U.S. WIRELESS CORPORATION
2303 Camino Ramon
San Ramon CA 94583
NOTICEOF SPECIAL MEETING OF SHAREHOLDERS
To Be Held on March __, 1999
To the Shareholders of:
U.S. WIRELESS CORPORATION
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of U.S.
WIRELESS CORPORATION (the "Corporation") will be held at the Corporation's
offices located at 2303 Camino Ramon, San Ramon, California, on March __, 1999,
at 10:00 a.m. Pacific time, for the following purposes:
1. To authorize the Company to issue of up to an aggregate of 13 million
shares of the Company's Common Stock in a private placement offering; and
2. To transact such other business as properly may be brought before the
meeting or an adjournment thereof.
The close of business on February 5, 1999 has been fixed as the record
date for the determination of shareholders entitled to notice of, and to vote
at, the meeting and any adjournment thereof.
You are cordially invited to attend the meeting. Whether or not you
plan to attend, please complete, date, and sign the accompanying proxy, and
return it promptly in the enclosed envelope to assure that your shares are
represented at the meeting. If you do attend, you may revoke any prior proxy and
vote your shares in person if you wish to do so. Any prior proxy automatically
will be revoked if you execute the accompanying proxy or if you notify the
Secretary of the Corporation, in writing, prior to the Special Meeting of
Shareholders.
By order of the Board of Directors
David S. Klarman, Secretary
Dated: February __, 1999
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, AND SIGN
THE ENCLOSED PROXY, AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE IN ORDER TO
ASSURE REPRESENTATION OF YOUR SHARES. NO POSTAGE NEED BE AFFIXED IF MAILED IN
THE UNITED STATES.
<PAGE>
U.S. WIRELESS CORPORATION
2303 Camino Ramon
San Ramon CA 94583
PROXY STATEMENT
FOR
Special Meeting of Stockholders
To Be Held on March __, 1999
This proxy statement and the accompanying form of proxy were mailed on
February __, 1999 to the stockholders of record (as of February 5, 1999) of U.S.
Wireless Corporation, a Delaware corporation (the "Corporation"), in connection
with the solicitation of proxies by the Board of Directors of the Corporation
for use at the Special Meeting to be held on March __, 1999 and at any
adjournment thereof.
SOLICITATION, VOTING, AND REVOCABILITY OF PROXIES
Shares of the Corporation's common stock, par value $.01 per share (the
"Common Stock"), represented by an effective proxy in the accompanying form
will, unless contrary instructions are specified in the proxy, be voted FOR
authorization for the Company to issue of up to an aggregate of 13 million
shares of the Company's Common Stock in a private placement offering.
Any such proxy may be revoked at any time before it is voted. A stockholder
may revoke this proxy by notifying the Secretary of the Corporation, either in
writing prior to the Special Meeting or in person at the Special Meeting, by
submitting a proxy bearing a later date or by voting in person at the Special
Meeting. An affirmative vote of a majority of the shares of Common Stock
present, in person or represented by proxy at the Special Meeting and entitled
to vote thereon is required to approve the proposal submitted herein.
A stockholder voting through a proxy who abstains with respect to approval
of any matter, except for the election of directors, to come before the meeting
is considered to be present and entitled to vote on that matter, and his
abstention is, in effect, a negative vote; however, a stockholder (including a
broker) who does not give authority to a proxy to vote or who withholds
authority to vote on any such matter shall not be considered present and
entitled to vote thereon.
The Corporation will bear the cost of the solicitation of proxies by the
Board of Directors. The Board of Directors may use the services of its Executive
Officers and certain Directors to solicit proxies from stockholders in person
and by mail, telegram, and telephone. Arrangements may also be made with
brokers, fiduciaries, custodians, and nominees to send proxies, proxy
statements, and other material to the beneficial owners of the Common Stock held
of record by such persons, and the Corporation may reimburse them for reasonable
out-of-pocket expenses incurred by them in so doing.
Representatives of Haskell & White LLP, the Company's auditors are not
expected to be present at the meeting and therefore shareholders will not have
the opportunity ask questions of the auditors at the meeting. The Company's
quarterly report on form 10-QSB for the quarter ended December 31, 1998,
accompanies this proxy statement. The principal executive offices of the
Corporation are located at 2303 Camino Ramon, San Ramon CA 94583; the
Corporation's telephone number is (925) 327-6200.
VOTING SECURITIES AND SECURITY OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The securities entitled to vote at the meeting are the Common Stock, par
value $.01 per share. The presence, in person or by proxy, of a majority of
shares entitled to vote will constitute a quorum for the meeting. Each share of
Common Stock entitles its holder to one vote on each matter submitted to the
stockholders. The close of business on February 5, 1999 has been fixed as the
record date for the determination of stockholders entitled to notice of, and to
vote at, the meeting and any adjournment thereof. At that date, 13,556,188
shares of Common Stock were outstanding. Voting of the shares of Common Stock is
on a non-cumulative basis.
