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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 2002
Commission File Number: 000-28217
AIRNET COMMUNICATIONS CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Delaware 59-3218138
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
3950 Dow Road, Melbourne, Florida 32934
(Address of Principal Executive Offices) (Zip Code)
(321) 953-6600
(Registrant's Telephone Number, Including Area Code)
Indicate by check [X] 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT JUNE 30, 2002
Common stock, par value $.001: 23,828,921
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AIRNET COMMUNICATIONS CORPORATION
INDEX
Page No.
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Condensed Balance Sheets (Unaudited).......................... 3
Condensed Statements of Operations (Unaudited)................ 4
Condensed Statements of Cash Flows (Unaudited)................ 5
Notes to Condensed Financial Statements (Unaudited)........... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 10
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings............................................. 14
Item 4. Submission of Matters to a Vote of Security Holders........... 14
Item 5. Other Information............................................. 15
Item 6. Exhibits and Reports on Form 8-K.............................. 15
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
AIRNET COMMUNICATIONS CORPORATION
CONDENSED BALANCE SHEETS
(In Thousands)
Unaudited
June 30, 2002 Dec. 31, 2001
------------- -------------
ASSETS
Cash and cash equivalents $ 8,390 $ 4,702
Accounts receivable -- net of allowance for doubtful accounts of
$4.1 million and $3.4 million at June 30, 2002 and Dec. 31,
2001, respectively 3,869 5,796
Inventories 16,538 21,871
Notes receivable -- 775
Other 1,388 1,880
------- -------
TOTAL CURRENT ASSETS 30,185 35,024
Property and equipment, net 9,405 11,498
Long-term notes receivable, less current portion (net of
allowance for doubtful accounts of $0.3 million and $1.4
million at June 30, 2002 and Dec. 31, 2001, respectively) 1,398 1,216
Other long-term assets 2,184 2,137
------- -------
TOTAL ASSETS $43,172 $49,875
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 4,012 $ 5,224
Accrued payroll and other expenses 3,387 2,817
Current portion of capital lease obligations 134 367
Customer deposits 4,295 548
Deferred revenues 1,481 2,637
------- -------
TOTAL CURRENT LIABILITIES 13,309 11,593
------- -------
LONG-TERM LIABILITIES
Long-term accounts payable 1,633 2,022
Dividends payable -- series B redeemable convertible preferred
stock 2,700 1,500
Capital lease obligations less current portion 69 48
------- -------
TOTAL LONG-TERM LIABILITIES 4,402 3,570
------- -------
TOTAL LIABILITIES 17,711 15,163
Redeemable convertible preferred stock (liquidation value of
$60,000,000 plus accrued dividends) 17,282 16,344
TOTAL STOCKHOLDERS' EQUITY 8,179 18,368
------- -------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $43,172 $49,875
======= =======
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
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AIRNET COMMUNICATIONS CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Unaudited
Three months ended June 30, Six months ended June 30,
2002 2001 2002 2001
------------ ------------ ------------ ------------
NET REVENUES $ 7,210 $ 1,886 $ 13,720 $ 8,280
COST OF REVENUES 5,419 4,212 9,983 10,476
WRITE-DOWN OF OBSOLETE AND EXCESS INVENTORY -- 7,012 -- 6,836
------------ ------------ ------------ ------------
Gross profit (loss) 1,791 (9,338) 3,737 (9,032)
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Research and development 3,210 9,663 6,642 18,319
Sales and marketing 1,450 4,653 2,962 8,826
General and administrative 1,308 4,150 2,588 6,322
------------ ------------ ------------ ------------
Total costs and expenses 5,968 18,466 12,192 33,467
------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (4,177) (27,804) (8,455) (42,499)
TOTAL OTHER INCOME 66 231 194 591
------------ ------------ ------------ ------------
LOSS BEFORE EXTRAORDINARY GAIN (4,111) (27,573) (8,261) (41,908)
EXTRAORDINARY GAIN ON VENDOR SETTLEMENTS 30 -- 30 --
------------ ------------ ------------ ------------
NET LOSS (4,081) (27,573) (8,231) (41,908)
ACCRETION OF DISCOUNT -- REDEEMABLE PREFERRED STOCK (483) (199) (939) (199)
PREFERRED DIVIDENDS (600) (300) (1,200) (300)
------------ ------------ ------------ ------------
NET LOSS ATTRIBUTABLE TO COMMON STOCK $ (5,164) $ (28,072) $ (10,370) $ (42,407)
============ ============ ============ ============
NET LOSS PER SHARE ATTRIBUTABLE TO
COMMON SHAREHOLDERS -- Basic and diluted $ (0.22) $ (1.18) $ (0.44) $ (1.78)
============ ============ ============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING -- Basic and diluted 23,810,068 23,786,968 23,800,014 23,779,794
============ ============ ============ ============
LOSS PER SHARE -- BASIC AND DILUTED:
Loss before extraordinary gain $ (0.17) $ (1.16) $ (0.35) $ (1.76)
Extraordinary gain on vendor settlements -- -- -- --
------------ ------------ ------------ ------------
Net loss $ (0.17) $ (1.16) $ (0.35) $ (1.76)
============ ============ ============ ============
Loss attributable to common stock $ (0.22) $ (1.18) $ (0.44) $ (1.78)
============ ============ ============ ============
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
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AIRNET COMMUNICATIONS CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
UNAUDITED
Six months ended June 30,
2002 2001
------- --------
OPERATING ACTIVITIES:
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ 3,850 $(32,930)
------- --------
INVESTING ACTIVITIES:
Cash paid for acquisition of capital assets (27) (3,977)
Proceeds from the disposal of fixed assets -- 28
Payment on note receivable -- 258
------- --------
NET CASH USED BY INVESTING ACTIVITIES (27) (3,691)
------- --------
FINANCING ACTIVITIES:
Net proceeds from issuance of preferred and common stocks 42 29,603
Notes receivable issued to officers 35 (1,217)
Principal payments on capital lease obligations (212) (769)
------- --------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (135) 27,617
------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,688 (9,004)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 4,702 28,867
------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 8,390 $ 19,863
======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION --
Cash paid during the period for interest $ 5 $ 35
======= ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES --
Property and equipment acquired under capital lease obligations $ -- $ 717
======= ========
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
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AIRNET COMMUNICATIONS CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(FOR THE SIX MONTHS ENDED JUNE 30, 2002)
(Unaudited)
1) BASIS OF PRESENTATION AND NEW ACCOUNTING PRONOUNCEMENT
The accompanying condensed financial statements are unaudited, but in the
opinion of management, reflect all adjustments (consisting only of normal
recurring adjustments) necessary to fairly state the Company's financial
position, results of operations, and cash flows as of and for the dates and
periods presented. The financial statements of the Company are prepared in
accordance with accounting principles generally accepted in the United States of
America for interim financial information.
