SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDING MARCH 31, 2002
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 0-21061
SPEEDCOM WIRELESS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 58-2044990
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
7020 PROFESSIONAL PARKWAY EAST
SARASOTA, FL 34240
(941) 907-2300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) Yes[x] No[ ], and (2) has been subject to such
filing requirements for the past 90 days Yes[x] No [ ].
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the last practicable date: April 30, 2002 - 10,601,332 common
shares, $.001 par value.
Transitional small business disclosure format (check one): Yes [ ] No [x]
SPEEDCOM WIRELESS CORPORATION
FORM 10-QSB FOR THE PERIOD ENDED MARCH 31, 2002
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of March 31, 2002 and December 31, 2001 3
Statements of Operations for the three months ended
March 31, 2002 and 2001 4
Statements of Cash Flows for the three months ended
March 31, 2002 and 2001 5
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 11
PART II. OTHER INFORMATION
Item 2. Recent Sales of Unregistered Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 6. Exhibits and Reports on Form 8-K 22
Signatures 22
Exhibit Index 23
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SPEEDCOM WIRELESS CORPORATION
BALANCE SHEETS
March 31, December 31,
2002 2001
---------------------------------
Assets (unaudited)
Current assets:
Cash $ 185,837 $ 273,614
Restricted cash 2,651 42,724
Accounts receivable, net of allowances of $150,939 and
$213,278 in 2002 and 2001, respectively 924,868 1,883,533
Current portion of leases receivable 639,966 778,030
Inventories, net 1,505,650 1,825,234
Prepaid expenses and other current assets 124,047 146,593
---------------------------------
Total current assets 3,383,019 4,949,728
Property and equipment, net 931,939 1,034,558
Leases receivable 70,367 811,103
Note receivable - related party 271,045 267,126
Other assets, net 109,168 122,104
Intellectual property, net 1,303,734 1,372,937
---------------------------------
Total assets $ 6,069,272 $ 8,557,556
=================================
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 1,789,397 $ 2,455,803
Advance from factor 40,861 298,676
Accrued expenses 982,942 1,056,140
Current portion of loans from stockholders 84,363 76,000
Current portion of deferred revenue 39,132 74,911
Current portion of notes and capital leases payable 52,379 33,174
---------------------------------
Total current liabilities 2,989,074 3,994,704
Deferred revenue, net of current portion 9,893 13,517
Notes and capital leases payable, net of current portion 31,781 39,254
Stockholders' equity:
Common stock, $.001 par value, 30,000,000 shares authorized,
10,601,332 and 10,122,113 shares issued and outstanding in
2002 and 2001, respectively 10,601 10,122
Preferred stock, $4.50 stock liquidation value per share,
10,000,000 shares authorized, 3,835,554 and 3,835,554 shares
issued and outstanding in 2002 and 2001, respectively 5,455,702 5,455,702
Additional paid-in capital 17,770,561 17,710,477
Accumulated deficit (20,198,340) (18,666,220)
---------------------------------
Total stockholders' equity 3,038,524 4,510,081
---------------------------------
Total liabilities and stockholders' equity $ 6,069,272 $ 8,557,556
=================================
See accompanying notes.
3
SPEEDCOM WIRELESS CORPORATION
STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended March 31,
2002 2001
--------------------------------
Net revenues $ 1,917,505 $ 4,017,275
Cost of goods and services 1,049,532 2,234,491
--------------------------------
Gross margin 867,973 1,782,784
Operating costs and expenses:
Salaries and related 934,752 1,315,406
General and administrative 686,422 850,982
Selling expenses 253,008 518,722
Provision for bad debt 321,401 1,674
Depreciation and amortization 175,923 107,200
--------------------------------
2,371,506 2,793,984
--------------------------------
Loss from operations (1,503,533) (1,011,200)
Other expense, net:
Interest expense, net (26,091) (160,766)
Other (expense) income, net (2,496) 2,413
--------------------------------
(28,587) (158,353)
--------------------------------
Net loss $ (1,532,120) $ (1,169,553)
================================
Net loss per share:
Basic and diluted $ (0.15) $ (0.13)
================================
Shares used in computing basic and diluted net loss per share 10,447,815 9,313,863
================================
See accompanying notes.
4
SPEEDCOM WIRELESS CORPORATION
STATEMENTS OF CASH FLOWS
(unaudited)
Three Months Ended March 31,
2002 2001
------------------------
Operating activities
Net loss $ (1,532,120) $ (1,169,553)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization 175,923 107,200
Provision for bad debt 321,401 1,674
Provision for inventory obsolescence 12,909 --
Common stock issued for services 67,509 10,000
Amortization of original issue discount on debt -- 93,390
Changes in operating assets and liabilities:
Restricted cash 40,073 --
Accounts receivable 1,037,639 (766,088)
Leases receivable 478,425 (47,510)
Inventories 306,675 495,458
Prepaid expenses and other current assets 22,546 97,540
Intellectual property -- (210,000)
Other assets 12,936 (124,905)
Accounts payable and accrued expenses (686,306) (62,791)
Deferred revenue (39,403) 13,533
-----------------------------
Net cash provided by (used in) operating activities 218,207 (1,562,052)
Investing activities
Purchases of equipment (4,101) (194,314)
-----------------------------
Net cash used in investing activities (4,101) (194,314)
Financing activities
Net payments to factor (257,815) --
Proceeds from loans from and warrants issued to stockholders -- 1,770,000
Payments of loans from stockholders (36,000) --
Payments of notes and capital leases (8,268) (142,020)
Proceeds from sale of common stock and warrants 200 94,432
-----------------------------
Net cash (used in) provided by financing activities (301,883) 1,722,412
-----------------------------
Net decrease in cash (87,777) (33,954)
Cash at beginning of period 273,614 227,066
-----------------------------
Cash at end of period $ 185,837 $ 193,112
=============================
See accompanying notes.
