Back to GetFilings.com

Table of Contents

United States Securities and Exchange Commission

Form 10-Q

(Mark One)

LCC International, Inc.

Registrant’s telephone number, including area code: (703) 873-2000

Not Applicable

(Former name, former address and former fiscal year, if changed, since last report.)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  X     No        

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes            No  X 

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes             No        

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of April 30, 2004 the registrant had outstanding 19,843,281 shares of Class A Common Stock, par value $0.01 per share (the “Class A Common Stock”) and 4,537,577 shares of Class B Common Stock, par value $0.01 per share (the “Class B Common Stock”).

LCC International, Inc. and Subsidiaries

Quarterly Report on Form 10-Q

INDEX

2

Table of Contents

PART I: FINANCIAL INFORMATION

Item 1: Financial Statements

LCC International, Inc. and Subsidiaries

See accompanying notes to condensed consolidated financial statements.

3

Table of Contents

LCC International, Inc. and Subsidiaries

See accompanying notes to condensed consolidated financial statements.

4

Table of Contents

LCC International, Inc. and Subsidiaries

See accompanying notes to condensed consolidated financial statements.

5

Table of Contents

LCC International, Inc. and Subsidiaries

(1) Description of Operations

      LCC International Inc. a Delaware Corporation (“LCCI”), was formed in 1983. Unless the context indicates otherwise, the terms the “Company”, “we”, “us”, and “our” refer herein to LCCI.

      We provide integrated end-to-end solutions for wireless voice and data communication networks with service offerings to include high level technical consulting, to system design and deployment, to ongoing operations and maintenance services. We operate in a highly competitive environment subject to rapid technological change and emergence of new technologies. Historically, the key drivers of changes in our wireless services business have been (1) the issuance of new or additional licenses to wireless operators; (2) the introduction of new services or technologies; (3) increases in the number of subscribers served by wireless operators; (4) the increasing complexity of wireless systems in operation; and (5) changes in wireless infrastructure spending and deployment. Although we believe that our services are transferable to emerging technologies, rapid changes in technology and deployment could have an adverse financial impact on us.

(2) Basis of Presentation

      We have prepared the condensed consolidated financial statements included herein without audit, pursuant to the rules and regulations of the Securities and Exchange Commission and they reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the interim periods.

      Certain information and footnote disclosure normally included in the consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. The interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2003. Operating results for the interim periods are not necessarily indicative of results for an entire year.

(3) Equity-Based Compensation

      We account for equity-based compensation arrangements in accordance with the provisions of Accounting Principles Board (“APB”) No. 25, “Accounting for Stock Issued to Employees,” and related interpretations including FASB Interpretation No. 44, and comply with the disclosure provisions of SFAS No. 123, “Accounting for Stock-Based Compensation.” All equity-based awards to non-employees are accounted for at their fair value in accordance with FASB SFAS No. 123. Under APB No. 25, compensation expense is based upon the difference, if any, on the date of grant between the fair value of our stock and the exercise price.

6

Table of Contents

      Had compensation cost for our stock based-compensation plans and employee stock purchase plan been determined on the fair value at the grant dates for awards under those plans, consistent with FASB SFAS No. 123, our net loss and net loss per share would have increased to the pro forma amounts indicated below.

(4) Other Comprehensive Income (Loss)

      Comprehensive income (loss) is defined as net income (loss) plus the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. Other comprehensive income (loss) refers to revenues, expenses, gains and losses that under accounting principles generally accepted in the United States of America are included in comprehensive income (loss), but excluded from net income (loss). Other comprehensive income (loss) consists solely of foreign currency translation adjustments at March 31, 2003 and 2004. Comprehensive income (loss) for the three months ended March 31 is as follows (in thousands).

(5) Related Party Transactions

      RF Investors, a subsidiary of Telcom Ventures, owns the Class B Common Stock shares outstanding, which have ten-to-one voting rights over the Class A Common Stock shares and therefore represent approximately 70% voting control.