These unaudited condensed financial statements should be read in conjunction
with the Company's audited financial statements and footnotes included in the
Company's Form 10-K filed for the year ended December 31, 2001. The results of
operations for the three-month and six-month periods ended June 30, 2002 are not
necessarily indicative of the results that may be expected for the entire year
ending December 31, 2002 or for any future period.
NEW ACCOUNTING PRONOUNCEMENTS -- In June 2001, the Financial Accounting
Standards Board (FASB) issued two new pronouncements: Statement of Financial
Accounting Standards Statement No. 141, Business Combinations (Statement 141)
and Statement No. 142, Goodwill and Other Intangible Assets, (Statement 142).
Statement 141 prohibits the use of the pooling-of-interests method for business
combinations initiated after June 30, 2001 and also applies to all business
combinations accounted for by the purchase method that are completed after June
30, 2001. Statement 142 is effective for fiscal years beginning after December
15, 2001 to all goodwill and other intangible assets recognized in an entity's
statement of financial position at that date, regardless of when those assets
were initially recognized. The adoption of Statements 141 and 142 did not have
any impact on the Company.
In August 2001, the FASB issued Statement No. 144, Accounting for the Impairment
of or Disposal of Long-Lived Assets (Statement 144). Statement 144 establishes a
single accounting model for all long-lived assets, including business segments,
to be disposed of. Under Statement 144, discontinued operations are no longer
measured at net realizable value but at fair value. Future operating losses are
no longer included as part of discontinued operations. Statement 144 is
effective for fiscal years beginning after December 15, 2001. The Company
adopted Statement 144 effective January 1, 2002. The adoption of Statement 144
did not have any impact on the Company.
On April 30, 2002, the FASB issued Statement No. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections (Statement 145) which updates, clarifies and simplifies existing
accounting pronouncements. The rescission of FASB Statement No. 4 eliminates the
requirement to report gains and losses resulting from the early extinguishments
of debt as extraordinary items. Statement 145 is effective for all transactions
occurring after May 15, 2002, with earlier application encouraged. The Company
has adopted this Statement to be effective during the quarter ended June 30,
2002. The adoption of this Statement did not have any impact on the Company.
2) LIQUIDITY AND GOING CONCERN CONSIDERATIONS
The accompanying condensed financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business; and, as a consequence the
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts and
classifications of liabilities that might be necessary should the Company be
unable to continue as a going concern. The Company experienced net operating
losses since inception and as of June 30, 2002 had an accumulated deficit of
$216.9 million. It is probable that cash flow from operations will be negative
for the remainder of 2002 as the Company continues to experience net losses from
operations. At June 30, 2002, the Company's principal source of liquidity was
$8.4 million of cash and cash equivalents. Such conditions raise substantial
doubt that the Company will be able to continue as a going concern for a
reasonable period of time without receiving additional funding. As of July 25,
2002 the Company's cash balance was $5.7 million and the Company had a revenue
backlog of $5.2 million at that date. The Company's current 2002 operating plan
projects that cash available from planned revenue combined with the $8.4 million
on hand at June 30, 2002 will be adequate to defer the requirement for
additional funding until the first half of 2003. However, there is doubt
regarding the Company's ability to execute this operating plan because the
current backlog, without new orders, is not adequate to defer the requirement
for additional funding through 2002. In addition, the collection of outstanding
receivables is critical to this deferral of the requirement for additional
funds. Management's plans require that new orders from existing and new
customers be secured for delivery in the third and fourth quarters of 2002 and
that outstanding receivables are collected. The Company's ability to generate
revenue from existing backlog and new orders could be impacted by vendor lead
times for critical components. The plan is also dependent upon the collection of
revenues from one existing customer who accounts for approximately 50% of the
2002 projected revenue. As of June 30, 2002 this customer has released and
provided deposits and payments to us of $8.7 million for $10.5 million of
purchase orders for delivery during 2002. There can be no assurance that the
Company will be successful in accomplishing its operating plan as projected.
The Company's future results of operations involve a number of risks and
uncertainties. The worldwide market for telecommunications
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products such as those sold by the Company has seen dramatic reductions in
demand as compared to the late 1990's and 2000. It is uncertain as to when or
whether market conditions will improve. The Company has been negatively impacted
by such global demand reductions. Other factors that could affect the Company's
future operating results and cause actual results to vary from expectations
include, but are not limited to, ability to raise capital, dependence on key
personnel, dependence on a limited number of customers (with one customer
accounting for 65% of the revenue for the first half of the 2002), ability to
design new products, the ability to overcome deployment and installation
challenges in Afghanistan, product obsolescence, ability to generate consistent
sales, ability to finance research and development, government regulation,
technological innovations and acceptance, competition, reliance on certain
vendors, and credit risks. The Company's ultimate ability to continue as a going
concern for a reasonable period of time will depend on its increasing its
revenues and/or reducing its expenses and securing enough additional funding to
enable it to reach profitability. The Company's historical sales results and its
current backlog do not give the Company sufficient visibility or predictability
to indicate that the required higher sales levels might be achieved. The Company
believes additional funding will be required prior to reaching profitability and
several alternatives are possible, including private placement financing. The
Company currently is seeking a new financial advisor; however no assurances can
be made that either a transaction or additional equity or debt financing will be
arranged on terms acceptable to the Company, if at all.