5
SPEEDCOM WIRELESS CORPORATION
STATEMENTS OF CASH FLOWS (CONTINUED)
(unaudited)
Three Months Ended March 31,
2002 2001
------------------------
Supplemental disclosure of noncash investing and financing activities
Conversion of accounts receivable to lease receivable -- $ 1,333,000
Conversion of accounts payable to notes payable $ 20,000 $ 558,442
Conversion of accounts payable to loans from stockholders $ 44,363 --
Common stock to be issued for software license -- $ 650,000
Common stock issued for services $ 67,509 --
Conversion of debt to equity -- $ 40,000
See accompanying notes.
6
SPEEDCOM WIRELESS CORPORATION
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2002
(unaudited)
1. Business
SPEEDCOM Wireless Corporation (SPEEDCOM) was incorporated in Florida on March
16, 1994 and reincorporated in Delaware on September 26, 2000. SPEEDCOM
manufactures and installs custom broadband wireless networking equipment for
business and residential customers internationally. Through its Wave Wireless
Networking division, SPEEDCOM manufactures a variety of broadband wireless
products, including the SPEEDLAN family of wireless Ethernet bridges and
routers. Internet service providers, telephone company operators and private
organizations in over 60 countries use SPEEDCOM products to provide "last-mile"
wireless connectivity between multiple buildings at speeds up to 155 Megabits
per second and distances up to 25 miles. SPEEDCOM Wireless Corporation is an ISO
9001 registered company.
2 Basis of Presentation
The accompanying financial statements have been prepared pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain information
and footnote disclosure normally included in annual financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to those rules and regulations. The accompanying
financial statements should be read in conjunction with SPEEDCOM's annual
financial statements and notes thereto included in SPEEDCOM's Form 10-KSB.
In the opinion of management, the financial statements reflect all adjustments
(consisting of only normal and recurring adjustments) necessary to present
fairly the financial position, results of operations and cash flows for those
periods presented. Operating results for the three months ended March 31, 2002
are not necessarily indicative of the results that may be expected for the year
ended December 31, 2002.
3. Liquidity and Management's Plans
Projected cash flows from SPEEDCOM's current operations are not sufficient to
finance SPEEDCOM's current and projected working capital requirements. SPEEDCOM
will have to obtain additional capital to execute its business plan for 2002. In
April 2002, SPEEDCOM borrowed $750,000 from three institutional investors, which
was used for current operations. In May 2002, SPEEDCOM borrowed an additional
$250,000 from three institutional investors, which was used for current
operations. SPEEDCOM will seek additional capital to fund the growth of its
business, develop next generation products and to take advantage of
opportunities that may arise. This additional capital could come from the sale
of common or preferred stock, or from additional borrowings. There can be no
assurance that such financing will be available on acceptable terms, if at all.
If SPEEDCOM is unable to secure significant additional financing, SPEEDCOM will
have to further downsize its business or explore other alternatives. The
7
financial statements do not include any adjustments that might arise as a result
of this uncertainty.
4. Inventories
A summary of inventories at March 31, 2002 and December 31, 2001 is as follows:
2002 2001
(unaudited)
----------------------------
Component parts $ 764,247 $ 596,985
Completed assemblies 615,043 1,081,568
Completed assemblies consigned to others 126,360 146,681
----------------------------
$ 1,505,650 $1,825,234
============================
5. Intellectual Property
A summary of intellectual property at March 31, 2002 and December 31, 2001 is as
follows:
2002 2001
(unaudited)
----------------------------
Intellectual property $ 1,599,500 $1,599,500
Less accumulated amortization (295,766) (226,563)
----------------------------
$ 1,303,734 $1,372,937
============================
In January 2001, SPEEDCOM acquired worldwide rights for six years to
PacketHop(TM), a wireless routing software developed by SRI International (SRI).
Under the terms of the agreement, SPEEDCOM obtains rights to SRI's PacketHop(TM)
technology in the fixed wireless infrastructure market for the primary
frequencies below 6 GHz. Per the agreement, SRI International received a total
of 325,000 shares of common stock of SPEEDCOM that was issued in four traunches.
Each traunch was measured on the specific date that the stock was issued on. As
of March 31, 2002, the value of these shares at the date of grant is classified
in Intellectual property on the balance sheet. SPEEDCOM also has paid $360,000
in cash, included in Intellectual property on the balance sheet, which is being
amortized over six years. Per the terms of the agreement, SRI may terminate the
exclusive period (18 months) by providing written notice of such termination
unless by such time SPEEDCOM has successfully closed a liquid event where SRI
had the opportunity to obtain net proceeds of at least $5,000,000. Due to the
fact that such an event has not occurred, it is expected that SPEEDCOM will lose
its exclusive rights to PacketHop(TM) in July 2002, but will retain its
perpetual license agreement. SPEEDCOM has evaluated this long-lived asset for
impairment by comparing the discounted expected future cash flows to its
carrying amount. The undiscounted expected future cash flows are more than the
carrying value of the asset, so an impairment loss has not been recognized.