The following table sets forth information as of December 31, 1998 with
respect to the beneficial ownership of shares of Common Stock by (i) each person
(including any "group" as that term is used in Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended) known by the Corporation to be the
owner of more than 5% of the outstanding shares of Common Stock; (ii) each
Director; and (iii) all Officers and Directors as a group.
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Name and Address Amount and Nature of % of outstanding
of Beneficial Owner Beneficial Ownership (1) shares owned (2)
- --------------------------------------------------------------------------------------------------------------------------
Dr. Oliver Hilsenrath (3)
<S> <C> <C>
c/o U.S. Wireless Corporation 5,732,880 43.0%
2303 Camino Ramon, Suite 213
San Ramon, CA 94583
- --------------------------------------------------------------------------------------------------------------------------
David Tamir (4)
c/o U.S. Wireless Corporation 66,667 *
2303 Camino Ramon, Suite 213
San Ramon, CA 94583
- --------------------------------------------------------------------------------------------------------------------------
Barry West (5)
c/o U.S. Wireless Corporation -- *
2303 Camino Ramon, Suite 213
San Ramon, CA 94583
- --------------------------------------------------------------------------------------------------------------------------
Dennis Francis (6)
c/o U.S. Wireless Corporation 50,000 *
2303 Camino Ramon, Suite 213
San Ramon, CA 94583
- --------------------------------------------------------------------------------------------------------------------------
Janvrin Holdings Limited(7)
Jardine House 918,000 7.8%
1 Wesley Street
St. Helier, Jersey JE4 8UD
- --------------------------------------------------------------------------------------------------------------------------
Officers and Directors as a group
(4 persons) (3)-(6)(8) 6,921,647 44.7%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
- -------------------
* Less than 1%.
Unless otherwise noted, all of the shares shown are held by individuals or
entities possessing sole voting and investment power with respect to such
shares. Shares not outstanding but deemed beneficially owned by virtue of the
right of a person to acquire them within 60 days, whether by the exercise of
options or warrants, are deemed outstanding in determining the number of shares
beneficially owned by such person or group. (footnotes continued from previous
page)
The "Percentage Beneficially Owned" is calculated by dividing the "Number
of Shares Beneficially Owned" by the sum of (i) the total outstanding shares of
Common Stock of the Corporation, and (ii) the number of shares of Common Stock
that such person has the right to acquire within 60 days, whether by exercise of
options or warrants. The "Percentage Beneficially Owned" does not reflect shares
beneficially owned by virtue of the right of any person, other than the person
named and affiliates of the person, to acquire them within 60 days, whether by
exercise of options or warrants. 1 Includes 1,500,000 shares of Common Stock,
issuable upon the exercise of an option granted pursuant to Dr. Hilsenrath's
employment agreement and 1,982,880 shares issued in connection with the
Labyrinth merger, of which 1,586,304 are not vested and subject to a vesting
schedule. See "Certain Relations and Related Transactions - Merger of
Labyrinth." 1 Includes shares issuable upon the exercise of options currently
vested and exercisable, equal to 2/3 of the shares underlying the option
granted. The options vest at 1/3 intervals per year. 1 Does not include 100,000
shares issuable upon the grant of an option which option vests at the rate of
1/3 per annum, no portion of which has vested. 1 Represents shares issuable upon
the exercise of options currently vested and exercisable. 1 Includes 183,600
shares which have vested and 734,400 shares subject to a vesting schedule in
connection with the Labyrinth merger. See "Certain Relations and Related
Transactions - Merger of Labyrinth." 1 Includes shares owned, including shares
subject to vesting in accordance with the Labyrinth merger and shares underlying
vested options granted to all officers and directors of the Corporation.
It is expected that the following will be considered at the meeting and
that action will be taken thereon:
TO AUTHORIZE THE CORPORATION TO ISSUE UP TO AN AGGREGATE OF 13 MILLION
SHARES OF THE CORPORATION'S COMMON STOCK IN A PRIVATE PLACEMENT OFFERING
The Board of Directors has unanimously approved a proposal to undertake a
private placement offering to raise up to an aggregate of $13 million dollars by
the issuance of shares of Common Stock and/or shares of a Series B Preferred
Stock. Presently the Corporation has 40,000,000 shares of Common Stock and
1,000,000 shares of Preferred Stock authorized, of which 400,000 shares are
designated as Series A Preferred Stock. There are 13,556,188 shares of Common
Stock and 70,000 shares of Series A Preferred Stock, issued and outstanding. In
addition, there are approximately 5,300,000 shares of Common Stock reserved for
issuance upon the exercise of outstanding options granted to officers,
directors, employees and consultants. Each share of Series A Preferred Stock (i)
carries a 6% dividend, payable at the discretion of the Company in cash or kind
(ii) is convertible into approximately 6.8 shares of Common Stock, at anytime
commencing 90 days from issuance and (iii) has a $20 liquidation preference. The
holders of the Series A Preferred Stock do not have the right to vote at this
meeting.