If near term sales objectives are not met, the Company may have to further
reduce its expenses and secure additional funding to maintain cash levels
necessary to sustain its operations through 2002. It is unlikely that the
Company will achieve profitable operations in the near term and therefore it is
likely that the Company's operations will consume cash in the foreseeable
future. The Company has limited cash resources and therefore the Company must
maintain neutral or minimally negative cash flows in the near term to continue
operating or it must secure additional funding. There can be no assurances that
the Company will succeed in achieving its goals, and its failure to do so in the
near term will have a material adverse effect on its business, prospects,
financial condition and operating results and the Company's ability to continue
as a going concern. As a consequence, the Company may be forced to seek
protection under the bankruptcy laws. In that event, it is unclear whether the
Company could successfully reorganize its capital structure and operations, or
whether the Company could realize sufficient value for its assets to satisfy
fully its debts or its liquidation preference obligations to its preferred
stockholders. Accordingly, should the Company file for bankruptcy, there is no
assurance that any value would be received by the Company's stockholders.
3) REVENUE RECOGNITION
Revenue from product sales is recognized after delivery, after determination
that the fee is fixed and determinable and collectability is probable, and after
resolution of any uncertainties regarding satisfaction of all significant terms
and conditions of the customer contract. While a customer has the right to
reject and return a product, none of the Company's contracts contain a
contractual right of refund. If a product is rejected, the Company's sole
contractual obligation is to repair or replace the product. Customer acceptance
is a two-step process; conditional acceptance and final acceptance. Contractual
payments are due when each of these milestones has been reached. Although the
Company has never failed to achieve acceptance, such a failure would not entitle
the customer to a refund but rather the Company, in such an event, would be
obliged to diligently resolve the conditions preventing acceptance.
Revenue is recognized for Original Equipment Manufacturer (OEM) product sales
when title to the product passes to the OEM customer. Typically, for these
product sales, title passes to the customer at the point of shipment.
4) ACCOUNTS AND NOTES RECEIVABLE
Accounts and notes receivable have decreased from $7.8 million (net of allowance
for doubtful accounts and notes receivable of $4.8 million) at December 31, 2001
to $5.3 million (net of allowance for doubtful accounts and notes receivable of
$4.4 million) at June 30, 2002. At June 30, 2002, $1.7 million of the amount due
is subject to collateralized note arrangements. All notes issued through June
2002 bear market rates of interest.
At June 30, 2002, one customer with open accounts receivable represents 45% of
the net carrying amount of accounts receivable, and a second customer represents
22%, a significant concentration of credit risk. This second customer, whose net
balance of $0.9 million is in past due status, presents a credit risk although
it is currently making periodic payments to be applied to the open receivable.
The customer's ability to pay its balance in full is uncertain. The Company
considered the status of these accounts in evaluating the allowance for doubtful
accounts for its portfolio of open accounts as of June 30, 2002 discussed in the
following paragraph.
The allowance for doubtful accounts receivable of $4.1 million at June 30, 2002
is considered adequate by management, based on current knowledge of customer
status and market conditions, to absorb estimated losses in the accounts
receivable portfolio. The allowance for notes receivable of $0.3 million at June
30, 2002 is considered adequate by management, based on current knowledge of
customer status and payment history, to absorb estimated losses in the notes
receivable portfolio.
One customer made a good faith payment of $0.4 million pending final acceptance
of a network element by December 31, 2002. If final acceptance of that network
element is not received by that date, the Company has agreed to return the
payment and reinvoice the customer once final acceptance is achieved.
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The chart below (in $ millions) details the change in the Allowance for Doubtful
Accounts from December 31, 2001 to June 30, 2002:
Accounts Notes
Receivable Receivable
---------- ----------
Beginning Balance $3.4 $1.4
Increase to allowance 0.9
Recoveries (0.9)
Chargeoffs (0.2) (0.2)
---- ----
Ending Balance $4.1 $0.3
==== ====
The allowances are reduced when a customer, which was previously deemed a
collection risk makes payments to the Company eliminating the need for the
allowance. If the financial condition of a customer deteriorated during the
quarter resulting in an impairment of their ability to make payments, additional
allowances are added.
5) INVENTORIES
Inventories consist of the following (in 000's):
Jun. 30, 2002 Dec. 31, 2001
------------- -------------
Raw Materials $12,777 $15,248
Work in Process 1,430 1,258
Finished Goods 715 2,029
Finished Goods Delivered to Customers 1,616 3,336
------- -------
$16,538 $21,871
======= =======
The amount above represents inventories net of a chargeoff of obsolete and
excess inventory of $10.3 million as of June 30, 2002, which is unchanged from
December 31, 2001. The chargeoff includes an amount for raw materials inventory
that has not moved within the past six months. The Company's practice is to
write down its inventory, which has not moved during the past six months by 50%.
Approximately $1.7 million of excess inventory, which has not moved in the past
six months is still carried as inventory. If this inventory remains idle for
twelve months, the Company's practice is to write down the remaining 50%.
6) OTHER LONG-TERM ASSETS
Other long-term assets include $2.0 million at June 30, 2002 and December 31,
2001, respectively for licensing and software development costs. These costs are
for externally developed software which is accounted for under Statement of
Financial Standards No. 86, Accounting for the Costs of Computer Software to be
Sold, Leased, or Otherwise Marketed. Currently the Company capitalizes the costs
associated with externally developed software products. Initial costs are
charged to operations as research prior to a detailed program design or a
working model. The costs incurred subsequent to the product's release are
charged to operations. Once the product is marketed, or released for sale to
customers the costs of this capitalized software development are amortized over
the life of the product. This amortization is charged to operations. Should the
product be abandoned, the remaining balance will be written off at that time.
7) BASIC AND DILUTED NET LOSS PER SHARE
Basic and diluted net loss per share is calculated in accordance with Statements
of Financial Accounting Standards No. 128, Earnings Per Share. The denominator
used in the computation of basic and diluted net loss per share is the weighted
average number of common shares outstanding for the respective period. All
potentially dilutive securities were excluded from the calculation of diluted
net loss per share, as the effect would be anti-dilutive.
