of revenue, sales and marketing expenses decreased
from 15.6% in the second quarter of 1999 to 15.3% in the second quarter of 2000.
As a percentage of revenue, sales and marketing expenses were 15.1% for the six
months ended June 30, 1999 and 2000, respectively.
General and administrative. General and administrative expenses increased
222.2% from $454,000 in the second quarter of 1999 to $1.5 million in the second
quarter of 2000. General and administrative expenses increased 186.1% from
$892,000 in the first half of 1999 to $2.6 million in the first half of 2000.
The increase in general and administrative expenses for both comparable periods
is primarily due to increased personnel expenses and fees paid to Ripplewood for
management and administrative services. As a percentage of revenue, general and
administrative expenses increased from 5.3% in the second quarter of 1999 to
7.0% in the second quarter of 2000. As a percentage of revenue, general and
administrative expenses increased from 5.2% in the first half of 1999 to 6.7% in
the first half of 2000.
Amortization of goodwill. Amortization of goodwill increased from $182,000
in the second quarter of 1999 to $751,000 in the second quarter of 2000.
Amortization of goodwill increased from $362,000 in the first half of 1999 to
$938,000 in the first half of 2000. The increase in amortization of goodwill
for both comparable periods is attributable to goodwill and other intangible
assets related to the Ubiquity acquisition in March 2000.
Amortization of deferred stock compensation. We had amortization of deferred
stock compensation of $1.1 million in the second quarter of 2000 and $2.0
million for the six months ended June 30, 2000 related to the sale of stock and
issuance of options at prices deemed to be below fair market value.
Other income (expenses), net. Other income (expense), net increased from
$1,000 income in the second quarter of 1999 to $627,000 expense in the second
quarter of 2000. Other income (expense), net increased from $0 in the first half
of 1999 to $1.2 million expense in the first half of 2000. The increase in
expense for both comparable periods was attributable to the interest expense
related to our debt.
Income tax provision. The income tax provision increased from $292,000 in the
second quarter of 1999 to $1.1 million in the second quarter of 2000. Our
effective tax rate increased from 37.8% in the second quarter of 1999 to 66.6%
in the second quarter of 2000. The income tax provision increased from $514,000
in the first half of 1999 to $2.4 million in the first half of 2000. Our
effective tax rate increased from 38.0% in the first half of 1999 to 64.5% in
the first half of 2000. The increase in the effective tax rate for both
comparable periods is primarily attributable to increases in non-deductible
expenses arising from the amortization of deferred stock compensation in the
second quarter and in the first half of 2000.
Liquidity and Capital Resources
As discussed in the Overview above, the Company had net proceeds of
approximately $91.5 million from the initial public offering and used $28.9
million of the net proceeds to repay outstanding indebtedness under the term
notes along with the outstanding borrowings under the revolving credit facility.
As of the date of this Form 10-Q, we have not allocated the remaining net
proceeds of the offering for specific uses. We expect to use the remainder of
the net proceeds of the offering primarily for general corporate purposes,
including working capital, expansion of our engineering organization, product
development programs, sales and marketing capabilities, and general
administrative functions and capital expenditures. We may also use a portion of
the net proceeds to acquire complementary businesses, products and technologies
or to establish joint ventures that we believe will complement our current or
future business. However, we have no specific plans, agreements or commitments
and are not currently engaged in any negotiations for any acquisition or joint
venture.
We have not identified the specific use of the net proceeds due to the
flexible nature of our planning process. The amounts that we actually expend for
general corporate and other purposes will vary significantly depending on a
number of factors, including future sales growth and the amount of cash we
generate from operations, if any. Pending the use of the proceeds described
above, we will invest the net proceeds in short-term, interest-bearing,
investment-grade securities.
Prior to the initial public offering, we had financed our operations and
working capital requirements primarily through cash generated by our business
and bank financing.
Cash decreased by $1.6 million from $1.9 million at December 31, 1999 to
$284,000 at June 30, 2000. Cash increased by $196,000 from $1.4 million at
December 31, 1998 to $1.6 million at June 30, 1999. Net cash used in operating
activities was $4.1 million in the first half of 2000, and net cash provided by
operating activities was $2.3 million in the first half of 1999.
Net cash used in investing activities increased from $277,000 in the first
half of 2000 to $1.3 million in the first half of 1999
13
<PAGE>
due to increases in capital spending.
Net cash provided by financing activities was $3.8 million in the first half
of 2000 resulting from net proceeds from issuance of shares, borrowings on line
of credit offset by repayment of debt and issuance of stock subscription loans
to employees. Net cash used in financing activities was $1.8 million in the
first half of 1999; we paid $1.8 million in distributions to Glenayre.
We believe that the net proceeds from the public offering after repayment of
outstanding debt and our available borrowings will be sufficient to finance our
working capital and capital expenditure requirements for at least the next 12
months. Our management intends to invest any cash in excess of current operating
requirements in short-term, interest-bearing investment-grade securities. Our
future capital requirements will depend upon many factors, including management
of working capital, the success of marketing, sales and distribution efforts,
the timing of research and product development efforts and expansion of our
marketing efforts.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities (SFAS No.
133), which establishes accounting and reporting standards for derivative
instruments and hedging activities. The statement requires recognition of all
derivatives at fair value in the financial statements. FASB Statement No. 137,
Accounting for Derivative Instruments and Hedging Activities--Deferral of the
Effective Date of FASB Statement No. 133, an amendment of FASB Statement No.
133, defers implementation of SFAS No. 133 until fiscal years beginning after
June 15, 2000. We do not have any derivative instruments or hedging activities.
In December 1999, the Commission issued Staff Accounting Bulletin No. 101,
Revenue Recognition. SAB No. 101 provides guidance on applying generally
accepted accounting principles to revenue recognition in financial statements.