6. Accrued Expenses
A summary of accrued expenses at March 31, 2002 and December 31, 2001 is as
follows:
8
2002 2001
(unaudited)
----------------------------
Accrued payroll $ 190,599 $ 170,419
Accrued commissions 130,762 71,179
Severance costs 217,499 256,826
Registration statement late filing fee 163,970 163,970
Other 280,112 393,746
----------------------------
$ 982,942 $ 1,056,140
============================
7. Related Party Transactions
Note Receivable-Related Party
During 2001, SPEEDCOM sold its InstallGuys division to SPEEDCOM's Chief
Executive Officer. In return, SPEEDCOM received two 6% secured promissory notes
totaling $211,295. In October, SPEEDCOM loaned InstallGuys an additional $50,000
at 6% interest. The notes and interest are due in August 2004.
Loans from Stockholders
SPEEDCOM issued an 18% $50,000 promissory note to SPEEDCOM's Vice President of
Sales in December 2001. The note is due May 15, 2002 and is secured by property
of SPEEDCOM. During February 2002, $10,000 of this loan was repaid. During April
2002, $20,000 of this loan was repaid.
SPEEDCOM also issued an 18% $106,000 promissory note to an investor in December
2001 that was due December 28, 2001. SPEEDCOM paid $80,000 of this note in
December 2001. In January 2002, SPEEDCOM paid the remaining $26,000 balance on
the note and accrued interest.
In March 2002, SPEEDCOM issued three promissory notes to each of SPEEDCOM's
outside Board members for $14,738, $13,875 and $15,750, respectively. Each note
bears an interest rate of 14% and carries an additional 2% penalty on
outstanding principle not paid by April 15, 2002. $11,000 of these notes was
paid in April 2002. The remaining principle of the notes, interest and penalties
has not been repaid.
8. Notes and Capital Leases Payable
A summary of notes and capital leases payable at March 31, 2002 and December 31,
2001 is as follows:
9
2002 2001
(unaudited)
-----------------------------
8% automobile loan payable in monthly installments through
January 2003, secured by equipment $ 3,918 $ 5,057
12% convertible note 20,000 --
Capital lease obligations 60,242 67,371
-----------------------------
84,160 72,428
Less current portion (52,379) (33,174)
-----------------------------
$ 31,781 $ 39,254
=============================
In January 2002, SPEEDCOM entered into a financial relations and consultant
contract whereby the consultant will receive each month a $10,000 convertible
note with a 12% coupon rate. The notes are convertible at any time at $1.125 per
share. As of March 31, 2002, the note holders possess rights to convert the
notes to 22,500 shares of restricted common stock. This contract was cancelled
in May 2002.
9. Stockholders' Equity
Common Stock
In January 2002, 459,219 shares were issued as a result of a repricing provision
that applied to 83,000 shares of common stock issued on October 30, 2000 for a
price of $7.35 per share, or a total of $610,050. Additional shares were issued
based on a reset price, which is the weighted average closing price of SPEEDCOM
common stock for the first ten trading days of January 2002; provided that the
reset price is not less than $1.1251 or more than $1.19. Because the average
price of SPEEDCOM's common stock during the first ten trading days of 2002 was
below the $1.1251 reset floor, the total number of shares, as adjusted after
repricing, was determined by dividing $610,050 by such floor.
Also in January 2002, 20,000 options were exercised at $0.01 per share for
20,000 shares of common stock.
Employee Stock-Based Compensation
In February 2002, SPEEDCOM issued stock options to employees for the purchase of
750,100 common shares at $0.60 per share. The Company recorded $67,500 in
stock-based compensation expense in relation to these options during the three
months ended March 31, 2002. These options vest upon the achievement during 2002
of certain revenue milestones or in full in one year from the issuance. The
revenue milestone had not been met as of March 31, 2002. These options vest upon
a change of control transaction with the ability to exercise the options for up
to one year after vesting. Upon a change of control and if the one year
performance period has not expired, the employee may surrender the performance
options for cash payment at the calculated change of control common share
transaction value for payment within 30 days by the surviving company.
10
Preferred Stock
Each share of preferred stock issued in August 2001 is convertible at any time
into two shares of common stock, subject to anti-dilution protection, and will
accrue dividends, beginning August 23, 2003, to be paid upon conversion at the
rate of 14% per year times the $3.38 per share liquidation preference. The
liquidation preference increased from $2.25 to $3.38 ($4.50 if paid in stock)
because a change of control agreement was not announced by February 23, 2002 and
closed by April 23, 2002.
10. Customer Concentrations
Although SPEEDCOM serves a large and varied group of customers, two customers
accounted for 11% and 17% of SPEEDCOM's revenue for the three months ended March
31, 2002, respectively. One customer accounted for 14% of SPEEDCOM's revenue for
the three months ended March 31, 2001. In addition, four customers accounted for
51% of SPEEDCOM's gross accounts receivable as of March 31, 2002. SPEEDCOM
intends to continue to attempt to diversify and expand its customer base with
its current limited resources and maintain overhead costs at low levels.
11. Lease Restructuring
During the three months ended March 31, 2002, SPEEDCOM converted two of its
leases receivable, recorded at approximately $1,290,000, into a new lease
receivable with approximately $336,000 due immediately, five payments of $50,000
due over a five month period and a balloon payment of approximately $328,000 due
in August 2002. As a result of this restructuring of the lease, SPEEDCOM
recorded a provision for bad debt of approximately $395,000 for the three months
ending March 31, 2002.