      Prior to our initial public offering, both our employees and the employees of Telcom Ventures were eligible to participate in our life, medical, dental and 401(k) plans. In connection with our initial public offering in 1996, we agreed pursuant to an Overhead and Administrative Services Agreement to allow the employees of Telcom Ventures to continue to participate in our employee benefit plans in exchange for full reimbursement of our cash costs and expenses. We billed Telcom Ventures $71,000 during the year ended December 31, 2003 and $23,000 for the first quarter of 2004 for payments made by us pursuant to this agreement. We received reimbursements from Telcom Ventures of $65,000 during 2003 and $21,000 for the

7

Table of Contents

      In December 1999, we issued approximately 108,000 shares of Class A Common Stock in exchange for a $1.6 million note receivable from our President and Chief Executive Officer. The note is payable on the earlier of December 2004 or the date he is no longer our President and Chief Executive Officer. Upon the event of a change in control of our ownership, the note will be forgiven. Interest accrues at the federal midterm rate on the date of the note and is payable quarterly. The note is reflected as a reduction of shareholders’ equity.

      In July 2002, we acquired 51 percent of the outstanding shares of Detron LCC Network Services B.V. (“Detron”), a newly formed corporation in the Netherlands. We acquired the shares from Westminster Capital B.V. (“Westminster”). Detron has certain ongoing transactions with Westminster. Under a five-year lease agreement for office space, Detron recorded approximately $17,000 and $36,000 of rent expense for the quarters ended March 31, 2003 and 2004, respectively. During the first quarter of 2003 and 2004, Detron seconded various idle employees to Detron Telematics, Westminster’s wholly-owned subsidiary and recorded revenue of approximately $0.1 million and $46,000, respectively.

(6) Restructuring Charge

      In 2002, we adopted a restructuring plan and recorded restructuring charges of $13.5 million. The cost of the severance and associated expenses was approximately $1.0 million and resulted in a work force reduction of approximately 140 people. In addition, we had excess facility costs relative to the space occupied by the employees affected by the reduction in force, space previously occupied by divested operations, and reduced business use of office space resulting from a continued trend for clients to provide professional staff office space for our employees while performing their services. The charge for the excess office space was approximately $12.5 million, which included $1.5 million in written-off leasehold improvements and other assets related to the excess space. The facility charge equals the existing lease obligation less the anticipated rental receipts to be received from existing and potential subleases. This charge required significant judgments about the length of time that space will remain vacant, anticipated cost escalators and operating costs associated with the leases, market rate of the subleased space, and broker fees or other costs necessary to market the space. As of March 31, 2004, the restructuring charge calculation assumes we will receive $11.1 million in sublease income, of which $6.8 million is committed.

      During the first quarter of 2003, we reversed excess severance payable of approximately $0.2 million. During the third quarter of 2003, we reoccupied a portion of our office space in McLean, Virginia and reversed $0.4 million of the payable and recorded an increase in the restructuring payable of $0.5 million related to an estimated increase in the time period expected to sublease space in our London office.

8

Table of Contents

      A reconciliation of the restructuring activities is as follows:

      At December 31, 2003 and March 31, 2004, the restructuring payable was classified as follows:

(7) Investments

      We held 1,666,666 shares of Class B Common Stock of NextWave Telecom, Inc. (“NextWave Telecom”) which is the parent corporation of NextWave Personal Communications Inc. We acquired the shares of NextWave Telecom in May 1996 for a purchase price of $5.0 million in connection with a series of transactions entered into between NextWave Telecom and us under an agreement dated March 12, 1996 (the “March Agreement”). We also acquired warrants to purchase an additional 123,356 shares of Class B Common Stock of NextWave Telecom at $3.00 per share. Under the March Agreement, NextWave Telecom agreed to use us to provide not less than (a) $14.0 million of radio frequency engineering services and (b) $35.0 million of system deployment services. These services were to be provided in increments of twenty-percent (20%) each year during the five-year period following the execution of the March Agreement. NextWave Telecom filed for bankruptcy protection on December 23, 1998. The March Agreement has not been assumed or rejected by NextWave Telecom in the bankruptcy proceeding. We did not carry any assets or liabilities on our books relating to our equity investment in NextWave, any pre-petition debts due us, or the March Agreement; these balances were written off in previous years.