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The computation of loss per share is as follows (in 000's except share and per
share data):
THREE MONTHS ENDED SIX MONTHS ENDED
JUN. 30, 2002 JUN. 30, 2001 JUN. 30, 2002 JUN. 30, 2001
------------- ------------- ------------- -------------
Net loss attributable to common stockholders $ (5,164) $ (28,072) $ (10,370) $ (42,407)
Weighted average common shares outstanding 23,810,068 23,786,968 23,800,014 23,779,794
Net loss per share attributable to common
stockholders, basic and diluted $ (0.22) $ (1.18) $ (0.44) $ (1.78)
Potentially dilutive securities consist of the following:
Options to purchase common stock 828,585 117,998 686,719 410,860
Convertible preferred stock 9,554,140 4,777,070 9,554,140 2,388,535
Warrants to purchase common stock -- 8,832 -- 499,523
------------ ------------ ------------ ------------
Total 10,382,725 4,903,900 10,240,859 3,298,918
============ ============ ============ ============
8) NOTES RECEIVABLE DUE FROM FORMER OFFICER
On November 9, 2000, the Company loaned a former officer of the Company
$112,660, payable in full on November 9, 2005 at 6.01% interest, payable
semiannually. The loan was made to reimburse the officer for an amount paid by
him to exercise an option to purchase 113,274 shares of the Company's common
stock in February 2000 and is accordingly classified in stockholders' equity.
The note is collateralized by the underlying value of the stock and the Company
has full recourse against the officer in the event of a default. The unpaid
principal amount of the note, which is classified as a deduction from
stockholders' equity together with all accrued and unpaid interest and any other
sums owing under the note, are payable on November 9, 2005, the fifth
anniversary of the date of the note. Interest was payable on November 9, 2001
and semi-annually thereafter. As of December 31, 2001 this note was in default
and therefore the payment of principal and interest is currently due in full. A
portion of the collateral stock was sold in the first quarter of 2002 and the
proceeds of $41,503, including interest income of $6,534, were transmitted to
the Company on April 15, 2002. The Company intends to vigorously pursue
collection of the remaining balance due on the note.
9) CONTINGENCIES
On October 23, 2000, the Company filed a complaint against Lucent Technologies,
Inc. et al. in the Circuit Court for the 18th Judicial Circuit in Brevard
County, Florida, alleging, among other claims, tortious interference with a
business relationship and misappropriation of trade secrets in connection with
the purported cancellation of certain phase II purchase orders by Carolina PCS.
In May 2002, the court dismissed this action without prejudice.
On August 14, 2001, the Company's vendor MC Test Service, Inc. d/b/a MC Assembly
and Test filed an action against the Company in the Circuit Court for the 18th
Judicial Circuit in Brevard County, Florida alleging, among other things, breach
of contract and seeking damages in the amount of $1,300,000. The Company filed
an answer raising affirmative defenses and a counterclaim seeking damages from
MC Assembly and Test in excess of $5,000,000. The Company believes MC Assembly
and Test shipped defective products, which caused damage from settlement of its
accounts receivable and resulted in lost business opportunities. In June 2002,
the Company and MC Assembly and Test entered into a settlement agreement. The
terms of the settlement agreement call for performance by both parties,
including the purchase of products and the satisfaction of accounts payable
during the third quarter of 2002. The settlement agreement is not expected to
have a material or adverse impact on operations or results from operations.
The Company, the members of the underwriting syndicate involved in the Company's
initial public offering and two of its former officers have been named as
defendants in a class action lawsuit filed on November 16, 2001 in the United
States District Court for the Southern District of New York. The action, number
21 MC 92 (SAS), alleges that the defendants violated federal securities laws and
seeks unspecified monetary damages and certification of a plaintiff class
consisting of all persons and entities who purchased, converted, exchanged or
otherwise acquired shares of the Company's common stock between December 6, 1999
and December 6, 2000, inclusive. Specifically, the complaint charges the
defendants with violations of Sections 11 and 15 of the Securities Act of 1933
and Section 10(b) of the Securities Exchange Act of 1934. In substance, the
allegations are that the underwriters of the Company's initial public offering
charged commissions in excess of those disclosed in the initial public offering
materials and that these actions were not properly disclosed. The Company does
not know whether the claims of misconduct by the underwriters have merit but at
this time it believes the claims against the Company are without merit and
intends to defend this matter when appropriate. Under the terms of the
Underwriting Agreement, the Company has claims against the underwriters of the
initial public offering for indemnification and reimbursement of all of the
costs and any damages incurred in connection with this lawsuit and the Company
intends to pursue those claims vigorously. On July 15, 2002 the Issuers'
Committee filed a Motion to Dismiss on behalf of all issuers and individual
defendants.
In addition to the items listed above the Company is also involved in various
claims and litigation matters arising in the ordinary course of business. With
respect to these matters, it is believed that the Company has adequate legal
defenses such that the ultimate outcome will not have a material adverse effect
on the Company's future financial position or results of operations.
10) VENDOR SETTLEMENT PROGRAM
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During the quarter ended June 30, 2002, the Company entered into an agreement
with a vendor to settle outstanding accounts payable totaling approximately
$230,900 at a discount from the recorded liability. The vendor agreed, in
exchange for the settlement, to release the Company from future liability
related to the settled balance.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
FORWARD-LOOKING STATEMENTS
This Form 10-Q includes forward-looking statements concerning pending legal
proceedings and other aspects of future operations. These forward-looking
statements are based on certain underlying assumptions and expectations of
management. Certain factors could cause actual results to differ materially from
the forward-looking statements included in this Form 10-Q. For additional
information on those factors that could affect actual results, please refer to
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2001, and Note 2, Notes to Condensed Financial Statements, "Liquidity and Going
Concern Considerations" in this Form 10-Q.
This discussion should be read in conjunction with the Notes to Condensed
Financial Statements contained in this report and Management's Discussion and
Analysis of Financial Condition and Results of Operations appearing in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2001. The results of operations for an interim period may not give a true
indication of results for the year. In the following discussion, all comparisons
are with the corresponding items in the prior year.