12. Subsequent Event
In April 2002, SPEEDCOM borrowed $750,000 from three institutional investors. In
May 2002, SPEEDCOM borrowed an additional $250,000 from three institutional
investors. The loans bear an interest rate of 15% and are payable at the earlier
of (i) ninety days following the execution of a definitive agreement with
respect to a bona fide merger, stock sale or sale of all or substantially all of
the SPEEDCOM's assets or (ii) July 31, 2002. As a stipulation to these loans,
the term of all outstanding Series B Warrants of SPEEDCOM dated August 23, 2001
was extended to July 31, 2002.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The discussion in this document contains trend analysis and other
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, that involve risks and uncertainties, such as statements concerning
growth and future operating results; developments in markets and strategic
11
focus; new products and services and product technologies and future economic,
business and regulatory conditions. Such forward-looking statements are
generally accompanied by the words such as "plan", "estimate", "expect",
"believe", "should", "would", "could", "anticipate", "may" and other words that
convey uncertainty of future events or outcomes. These forward-looking
statements and other statements made elsewhere in this report are made in
reliance on the Private Securities Litigation Reform Act of 1995. The section
below entitled "Certain Factors That May Affect Future Results, Financial
Condition and Market Price of Securities" sets forth material factors that could
cause actual results to differ materially from these statements.
Overview
SPEEDCOM is a multi-national company based in Sarasota, Florida. SPEEDCOM
employs approximately 70 people. Through its Wave Wireless Networking division,
SPEEDCOM manufactures a variety of broadband wireless products, including its
SPEEDLAN family of wireless ethernet bridges and routers. Internet service
providers, telephone company operators and private organizations in more than 60
countries use SPEEDCOM products to provide "last-mile" wireless connectivity
between multiple buildings at speeds up to 155 Megabits per second and distances
up to 25 miles.
Results of Operations
The following table sets forth the percentage of net revenues represented by
certain items in SPEEDCOM's Statements of Operations for the periods indicated.
Three Months Ended March 31,
2002 2001
-------------------
Net revenues 100% 100%
Cost of goods and services 55% 56%
------------------
Gross margin 45% 44%
Operating costs and expenses:
Salaries and related 49% 32%
General and administrative 36% 21%
Selling expenses 13% 13%
Provision for bad debt 17% 0%
Depreciation and amortization 9% 3%
------------------
124% 69%
------------------
Loss from operations (79)% (25)%
Other expense, net:
Interest expense, net (1)% (4)%
Other (expense) income, net (0)% 0%
------------------
(1)% (4)%
------------------
Net loss (80)% (29)%
==================
12
Three Months Ended March 31, 2002 and March 31, 2001
Net revenues decreased 52% from approximately $4,017,000 in the three months
ended March 31, 2001 to approximately $1,918,000 in the three months ended March
31, 2002. This decrease was due to unexpected delays in spending decisions by
both potential and current customers during the first quarter. This factor,
combined with the challenging economic environment in both the United States and
overseas, contributed to disappointing results. SPEEDCOM believes that a unique
focus on offering a complete spectrum of fixed wireless products and its
strength in key international markets will enable SPEEDCOM to endure these
difficult economic times. Cost of goods and services decreased 53% from
approximately $2,234,000 for the three months ended March 31, 2001 to
approximately $1,050,000 for the three months ended March 31, 2002, due
primarily to decreases in SPEEDCOM's revenues. Revenues from customers in
foreign geographic areas increased to 64% of revenues for the three months ended
March 31, 2002 as compared to 45% of revenues the three months ended March 31,
2001. The percentage of sales that are from international customers is expected
to increase slightly during the year ended December 31, 2002.
Salaries and related, general and administrative and selling expenses decreased
by 30% from approximately $2,685,000 for the three months ended March 31, 2001
to approximately $1,874,000 for the three months ended March 31, 2002. This
decrease was primarily due to a decrease in salaries and related expenses of
approximately $381,000 related to decreased average headcount, a decrease in
general and administrative expenses of approximately $165,000 related to reduced
spending on travel, investor relations and consultancy fees, partially offset by
increases in rent expense, and a decrease in selling expenses of approximately
$266,000 related primarily to reduced trade show participation.
During the three months ended March 31, 2002, SPEEDCOM converted two of its
leases receivable, recorded at approximately $1,290,000, into a new lease
receivable with approximately $336,000 due immediately, five payments of $50,000
due over a five month period and a balloon payment of approximately $328,000 due
in August 2002. As a result of this restructuring of the lease, SPEEDCOM
recorded a provision for bad debt of approximately $395,000 for the three months
ending March 31, 2002.
Net interest expense decreased from approximately $161,000 for the three months
ended March 31, 2001 to approximately $26,000 for the three months ended March
31, 2002. This decrease was due to the addition of notes payable and loans from
stockholders during the fourth quarter of 2000 and the first quarter of 2001
that were converted to preferred stock during 2001.
Net loss increased 31% from approximately $1,170,000, or $.13 per share, in the
three months ended March 31, 2001 to approximately $1,532,000, or $.15 per
share, in the three months ended March 31, 2002, as a result of the foregoing
factors.
13
Taxes
At March 31, 2002, SPEEDCOM had net operating loss carryforwards (NOLs) for
federal income tax purposes of approximately $11,500,000. The NOLs expire at
various dates through the year 2021. Utilization of SPEEDCOM's net operating
loss may be subject to substantial annual limitation due to the ownership change
limitations provided by the Internal Revenue Code and similar state provisions.
Such annual limitation could result in the expiration of the net operating loss
before utilization.