      The total amount of pre-petition debt owed to us by NextWave Telecom and certain of its subsidiaries (collectively, “NextWave”) was approximately $14.3 million, plus post-petition interest thereon. This amount included our interest, amounting to approximately $0.7 million plus post-petition interest thereon, in a general unsecured claim against NextWave that was acquired by us in connection with our acquisition of Koll Telecommunications LLC in 1997 (the “Koll Claim”). We have engaged in discussions to sell our interest in the Koll Claim.

9

Table of Contents

      In September 2001, we sold all of our 1,666,666 shares of Class B common stock and pre-petition debt claims (excluding a 92.5% interest in pre-petition interest that may be payable with respect to the claims, the “Pre-Petition Interest Amount”) against NextWave Telecom resulting in a gain of $21.4 million, which equaled the proceeds from the sale. The September 2001 sale of current pre-petition debt excluded (a) the Koll Claim, (b) any claims resulting from the assumption or rejection of the March Agreement, and (c) the Pre-Petition Interest Amount. In February 2003, we sold our interest in the Pre-Petition Interest Amount for $1.0 million in cash, which was paid in March 2003 and recorded in other income in the accompanying condensed consolidated statement of operations.

      On August 4, 2003 we, through our wholly owned subsidiary LCC China Services, L.L.C., closed an investment in a newly created entity based in China, Beijing LCC Bright Oceans Communication Consulting Co. Ltd. (“LCC/ BOCO”). We contributed approximately $1.1 million for a 49.0% share of LCC/ BOCO’s registered capital. Bright Oceans Inter-Telecom Corporation, a Chinese publicly traded network management and systems integrator (“BOCO”), contributed approximately $1.1 million to hold the remaining 51.0% of LCC/ BOCO’s registered capital. Our capital contribution was paid in three equal installments of approximately $357,000 each and the first installment was made on the date of closing. The second installment was made in October 2003 and the third installment was made in January 2004. LCC/ BOCO offers design, deployment and maintenance services to wireless carriers in China. We account for the investment in LCC/ BOCO using the equity method of accounting. We recorded an equity loss of $0.1 million to reflect our proportionate share of LCC/ BOCO’s losses through March 31, 2004.

(8) Line of Credit

      In 2003, Detron established a line of credit with NMB-Heller N.V. (“NMB”). The line of credit provides that NMB will provide credit to Detron in the form of advance payments collateralized by Detron’s outstanding receivables. The agreement provides for NMB to advance up to 75% of the receivable balance. There is no maximum on the amount of receivables Detron can assign to NMB. Detron must repay the advances from NMB within 90 days or upon customer payment whichever occurs first. Interest on the advance payments will be calculated at a rate equal to NMB’s overdraft base rate plus 2% subject to a minimum of 5.75% per year. The agreement has an initial term of two years and can be extended. As of December 31, 2003, Detron had $1.8 million outstanding under the credit facility compared to $1.5 million as of March 31, 2004.

(9) Commitments and Contingencies

      We are party to various non-material legal proceedings and claims incidental to our business. Management does not believe that these matters will have a material adverse affect on our consolidated results of operations or financial condition.

(10) Segment reporting

      SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information established standards for reporting information about the operating segments in interim and annual financial reports issued to stockholders. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and assess performance. Our chief operating decision-making group is the Operating Committee, which comprises the Chief Executive Officer, our Senior Vice Presidents and our General Counsel.

      Our operating segments are defined geographically by region, namely the Americas region and the EMEA region. Both regions provide design and deployment services, operations and maintenance services and technical consulting services.

10

Table of Contents

      Segment detail is summarized as follows (in thousands):

      A reconciliation of totals reported for the operating segments to the applicable line items in the consolidated financial statements is as follows (in thousands):

11

Table of Contents

      This quarterly report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Exchange Act of 1934. The Management’s Discussion and Analysis of Financial Condition and Results of Operations includes, without limitation, forward-looking statements regarding our ability to pursue and secure new business opportunities. A more complete discussion of business risks is included in our Annual Report on Form 10-K for the year ended December 31, 2003.