The Corporation estimates that the use of the proceeds of the offering
shall be to enable the Corporation to continue the implementation of its
business plan for the development and deployment of the RadioCamera system. More
specifically, the Corporation is seeking to fund the expansion of its beta trial
operations and enter into additional beta deployments with additional major
cellular carriers. In addition, the Corporation requires additional capital to
continue and expand its design and development operations, to build prototypes
and commence outdoor field trials for RadioCamera interfaces being developed for
the different cellular standards such as CDMA, PCS, ESMR and GSM. The Company is
planning to expand its sales and marketing operations in order to address the
various opportunities presented by the company's location technology in an
attempt to penetrate the wireless industry with the company's product lines.
The Corporation's Board of Directors has determined that the offering is in
the best interests of the Corporation and its shareholders and has unanimously
approved the Offering. In order to provide flexibility for management to
consummate the offering, the board has approved the issuance of shares of a
Series B Preferred Stock, to be issued as an alternative to shares of Common
Stock. The terms of the preferred shares would include conversion into shares of
Common Stock at a fixed price, the right to vote as a class for one additional
board seat, increasing the number of board members to five and providing a
liquidation preference in the amount of the investment per share. The Board of
Directors and management are seeking stockholder approval at this time, as the
Corporation believes that the consummation of its financing is imminent and
management requires flexibility in structuring the terms and conditions of the
offering and securities to be issued. Management and the Corporation's Board of
Directors believe that it is essential that they have the flexibility to
structure the terms and conditions of the offering and act in an expeditious
manner in consummating the offering.
Inasmuch as the Corporation anticipates that the shares of Common Stock
issued in the offering, or convertible in accoradance the Series B Preferred
Stock, shall be issued at a discount to the current market price and shall be
dilutive on the stockholders' interests in an aggregate of more than 20%, the
Corporation is seeking stockholder approval of the offering in compliance with
Rule 4310(c)(25)(H)(i)(d)(2) of the the Nasdaq Stock Market, Marketplace Rules.
The rule states that shareholder approval is required for transactions, other
than public offerings, which involve the sale or issuance by a company of common
stock (or securities convertible into or exercisable for common stock) of 20
percent or more of the common stock (or voting power) outstanding, before the
issuance, at less than the greater of market or book value. Currently, the
Corporation has 13,556,188 shares outstanding and in the event that an aggregate
of $13,000,000 is raised there shall be more than a 20% dilution to current
shareholders.
The affirmative vote of the holders of a majority of the shares of the
Corporation's Common Stock issued and outstanding on the record date is required
to approve this proposal. The Directors and Officers of the Corporation and
other principal shareholders owning of record, beneficially, directly, and
indirectly, an aggregate of _________ shares of the Corporation's Common Stock
constituting approximately __% of such shares outstanding on the record date,
have agreed to vote in favor of approval of this proposal, accordingly it is
expected that this proposal shall be approved at the meeting. The Board of
Directors recommends that you vote "FOR" this Proposal.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
General
In June 1996, the Corporation's Board of Directors, pursuant to the consent
of the then majority stockholder of the Corporation, distributed the shares of
common stock of Play Co. Toys & Entertainment Corp. ("Playco") held by the
Corporation ("the spin-off distribution"). In addition, the Corporation, as
majority stockholder of Playco, prior to, but in contemplation of the spin-off
distribution, authorized the conversion of Playco's Series D Preferred Stock
owned by the Corporation into 1,157,028 shares of Playco's common stock. This
conversion was based on the average closing bid price ($1.21) of Playco's shares
for the 90-day period from March 1, 1996 to May 31, 1996.
Merger of Labyrinth
In March 1998 the Corporation consummated the merger of its 51% owned
subsidiary, Labyrinth Communication Technologies Group, Inc. ("Labyrinth"), into
the Corporation. In December 1997, the stockholders of the Corporation approved
a proposal to acquire the remaining 49% of Labyrinth in exchange for an
aggregate of 4,498,200 shares of the Corporation's Common Stock, subject to a
vesting schedule, as follows: (i) 20% of the shares issued shall vest one year
from issuance; (ii) an additional 40% shall vest upon the successful completion
and operation of the RadioCamera in its first major market; and (iii) the
remaining 40% shall vest when the Corporation reaches sales of $15,000,000. In
addition to the above vesting schedule, the management of Labyrinth is subject
to an additional vesting schedule, in accordance with their employment
contracts, whereby the shares underlying (i)-(iii) above vest at the rate of 1/3
each year.