Liquidity and Capital Resources
During the three months ended March 31, 2002, SPEEDCOM's operating activities
provided approximately $218,000 of cash. This was primarily due to decreases in
accounts receivable, leases receivable and inventory partially offset by its net
loss for the period and decreases in accounts payable and accrued expenses.
SPEEDCOM purchased approximately $4,000 of fixed assets during the three months
ending March 31, 2002 as compared to approximately $194,000 during the same
period in 2001. SPEEDCOM does not have any material commitments for capital
expenditures in the future. SPEEDCOM used approximately $302,000 primarily
through payments to factored accounts receivable and payments on loans from
stockholders. As of March 31, 2002, SPEEDCOM had cash of approximately $186,000.
During the three months ended March 31, 2001, SPEEDCOM used approximately
$1,562,000 of cash for its operating activities. This was primarily due to
increases in accounts receivable (due to increases in sales) and the net loss
for the period. SPEEDCOM purchased approximately $194,000 of fixed assets during
the three months ending March 31, 2001 as compared to approximately $167,000
during the same period in 2000. To fund this growth in assets and sales,
SPEEDCOM raised approximately $1,770,000 through the issuance of loans from and
warrants issued to stockholders.
In April 2002, SPEEDCOM borrowed $750,000 from three institutional investors,
which was used for current operations. In May 2002, SPEEDCOM borrowed an
additional $250,000 from three institutional investors, which was used for
current operations. The loans bear an interest rate of 15% and are payable at
the earlier of (i) ninety days following the execution of a definitive agreement
with respect to a bona fide merger, stock sale or sale of all or substantially
all of SPEEDCOM's assets or (ii) July 31, 2002. As a stipulation to these loans,
the term of all outstanding Series B Warrants of SPEEDCOM dated August 23, 2001
was extended to July 31, 2002.
Projected cash flows from SPEEDCOM's current operations are not sufficient to
finance SPEEDCOM's current and projected working capital requirements. SPEEDCOM
believes that it will have to seek additional capital to execute its business
plan for 2002. SPEEDCOM will seek additional capital to fund the growth of its
business, develop next generation products and to take advantage of
opportunities that may arise. This additional capital could come from the sale
of common or preferred stock, or from borrowings. There can be no assurance that
such financing will be available on acceptable terms, if at all. If SPEEDCOM is
unable to secure significant
14
additional financing, SPEEDCOM will have to further downsize its business or
explore other alternatives. The financial statements do not include any
adjustments that might arise as a result of this uncertainty.
Certain Factors That May Affect Future Results, Financial Condition and Market
Price of Securities
If we do not raise additional capital, we will not be able to fulfill our
business plan or continue as a going concern.
In order to take advantage of possible opportunities in 2002 and to execute our
business plan for 2002 and 2003, we need to raise additional financial capital.
This additional capital could come from the sale of common or preferred stock,
the exercise of outstanding warrants, from borrowings, customer deposits, or
from a strategic transaction such as a merger. If we are unsuccessful in raising
that capital we may not have sufficient funding to purchase necessary goods and
services to execute our business plan. SPEEDCOM's 2002 and 2003 business plans
include next generation products which will have initial lead times for
acquiring inventory that are much longer than current ones and that may require
deposits upfront. SPEEDCOM will need to raise additional capital to fund these
longer lead times for purchasing inventory in order to execute its 2002 and 2003
business plans. If this capital is not obtained, additional changes in
SPEEDCOM's cost structure and capital expenditures could be required, such as
employee terminations and delays in the introductions of the next generation of
products or SPEEDCOM may be unable to continue as a going concern.
We may not be able to compete successfully in the fixed wireless broadband
market in view of rapid technological change and the resources required to deal
with technological change.
The markets for our products and the technologies utilized in the industry in
which we operate evolve rapidly and depend on key technologies, including
wireless local area networks, wireless packet data, modem and radio
technologies. SPEEDCOM is developing a series of next generation products, which
incorporates the PacketHop(TM) licensed technology from SRI. Delays in
developing these products could have a negative effect on our future
competitiveness as the industry is constantly changing as new technologies are
developed.
The fixed wireless broadband market is at an early stage of development and is
rapidly evolving. As is typical for a new and rapidly evolving industry, demand
and market acceptance for recently introduced wireless networking products and
services are subject to a high level of uncertainty. Market acceptance of
particular products cannot be predicted; however, it is likely that new products
will not be generally accepted unless they operate at higher speeds and are sold
at lower prices. While the number of businesses recognizing the value of
wireless solutions is increasing, we do not know whether sufficient demand for
our products will emerge and become sustainable. Prospects must be evaluated due
to the risks encountered by a company in the early stages of marketing new
products or services, particularly in light of the uncertainties relating to the
new and evolving markets in which we operate. There can be no assurance that we
will succeed in
15
addressing any or all of these risks, and the failure to do so would reduce
demand for SPEEDCOM's products.
We could encounter future competition from larger wireless, computer and
networking equipment companies. We could also encounter additional future
competition from companies that offer products that replace or are alternatives
to radio frequency wireless solutions. These products include, for example,
products based on infra-red technology, products based on laser technology,
systems that utilize existing telephone wires or cables within a building as a
wired network backbone and satellite systems outside of buildings.
Major changes could render products and technologies obsolete or subject to
intense competition from alternative products or technologies or by improvements
in existing products or technologies. For example, Internet access and wireless
local loop equipment markets may stop growing, whether as a result of the
development of alternative technologies, such as fiber optic, coaxial cable or
satellite systems. Also, new or enhanced products developed by other companies
may be technologically incompatible with SPEEDCOM's products and render our
products obsolete.