Overview

      We provide integrated end-to-end solutions for wireless voice and data communications networks with offerings ranging from high level technical consulting, to system design and turnkey deployment, to ongoing management and optimization services. We have been successful on occasion in using initial opportunities to provide high level technical consulting services to secure later-stage system design and deployment contracts. Long-term engagements to provide design and deployment services also enable us to secure ongoing management and operations projects. Providing ongoing operations and maintenance services also positions us well for additional opportunities as new technologies continue to be developed and wireless service providers must either upgrade their existing networks or deploy new networks utilizing the latest available technologies.

      We provide these services through a regional organization, which comprises two principal regions and several smaller divisions. Our primary operating segments are Americas and EMEA (Europe, Middle East and Africa).

      Our business is characterized by a limited number of projects awarded by a limited number of customers. This can lead to volatility in our results as projects initially ramp up and then wind down. As projects are completed, we are faced with the task of replacing project revenues with new projects, either from the same customer or from new customers. In addition, the wireless industry is composed of a relatively small number of wireless service providers and equipment vendors, and this inevitably leads to issues of customer concentration. Consequently, our business may be affected in any single market by the changing priorities of a small group of customers.

      Our primary sources of revenues are from engineering design and system deployment services. Revenues from services are derived both from fixed price and time and materials contracts. We recognize revenues from fixed price service contracts using the percentage-of-completion method. With fixed price contracts, we recognize revenues based on the ratio of individual contract costs incurred to date on a project compared with total estimated costs. Anticipated contract losses are recognized as they become known and estimable. We recognize revenues on time and materials contracts as the services are performed.

12

Table of Contents

      Cost of revenues includes direct compensation and benefits, living and travel expenses, payments to third-party subcontractors and consultants, equipment rentals, expendable computer software and equipment, and allocated, or directly attributed, facility and overhead costs identifiable to projects.

      General and administrative expenses consist of compensation, benefits, office and occupancy, and other costs required for the finance, human resources, information systems, and executive office functions. Sales and marketing expenses consist of salaries, benefits, sales commissions, travel and other related expenses required to implement our marketing, sales and customer support plans.

      We generate cash from fixed price contracts by billings associated with contract milestones, which are typically agreed with our customers at the time the contracts are negotiated. For our time and materials contracts, we usually bill our customers on a monthly basis as services are performed. On large network deployment contracts, which involve the design and construction of complex wireless networks, it is increasingly common for our customers to require fewer contract milestones than in previous years. This results in extending the periods during which we are obliged to fund our operating costs until a milestone can be billed to the customer. This increases the capital that we require to operate the business, and is evidenced by increases in unbilled receivables on our balance sheet. This is an integral part of our business and we are constantly striving to manage our working capital requirements. We expect to experience increasing demands for working capital in the future as we grow our revenues.

      Another critical statistic that we monitor is our contract backlog, which at March 31, 2004, comprised firm backlog of $121 million and implied backlog of $9 million. We expect that our contract backlog will vary from time to time as we deliver contract revenues and win new awards. However, our current implementation plans call for the delivery of significant network deployment revenues over the course of 2004, so it is reasonable to expect that our backlog will decline overall as this year progresses.

      Since 1999, we have engaged in a number of business dispositions, acquisitions and investments, some of which have either generated significant cash proceeds or created significant requirements for cash and these transactions significantly affect the year-to-year comparability of our financial statements. For example, in 1999 we disposed of our hardware and software products business for cash proceeds of about $22 million; in 2000, we sold our tower business for cash proceeds of about $72 million; and in 2001, we sold certain of our interests in NextWave Telecom, Inc. or NextWave for cash proceeds of about $21 million. Later in that year and during 2002, we acquired operations in our EMEA region, which required cash of approximately $10 million. In 2003 we sold further interests in NextWave for another $1 million and we initiated our investment in the joint venture in China, which required a total cash commitment of about $1 million. We expect to continue to consider business dispositions, acquisitions and investments as a way of supporting our longer-term strategies.