FINANCIAL INFORMATION
A COPY OF THE CORPORATION'S ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL
YEAR ENDED MARCH 31, 1998 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
WILL BE FURNISHED WITHOUT THE ACCOMPANYING EXHIBITS TO STOCKHOLDERS, WITHOUT
CHARGE, UPON WRITTEN REQUEST THEREFOR SENT TO DAVID S. KLARMAN, SECRETARY, U.S.
WIRELESS CORPORATION, 2303 CAMINO RAMON, SAN RAMON CA 94583. EACH SUCH REQUEST
MUST SET FORTH A GOOD FAITH REPRESENTATION THAT AS OF FEBRUARY 5, 1999, THE
PERSON MAKING THE REQUEST WAS THE BENEFICIAL OWNER OF SHARES OF THE
CORPORATION'S COMMON STOCK ENTITLED TO VOTE AT THE SPECIAL MEETING OF
STOCKHOLDERS.
II. OTHER BUSINESS
As of the date of this proxy statement, the only business that the Board of
Directors intends to present, and knows that others will present, at the Special
Meeting is that herein set forth. If any other matter is properly brought before
the Special Meeting or any adjournments thereof, it is the intention of the
persons named in the accompanying form of proxy to vote the proxy on such
matters in accordance with their judgment.
By Order of the Board of Directors,
David S. Klarman
Secretary
February __, 1999
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE AND RETURN YOUR
PROXY PROMPTLY IN THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED IF IT IS MAILED
IN THE UNITED STATES OF AMERICA.
<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number: 0-24742
U.S. WIRELESS CORPORATION
(Exact Name of Small Business Issuer as Specified in Its Charter)
<TABLE>
<CAPTION>
<S> <C>
Delaware 13-3704059
(State of Incorporation) (I.R.S. Employer Identification No.)
</TABLE>
2303 Camino Ramon, Suite 200, San Ramon, California 94583
(Address of Principal Executive Offices)
(925) 327-6200
(Issuer's Telephone Number, Including Area Code)
N/A
(Former Name, Former Address and Former Fiscal Year,
If Changed Since Last Report)
Check whether the issuer (1) filed all documents and reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: Common Stock, par value $.01
per share, 13,556,188 shares outstanding as of January 31, 1999.
<PAGE>
U.S. WIRELESS CORPORATION AND SUBSIDIARY
CONTENTS
<TABLE>
<CAPTION>
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated balance sheets as of December 31, 1998 (unaudited)
<S> <C> <C> <C>
and March 31, 1998 3
Consolidated statements of operations (unaudited) for the three months
and nine months ended December 31, 1998 and December 31, 1997 4
Consolidated statements of cash flows (unaudited) for the nine months
ended December 31, 1998 and December 31, 1997 5
Notes to financial statements 6-8
Item 2. Manangement's Discussion And Analysis of
Financial Condition And Results of Operations 9-12
PART II. OTHER INFORMATION 12
Signatures 13
</TABLE>
<PAGE>
U.S. WIRELESS CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
As of December 31, 1998 and March 31, 1998
<TABLE>
<CAPTION>
December 31, March 31,
1998 1998
(Unaudited) (Note 1)
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents ............................................................ $ 4,128,665 $ 2,285,750
Inventory ............................................................................ 50,756 --
------------ ------------
Total Current Assets ................................................................. 4,179,421 2,285,750
EQUIPMENT, IMPROVEMENTS AND FIXTURES, net of accumulated depreciation and amortization
530,661 399,896
OTHER ASSETS
Investment in joint venture ......................................................... 400,000 --
Security Deposit .................................................................... 25,035 25,035
Total Other Assets ........................................................ 425,035 25,035
============
Total Assets ............................................................... $ 5,135,117 $ 2,710,681
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses ................................................ $ 343,534 $ 252,708
Obligations under capital leases, current ............................................ 15,192 15,192
Total current liabilities .................................................. 358,726 267,900
Obligations under capital leases, noncurrent ......................................... 23,926 39,118
Total Liabilities .......................................................... 382,652 307,018
MINORITY INTEREST IN SUBSIDIARY ...................................................... 190,764 195,305
STOCKHOLDERS' EQUITY:
Series A Preferred stock, $.01 par value, 400,000 shares
authorized; issued and outstanding at Dec. 31, 1998
70,000 shares ...................................................................... 700 --
Common stock, $.01 par value, 40,000,000 shares
authorized; issued and outstanding at Dec. 31, 1998
13,556,301 shares; at March 31, 1998, 11,823,444 shares ........................... 135,563 118,234
Additional paid-in capital ........................................................... 25,309,532 19,912,890
Unearned compensation ................................................................ (374,078) (761,438)
Accumulated Deficit .................................................................. (20,510,016) (17,061,328)
TOTAL STOCKHOLDERS' EQUITY ................................................. 4,561,701 2,208,358
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ................................. $ 5,135,117 $ 2,710,681
============ ============
</TABLE>
See accompanying notes to consolidated condensed financial statements
<PAGE>
U.S. WIRELESS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net sales ......................................................$ 39,729 $ -- $ 39,729 $ --