Many of SPEEDCOM's current and potential competitors have significantly greater
financial, marketing, technical and other resources and, as a result, may be
able to respond more quickly to new or emerging technologies or standards and to
changes in customer requirements, or to devote greater resources to the
development, promotion and sale of products or to deliver competitive products
at a lower end user price. Current and potential competitors have established or
may establish cooperative relationships among themselves or with third parties
to increase the ability of their products to address the needs of SPEEDCOM's
existing and prospective customers. Accordingly, it is possible that new
competitors or alliances among competitors may emerge and rapidly acquire
significant market share. Increased competition could result in price
reductions, reduced operating margins and loss of market share by SPEEDCOM.
SPEEDCOM's reliance on limited sources of wireless and computer components could
result in delayed product shipment and higher costs and could damage customer
relationships.
Many of the key hardware and software components necessary for the assembly of
SPEEDCOM's products are only available from a single supplier or from a limited
number of suppliers. Our reliance on sole or limited source suppliers involves
several risks, including:
. suppliers could increase component prices significantly, without
advance notice;
. suppliers could discontinue or delay delivery of product components for
reasons such as inventory shortages, new product offerings, increased
cost of materials, destruction of manufacturing facilities, labor
disputes and bankruptcy; and
. in order to compensate for potential component shortages or
discontinuance, in the future we may hold more inventory than is
immediately required, resulting in increased inventory costs.
16
If our suppliers are unable to deliver or ration components to us, we could
experience interruptions and delays in manufacturing and sales, which could
result in cancellation of orders for products or the need to modify products.
This may cause substantial delays in product shipments, increased manufacturing
costs and increased product prices. Further, we may not be able to develop
alternative sources for these components in a timely way, if at all, and may not
be able to modify our products to accommodate alternative components. These
factors could damage our relationships with current and prospective customers
lasting longer than any underlying shortage or discontinuance.
Expanding indirect distribution channels may result in increased costs and lower
margins.
To increase revenues, we believe that we must increase the number of our
distribution partners. Management's strategy includes an effort to reach a
greater number of end users through indirect channels. SPEEDCOM is currently
investing, and plans to continue to invest, significant resources to develop
these indirect channels. These efforts may not generate the revenues necessary
to offset such investments. We will be dependent upon the acceptance of our
products by distributors and their active marketing and sales efforts relating
to our products. The distributors to whom we sell products are independent and
are not obligated to deal with SPEEDCOM exclusively. Because SPEEDCOM does not
generally fulfill orders by end users of its products sold through distributors,
SPEEDCOM will be dependent upon the ability of distributors to accurately
forecast demand and maintain appropriate levels of inventory. Management expects
that SPEEDCOM's distributors will also sell competing products. These
distributors may not continue, or may not give a high priority to, marketing and
supporting our products. This and other channel conflicts could result in
diminished sales through the indirect channels. Additionally, because lower
prices are typically charged on sales made through indirect channels, increased
indirect sales could adversely affect the average selling prices and result in
lower gross margins.
Growth may divert management resources from current operations.
SPEEDCOM anticipates that expansion will be required to address potential growth
in the customer base and market opportunities. Future expansion is expected to
place a significant strain on our management, technical, operational,
administrative and financial resources. SPEEDCOM will need to effectively manage
any expansion, which could divert attention and resources from current
operations. The expansion may be inadequate to support future operations. We may
be unable to attract, retain, motivate and manage required personnel, including
finance, administrative and operations staff, or to successfully identify,
manage and exploit existing and potential market opportunities because of
inadequate staffing. We may also be unable to manage growth in our multiple
relationships with original equipment manufacturers, distributors and other
third parties.
17
Our international operations and sales involve significant risks that could
reduce sales and increase expenses.
We anticipate that revenues from customers outside North America will continue
to account for a significant portion of our total revenues for the foreseeable
future. Expansion of international operations has required, and will continue to
require, significant management attention and resources. In addition, we remain
heavily dependent on distributors to market, sell and support our products
internationally. International operations are subject to additional risks,
including the following:
. difficulties of staffing and managing foreign operations due to time
differences, language barriers and staffing constraints in the foreign
sales offices;
. longer customer payment cycles and greater difficulties in collecting
accounts receivable increase the amount of time that we have to fund
our purchase of the inventory sold;
. unexpected changes in regulatory requirements, exchange rates, trading
policies, tariffs and other barriers could increase our costs;
. uncertainties of laws and enforcement relating to the protection of
intellectual property could allow competitors to infringe on our
technology;
. limits on the ability to sue and enforce a judgment for accounts
receivable increase the risk of bad debt expense;
. potential adverse tax consequences could create additional expense; and
. political and economic instability in Latin America could limit our
sales in that region.
SPEEDCOM has a history of losses and may never achieve or sustain profitability.
SPEEDCOM has incurred significant losses since its inception, and expects to
continue to incur net losses through at least the first half of 2002. SPEEDCOM
intends to increase its operating expenses, however revenues may not grow or
even continue at their current level. If revenues do not rapidly increase or if
expenses increase at a greater pace than revenues, SPEEDCOM will never become
profitable.
Our common stock price is volatile.
Our stock and the NASDAQ stock market in general have experienced significant
price and volume fluctuations in recent months and the market prices of
technology companies have been highly volatile. In the past, following periods
of volatility in the market price of a company's securities, securities class
action litigation has often been instituted against that company. Such
litigation could result in substantial costs and diversion of management's
attention.