Trends That Have Affected or May Affect Results of Operations and Financial Condition

      The major trends that have affected or may affect our business are as follows:

	•	project related revenues derived from a limited set of customers in each market where we do business;
	•	the difficulties that our customers often face in obtaining financing to fund the development, expansion and upgrade of their networks;
	•	the acceleration or the delay associated with the introduction of new technologies and services by our customers;
	•	the management and the services composition of our fixed price contracts; and
	•	increased spending by wireless service providers in the areas of network design, deployment and optimization.

      Our business is characterized by a limited number of projects awarded by a limited number of customers. This can lead to volatility in our results as projects initially ramp up and then wind down. As projects are completed, we are faced with the task of replacing project revenues with new projects, either from the same

13

Table of Contents

      Some of our customers have faced difficulty in obtaining the necessary financing to fund the development, expansion and upgrade of their networks. The slowdown in the world economies since 2000 and the volatility in the financial markets have made it increasingly difficult for our customers to predict both future demand for their services and future levels of capital expenditure. This has resulted in the delay or postponement of the development of new networks and expansion and the upgrade of existing networks, all of which have had and may continue to have a negative impact on our business.

      We tend to benefit from projects undertaken by our customers to introduce new technologies and services in their networks and we tend to suffer when projects are delayed. Revenues from 3G networks constituted approximately 34% and 49% of our total revenues for the three months ended March 31, 2003 and 2004, respectively, and it is expected to continue to be an area of business growth in the future. We have experienced an increase in the percentage of fixed price contracts awarded by our customers, and we expect this trend to continue. A recent trend is for the award of fixed price contracts to cover the design and deployment of a certain geographic network area on a full turnkey basis, including planning, engineering design, site acquisition, construction and deployment services. In the three months ended March 31, 2004, approximately 32% of our revenues were generated by work done by subcontractors, principally for construction related activities, and approximately 68% of our revenues were generated by work that we perform through our own workforce, compared to 17% and 83% for the same period in the previous year. To the extent that these large turnkey projects include a relatively large proportion of construction related activities, we expect that the composition of our revenues by delivery method will vary so as to decrease the proportion of services that we perform ourselves through our own workforce and increase the services that we deliver through third parties, typically subcontractors for construction. A consequence of this change in mix may be to reduce our average gross margins because subcontracted work generally commands lower margins.

      We believe our Americas region may benefit from increased spending by certain United States wireless service providers. This increased spending can be attributed to several trends: (i) the preparation for number portability which was implemented in November 2003; (ii) license swaps as a result of wireless service providers trying to maximize spectrum utilization and increase coverage; (iii) network quality enhancement programs to reduce churn; (iv) network expansion and capacity programs geared toward enabling new and enhanced services; and (v) other miscellaneous network upgrades and enhancements required for market share maintenance and competitive reasons.

      We have also observed an increase in spending on wireless networks in developing countries. For example, in early 2003, we commenced two new projects in Algeria, building upon the presence that we established in that country in 2001. In March 2004, we were selected by the Saudi Telecommunication Company (“STC”) to provide approximately $27 million worth of engineering consulting services for the expansion of STC’s GSM network in Saudi Arabia over 12 months, with the possibility of renewal for an additional year at STC’s discretion. The recent increase in worldwide terrorism may affect our business in developing countries. For example, the U.S. State Department has recently issued security advisories for U.S. Nationals in Saudi Arabia and certain other countries in the Middle East. While we tend to staff these projects largely with local or regional personnel, we do recognize that undertaking work in such areas at this time carries a higher level of operating and political risk than in other more developed areas.

14

Table of Contents

Three Months Ended March 31, 2004

Results of Operations

      The discussion below provides information which management believes is relevant to an assessment and understanding of our consolidated results of operations and financial condition. The discussion should be read in conjunction with the consolidated financial statements and accompanying notes thereto included elsewhere herein.