Costs and expenses:
Operating expenses ........................................... 3,726,427 2,583,059 1,380,358 927,335
Loss before other income and minority interest in net
loss (income) of continuing subsidiary ........................ (3,686,698) (2,583,059) (1,340,629) (927,335)
Other income:
Interest income .............................................. 233,468 167,861 65,610 53,359
Loss before minority interest in net loss (income) of subsidiary
(3,453,230) (2,415,198) (1,275,019) (873,976)
Minority interest in net loss of subsidiary ..................... 4,541 44,985 (20,315) 18,438
Net loss ........................................................ $ (3,448,689) $ (2,370,213) $ (1,295,334) $ (855,538)
============ ============ ============ ============
Basic and diluted loss per common equivalent share:
Loss before minority interest in net loss (income)of subsidiary (.26) (.32) (.10) (.12)
Minority interest in net loss (income) of subsidiary ......... -- -- -- --
Basic and diluted net loss ...................................... $ (.26) $ (.32) $ (.10) $ (.12)
============ ============ ============ ============
Weighted average number of common
shares outstanding ........................................... 13,171,222 7,325,245 13,556,301 7,325,245
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated condensed financial statements
<PAGE>
U.S. WIRELESS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Increase (Decrease) in Cash
<TABLE>
<CAPTION>
Nine Months Ended
Dec. 31, Dec. 31,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss ................................................................. $(3,448,689) $(2,370,213)
Adjustments to reconcile net loss to cash (used) for operating activities:
Depreciation .......................................................... 190,000 176,648
Minority interest in net loss of subsidiary ........................... (4,541) (44,985)
Amortization of unearned compensation ................................. 387,360 387,360
Increase (Decrease) from changes in assets and liabilities:
Increase in inventory ................................................. (50,756) --
Accounts payable and accrued expenses ................................. (90,828) (51,905)
Net cash (used) for operating activities ....................... (2,835,798) (1,903,095)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of equipment, improvements and fixtures ................... (320,766) (335,503)
Investment in Joint Venture ........................................... (400,000)
Net cash used for investing activities ......................... (720,766) (335,503)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations ................................. (15,192) (18,927)
Proceeds from issuance of preferred stock and common shares ........... 1,400,000 --
Issuance of common shares ............................................. 4,014,671 --
Net cash (used) for financing activities ................................. 5,399,479 (18,927)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ..................... 1,842,915 (2,257,525)
Cash, beginning of period ................................................ 2,285,750 5,328,781
Cash, end of period ...................................................... $ 4,128,665 $ 3,071,256
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid .......................................................... $ -- $ --
Taxes paid ............................................................. $ 1,248 $ 4,800
</TABLE>
See accompanying notes to consolidated condensed financial statements
<PAGE>
U.S. WIRELESS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for the
interim financial information and the instructions to Form 10-QSB. Accordingly,
they do not include all the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, the interim financial statements include all adjustments
considered necessary for a fair presentation of the Company's financial
position, results of operations and cash flows for the nine months ended
December 31, 1998. These statements are not necessarily indicative of the
results to be expected for the full fiscal year. These statements should be read
in conjunction with the financial statements and notes thereto included in the
Company's annual report Form 10-KSB for the fiscal year ended March 31, 1998 as
filed with the Securities and Exchange Commission.
NOTE 2 - ORGANIZATION:
Consolidation of Labyrinth Communication Technologies Group, Inc.
In March 1998, the Company consummated the consolidation of its subsidiary,
Labyrinth with and into the Company. In accordance with exchange offers
submitted to the stockholders of Labyrinth representing 49% minority interest in
Labyrinth, the Company exchanged 4,498,200 shares of its common stock for
490,000 share of common stock of Labyrinth. The shares of Common Stock issued in
accordance with the exchange, are subject to a vesting schedule.
In accordance with the provisions of Accounting Principles Board ("APB")
Opinion No. 16 and interoperations thereof, this acquisition of minority
interest was accounted for using the purchase method of accounting. As of
December 31, 1998, 829,252 shares of the Company's common stock have vested as
defined by the Exchange Offer, and have been issued to former Labyrinth
stockholders. The remaining 3,668,948 shares of the Company's common stock
provided for in the Exchange Offer have not vested and are currently held in
escrow until vested. Shares of the Company's common stock that do not vest shall
be cancelled and returned to the Company's treasury as unissued common stock.