OVERVIEW
We provide base stations and other wireless telecommunications infrastructure
products designed to support the GSM, or Global Standard for Mobile
Communications, system of mobile voice and data transmission. We market our
products to operators of wireless networks. A base station is a key component of
a wireless network and is used to receive and transmit voice and data signals
over radio frequencies. Our products include the software defined AdaptaCell(R)
base station, meaning it uses software to control the way it encodes and decodes
voice and data wireless signals, and the AirSite(R) Backhaul Free(TM) base
station, meaning it carries voice and data signals back to the wireline network
without using a physical communications link. These products are continually
evolving.
From our inception in January 1994 through May 1997, our operations consisted
principally of start-up activity associated with the design, development, and
marketing of our products. As a result, we did not generate significant revenues
until 1998 and have generated net revenues of $88.9 million from inception
through the first six months of 2002. We have incurred substantial losses since
commencing operations, and as of June 30, 2002 had an accumulated deficit of
$216.9 million. We have not yet achieved profitability on a quarterly or annual
basis. Because we will need to continue to focus heavily on developing and
deploying our technology and products and organizing our sales and distribution
systems to support our anticipated growth in the future, we expect to continue
to incur net losses at least through the remainder of 2002. We will need to
generate significantly higher revenues than were achieved in 2001 in order to
support research and development, sales and marketing and general and
administrative expenses, and to achieve and maintain profitability.
Our revenues are derived from sales of a single product line based on the GSM
Protocol. We generate a substantial portion of our revenues from a limited
number of customers, with three customers accounting for 87% of net revenues
during the six months ended June 30, 2002 and one of these customers accounting
for 65% of net revenues during the six months ended June 30, 2002.
Due to our limited operating history and the unpredictability of our industry,
we may not be able to accurately forecast our net sales or rate of growth. We
base our current and future expense levels and our investment plans on estimates
of future net sales and rate of growth. Our expenses and investments are to a
large extent fixed. We may not be able to adjust our spending quickly if our
sales fall short of our expectations.
In addition, our current operating plan assumes that revenues will increase over
time. Any further softening of demand may result in decreases in revenue growth
or, potentially, an actual decrease in revenues.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the results of
operations expressed as a percentage of net revenues:
UNAUDITED
THREE MONTHS ENDED SIX MONTHS ENDED
JUN. 30, 2002 JUN. 30, 2001 JUN. 30, 2002 JUN. 30, 2001
Net revenues ........................ 100.0% 100.0% 100.0% 100.0%
Cost of revenues .................... 75.2 223.3 72.8 126.5
Write-down of Excess and Obsolete
Inventory.......................... 0.0 371.8 0.0 82.6
----- -------- ----- ------
Gross Profit ........................ 24.8 (495.1) 27.2 (109.1)
----- -------- ----- ------
Operating expenses:
Research and development ............ 44.5 512.3 48.4 221.2
Sales and marketing ................. 20.1 246.7 21.6 106.6
General and administrative .......... 18.1 220.1 18.9 76.4
----- -------- ----- ------
Total operating expenses ............ 82.7 979.1 88.9 404.2
----- -------- ----- ------
Loss from operations ................ (57.9) (1,474.2) (61.7) (513.3)
Other income (expense), net ......... 0.9 12.2 1.4 7.1
----- -------- ----- ------
Net loss before extraordinary gain... (57.0) (1,462.0) (60.3) (506.2)
Extraordinary gain on vendor
settlements........................ 0.4 0.0 0.2 0.0
----- -------- ----- ------
Net loss ............................ (56.6) (1,462.0) (60.1) (506.2)
Accretion of discount -- redeemable
preferred stock.................... (6.7) (10.6) (6.8) (2.4)
Preferred dividends ................. (8.3) (15.9) (8.7) (3.6)
----- -------- ----- ------
Net loss attributable to common stock.. (71.6) (1,488.5) (75.6) (512.2)
====== ======== ===== ======
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SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO SIX MONTHS ENDED JUNE 30, 2001
Net revenue: Net revenues for the six months ended June 30, 2002 increased $5.4
million or 65% to $13.7 million as compared to $8.3 million for the six months
ended June 30, 2001. The revenue in the first six months of 2002 was generated
from domestic customers, an African customer and TECORE Wireless Systems.
Approximately $1.5 million of the revenue in the first six months of 2002 is
associated with an accelerated payment on a customer note receivable for an
African GSM Network, while $8.9 million (65%) was generated by a single
customer.
Gross profit: Gross profits for the six months ended June 30, 2002 increased
$12.7 million to $3.7 million as compared to a loss of $9.0 million for the
six-month period ended June 30, 2001. The gross profit margins were 27.2% and a
loss of 109.1% for the six months ended June 30, 2002 and 2001, respectively.
The change in gross profit margin over the prior year is attributable to reduced
manufacturing labor and support costs and a $2.0 million reduction in warranty
expense. In addition, there was no write down of inventory during the first six
months of 2002, as all inventory requiring write downs has previously been made,
while the six-month period ended June 30, 2001 included a write down of $6.8
million.
Research and development: Research and development expenses for the six months
ended June 30, 2002 decreased $11.7 million or 64% to $6.6 million compared to
$18.3 million for the six-month period ended June 30, 2001. This decrease was
due to previously announced actions taken in the second and third quarters of
2001 to reduce operating expenses which included actions to focus development in
the areas with the greatest near-term potential. The $11.7 million dollar
decrease included a $5.1 million reduction in labor and benefit costs, a $3.9
million reduction in consulting and subcontractor expenses, a $1.1 million
reduction in expensed R&D equipment, and a $0.7 million reduction in travel and
recruiting expenses.
Sales and marketing: Sales and marketing expenses for the six months ended June
30, 2002 decreased $5.8 million or 66% to $3.0 million as compared to $8.8
million for the six months ended June 30, 2001. This decrease was due to
previously announced actions taken in the second and third quarters of 2001 to
reduce operating expenses. The $5.8 million reduction included a $1.7 million
reduction in labor and benefit costs, a $1.5 million reduction in consulting and
subcontractor expenses, a $1.2 million reduction in travel expenses and $0.5
million reduction in trade show expenses.
