U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER 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: 0-24742
U.S. WIRELESS CORPORATION
(Exact Name of Small Business Issuer as Specified in Its Charter)
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<S> <C>
Delaware 13-3704059
(State of Incorporation) (I.R.S. Employer
Identification No.)
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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, 21,122,906 shares outstanding as of June 30, 2000.
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U.S. WIRELESS CORPORATION AND SUBSIDIARY
CONTENTS
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Page
Number
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
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Consolidated balance sheets as of June 30, 2000 (unaudited) 3
and March 31, 2000
Consolidated statements of operations (unaudited) for the three months 4
ended June 30, 2000 and June 30, 1999
Consolidated statements of cash flows (unaudited) for the three months
ended June 30, 2000 and June 30, 1999 5
Notes to financial statements 6
ITEM 2 - MANANGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 11
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 15
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 15
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 15
ITEM 5. OTHER INFORMATION 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 15
SIGNATURES
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2
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U.S. WIRELESS CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
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June 30, March 31,
2000 2000
---------------- --------------
(Unaudited) (Note 1)
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents ................................................................ $ 25,216,338 $ 5,311,209
Costs and earnings in excess of billings ................................................. 213,873 110,746
Other current assets ..................................................................... 10,090 9,969
------------ ------------
Total Current Assets ..................................................................... 25,440,301 5,431,924
EQUIPMENT, IMPROVEMENTS AND FIXTURES, net of accumulated
depreciation and amortization ......................................................... 354,848 248,483
INVESTMENT IN AND ADVANCES TO MANTRA ..................................................... 8,265 8,265
CAPITALIZED COMPUTER SOFTWARE DEVELOPMENT COSTS .......................................... 101,250 72,500
OTHER ASSETS ............................................................................. 217,948 143,035
------------ ------------
Total assets ................................................................... $ 26,122,612 $ 5,904,207
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses .................................................... $ 2,264,142 $ 507,534
Dividends payable ........................................................................ 212,434 50,055
Accrued vacation ......................................................................... 109,128 77,089
Capital lease obligations, current portion................................................ 13,357 11,059
------------ ------------
Total current liabilities ...................................................... 2,599,061 645,737
CAPITAL LEASE OBLIGATIONS, LESS CURRENT PORTION 26,306 33,156
------------ ------------
Total liabilities .............................................................. 2,625,367 678,893
------------ ------------
STOCKHOLDERS' EQUITY:
Series A preferred stock, convertible, 6% cumulative, $.01 par value, 300,000
shares authorized; none and 20,000 shares issued and outstanding at June 30,
2000 and March 31, 2000 -- 200
Series B preferred stock, convertible, $.01 par value, 60,000 shares authorized
; none and 38,400 shares issued and outstanding, respectively, at June 30, 2000
and March 31, 2000 -- 384
Series C preferred stock, convertible, 6.5% cumulative, $.01 par value, 150,000
shares authorized and 112,500 issued and outstanding at June 30, 2000
(liquidation preference of $ 22,500,000) 1,125 --
Common stock, $.01 par value, 40,000,000 shares authorized; 21,122,906 and
17,100,658 shares issued and outstanding at June 30, 2000 and March 31, 2000,
1,523,941 of which ares ubject to vesting at both dates 211,230 171,007
Additional paid-in capital ............................................................... 62,169,617 40,708,256
Common stock subscribed .................................................................. -- 64,476
Accumulated deficit ...................................................................... (38,884,727) (35,719,009)
------------ ------------
Total stockholders' equity ..................................................... 23,497,245 5,225,314
------------ ------------
Total liabilities and stockholders' equity ..................................... $ 26,122,612 $ 5,904,207
============ ============
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See accompanying notes to consolidated condensed financial statements
3
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U.S. WIRELESS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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Three Months Ended
June 30, June 30,
2000 1999
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Net revenues ....................................................................... $ 103,127 $ --
------------ ------------
Costs and expenses:
Operating expenses .............................................................. 2,040,224 1,180,963
Cost of revenue ................................................................. 123,961 --
Research and development......................................................... 1,132,090 741,859
------------ ------------
Total operating expenses ................................................ 3,296,275 1,922,822
------------ ------------