If our common stock is delisted from the NASDAQ SmallCap Market, it may be more
difficult to sell shares of our common stock.
Our common stock is currently listed on the NASDAQ SmallCap Market. On April 30,
2002, the closing sale price of our common stock was $0.30 per share. We have
been warned that certain standards for continued listing on the NASDAQ SmallCap
Market have not been met
18
relating to our share price. NASDAQ has issued a warning letter giving a 180 day
grace period to SPEEDCOM to regain compliance. Delisting from the NASDAQ
SmallCap Market could result in a less liquid market for our common stock than
would otherwise exist. As a result, our shares may be more difficult to sell
because potentially smaller quantities of shares could be bought and sold,
transactions could be delayed and security analyst and news coverage of our
company may be reduced. These factors could result in lower prices and larger
spreads in the bid and ask prices for our shares.
We are obligated to issue a substantial number of shares of our common stock
upon conversion of preferred stock and exercise of warrants that are
outstanding.
If the preferred stock securityholders elect to convert their preferred stock
and exercise their warrants in order to sell the underlying shares of common
stock, it will substantially increase the number of SPEEDCOM's shares of common
stock outstanding. The exercise or conversion of a substantial number of
SPEEDCOM's convertible securities may depress the market price of the common
stock and will decrease the relative voting power of existing common stock
securityholders. Should a significant number of SPEEDCOM's convertible
securities be exercised or converted, the resulting increase in the amount of
the common stock in the public market could have a substantial dilutive effect
on SPEEDCOM's outstanding common stock. Public resales of our common stock
following the exercise or conversion of the securities may depress the
prevailing market price of our common stock.
Under the anti-dilution provisions of the preferred stock, if SPEEDCOM issues
common stock or common stock equivalents at a purchase price, conversion price
or warrant or option exercise price that is less than the current preferred
stock conversion price of $1.125 per share, the conversion price of the
preferred stock will be reduced using a customary weighted average basis
formula. Under the anti-dilution provisions of warrants issued in August 2001,
(1) the exercise price will be lowered to equal the purchase price, conversion
price or warrant or option exercise price for any common stock or common stock
equivalents issued (other than to employees) at a purchase price, conversion
price or warrant or option exercise price less than the current per share
exercise price of the applicable warrants ($2.50 in the case of Series A
Warrants and $0.01 in the case of Series B Warrants), and (2) the number of
warrants will be increased by the same percentage as the percentage by which the
exercise price is reduced. Alternatively, (1) the exercise price will be reduced
by the percentage by which the purchase price, conversion price or warrant or
option exercise price of any issued security (others than to employees) is less
than the current market price of the common stock, and (2) the number of
warrants will be increased by the same percentage as the percentage by which the
exercise price is reduced, if this formula results in a lower exercise price
than the adjustment described in the preceding sentence. Similar anti-dilution
provisions apply to warrants to acquire 513,333 shares at an exercise price of
$2.50 per share.
19
Our manufacturing capabilities are limited and could prevent us from keeping up
with customer demand.
SPEEDCOM has no experience in large-scale manufacturing. If our customers were
to place orders substantially greater than current levels, SPEEDCOM's present
manufacturing abilities may not be adequate to meet such demand. There can be no
assurance that we will be able to contract additional manufacturing personnel on
a timely basis.
Our concentrated ownership structure means that our two controlling shareholders
can control the outcome of any shareholder vote.
Michael W. McKinney and Barbara McKinney currently control a majority of
SPEEDCOM's common stock. Therefore, certain corporate actions, which the Board
of Directors may deem advisable for the shareholders of SPEEDCOM as a whole,
such as a business combination, may not be approved by the common shareholders
if submitted to a vote, unless Michael W. McKinney and Barbara McKinney approve
the potential transaction.
SPEEDCOM is subject to extensive and unpredictable government regulation, which
could make our products obsolete, raise our development costs and create
opportunities for other competitors.
SPEEDCOM is subject to various FCC rules and regulations in the United States
and to other government regulations abroad. There can be no assurance that new
FCC regulations will not be promulgated or that existing regulations outside of
the United States would not adversely affect international marketing of
SPEEDCOM's products.
Regulatory changes, including changes in the allocation of available frequency
spectrum, could significantly impact operations by restricting development
efforts, rendering current products obsolete or increasing the opportunity for
additional competition. In September 1993 and in February 1995, the FCC
allocated additional spectrum for personal communications services. In January
1997, the FCC authorized 300 MHz of additional unlicensed frequencies in the 5
Gigahertz frequency range. In 2000, the FCC modified the rules for "frequency
hopping spread spectrum" radios to allow greater power utilization in certain
circumstances. These changes in the allocation of available frequency spectrum
could create opportunities for other wireless networking products and services
or shift the competitive balance between SPEEDCOM and its competitors.
PART II. OTHER INFORMATION
Item 2. Recent Sales of Unregistered Securities
During the three months ended March 31, 2002 SPEEDCOM sold the following
securities, which were not registered under the Securities Act. The purchases
and sales were exempt pursuant to Section 4(2) of the Securities Act (and/or
Regulation D promulgated thereunder) as transactions by an issuer not involving
a public offering, where the purchasers represented their
20
intention to acquire the securities for investment only, not with a view to
distribution, and received or had access to adequate information about the
registrant.
1. 459,219 shares of common stock (January 30, 2002) were issued as part
of a repricing agreement. These securities were issued to 3 accredited
investors.