General and administrative: General and administrative expenses for the six
months ended June 30, 2002 decreased $3.7 million or 59% to $2.6 million as
compared to $6.3 million for the six months ended June 30, 2001. The $3.7
million reduction in expenses was primarily attributable to a $2.3 million
reduction in the provision for doubtful accounts and a $1.1 million reduction in
outside legal services.
THREE MONTHS ENDED JUNE 30, 2002 COMPARED TO THREE MONTHS ENDED JUNE 30, 2001
Net revenue: Net revenues for the three months ended June 30, 2002 increased
$5.3 million or 279% to $7.2 million as compared to $1.9 million for the three
months ended June 30, 2001. The revenue in the second quarter of 2002 was
generated from domestic customers and TECORE Wireless Systems. Approximately
$5.2 million or 72% was generated by a single customer.
Gross profit: Gross profits for the three months ended June 30, 2002 increased
$11.1 million to $1.8 million as compared to a loss of $9.3
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million for the three-month period ended June 30, 2001. The gross profit margins
were 24.8% and a loss of 495.1% for the three months ended June 30, 2002 and
2001, respectively. The increase in gross profit of $11.1 million was due to a
decrease in standard variance costs of $1.1 million, and a decrease in warranty
expense of $1.1 million offset by an increase in material costs of $4.0 million
due to the 279% increase in revenue. In addition, there was no write down of
inventory during the three months ended June 30, 2002, as all required write
downs have been taken previously, while the three-month period ended June 30,
2001 included a write down of $7.0 million.
Research and development: Research and development expenses for the three months
ended June 30, 2002 decreased $6.5 million or 67% to $3.2 million as compared to
$9.7 million for the three months ended June 30, 2001. This decrease was due to
previously announced actions taken in the second and third quarters of 2001 to
reduce operating expenses and to limit discretionary spending, which included
actions to focus development in the areas with the greatest near-term potential.
The $6.5 million decrease included a reduction in labor and benefit costs of
$2.8 million, a reduction in travel and recruiting costs of $0.4 million, a
reduction in consulting and subcontractor expenses of $2.1 million, and a
reduction in expensed R&D equipment of $0.6 million.
Sales and marketing: Sales and marketing expenses for the three months ended
June 30, 2002 decreased $3.2 million or 68% to $1.5 million as compared to $4.7
million for the three months ended June 30, 2001. This decrease was due to
previously announced actions taken in the second and third quarters of 2001 to
reduce operating expenses. The decrease in sales and marketing expenses of $3.2
million included a reduction in labor and the related benefit expenses of $1.0
million, a reduction in travel expenses of $0.9 million, and a reduction in
consulting and subcontractor expenses of $0.8 million.
General and administrative: General and administrative expenses for the three
months ended June 30, 2002 decreased $2.9 million or 69% to $1.3 million as
compared to $4.2 million for the three months ended June 30, 2001. The $2.9
million decrease was primarily a result of a $2.0 million reduction in the
provision for doubtful accounts and a reduction in outside services of $0.8
million.
LIQUIDITY AND CAPITAL RESOURCES
The accompanying condensed financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business; and, as a consequence the
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts and
classifications of liabilities that might be necessary should we be unable to
continue as a going concern. We have experienced net operating losses since
inception and as of June 30, 2002 had an accumulated deficit of $216.9 million.
It is probable that cash flow from operations will be negative for the remainder
of 2002 as we continue to experience net losses from operations. At June 30,
2002, our principal source of liquidity was $8.4 million of cash and cash
equivalents. Such conditions raise substantial doubt that we will be able to
continue as a going concern for a reasonable period of time without receiving
additional funding. As of July 25, 2002 our cash balance was $5.7 million and we
had a revenue backlog of $5.2 million at that date. Our current 2002 operating
plan projects that cash available from planned revenue combined with the $8.4
million on hand at June 30, 2002 will be adequate to defer the requirement for
additional funding until the first half of 2003. However, there is doubt
regarding the our ability to execute this operating plan because the current
backlog, without new orders, is not adequate to defer the requirement for
additional funding through 2002. In addition, the collection of outstanding
receivables is critical to this deferral of the requirement for additional
funds. Management's plans require that new orders from existing and new
customers be secured for delivery in the third and fourth quarters of 2002 and
that outstanding receivables are collected. Our ability to generate revenue from
existing backlog and new orders could be impacted by vendor lead times for
critical components. The plan is also dependent upon the collection of revenues
from one existing customer who accounts for approximately 50% of the 2002
projected revenue. As of June 30, 2002 this customer has released and provided
deposits and payments to us of $8.7 million for $10.5 million of purchase orders
for delivery during 2002. There can be no assurance that we will be successful
in accomplishing our operating plan as projected.
Our future results of operations involve a number of risks and uncertainties.
The worldwide market for telecommunications products such as those sold by us
has seen dramatic reductions in demand as compared to the late 1990's and 2000.
It is uncertain as to when or whether market conditions will improve. We have
been negatively impacted by such global demand reductions. Other factors that
could affect our future operating results and cause actual results to vary from
expectations include, but are not limited to, ability to raise capital,
dependence on key personnel, dependence on a limited number of customers (with
one customer accounting for 65% of the revenue for the first half of the 2002),
ability to design new products, our ability to overcome deployment and
installation challenges in Afghanistan, product obsolescence, ability to
generate consistent sales, ability to finance research and development,
government regulation, technological innovations and acceptance, competition,
reliance on certain vendors and credit risks. Our ultimate ability to continue
as a going concern for a reasonable period of time will depend on our increasing
our revenues and/or reducing our expenses and securing enough additional funding
to enable us to reach profitability. Our historical sales results and our
current backlog do not give us sufficient visibility or predictability to
indicate that the required higher sales levels might be achieved. We believe
additional funding will be required prior to reaching profitability and several
alternatives are possible, including private placement financing. We currently
are seeking a new financial advisor; however no assurances can be made that
either a transaction or additional equity or debt financing will be arranged on
terms acceptable to us, if at all.