Loss from Operations ............................................................... (3,193,148) (1,922,822)
Other income (expense):
Interest income ................................................................. 189,809 117,126
Equity in loss of Mantra......................................................... -- (31,809)
------------ ------------
Net loss ........................................................................... (3,003,339) (1,837,505)
Deemed dividend for Series B Preferred Stock........................................ -- 890,000
Series C cumulative preferred dividends ............................................ 121,875 --
------------ ------------
Net loss attributable to common shares ............................................. $ (3,125,214) $ (2,727,505)
============ ============
Basic and diluted loss per common share ............................................ $ (.16) $ (.23)
============ ============
Weighted average number of common
shares outstanding .............................................................. 19,183,981 11,996,280
============ ============
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See accompanying notes to consolidated condensed financial statements
4
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U.S. WIRELESS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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Three Months Ended
June 30, June 30,
2000 1999
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
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Net loss .......................................................................................... $ (3,003,339) $ (1,837,505)
Adjustments to reconcile net loss to cash used for operating activities:
Equity in loss of Mantra ....................................................................... -- 31,809
Stock based compensation ....................................................................... 337,144 821,808
Depreciation and amortization .................................................................. 85,000 85,222
Increase (Decrease) from changes in assets and liabilities:
Costs and earnings in excess of billings ....................................................... (103,127) --
Other receivables .............................................................................. -- (120,675)
Other current assets ........................................................................... (121) --
Other assets ................................................................................... (74,914) --
Accounts payable and accrued expenses .......................................................... 1,756,608 2,854
Accrued Vacation................................................................................ 32,039 --
------------ ------------
Net cash used for operating activities .................................................. (970,710) (1,016,487)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment, improvements and fixtures ............................................... (191,364) (101,243)
Capitalized computer software development....................................................... (28,750) --
------------ ------------
Net cash used for investing activities .................................................. (220,114) (101,243)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of preferred stock ...................................................... 21,059,006 1,000,000
Receipt of stock subscription .................................................................. -- 2,300,000
Proceeds from issuance of common shares......................................................... 41,499 134,180
Payments on capital lease obligations........................................................... (4,552) --
------------ ------------
Net cash provided by financing activities ................................................ 21,095,953 3,434,180
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS ......................................................... 19,905,129 2,316,450
Cash and cash equivalents, beginning of period .................................................... 5,311,209 5,788,288
------------ ------------
Cash and cash equivalents, end of period .......................................................... $ 25,216,338 $ 8,104,738
============ ============
Supplemental disclosure of cash flow information:
Income taxes paid .............................................................................. $ 1,600 $ --
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See accompanying notes to consolidated condensed financial statements
5
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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 as of June 30, 2000,
results of operations and cash flows for the three months
ended June 30, 2000 and 1999. 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, 2000 as filed with the
Securities and Exchange Commission.
NOTE 2 - RESTATEMENT OF AMOUNTS PREVIOUSLY REPORTED
During the course of the audit of the financial
statements for the year ended March 31, 2000, there were
several non-cash transactions identified which required
adjustment to the financial statements. Certain of these
adjustments had a significant impact on previously reported
quarterly financial statements and have been restated
accordingly.
The net impact on the consolidated net loss for the
three months ended June 30, 1999 was an increase in the net
loss of $549,773. The adjustments related to the net loss
primarily consists of (i) stock compensation adjustments of
$692,688; (ii) reversal of costs related to the issuance of
common stock of $(149,425); (iii) recognition of equity in
losses of Mantra aggregating to $31,809; (iv) depreciation
expense of $39,722 and (v) other miscellaneous adjustments
of $(65,021).
There was an additional adjustment of $890,000 related
to the beneficial conversion feature of the Series B
Preferred Stock, which increased the accumulated deficit and
increased the additional paid-in capital balances (see Note
8) as a deemed dividend.