In addition, during the three months ended March 31, 2002, a former employee of
SPEEDCOM exercised options to purchase 20,000 shares of common stock for $.01
per share. These purchases and sales were exempt pursuant to Rule 701
promulgated under the Securities Act.
Item 4. Submission of Matters to a Vote of Security Holders
The following proposals are described in the Notice and Proxy Statement filed by
SPEEDCOM with the SEC on February 4, 2002:
Proposal 1: To approve SPEEDCOM's issuance of common stock upon the conversion
of Series B convertible preferred stock and the exercise of related warrants
sold to selected institutional and accredited investors in a private offering.
Proposal 2: To approve an increase in the number of authorized shares of our
common stock from 30 million to 60 million shares, in order, among other things,
to provide sufficient authorized shares to cover the conversion of the Series B
convertible preferred stock and the exercise of the related warrants.
---------------------------------------------------------------------------------------
For Against Abstained
---------------------------------------------------------------------------------------
Proposal 1 6,704,934 66,557 1,353
---------------------------------------------------------------------------------------
Proposal 2 6,685,782 86,779 283
---------------------------------------------------------------------------------------
The following proposals are described in the Notice and Proxy Statement filed by
SPEEDCOM with the SEC on April 19, 2002:
Proposal 1: Election of one Director to the Board
Proposal 2: Approve the appointment of Ernst & Young LLP as SPEEDCOM's
independent certified public accountants for the year ended December 31, 2002
Based upon the results of the voting for Proposal 2 and the recommendation of
SPEEDCOM's Board of Directors, Proposal 3 was voted upon at the annual meeting
of shareholders held on May 6, 2002:
Proposal 3: To approve the appointment of Aidman, Piser & Company as SPEEDCOM's
independent certified public accountants for the year ended December 31, 2002
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---------------------------------------------------------------------------------------
For Against Abstained
---------------------------------------------------------------------------------------
Proposal 1 2,845,370 5,585,750 --
---------------------------------------------------------------------------------------
Proposal 2 2,811,405 5,618,515 1,200
---------------------------------------------------------------------------------------
Proposal 3 8,431,120 -- --
---------------------------------------------------------------------------------------
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The exhibits in the accompanying Exhibit Index are filed as part
of this Quarterly Report on Form 10-QSB.
(b) Reports on Form 8-K
Form 8-K was filed on March 15, 2002 regarding the resignation of
two Directors and the appointment of two Directors to SPEEDCOM's
Board of Directors.
Form 8-K was filed April 25, 2002 regarding the change in
SPEEDCOM's certifying accountant.
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.
SPEEDCOM Wireless Corporation
/s/ Michael W. McKinney Chairman, Chief Executive May 14, 2002
-----------------------
Michael W. McKinney Officer and Director
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Exhibit Index
Number Description
3.1(3) Amended and Restated Certificate of Incorporation of SPEEDCOM Wireless Corporation
3.2(1) Amended and Restated Bylaws of SPEEDCOM Wireless Corporation
4.8(2) Warrant No. W-1 to Purchase 146,667 Shares of Common Stock issued to S.A.C. Capital Associates, LLC
4.9(2) Warrant No. W-2 to Purchase 73,333 Shares of Common Stock issued to SDS Merchant Fund, L.P.
4.10(2) Warrant No. W-3 to Purchase 220,000 Shares of Common Stock issued to Oscar Private Equity Investments, L.P.
4.11(2) Warrant No. W-4 to Purchase 73,333 Shares of Common Stock issued to Bruce Sanguinetti
4.12(3) Purchase Agreement, dated August 23, 2001, by and among SPEEDCOM Wireless Corporation and the Purchasers, as defined
4.13(3) Registration Rights Agreement, dated August 23, 2001, by and among SPEEDCOM Wireless Corporation and the Purchasers,
as defined
4.14(3) Form of Series A Warrant of SPEEDCOM Wireless Corporation dated August 23, 2001
4.15(3) Form of Series B Warrant of SPEEDCOM Wireless Corporation dated August 23, 2001
4.16(3) Settlement Agreement between SPEEDCOM Wireless Corporation and I.W. Miller Group, Inc. dated June 25, 2001
4.17 Secured Promissory Note dated April 26, 2002 between SPEEDCOM Wireless Corporation and DMG Legacy Fund, LLC
4.18 Secured Promissory Note dated May 7, 2002 between SPEEDCOM Wireless Corporation and DMG Legacy Fund, LLC.
4.19 Secured Promissory Note dated April 26, 2002 between SPEEDCOM Wireless Corporation and DMG Legacy Institutional Fund LLC
4.20 Secured Promissory Note dated May 7, 2002 between SPEEDCOM Wireless Corporation and DMG Legacy Institutional Fund LLC.
4.21 Secured Promissory Note dated April 26, 2002 between SPEEDCOM Wireless Corporation and DMG Legacy International LTD
4.22 Secured Promissory Note dated May 7, 2002 between SPEEDCOM Wireless Corporation and DMG Legacy International LTD
4.23 Letter Loan Agreement dated April 26, 2002
4.24 Security Agreement dated April 26, 2002
4.25 Letter Agreement dated April 26, 2002
4.26 Agreement to Vote Shares dated April 26, 2002
24.1(3) Powers of Attorney
____________
(1) Incorporated by reference to the Form 10-QSB filed May 14, 2001.
(2) Incorporated by reference to the Form 8-K filed July 2, 2001.
(3) Incorporated by reference to the Form S-3 filed September 18, 2001.
23