Revenues, Cost of Revenues and Gross Margins

Americas

      Our activities in the region in the first quarter of 2003 were at a relatively low level, reflecting the continued depressed state of the wireless infrastructure market. Network deployment projects were scarce and represented only $2.0 million of the revenue for the quarter, while RF/wireless design business represented about $4.0 million of revenue. Cost of revenues and gross margins were affected by contract losses on a major program and by delays in the start of certain other programs.

      In the first quarter of 2004, we had already completed significant portions of the implementation plans associated with the large network deployment programs that we won in the second and third quarters of 2003, while our RF/wireless design services exhibited strong growth. Network deployment represented about $17.1 million of revenue in 2004, an increasing percentage of which included construction activities, which we subcontracted to third parties. RF/wireless design services represented about $9.9 million in 2004. Revenues and cost of revenues included $0.3 million and $0.8 million, respectively, for a new service offering undertaken in the quarter and now curtailed. In addition, cost of revenues and gross margins were affected by costs of $0.4 million, which represented labor, recruiting and overhead expenses for RF engineers hired in the quarter in contemplation of specific future customer needs.

15

Table of Contents

EMEA

      In the first quarter of 2003, our operations in EMEA largely reflected the businesses that we had acquired in late 2001 and 2002, and subsequently developed during the second half of 2002. In the Netherlands, we began to execute a major network support outsourcing program that we were awarded in late 2002, while we also experienced reduced volumes in network deployment following a change in strategy of one of our major customers. In addition, we began work on a technical consultancy contract in Algeria. Gross margins for the quarter were 18.4%, impacted by the lower than expected network deployment activities in the Netherlands.

      In 2004, our total revenues of $17.2 million for the region represented a larger portfolio of activities, including our projects in Algeria and our recently awarded technical consulting contract in Saudi Arabia. During the quarter we expensed approximately $0.2 million of start up costs associated with our contract in Saudi Arabia; we may experience additional start up costs in the second quarter as we continue to mobilize our work force in country.

Asia and other

      Asia and other generated revenues of $0.5 million in the first quarter of 2003, and approximately $0.8 million in 2004. In 2003, these revenues were generated by our operations in Asia and our Wireless Institute. In 2004, we experienced reduced volumes in Asia but strong increases in our Wireline activities, an initiative which we began in the second half of 2003. We expect our Wireline business to continue to grow in 2004.

Operating Expenses

      In 2003, bad debt recoveries of $0.7 million were mostly attributable to the recovery of amounts previously provided in 2002 for a fixed price contract in Algeria.

      The increase in general and administrative expenses from $5.5 million in the first quarter of 2003 to $6.2 million in 2004 is largely attributable to severance costs in EMEA of approximately $0.3 million, and an additional $0.4 million due to initiation of activities in Germany and to an increase in personnel and occupancy expense, neither of which are anticipated to continue in the second quarter.

16

Table of Contents

Other Income and Expense

      Gain on investments in 2003 related to the cash received on the sale of Pre-Petition bankruptcy interest in NextWave Telecom (see note 7 to the consolidated financial statements).

Tax Benefit or (Expense)

      The benefit for income taxes was recorded for the three months ended March 31, 2004 using an effective income tax rate of 5.5% for the quarter, compared to 37.5% for the first quarter of 2003. The decrease in the annual effective income tax rate in 2004 is the result of the increase in unbenefited foreign losses relative to the total results from worldwide operations.

Net Income or (Loss)

      In the first quarter of 2003, revenues of $17.1 million generated operating losses of $4.8 million. We sold our pre-petition bankruptcy interest in NextWave and recorded a gain on sale of investments for $1.0 million, resulting in a loss before taxes of $3.4 million. We recorded a tax benefit of $1.3 million, equivalent to an effective tax rate of 37.5%, resulting in a reported net loss of $2.2 million.

      In the first quarter of 2004, revenues of $45.0 million generated operating losses of $1.8 million. We reported a loss before taxes of $1.6 million and we recorded a tax benefit of $0.1 million, equivalent to an effective tax rate of 5.5%, resulting in a reported net loss of $1.6 million.

Liquidity and Capital Resources

      The following discussion relates to our sources and uses of cash and cash requirements during the three months ended March 31, 2003 and 2004.