Such restatements were previously reported in an
amendment to the Company's Form 10-QSB for the three-month
period ended June 30, 1999.
Certain other prior year amounts in the consolidated
financial statements have been reclassified to conform to
the current year presentation.
6
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NOTE 3 - ORGANIZATION AND BUSINESS
U.S. Wireless Corporation is headquartered in San
Ramon, California. U.S. Wireless Corporation was
incorporated in the State of Delaware in February 1993. The
Company develops high-performance, network-based location
systems (known as the RadioCamera system) designed to enable
wireless carriers and others to provide their customers with
value-added, location-based services and applications,
including: enhanced 911, live-navigation assistance,
enhanced 411, and asset and vehicle tracking.
The Company began its current business operations in
July 1996 by acquiring 51% of Labyrinth Communications
Technologies Group, Inc. ("Labyrinth") and 51% of Mantra
Technologies, Inc. ("Mantra"). In January 1998, the Company
acquired the remaining 49% minority interest in Labyrinth.
In July 1999, U.S. Wireless Corporation established its
wholly owned subsidiary, U.S. Wireless International, Inc.
(together referred to as "the Company"), which was
incorporated in the British Virgin Islands. Its primary
asset is an investment in a foreign joint venture, Wireless
Technology, Inc. ("WTI"). The Company and Anam Instruments,
Inc. ("Anam") entered into a Joint Venture Agreement whereby
WTI was formed to develop and manufacture a Code Division
Multiple Access interface ("CDMA") for the RadioCamera. WTI
has the right to market the RadioCamera throughout Korea,
Asia and Australia and manufacture the CDMA RadioCamera.
Mantra is a corporation that developed
network-management systems. In February 1999, Mantra's board
of directors approved the recapitalization of Mantra, which
provided for the issuance of an additional 33% of Mantra's
outstanding common stock to its management. Such shares
vested one-third upon issuance, and additional vesting is
dependent upon the achievement of defined revenue targets.
This recapitalization reduced the Company's ownership of
Mantra to 44%. Mantra ceased operations in September 1999,
whereby no additional vesting shall occur.
Principles of Consolidation
The consolidated financial statements for the
three-month period ended June 30, 2000 and 1999, and year
ended March 31, 2000 (balance sheet only), include the
accounts of the Company and its wholly owned subsidiary,
U.S. Wireless International, Inc. As a result of the
reduction in ownership of Mantra to 44% pursuant to the
recapitalization, Mantra has not been consolidated with the
Company and has been accounted for under the equity method
since the beginning of the year ended March 31, 2000. All
significant intercompany balances and transactions have been
eliminated in consolidation.
7
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NOTE 4 - COSTS AND EARNINGS IN EXCESS OF BILLINGS
This account represents the costs and earnings in
excess of billings on the State of Maryland contract to
provide traffic-flow information. The total contract value
aggregates $461,440 for which completion is expected during
the fiscal year ending March 31, 2001. The contract fees are
generally paid on a quarterly basis with a final 10%
installment upon completion of the project. Revenues of
approximately $249,000 under this contract was previously
recognized in the fourth quarter of the year ended March 31,
2000. For the quarter ended June 30, 2000, the Company
recognized an additional $103,000 of revenue and $123,961 of
costs on this contract.
NOTE 5 - EQUIPMENT, IMPROVEMENTS AND FIXTURES
Equipment, improvements and fixtures, net at June 30,
2000 and March 31, 2000 consisted of the following:
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June 30, March 31,
2000 2000
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Furniture, fixtures and equipment $ 1,418,058 $ 1,226,693
Less: accumulated depreciation and amortization (1,063,210) (978,210)
----------- -----------
$ 354,848 $ 248,483
=========== ===========
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NOTE 6 - SERIES A PREFERRED STOCK
The shares of the Company's Series A Preferred Stock
("Series A") carry a cumulative dividend at the rate of 6%
per annum, payable in cash or shares of Series A upon the
earlier of redemption or conversion to common shares.