If near term sales objectives are not met, we may have to further reduce our
expenses and secure additional funding to maintain cash levels necessary to
sustain our operations through 2002. It is unlikely that we will achieve
profitable operations in the near term and therefore it is likely that our
operations will consume cash in the foreseeable future. We have limited cash
resources and therefore we must maintain neutral
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or minimally negative cash flows in the near term to continue operating or we
must secure additional funding. There can be no assurances that we will succeed
in achieving our goals, and failure to do so in the near term will have a
material adverse effect on our business, prospects, financial condition and
operating results and our ability to continue as a going concern. As a
consequence, we may be forced to seek protection under the bankruptcy laws. In
that event, it is unclear whether we could successfully reorganize our capital
structure and operations, or whether we could realize sufficient value for our
assets to satisfy fully our debts or the liquidation preference obligations to
our preferred stockholders. Accordingly, should we file for bankruptcy, there is
no assurance that any value would be received by our stockholders.
Net cash provided by operating activities for the six months ended June 30, 2002
was $3.9 million compared to net cash used in operating activities of $32.9
million for the six months ended June 30, 2001. The cash provided through
customer deposits and a reduction in both inventory and receivables was
partially offset by the net losses incurred during the reported period. We were
able to reduce our inventory balance through fulfillment of customer orders with
existing inventory. Except for sales to OEMs or to customers under agreements
providing for acceptance concurrent with shipment, our customers are billed as
contractual milestones are met. Deposits ranging from 10 - 50 % of the
contracted amount typically are received at the inception of the contract and an
additional percentage of the contracted amount is generally billed upon
shipment. Most of the remaining unbilled amounts are invoiced after a customer
has placed the products in service, completed specified acceptance testing
procedures or has otherwise accepted the product. Collection of the entire
amount due under our contracts to date have lagged behind shipment of our
products due to the time period between shipment and fulfillment of all of our
applicable post-shipment contractual obligations, the time at which we bill the
remaining balance of the contracted amount. This lag requires investments in
working capital as our revenues increase. As of June 30, 2002, our net accounts
receivable balance was $3.9 million. Of this balance 67% is attributable to two
customers, and receivables from one of these customers accounted for
approximately 45% of the total amount outstanding; however this account is
current. While a customer has the right to reject and return a product, none of
our contracts contain a contractual right of refund. If a product is rejected
our sole contractual obligation is to repair or replace the product. Customer
acceptance is a two-step process; conditional acceptance and final acceptance.
Contractual payments are due when each of these milestones has been reached.
Although we have never failed to achieve acceptance, such a failure would not
entitle the customer to a refund but rather we, in such an event, would be
obliged to diligently resolve the conditions preventing acceptance.
Our positive cash flow for the first six months of 2002 was the result of
several factors. These included a reduction in expenses, the collection of
outstanding receivables, an increase in customer deposits, and our ability to
leverage existing inventory into customer order fulfillment and revenue. As we
enter the next six months we must purchase new inventory and our ability to
fulfill customer orders with existing inventory has diminished. In addition, we
expect the level of customer deposits to decrease. We expect these
factors to reduce the amount of cash available to fund our operations in the
third and fourth quarters of 2002, adversely affecting our cash position.
Net cash used by investing activities (capital expenditures) for the six months
ended June 30, 2002 was $27,000 compared to net cash used for capital
expenditures for the six months ended June 30, 2001 of $4.0 million. The level
of capital expenditures has been greatly reduced, as the physical assets
available are adequate to meet our needs at this time. We anticipate an increase
in our capital expenditures for testing and manufacturing equipment used during
final assembly of our products as our revenues increase.
Net cash used in financing activities was $0.1 million for the six months ended
June 30, 2002 compared to net cash provided in financing activities of $27.6
million for the six months ended June 30, 2001. The difference was primarily due
to the issuance 9,554,140 shares of Convertible Series B Preferred stock for an
aggregate purchase price of $30 million completed in May 2001.
On May 31, 2002 we were notified by the SEC that it had performed what we
believe was a routine review of our Annual Report on Form 10-K for the year
ended December 31, 2001 and requested clarification or explanation on some
items. On June 28, 2002, we provided the requested clarification and explanation
without amending or restating our previous filings.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
We continually evaluate the accounting policies and estimates that we use to
prepare our financial statements. In general, management's estimates are based
on historical experience, on information from third party professionals and on
various other assumptions that are believed to be reasonable under the facts and
circumstances. Actual results could differ from those estimates made by
management.
Revenue Recognition -- Revenue from product sales is recognized after delivery
and determination that the fee is fixed and determinable, collectibilty is
probable, and after the resolution of uncertainties regarding satisfaction of
significant terms and conditions of the customer contract. Revenue for sales to
OEM's is recognized when title to the product passes to the OEM customer.
Typically, for these product sales, title passes to the customer at the point of
shipment.
Allowance for Doubtful Accounts -- We maintain allowances for doubtful accounts
for estimated losses resulting from the inability of our customers to make
required payments. If the financial condition of our customers were to
deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required. The allowance is reduced when a customer
which previously was deemed a collection risk makes payments to the Company
eliminating the need for the allowance.
14 of 21
Accounting for Inventory and Reserves Required - We write down or reserve for
our inventory for estimated obsolescence or unmarketable inventory equal to the
difference between the cost of inventory and the estimated market value based on
assumptions about future demand and market conditions. If actual market
conditions are less favorable than those projected by management, additional
inventory write-offs may be required beyond the reserve that was previously
taken.
RISK FACTORS
All companies listed on the Nasdaq national market are required to have net
tangible assets of $4 million and a minimum bid price of at least $1 (or a price
of $5 with no net tangible asset requirement). If a stock fails to trade at that
level for thirty consecutive business days, Nasdaq will notify the company of
its deficiency in writing. The company has ninety days to cure the deficiency
and get its stock back in compliance for at least ten days (but possibly longer
at the discretion of the Nasdaq). During the month of July, our stock has
periodically traded below the minimum $1 price requirement. As of the release
date of this report, we are in full compliance with the Nasdaq's listing
requirement for the minimum bid price as it has not traded below a $1 bid price
for thirty consecutive days but there is no assurance that the stock price will
continue to meet this requirement.
