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, 1999
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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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, 14,527,608 shares outstanding as of February 4, 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 December 31, 1999 (unaudited)
and March 31, 1999 3
Consolidated statements of operations (unaudited) for the three and nine months
ended December 31, 1999 and December 31, 1998 4
Consolidated statements of cash flows (unaudited) for the nine months
ended December 31, 1999 and December 31, 1998 5
Notes to financial statements 6-8
ITEM 2 - Plan of Operation 9
PART II - OTHER INFORMATION 11
ITEM 1 - Legal Proceeding 11
Signature 12
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2
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U.S. WIRELESS CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
As of December 31, 1999 and March 31, 1999
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<CAPTION>
Dec. 31, March 31,
1999 1999
------------------------ --------------------
(Unaudited) (Note 1)
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents ...................................................... $ 7,029,819 $ 5,788,288
Stock subscription receivable .................................................. -- 2,300,000
Due from employees (Note 5) .................................................... 243,197 --
Due from affiliate ............................................................. 101,419 --
Investment in joint venture .................................................... -- 58,630
Investment in affiliate ........................................................ 146,125 --
Other current assets ........................................................... 600 2,323
------------ ------------
Total Current Assets .................................................. 7,521,160 8,149,241
EQUIPMENT, IMPROVEMENTS AND FIXTURES, net of accumulated
depreciation and amortization (Note 3) ...................................... 354,117 381,617
OTHER ASSETS
Security deposits ............................................................ 25,035 25,035
Total assets ......................................................... $ 7,900,312 $ 8,555,893
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses .......................................... $ 175,008 $ 335,543
Obligations under capital leases, current ...................................... 7,044 34,486
------------ ------------
Total current liabilities ............................................ 182,052 370,029
Obligations under capital leases, noncurrent ................................... 4,632 4,632
------------ ------------
Total liabilities .................................................... 186,684 374,661
------------ ------------
MINORITY INTEREST IN SUBSIDIARY ................................................ -- 76,434
------------ ------------
STOCKHOLDERS' EQUITY:
Series A preferred stock convertible, $.01 par value, 300,000 shares
authorized; 70,000 shares issued and outstanding at December 31, 1999 and March
31, 1999 ....................................................................... 700 700
Series B preferred stock, $.01 par value, 60,000 and 50,000 shares
authorized and issued and outstanding respectively at December 31, 1999 and
March 31, 1999 ................................................................. 600 500
Common stock, $.01 par value, 40,000,000 shares authorized; issued and
outstanding at December 31, 1999 14,414,749 shares and at March 31, 1999,
13,556,188 shares .............................................................. 144,148 135,563
Additional paid-in capital ..................................................... 34,665,745 32,504,598
Unearned Compensation .......................................................... -- (244,958)
Common stock subscribed (Note 6) ............................................... 143,334 --
Accumulated deficit ............................................................ (27,240,899) (24,291,605)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY ........................................... 7,713,628 8,104,798
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ........................... $ 7,900,312 $ 8,555,893
============ ============
</TABLE>
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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Nine Months Ended Three Months Ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net sales ........................................................$ -- $ 39,729 $ -- $ 39,729
------------ ------------ ------------ ------------
Costs and expenses:
Research & Development ......................................... 2,103,492 2,332,986 907,199 875,867
Operating expenses ............................................. 1,391,212 1,006,081 486,157 375,371
Stock based compensation ....................................... 244,958 387,360 -- 129,120
Loss on investment in joint venture ............................ 58,630 -- 58,630 --
Total Costs and Expenses ......................................... 3,798,292 3,726,427 1,451,986 1,380,358
Loss before other income and minority
interest in net loss of continuing subsidiaries
(3,798,292) (3,686,698) (1,451,986) (1,340,629)
Other income:
Interest income .................................................. 372,683 233,468 127,706 65,610
------------ ------------ ------------ ------------
Loss before minority interest in net loss of
Subsidiaries ................................................ (3,425,609) (3,453,230) (1,324,280) (1,275,019)
Minority interest in net income (loss) of subsidiaries ........... -- 4,541 -- (20,315)
------------ ------------ ------------ ------------
Net loss .........................................................$ (3,425,609) $ (3,448,689) $ (1,324,280) $ (1,295,334)
============ ============ ============ ============
Basic and diluted loss per common equivalent share:
Loss before minority interest in net loss of subsidiaries .....$ (.24) $ (.26) $ (.09) $ (.10)
Minority interest in net loss of subsidiaries ................. -- -- -- --
------------ ------------ ------------ ------------