We believe that our current accounting policies are in accordance with SAB No.
101.
In March 2000, the Financial Accounting Standards Board issued Interpretation
No. 44, Accounting for Certain Transactions involving Stock Compensation--an
interpretation of APB No. 25. Interpretation No. 44 is effective July 1, 2000.
Interpretation No. 44 clarifies the application of APB No. 25 for various
issues, including:
. the definition of an employee;
. the criteria for determining whether a plan qualifies as a non-compensatory
plan;
. the accounting consequence of various modifications to the terms of a
previously fixed stock option or award; and
. the accounting for an exchange of stock compensation awards in a business
combination.
Starting July 1, 2000, we adopted Interpretation No. 44, the adoption of which
did not result in a material impact on our financial position or the results of
our operations through the date of this Form 10-Q.
Seasonality
Historically, our revenues have been stronger in the last two quarters of the
fiscal year. This shift may primarily be attributed to the budgetary constraints
of the customers in our industry and weather conditions, which make an outdoor
installation more difficult during the winter. However, going forward, we
believe the impact of seasonal fluctuations on our business will decrease
because demand for our products is increasing at a rate that outpaces any budget
restrictions our customers may have. Moreover, our expansion into international
markets may minimize the impact that weather conditions may have on our overall
sales.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of June 30, 2000, we had cash of $284,000. Substantially all of this
amount was in non-interest bearing accounts and had no risk to interest rate
fluctuations. As of June 30, 2000, we had long-term debt of $21.1 million and
$5.5 million of borrowings outstanding under the revolving line of credit. The
interest charges for these loans vary quarterly with LIBOR. As a result of
repaying all our outstanding indebtedness subsequent to the completion of the
public offering, our interest expense will decrease.
As discussed above in Item 2, Liquidity and Capital Resources, our management
intends to invest any cash in excess of
14
<PAGE>
current operating requirements in short-term, interest-bearing investment-grade
securities. As of September 14, 2000, the net proceeds from the initial public
offering were in highly liquid investments and are considered to be cash
equivalents. We intend to 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 maturities 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 and less than one year are considered to be short-term investments. All
investments with maturities greater than one year are considered to be long-term
investments. All investments considered to short-term or long-term investments
will be classified as held-to-maturity.
Currently, all sales to international customers are denominated in U.S.
dollars and, accordingly, we are not currently exposed to foreign currency
exchange rate risks other than the risk that conversion to U.S. dollars at a
high cost may cause some customers to search for a lower priced competitive
product.
15
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are not currently a party to any material legal proceedings.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Recent Sales of Unregistered Securities
From April 1, 2000 through June 30, 2000, the Registrant has issued and sold
the following unregistered securities:
1. On April 3, 2000, the Registrant issued and sold 11,000 shares of its
Class A common stock to WMC Holding Corp. for an aggregate price of $5,500.
2. On June 19, 2000, the Registrant issued and sold 1,140,000 shares of
its Class A common stock to Seaview Holdings L.L.C. for an aggregate price of
$570,000 upon the exercise of warrants held by Seaview Holdings.
3. On June 19, 2000, the Registrant issued and sold 570,000 shares of its
Class A common stock to The Michael and Roberta Seedman Revocable Trust for an
aggregate price of $285,000 upon the exercise of warrants held by such Trust.
There were no underwriters employed in connection with any of the issuances
set forth above and no payment of any selling commission was made to any person
in connection with such issuances.
All the issuances set forth above were private placements, did not involve
public solicitation and were issued pursuant to Section 4(2) of the Securities
Act of 1933, as amended.
Use of Proceeds from Registered Offerings
On July 31, 2000, the Securities and Exchange Commission declared effective a
Form S-1 Registration Statement (File No. 333-35200) filed by the Registrant in
connection with an initial public offering of an aggregate of 8,625,000 shares
of its Class A common stock. Such offering commenced on July 31, 2000 and
closed on August 4, 2000 (with respect to 7,500,000 shares) and on August 31,
2000 (with respect to 1,125,000 shares as a result of the over-allotment option
exercised by the underwriters), with all of the 8,625,000 shares sold at a price
of $12.00 per share for an aggregate price of $103.5 million. All shares were
sold by the Registrant; there were no selling stockholders. Salomon Smith
Barney Inc., Lehman Brothers Inc. and CIBC World Markets Corp. were co-managers
of the offering.
The gross proceeds of the offering were $103.5 million. The Registrant
incurred approximately $12 million of expenses in connection with the offering,
of which approximately $7.2 million represented underwriting discounts and
commissions and approximately $4.8 million represented offering expenses,
including legal fees, accounting fees and printing expenses.
The Registrant received approximately $91.5 million of net proceeds from the
offering. The net proceeds will be used primarily for general corporate
purposes, including working capital, expansion of the registrant's engineering
organization, product development programs, sales and marketing capabilities,
and general administrative functions and capital expenditures. Pending such
uses, the net proceeds have been invested in short-term, interest-bearing
investment-grade securities. From the time of receipt through September 14,
2000, the Registrant used approximately $28.9 million of the net proceeds to
prepay term loans and repay revolving credit loans under its credit facilities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
16
<PAGE>
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit No. Description
----------- -----------
27.1 Financial Data Schedule
b. The Company filed no reports on Form 8-K during the three months ended June
30, 2000.
17
<PAGE>
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.
Date: September 14, 2000 Western Multiplex Corporation
By: /s/ NANCY HUBER
------------------------------------------
Nancy Huber
Chief Financial Officer, Vice President,
Finance and Secretary
(Principal Financial and Accounting Officer)
18
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Exhibit
----------- ----------------------
27.1 Financial Data Schedule