NOTE 3 - EQUIPMENT, IMPROVEMENTS AND FIXTURES:
Equipment, improvements and fixtures, net at December 31, 1998 and March
31, 1998 consisted of the following :
<TABLE>
<CAPTION>
Dec. 31, March 31,
1998 1998
<S> <C> <C>
Furniture, fixtures and equipment $970,310 $649,544
Less: accumulated depreciation and amortization (439,649) (249,648)
$530,661 $399,896
</TABLE>
<PAGE>
U.S. WIRELESS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 4 - STOCK OPTIONS:
During the year ended March 31, 1998, the Company issued common stock
options to its employees and to various consultants performing services for the
Company.
The options granted to employees vest over three years, expire five years
from the date of the grant and have exercise prices ranging from $2 to $5 per
share.
Substantially, all of the options granted to consultants vest immediately,
expire five years from the date of grant and have exercise prices ranging from
$2 to $5 per share. On December 31, 1998, there were options to purchase up to
an aggregate of approximately 5,300,000 shares of Common Stock granted to
executive officers, director, employees and consultants, subject to various
vesting schedules.
The value of the options granted was established by the difference between
the exercise price and the fair market value of the options issued on the dates
of grant, were accounted for as unearned compensation and amortized and expensed
over the related vesting periods. During each of the nine month periods ended
December 31, 1998 and 1997, $387,360 of unearned compensation was amortized to
expense. The remaining unamortized balance of unearned compensation at December
31, 1998 was $374,078 as reflected in the accompanying balance sheet.
NOTE 5 - PREFERRED STOCK:
The Company has authorized the issuance of 1,000,000 shares of Preferred
Stock of which 400,000 have been designated as Series A Preferred Stock. As of
December 31, 1998, 70,000 shares of Series A Preferred Stock have been issued
and are currently outstanding. See notes 7 and 8. The balance of the authorized
shares of Preferred Stock are subject to designation of their rights and
preferences to be determined by the Company's Board of Directors. The Series A
Preferred shares have a cumulative dividend of 6% per annum, payable in cash or
shares of Series A Preferred Stock, at the option of the Company. The shares are
convertible into shares of the Company's Common Stock, commencing 90 days from
issuance. Each share is convertible into approximately 6.78 shares of Common
Stock. Each share of Series A Preferred Stock has a liquidation preference of
$20.00 per share, plus accrued and unpaid dividends.
The Series A Preferred Stock is redeemable by the Company at any time, at a
redemption price of $20.00 per share, upon the earlier of (i) three years from
issuance, and (ii) upon the closing price for the Common Stock being $8.00 for
any consecutive 30 day period ending on the date that the Company gives notice
of redemption to the holders. The Company shall give the holders, 20 days' prior
notice, during which time the shares of Series A Preferred Stock shall be
convertible into shares of Common Stock. U.S. WIRELESS CORPORATION AND
SUBSIDIARY
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 6 - YEAR 2000 COMPUTER ISSUE:
The Company does not believe that the impact of the year 2000 computer
issued will have a significant impact on its operations of financial position.
Furthermore, the Company does not believe that it will be required to
significantly modify its internal computer systems or products currently under
development. However, if internal systems do not correctly recognize date
information when the year changes to 2000, there could be adverse impact on the
Company's operations. Furthermore, there can be no assurance that another
entity's failure to ensure year 2000 capability would not have an adverse effect
on the Company.
NOTE 7 - PRIVATE PLACEMENT:
In June 1998 the Company consummated a private equity financing,
aggregating in excess of $5 million through Gerard Klauer Mattison & Co., Inc.,
New York, New York, as its placement agent. The Company sold shares of its
Series A Preferred Stock and shares of Common Stock. The placement agent
received a commission of $150,000 and options to purchase 220,000 shares of
Common Stock, one-half at an exercise price of $4.00 per share and the balance
at $5.00 per share.
NOTE 8- JOINT VENTURE AGREEMENT:
On July 31, 1998 the Company entered into a joint venture agreement with
Anam Instruments, Inc. a Korean corporation, ("ANAM") whereby the Company and
ANAM formed Wireless Technology, Inc. ("WTI"), a corporation duly organized and
having offices in the Republic of Korea. WTI was formed as a joint venture for
the purposes of developing a Code Division Multiple Access "CDMA" interface for
the RadioCamera, manufacturing and producing the RadioCamera and marketing and
distribution the RadioCamera in Korea and potentially other Asian countries.
The joint venture established a two phase initial funding for operations
totaling $3,500,000, of which $2,300,000 has been raised to date and the balance
scheduled to be raised during this fiscal year. In connection with the formation
of the joint venture, the Company received an investment of $400,000 from ANAM,
for 20,000 shares of Series A Preferred Stock. The proceeds of the investment in
the Company were used by the Company as a capital investment in WTI. In
addition, ANAM invested $800,000 directly into WTI. At present ANAM owns 67% and
the Company owns 33% of WTI.