Holders of the Series A have the right to convert each share
into shares of common stock at a conversion price of $2.95
per share, at any time commencing 90 days from issuance. The
shares of Series A have no voting rights and carry a
liquidation preference of $20 per share. The Company may
redeem the Series A upon the earlier of three years from
issuance, or when the closing price for the Company's common
stock has been at least $5.90 for any consecutive 30-day
period.
During the quarter ended June 30, 2000, the remaining
20,000 shares of Series A were converted into 135,593 shares
of the Company's common stock, leaving no shares of Series A
outstanding as of June 30, 2000.
The Company recorded dividends of $95,355 for fiscal
year 2000, of which $50,055 was accrued at year-end. In
addition, dividends in arrears aggregated approximately
$36,000 at March 31, 2000 and were included in the
calculation of net loss attributable to common shares. At
June 30, 2000, accrued dividends on the Series A totaled
approximately $91,000.
8
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NOTE 7 - SERIES B PREFERRED STOCK
During the quarter ended June 30, 2000, the remaining
38,400 shares of Series B Preferred Stock ("Series B")
outstanding as of March 31, 2000 were converted into
3,840,000 shares of common stock.
The Company's Series B included a beneficial conversion
feature in that the conversion price to common stock was
$1.00 per share, which was at a discount from the trading
price of the Company's common stock at the date of
investment which was during the three month period ending
June 30, 1999. The maximum beneficial conversion required
the investor to hold the Series B Preferred Shares for one
year. Accordingly, the Company has recorded in the
accompanying statement of operations a deemed dividend for
this beneficial conversion feature in the amount of $890,000
for the three-month period ended June 30, 1999. There was no
such dividend applicable to the June 2000 period.
NOTE 8 - PRIVATE PLACEMENT OF SERIES C PREFERRED STOCK
In May 2000, the Company authorized 150,000 shares of
Series C Preferred Stock ("Series C") with a $.01 par value.
This issue has a stated liquidation preference of $200 per
share plus unpaid and accrued dividends, and is senior to
all common stock. It is redeemable by the Company at a
redemption price of $200 plus unpaid and accrued dividends
at any time upon the earlier of June 1, 2004 or the date
after the closing price for the Company's common stock has
been at least $45 for a consecutive thirty-day period.
Dividends are cumulative and payable semi-annually beginning
June 1, 2000 at an annual rate of 6.5% per share. Each share
of Series C will convert into the number of shares of common
stock equal to the liquidation value of $200 divided by the
initial conversion price of $19.03 at any time at the
holder's option. The Series C shareholders have the right to
vote on all matters voted on by the stockholders except the
election the Board of Directors. However, they are allowed
to elect one member of the Board of Directors until at least
50% of the shares of Series C have been converted into
shares of common stock. The Series C shareholders are
entitled to that number of votes equal to the number of
shares of common stock that such holder is entitled to
receive upon conversion of such shares of Series C.
In June 2000, the Company completed the sale of 112,500
shares of the $.01 par value Series C at a price of $200 per
share to American Tower Corporation (ATC). Proceeds of the
Series C net of offering costs were approximately $21.06
million.
For the period ended June 30, 2000, the Company accrued
dividends aggregating $121,875, representing 6.5% of the
$200 per share value for the outstanding shares of Series C
for the month of June 2000.
9
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Concurrent with this private placement, the Company
entered into two agreements with ATC and its operating
entities: a master license agreement (MLA) and services
agreement. Under the terms of the services agreement, ATC
will become the Company's preferred provider of RadioCamera
antenna site acquisition and installation services in
connection with the Company's network build-out, including
radio frequency design, radio frequency engineering, site
identification, site acquisition and development, site
zoning and permitting, site construction and installment
management, and component purchases.
Under the terms of the MLA, the Company has agreed to
license an aggregate of 1,000 antenna sites from ATC at
rates starting at $450 per site per month during the
three-year term of the agreement. The Company will license
150 sites prior to the end of the first year, an additional
300 sites prior to the end of the second year and an
additional 550 sites prior to the end of the third year.