Basic and diluted net loss .......................................$ (.24) $ (.26) $ (.09) $ (.10)
============ ============ ============ ============
Weighted average number of common shares outstanding ............. 14,087,698 13,171,222 14,103,289 13,556,245
============ ============ ============ ============
</TABLE>
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)
Increase (Decrease) in Cash
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Nine Months Ended
Dec. 31, Dec. 31,
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
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Net loss ................................................................. $(3,425,609) $(3,448,689)
Adjustments to reconcile net loss to cash (used) for operating activities:
Depreciation .......................................................... 138,500 190,000
Minority interest in net losses of subsidiaries ....................... -- (4,541)
Amortization of unearned compensation ................................. 244,958 387,360
Increase (Decrease) from changes in assets and liabilities:
(Increase) in inventory ................................................ -- (50,756)
Decrease in other current assets ....................................... 1,723 --
(Increase) in due from affiliate ....................................... (101,419) --
Accounts payable and accrued expenses .................................. (197,490) 90,828
Decrease in minority interest .......................................... 76,434 --
----------- -----------
Net cash (used) for operating activities ....................... (3,262,903) (2,835,798)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of equipment, improvements and fixtures ................... (111,000) (320,766)
Investment in joint venture ........................................... 58,630 (400,000)
----------- -----------
Net cash provided by investing activities ...................... (52,370) (720,766)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations ................................. (27,442) (15,192)
Receipt of stock subscription ......................................... 2,443,334 --
Proceeds from issuance of preferred stock ............................. 1,000,000 1,400,000
Net proceeds from issuance of common shares ........................... 1,287,037 4,014,671
(Increase) in investment in affiliate .................................. (146,125) --
Net cash provided by financing activities ................................ 4,556,804 5,399,479
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ..................... 1,241,531 1,842,915
Cash, beginning of period ................................................ 5,788,288 2,285,750
Cash, end of period ...................................................... $ 7,029,819 $ 4,128,665
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid ......................................................... $ -- $ --
Taxes paid ............................................................ $ -- $ 1,248
</TABLE>
See accompanying notes to consolidated condensed financial statements
5
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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, 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, 1999 as
filed with the Securities and Exchange Commission.
NOTE 2 - ORGANIZATION:
Consolidation of Labyrinth Communication Technologies Group, Inc. ("Labyrinth")
In January 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 shares 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.
Principles of Consolidation
The consolidated financial statements for the nine months
ended December 31, 1999 include the accounts of the Company as well as the
Company's wholly owned subsidiary U.S. Wireless International, Inc., a foreign
corporation ("USWI"). The consolidated financial statements for the year ended
March 31, 1999 include the accounts of the Company and Mantra Technologies, Inc.
All significant intercompany balances and transactions have been eliminated in
consolidation.
In July 1999, the Company formed USWI, to develop and operate
its overseas operations. Upon the formation of USWI, the Company transferred its
ownership interest in the joint venture company, Wireless Technologies, Inc.
("WTI") formed with Anam Instruments, Inc. to USWI. On July 19, 1999, the joint
venture consummated a $5 million investment from HanKang Restructuring Fund, a
Korean government-sponsored fund managed by Scudder Kemper Investments. The WTI
investment will be used for development and testing activities and for marketing
the Company's wireless caller location system in Asia.
6
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U.S. WIRELESS CORPORATION AND SUBSIDARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - EQUIPMENT, IMPROVEMENTS AND FIXTURES:
Equipment, improvements and fixtures, net at December 31, 1999
and March 31, 1999 consisted of the following:
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Dec. 31, March 31,
1999 1999
------------------------ -----------------------
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Furniture, fixtures and equipment $ 928,822 $ 817,822
Less: accumulated depreciation and amortization (574,705) (436,205)
-------------- --------------
$ 354,117 $ 381,617
============== ==============
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NOTE 4 - STOCK OPTIONS:
As of December 31, 1999 the Company has granted options to
purchase shares of Common Stock to officers, directors, employees and
consultants. The options granted to officers, directors and employees for the
most part vest over three years, expire five years from the date of the grant
and have exercise prices ranging from $2 to $15.80 per share. Options granted to
consultants have varied vesting provisions, including deliverables and time. As
of December 31, 1999, there were options to purchase up to an aggregate of
approximately 5,000,000 shares of Common Stock granted to executive officers,
directors, employees and consultants, subject to various vesting schedules of
which the right to purchase approximately 3,900,000 shares were vested and
exercisable. Options to purchase 579,969 shares have been exercised as of
December 31, 1999.