<PAGE>
U.S. WIRELESS CORPORATION AND SUBSIDIARY
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
U.S. Wireless Corporation (the "Company") was incorporated in the State of
Delaware in February 1993. Until March 1998, the Company had two subsidiaries,
Labyrinth Communication Technologies Group, Inc. ("Labyrinth") and Mantra
Technologies, Inc. ("Mantra"). In January 1998, the Company submitted an
exchange offer to the holders of the 49% minority interest in Labyrinth, which
exchange was effected in March 1998, upon which Labyrinth was consolidated with
and into the Company. Due to the consolidation of Labyrinth, the results from
operations for the nine months ended December 31, 1998 has been adjusted to
eliminate the minority interest, which is not provided within the comparison
information for the nine months ended December 31, 1997. There is no change in
the focus or operations of the Company as a result of the consolidation. The
comparison information for the periods does continue to reflect the Company's
one subsidiary, Mantra.
Statements contain herein which are not historical facts may be considered
forward looking information with respect to plans, projections or future
performance of the Company as defined under the Private Securities Litigation
Reform Act of 1995. These forward looking statements are subject to risk and
uncertainties which could cause actual results to differ materially from those
projected.
Three months ended December 31, 1998 compared to the three months ended
December 31, 1997:
Consolidated operating revenues for the three months ended December 31,
1998, were $39,729. Revenues were attributable to sales generated by the
Company's Internet subsidiary, Mantra Technologies, Inc., with respect to its
license agreement with LookSmart Ltd. The Company did not report operating
revenues from its core wireless activities during the current or prior period.
Consolidated operating expenses were $1,380,358 for the three months ended
December 31, 1998, compared to $927,335 for the three months ended December 31,
1997. Increased operating expenses were primarily attributable to additional
costs incurred for engineering, research and development related to the
continued refinement, testing and deployment of the Company's RadioCamera(TM)
System. During the third quarter, the Company expanded deployment of its
RadioCamera System in accordance with beta testing and evaluation agreements
entered into previously with Bell Atlantic Mobile in Baltimore, Maryland and
Western Wireless Corp., in Billings, Montana. During this period, the Company
successfully completed the first phase of the Bell Atlantic trial and began the
second phase, an expanded trial. In Billings, Montana, the Company began an
end-to-end trial, which includes the Billings Public Safety Access Point.
Additionally, the Company continued its development of CDMA and TDMA interfaces
for the RadioCamera System and has built prototypes for field trials, which are
expected to begin during the next quarter.
Nine months ended December 31, 1998 compared to the nine months ended
December 31, 1997:
Consolidated revenues from operations for the nine months ended December
31, 1998 were $39,729. Revenues were attributable to sales generated by the
Company's Internet subsidiary, Mantra Technologies, Inc., with respect to its
license agreement with LookSmart Ltd. The Company did not report operating
revenues from its core wireless activities during this or the prior period.
Consolidated operating expenses were $3,726,427 during the nine months
ended December 31, 1998, compared to $2,583,059 for the nine months ended
December 31, 1997. Increased expenses were primarily attributable to additional
costs incurred for engineering, research and development related to the
continued refinement, testing and deployment of the Company's RadioCamera(TM)
System. During the third quarter, the Company expanded deployment of its
RadioCamera System in accordance with beta testing and evaluation agreements
entered into previously with Bell Atlantic Mobile in Baltimore, Maryland and
Western Wireless Corp., in Billings, Montana. During this period, the Company
successfully completed the first phase of the Bell Atlantic trial and began the
second phase, an expanded trial. In Billings, Montana, the Company began an
end-to-end trial, which includes the Billings Public Safety Access Point.
Additionally, the Company continued its development of CDMA and TDMA interfaces
for the RadioCamera System and built prototypes for field trials, expected to
begin next quarter.
Research and Development-Future Operations:
The Company has devoted and expects to continue to devote substantial
financial and managerial resources to the development and deployment of a fully
operational geo-location system. The Company also plans to continue to develop,
modify and deploy RadioCamera Systems for additional wireless standards
including CDMA and TDMA over the coming 12 months. Management estimates research
and development expenditures for the year ending March 31, 1999 will approximate
$4,200,000.
During the quarter, the Company commenced its joint beta field trials with
Bell Atlantic Mobile in Baltimore, Maryland and set up a fully operational
end-to-end, live E-911 demonstration in Billings, Montana, linking the
RadioCamera System within the Western Wireless network to a Billings, Montana
Public Safety Access Point. This trial is currently being expanded to encompass
all connections and applications necessary for commercial use.