This commitment will increase in the event that the Company
meets certain market milestones and ATC satisfies certain
tower building or acquisition milestones. The term of each
individual antenna site license will continue for a
five-year period and will be extended for additional
five-year periods unless notified by the Company.
NOTE 9 - MANUFACTURING AGREEMENTS
During the quarter ended June 30, 2000, the Company
entered into agreements with two manufacturers to build
RadioCameras and other component parts. Total commitments
under these agreements are approximately $1,100,000. As of
July 2000, one manufacturer has delivered 10% of number of
RadioCamera units, and the balance of units is expected to
be delivered in August and September 2000.
A Company engineering representative is to meet with
the second manufacturer in Korea during August 2000 to
conduct qualifications testing of tower-top boxes being
manufactured for the Company. If such tests are successful,
the Company expects deliveries to begin in mid-September.
10
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Statements contained 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.
Results of Operations
Three Months Ended June 30, 2000 as Compared to the Three Months Ended June
30, 1999
During the three months ended June 30, 2000 (the "June 2000 period"), we
recorded revenues of $103,127, as compared to no revenues in the three-month
period ended June 30, 1999 (the "June 1999 period"). The revenues in the June
2000 period were from our contract with the Maryland and U.S. Departments of
Transportation, under which we are to provide transportation data on selected
roadways to those states on a trial basis. We have received notice of the
acceptance of bids on three other projects from which we do not expect any
revenues to be earned until contracts are signed, which is not anticipated until
the end of the period ending September 30, 2000. The total contract value for
the Maryland contract is $461,000, of which $249,000 of the Maryland contract
was recognized in the year ended March 31, 2000.
We are in the process of expanding our trial in the Maryland/Washington
DC/Virginia metro area into an operational readiness trial ("ORT"). In addition,
we are adding to the ORT, a trial system presently being built in Seattle,
Washington. We plan to continue to expand the ORT and focus on developing
relationships with the cellular carriers prior to the October 2000 FCC mandated
deadline for carriers to state their intentions on how they plan to meet the
mandate. During fiscal 2001 we expect to be building our network.
Costs and expenses of operations, including research and development and
operating expenses, totaled $3,296,275 for the three months ended June 30, 2000
as compared to total costs and expenses of operations of $1,922,822 for the
three months ended June 30, 1999. Increased operating expenses were primarily
due to our increased field trial activities, including the commencement of our
ORT in the Maryland/Washington DC/Virginia Metro area where we continue to build
sites to increase our coverage area and where we have opened our east coast
corporate offices in Reston, Virginia. There were increased costs incurred for
engineering and research and development, related to the continued refinement,
testing and deployment of our RadioCamera(TM) system. The June 2000 period also
included $123,961 in cost of revenue for the Maryland contract.
Research and development expense totaled $1,132,090 and $741,859 for the
June 2000 and June 1999 periods, respectively. The increase is primarily the
result of increased personnel costs related to software and hardware development
projects. Certain employees were granted stock options, resulting in additional
compensation due to the difference between the exercise price and the market
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value of the stock at the time of grant. Total compensation expense for employee
stock options for the June 2000 and June 1999 periods was $304,883 and $741,859,
respectively. In fiscal 1997, we recorded unearned compensation for the options
granted that year and amortized the expense over the vesting period. The
amortization of unearned compensation for the June 1999 period was $129,120,
which is included in the $741,859. There was no amortization recorded in the
June 2000 period as the unearned compensation was fully amortized during the
year ended March 31, 2000. Compensation expense for amortization of options
granted to consultants for the June 2000 and June 1999 periods was $32,261 and
$79,949, respectively.
During the three months ended June 30, 2000, $28,500 was added to the
$72,500 of software development costs capitalized as of March 31, 2000. The
capitalized costs relate to our AMPS RadioCamera System. Amortization of the
capitalized software costs is required to begin once the software is available
to generate revenues.
For the three months ended June 30, 2000 and 1999, we earned interest
income of $189,809 and $117,126 respectively, reflecting increased earnings on
cash balances generated from our private sales of equity securities, as
discussed below.