NOTE 5 - DUE FROM EMPLOYEES:
In December 1999 certain employees exercised their option to
buy common stock at a price between $2 and $2.50. As of December 31, 1999,
53,700 shares were issued for $118,383. The purchase price of these shares were
paid in January 1999 due to the timing of the delivery of the shares and the
consummation of the sales. Additionally, the Company advanced the employee's
portion of taxes on the difference between the strike price of the option and
the current market price, in the amount of $124,813 due to the timing of the
delivery of the shares and the consummation of the sales.
NOTE 6 - COMMON STOCK SUBSCRIBED:
This represents monies received from a former employee for the
exercise of his options. The shares relating to this case were issued in January
2000.
NOTE 7 - PRIVATE PLACEMENT:
In March 1999, the Company commenced an undertaking to raise
additional capital in a private placement offering of its securities. In April
1999, the Company received stockholders approval for the offering. As of
September 30, 1999 the Company raised proceeds of $6,905,000 through the sale of
60,000 shares of the Company's newly created Series B Preferred Stock and an
aggregate of 554,254 shares of Common Stock to certain investors, of which
405,000 shares were sold to the Company's officers, directors and employees.
7
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U.S. WIRELESS CORPORATION AND SUBSIDARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - YEAR 2000 UPDATE:
Subject to continued monitoring of third party suppliers, U.S.
Wireless Corporation's year 2000 program ("Program") is complete, and no
material problems have arisen since the end of calendar year 1999. The Program
addressed the issue of computer programs and embedded computer chips being
unable to distinguish between the year 1900 and the year 2000. All of the
Company's business computer systems are year 2000 ready.
8
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U.S. WIRELESS CORPORATION AND SUBSIDIARY
ITEM 2 - PLAN OF OPERATIONS
Results of Operations
Statements contained herein that 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, 1999 compared to the three months ended December
31, 1998:
Research and Development expenses were $907,199 for the three months ended
December 31, 1999 as compared to $875,867 for the three months ended December
31, 1998 an increase of 4%. Operating expenses were $486,157 in the three months
ended December 31, 1999 as compared to $375,371 in the period ended December 31,
1998, an increase of 30%. The increase in Research and Development and Operating
expenses is primarily attributable to additional costs incurred for engineering,
research and development related to the continued refinement, testing and
deployment of the Company's RadioCamera system and the commencement of the
Company's network build-out in the Baltimore, MD and Washington D.C. metro area.
Stock based compensation was $0 in the period ended December 31, 1999 as
compared to $129,120 in the period ended December 31, 1998. The deferred
compensation was written off in the quarter ended September 30, 1999.
The loss on investment represents the Company's recognition of its
subsidiary (U.S. Wireless International, Inc.) share of the loss on its joint
venture, WTI. The year to date loss at December 31, 1999 was large enough to
eliminate the investment in its entirety.
Nine months ended December 31, 1999 compared to the nine months ended December
31, 1998:
Research and development expenses were $2,103,492 for the nine months ended
December 31, 1999 as compared to $2,332,986 for the nine months ended December
31, 1998 a decrease of 10%. Operating expenses were $1,391,212 in the nine
months ended December 31, 1999 as compared to $1,006,081 in the nine months
ended December 31, 1998, an increase of 38%. Research and development shows a
decrease of 10% resulting from a refund of R & D expenses in September from its
subsidiary's investment, WTI, otherwise the R & D expense for the year would
have exceeded the 1998 expense. The increase in operating expenses is primarily
attributable to additional cost incurred for engineering and research and
development related to the continued refinement, testing and deployment of the
Company's RadioCamera system and the commencement of the Company's network
build-out in the Baltimore, MD and Washington D.C. metro area.
Stock based compensation was $244,958 in the nine months ended December 31, 1999
as compared to $387,360 in the nine months ended December 31, 1998. The amount
charged off in 1999 was sufficient to write off the balance on the deferred
compensation account.
The loss on investment represents the Company's recognition of its
subsidiary (U.S. Wireless International, Inc.) shares of the loss on its joint
venture, WTI. The year to date loss at December 31, 1999 was large enough to
eliminate the investment in its entirety.
9
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U.S. WIRELESS CORPORATION AND SUBSIDIARY
ITEM 2 - PLAN OF OPERATIONS continued
Liquidity and Capital Resources
At December 31, 1999, the Company reported working capital of $7,339,108. The
Company had $7,029,819 in cash and cash equivalents. Such amounts resulted
primarily from sales of the Company's securities in its 1999 private placement
offering in which the Company raised an aggregate of $6,905,000. During the nine
months ended December 31, 1999, the Company earned no revenues from operations.
Although the Company incurred a net loss of $3,425,609 during the nine months
ended December 31, 1999, such amount includes $138,500 of depreciation expense.
As result of the above, the Company experienced a net increase in cash of
approximately $1,241,531 during the nine months ended December 31, 1999.