In July 1998 the Company entered into a joint venture agreement with Anam
Instruments, Inc., a Korean corporation, ("ANAM") whereby the Company and ANAM
have formed Wireless Technology, Inc. ("WTI"), a corporation duly organized and
having offices in the Republic of Korea. The joint venture established a two
phase initial funding for operations totaling $3,500,000, of which $2,300,000
has been raised to date and the balance scheduled to be raised during this
fiscal year. In connection with the formation of the joint venture, the Company
received an investment of $400,000 from ANAM, for 20,000 shares of Series A
Preferred Stock. The proceeds of the investment were used by the Company as a
capital investment in WTI. In addition, ANAM invested $800,000 directly into
WTI. At present ANAM owns 67% and the Company owns 33% of WTI.
Liquidity and Capital Resources:
At December 31, 1998, the Company reported working capital of $3,820,695.
The Company had $4,128,665 in cash and cash equivalents. The Company believes
that its available cash, as of December 31, 1998, will be sufficient to fund its
current operations for the next 12 months, however, the Company does expect to
seek additional funding in the next quarter to expand operations, undertake
additional beta trials and purchase inventory for anticipated commercial
deployments.
In June 1998, the Company consummated a private equity financing,
aggregating $5.13 million of which a commission of $150,000 was paid to the
placement agent. Funding for the Company's CDMA project is expected to continue
to come from the Company's joint venture, WTI, which has already secured
$2,300,000 in financing out of a committed $3,500,000, in debt and equity
securities, of which the Company has invested $400,000 from funds invested by
ANAM in the Company.
In September 1998, the Company's subsidiary, Mantra, entered into a
licensing agreement with LookSmart Ltd. Mantra, using its Context Synthesis(TM)
technology, developed a strategic application for LookSmart and its partners to
enhance the quality of text searches into LookSmart's web directories.
Trends affecting liquidity, capital resources and operations:
As the nature of the Company's operations are currently research and
development oriented, management is currently not aware of any trends that may
affect its liquidity, capital, resources and operations, other than the lack of
additional funding when necessary for operations and delays in the
commercialization of the Company's product in the marketplace. The Company's
future operations could be adversely affected if the Company's timetable for the
development, marketing and manufacturing of its products exceeds the available
capital resources. The primary expenses of its operations will include the
salaries of its executive officers, management and employees who comprise the
research, development, field operations, marketing, carrier relations, and
corporate communication teams. Depending on this demand for its products, the
Company anticipates needing additional financing in the future for manufacturing
and expansion of operations from primarily research and development to
commercial deployment, which will include manufacturing, expanded field
operations, commercial support services as well as increased administrative,
selling and general expenses. The Company's limited resources, in addition to
its anticipated continued research, development and testing may cause
significant strain on the Company's management, technical, financial and other
resources. The Company expects to meet future capital requirements through
vendor financing and through the sale of the Company's securities. There can be
no assurances that additional funding will be available to the Company when
needed or if available on terms acceptable to the Company.
Inflation and seasonality are currently not expected to have a material
effect on the Company's liquidity, capital resources and operating activities.
Year 2000 Computer Issue:
The Company does not believe that the impact of the year 2000 computer
issue will have a significant impact on its products, operations or financial
position. Furthermore, the Company does not believe that it will be required to
significantly modify its internal computer systems or products currently under
development. However, if internal systems do not correctly recognize date
information when the year changes to 2000, there could be adverse impact on the
Company's operations. Furthermore, there can be no assurance that another
entity's failure to ensure year 2000 capability would not have an adverse effect
on the Company.
<PAGE>
PART II. Other Information
ITEM 1. Legal Proceeding: None
ITEM 2. Changes in Securities and Use of Proceeds: None
ITEM 3. Defaults Upon Senior Securities: None
ITEM 4. Submission of Matters to a Vote of Security Holders: None
ITEM 5. Other Information: None
ITEM 6. Exhibits and Reports on Form 8-K: None
<PAGE>
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.
U.S. Wireless Corporation
(Registrant)
February 12, 1999 By: \s\ Dr. Oliver Hilsenrath
Date Dr. Oliver Hilsenrath
Chief Executive Office
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
U.S. WIRELESS CORPORATION
EXHIBIT 27.01
FINANCIAL DATA SCHEDULE
This schedule contains summary financial information extracted from the
financial statements for the nine months ended December 31, 1998 and is
qualified in its entirety by reference to such statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> mar-31-1999
<PERIOD-END> dec-31-1998
<CASH> 4,128,665
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 50,756
<CURRENT-ASSETS> 4,179,421
<PP&E> 970,310
<DEPRECIATION> (439,649)
<TOTAL-ASSETS> 5,135,117
<CURRENT-LIABILITIES> 358,726
<BONDS> 0
0
700
<COMMON> 135,563
<OTHER-SE> 4,425,438
<TOTAL-LIABILITY-AND-EQUITY> 5,135,117
<SALES> 39,729
<TOTAL-REVENUES> 273,197
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,726,427
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 349,714
<INCOME-PRETAX> (3,448,689)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,448,689)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,448,689)
<EPS-PRIMARY> (.26)
<EPS-DILUTED> (.26)
</TABLE>