As a result of the above factors, we incurred a net loss of $3,003,339 for
the three months ended June 30, 2000 as compared to $1,837,505 for the three
months ended June 30, 1999. The net loss attributable to common shares of
$3,125,214 for the June 2000 period includes $121,875 of cumulative dividends on
the Series C Preferred Stock. The net loss attributable to common shares of
$2,727,505 for the June 1999 period includes $890,000 of deemed dividends with
respect to the Series B Preferred Stock issuance. The deemed dividends on the
Series B Preferred Stock are the result of issuing the preferred stock with a
conversion price to acquire shares of our Common Stock at a discount from the
trading price of our Common Stock at the date we sold the shares of Series B
Preferred Stock. The net loss per share was $.16 and $.23 for the periods ended
June 30, 2000 and 1999, respectively.
Liquidity and Capital Resources
At June 30, 2000, we had working capital of $22,841,240 and cash and cash
equivalents of $25,216,338. Such amounts resulted primarily from sales of our
securities in our June 2000 private placement offering of Series C Preferred
Stock in which we raised net proceeds of approximately $21.06 million.
Based on management's estimates, our capital resources are expected to meet
cash requirements through at least March 31, 2001 for the continuation of
research, development, field trials and ORT operations. We will require
additional capital in order to implement our business plan of deploying a
nationwide location network using our RadioCamera system. Management will
continue to assess and evaluate the timing and resource requirements necessary
12
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to implement this plan. We are currently engaged in the development and testing
of our AMPS, TDMA CDMA and iDEN RadioCamera systems. In addition, we continued
our progress with the Maryland Beltway project for which we installed additional
sites during the three months ended June 30, 2000. The total contract price for
the Maryland Beltway project is $461,000, of which we earned $249,000 in the
year ended March 31, 2000 and an additional $103,000 in the June 2000 period.
In June 2000, we completed the sale of 112,500 shares of the $.01 par value
Series C Preferred Stock at a price of $200 per share to American Tower
Corporation ("ATC"). Proceeds of the Series C Preferred Stock net of offering
costs were approximately $21.06 million. Concurrent with this private placement,
we entered into a master license agreement and a service agreement with ATC.
Under the terms of the services agreement, ATC shall have a preferential
right to provide network build-out services over a three-year period on a market
by market basis, including radio frequency design, radio frequency engineering,
site identification, site acquisition and development, site zoning and
permitting, site construction and installment management, and component
purchases.
Under the terms of the MLA, we agreed to license from ATC a minimum of
1,000 antenna sites for our network build out during the three-year term of the
agreement. The rental rates vary by market, starting at $450 per site per month.
The Company is obligated to lease 150 sites prior to the end of the first year,
an additional 300 sites prior to the end of the second year and additional 550
sites prior to the end of the third year. If the conditions of the master
license agreement are met, we are required to pay for the above licenses whether
we use the facilities or not. Said commitment could increase to 2,500 total
antenna sites in the event that we meet certain market milestones and American
Tower satisfies certain tower building or acquisition milestones. The term of
each individual site license will continue for a five-year period and may be
extended for additional five-year periods at our discretion.
In accordance with our strategy of building a nationwide network, which
will require financing, management expects that we will be required to purchase
significant amounts of equipment and significantly increase our management,
technical, marketing, operation, and administrative personnel during the next 12
months. If our timetable for developing, manufacturing, marketing and deploying
our RadioCamera system and location network exceeds current estimates, we may
require additional capital resources. The primary continuing expenses associated
with the testing and development of the RadioCamera are expected to include
officer, key employee and consultant salaries and fees.
Recent Accounting Standards
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 133 requires companies
to recognize all derivative contracts as either assets or liabilities in the
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balance sheet and to measure them at fair value. If certain conditions are met,
a derivative may be specifically designated as a hedge, the objective of which
is to match the timing of gain or loss recognition of the hedging derivative
with the recognition of (i) the changes in the fair value of the hedged asset or
liability that are attributable to the hedged risk or (ii) the earnings effect
of the hedged forecasted transaction. For a derivative not designated as a
hedging instrument, the gain or loss is recognized in income in the period of
change. SFAS No. 133 is effective for all fiscal years beginning after June 15,
2000. As of June 30, 2000, we have not entered into derivative contracts either
to hedge existing risks or for speculative purposes, and do not expect adoption
of the new standard to have a significant effect.