Based on management's estimates, the Company's capital resources are expected to
meet cash requirements through at least March 31, 2001 for the continuation of
the Company's research, development and field trial operations. The Company will
require additional capital in order to implement its business strategy of
rolling out a nationwide network of the RadioCamera system. The Company is
assessing and evaluating the timing and resource requirements necessary to
implement this plan. Additionally, the Company continues the development of an
Internet services platform that will interface with the nationwide location
"caches" enabling the Company and other vendors to build and offer applications
based on location sensitive applications.
The Company is presently engaged in the testing of its AMPS, TDMA CDMA and iDEN
RadioCamera systems and is conducting field trials in several major cities. The
Company is building its first market in the Maryland/Washington D.C. metro area.
The Company has received contracts to deploy its RadioCamera(TM) system in pilot
programs to deliver traffic information for certain portions of the Maryland and
Virginia highway systems. The Company's network will provide the Maryland State
Highway Administration and Virginia State etc. with accurate real-time analysis
of traffic speed and congestion, which will be used for traffic management and
planning. In addition, the Company is developing an Internet services platform
that would allow potential customers to visually monitor, locate and track a
group of subscribers.
The Company's strategy is to build a nationwide network, which will require
additional financing, capital expenditures, management and employees. The
Company expects that it will be required to purchase significant equipment and
have a significant increase in the number of Company employees during the next
twelve months.
If the Company's timetable for the continued development, marketing, and
building of the Company's proposed nationwide location network exceeds current
estimates, the Company may require additional capital resources. The primary
continuing expenses associated with the testing and development of the
RadioCamera location systems are expected to include officer, employee and
consultant salaries, the costs associated with manufacturing prototypes and the
costs of the Company's field operations.
Year 2000 Update
Subject to continued monitoring of third party suppliers, U.S. Wireless
Corporation's year 2000 program ("Program") is complete, and no material
problems have arisen since the end of calendar year 1999. The Program addressed
the issue of computer programs and embedded computer chips being unable to
distinguish between the year 1900 and the year 2000. All of the Company's
business computer systems are year 2000 ready.
10
<PAGE>
PART II. Other Information
ITEM 1. Legal Proceeding:
On November 5, 1999, Mr. Abraham Bar, who was dismissed as Vice President -
Signal Processing by the Company in August 1999, filed a claim with the American
Arbitration Association against the Company for breach of his employment
agreement and breach of the covenant of good faith and fair dealing. He is
seeking approximately $500,000 in lost wages, vesting stock and stock options,
in addition to the costs of pursuing arbitration. The Company intends to
vigorously defend the claim and has retained the San Francisco law firm of Otis
& Hogan to represent its' interests and file counterclaims against Mr. Bar for
breach of his employment agreement, breach of the covenant of good faith and
fair dealing, and breach of his fiduciary duty.
On November 5, 1999, Mr. Mati Wax, who was dismissed as Chief Technology Officer
by the Company in June 1999, filed a claim with the American Arbitration
Association against the Company for breach of his employment agreement and
breach of the covenant of good faith and fair dealing. He is seeking
approximately $500,000 in lost wages, vesting stock and stock options, in
addition to the costs of pursuing arbitration. The Company intends to vigorously
defend the claim and has retained the San Francisco law firm of Otis & Hogan to
represent its' interests and file counterclaims against Mr. Bar for breach of
his employment agreement, breach of the covenant of good faith and fair dealing,
and breach of his fiduciary duty.
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:
Exhibit 27.01 - Financial Data Schedule
11
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
U.S. Wireless Corporation
(Registrant)
February 10, 2000 By: \s\ Dr. Oliver Hilsenrath
Date Dr. Oliver Hilsenrath
Chief Executive Office
12
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<ARTICLE> 5
<LEGEND>
EXHIBIT 27.01
FINANCIAL DATA SCHEDULE
ARTICLE 5 OF REGULATION S-X
This schedule contains summary financial information extracted from the
financial statements for the three months ended December 31, 1999 and is
qualified in its entirety by reference to such statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> mar-31-2000
<PERIOD-END> dec-31-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,521,160
<PP&E> 928,822
<DEPRECIATION> (574,705)
<TOTAL-ASSETS> 7,900,312
<CURRENT-LIABILITIES> 182,052
<BONDS> 0
0
1,300
<COMMON> 144,148
<OTHER-SE> 7,568,180
<TOTAL-LIABILITY-AND-EQUITY> 7,713,628
<SALES> 0
<TOTAL-REVENUES> 372,683
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,798,292
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,425,609)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,425,609)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,425,609)
<EPS-BASIC> (.24)
<EPS-DILUTED> (.24)
</TABLE>