In December 1999, the SEC staff released Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 provides
interpretive guidance on the recognition, presentation and disclosure of revenue
in the financial statements. The guidance in SAB 101, as amended by SAB 101B, is
required to be followed starting with the fourth quarter of the current fiscal
year. We do not believe that the guidance contained in SAB 101 will have a
material affect on the Company's financial results.
In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44 ("FIN 44") Accounting for Certain Transactions Involving
Stock Compensation, an Interpretation of APB Opinion No. 25. FIN 44 clarifies
the application of Opinion No. 25 for (a) the definition of employee for
purposes of applying Opinion No. 25, (b) the criteria for determining whether a
plan qualifies as a non-compensatory plan, (c) the accounting consequences of
various modifications to the terms of a previously fixed stock option or award,
and (d) the accounting for an exchange of stock compensation awards in a
business combination. FIN 44 is effective July 2, 2000, but certain conclusions
cover specific events that occur after either December 15, 1998, or January 12,
2000. We believe that the impact of FIN 44 will not have a material effect on
the Company's financial position or results of operations.
Net Operating Loss Carryforwards
As of March 31, 2000, the Company has Federal net operating loss
carryforwards (NOLS) totaling approximately $17,482,000, which expire at various
times through 2020. For State purposes, the Company has NOLS totaling
approximately $8,472,000, which expire at various times through 2005.
Utilization of a portion of the NOLS may be limited pursuant to Internal Revenue
Code Section 382 due to ownership changes because they were acquired in
connection with the purchase of Labyrinth. Also, should significant changes to
the existing ownership of the Company occur, the annual amount of NOL
carryforwards available for future use would be further limited. In addition,
the Company has approximately $524,000 and $442,000 of Federal and State
research and development tax credit carryforwards. The Federal credits expire at
various times through 2020. The loss we incurred for the three months ended June
30, 2000 would increase the available NOLS. We have recorded a 100% valuation
allowance against the net deferred tax assets, principally related to the NOLS,
as realization is evaluated as uncertain at this time.
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PART II. - Other Information
ITEM 1 - LEGAL PROCEEDINGS
In May 2000, we commenced an action in California Superior Court against several
former consultants who failed to perform under the terms of certain consulting
agreements and for fraud. We alleged claims of breach of contract, fraud and
nonperformance, in which we are seeking the right to rescind the option
agreements and to cancel our obligations under certain restricted stock
agreements. At issue are the originally issued 918,000 shares of restricted
common stock and options to purchase 1.2 million shares of common stock. Since
all defendants are outside the United States, service has not yet been effected.
On June 30, 2000, these same entities commenced three separate actions against
the Company, its CEO and General Counsel in the federal court for the Northern
District of California. One complaint states that we have breached a duty to
transfer certain restricted stock, which is a portion of the shares the Company
is seeking to recover in its lawsuit. The other two actions are based upon
claims regarding the options referenced above, in which the consultants claim
that the Company breached an alleged duty to register for resale the shares
underlying these options, thereby preventing them from exercising and selling
the shares. The relief sought in these actions is damages for lost profits. We
anticipate that the claims actions will be consolidated into the federal court
action. We plan to answer the federal court complaints and to file counterclaims
based on the claims asserted in our California state case. At that point, we
will dismiss the state case. We plan to diligently and aggressively litigate
these actions.
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 MATTERS
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
a) Exhibit 27.01 - Financial Data Schedule
b) The Company filed no reports on Form 8-K during the
period ended June 30, 2000.
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SIGNATURES
In accordance with 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)
August 8, 2000 By:\s\ Dr. Oliver Hilsenrath
Date Dr. Oliver Hilsenrath
Chief Executive Officer
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