In light of the current market conditions for wireless communications, we
believe that an investment in our stock is highly speculative and volatile, and
subject to numerous risks which have been previously described in our filings
with the SEC. Any investment in our common stock should only be made with
discretionary capital, all of which an investor can afford to lose.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On October 23, 2000, we filed a complaint against Lucent Technologies, Inc. et
al. in the Circuit Court for the 18th Judicial Circuit in Brevard County,
Florida, alleging, among other claims, tortious interference with a business
relationship and misappropriation of trade secrets in connection with the
purported cancellation of certain phase II purchase orders by Carolina PCS. In
May 2002, the court dismissed this action without prejudice.
On August 14, 2001, our vendor MC Test Service, Inc. d/b/a MC Assembly and Test
filed an action against us in the Circuit Court for the 18th Judicial Circuit in
Brevard County, Florida alleging, among other things, breach of contract and
seeking damages in the amount of $1,300,000. We filed an answer raising
affirmative defenses and a counterclaim seeking damages from MC Assembly and
Test in excess of $5,000,000. We believe MC Assembly and Test shipped defective
products, which caused damage from settlement of its accounts receivable and
resulted in lost business opportunities. In June 2002, the Company and MC
Assembly and Test entered into a settlement agreement. The terms of the
settlement agreement call for performance by both parties, including the
purchase of products and the satisfaction of accounts payable during the third
quarter of 2002. The settlement agreement is not expected to have a material or
adverse impact on operations or results from operations.
The Company, the members of the underwriting syndicate involved in our initial
public offering and two of our former officers have been named as defendants in
a class action lawsuit filed on November 16, 2001 in the United States District
Court for the Southern District of New York. The action, number 21 MC 92 (SAS),
alleges that the defendants violated federal securities laws and seeks
unspecified monetary damages and certification of a plaintiff class consisting
of all persons and entities who purchased, converted, exchanged or otherwise
acquired shares of our common stock between December 6, 1999 and December 6,
2000, inclusive. Specifically, the complaint charges the defendants with
violations of Sections 11 and 15 of the Securities Act of 1933 and Section 10(b)
of the Securities Exchange Act of 1934. In substance, the allegations are that
the underwriters of our initial public offering charged commissions in excess of
those disclosed in the initial public offering materials and that these actions
were not properly disclosed. We do not know whether the claims of misconduct by
the underwriters have merit but at this time we believe the claims against us
are without merit and intend to defend this matter when appropriate. Under the
terms of our Underwriting Agreement, we have claims against the underwriters of
the initial public offering for indemnification and reimbursement of all of the
costs and any damages incurred in connection with this lawsuit and we intend to
pursue those claims vigorously. On July 15, 2002 the Issuers' Committee filed a
Motion to Dismiss on behalf of all issuers and individual defendants.
In addition to the items listed above we are also involved in various claims and
litigation matters arising in the ordinary course of business. With respect to
these matters, we believe that we have adequate legal defenses such that the
ultimate outcome will not have a material adverse effect on our future financial
position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
(a) The 2002 Annual Meeting of our stockholders (the "Meeting") was held on June
7, 2002. Of the 23,809,197 shares of common stock outstanding on the record date
of April 24, 2002, a total of 16,346,875 shares were represented in person or by
proxy.
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(b) The following directors were elected effective June 7, 2002:
Votes Cast
For Withheld
--- --------
James W. Brown 16,164,328 182,547
George M. Calhoun 16,170,765 176,110
The terms of office of Messrs. Glenn A. Ehley and Darrell Lance Maynard and Ms.
Susannah Tam, who were serving as directors of the Company prior to the Meeting,
continued after the Meeting.
(c) The vote to ratify the selection of Deloitte & Touche LLP as the Company's
independent auditors for 2002 was 16,201,989 for, 134,117 against, and 10,769
abstaining.
ITEM 5. OTHER INFORMATION
COMPENSATION OF DIRECTORS. We have changed our policy relating to the grant of
nonqualified stock options to non-employee directors. Because the options may be
granted after commencement of new terms, these director options may have an
exercise price equal to the fair market value of our Common Stock as of the
commencement of the director's three-year term, with vesting in 36 equal monthly
installments beginning as of the commencement of the director's three-year term.
AUDIT COMMITTEE. On May 17, 2002 the Board of Directors designated Susannah Tam
to replace James W. Brown to serve along with Darrell Lance Maynard and George
M. Calhoun as members of the Audit Committee.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
3.1 (4) Seventh Amended and Restated Certificate of Incorporation.
3.2 (1) Second Amended and Restated Bylaws.
3.3 (2) Amendment to Second Amended and Restated Bylaws.
3.4 (5) Certificate of Designation of Series A Junior Participating
Preferred Stock.
3.5 (5) Certificate of Designation of Series B Convertible Preferred
Stock.
4.1 (1) Specimen Certificate evidencing shares of Common Stock.
4.2 (1) Second Amended and Restated Shareholders' and Registration Rights
Agreement dated as of April 16, 1997.
4.3 (1) First Amendment to Second Amended and Restated Shareholders' and
Registration Rights Agreement dated as of September 20, 1999.
4.4 (1) Second Amended and Restated Agreement Among Series E, Series F
and Series G Second Amended and Restated Preferred Stockholders
and Senior Registration Rights Agreement dated as of September 7,
1999.
4.5 (1) First Amendment to Second Amended and Restated Agreement
Among
16 of 21
Series E, Series F and Series G Preferred Stockholders and Senior
Registration Rights Agreement dated as of September 20, 1999.
4.6 (6) Rights Agreement dated January 9, 2001 between AirNet
Communications Corporation and Continental Stock Transfer & Trust
Company.
4.7 (6) Certificate of Designation of Series A Junior Participating
Preferred Stock of AirNet Communications Corporation.
10.1 (1) AirNet Communications Corporation 1999 Equity Incentive Plan.
10.2 (1) OEM and Patent License Option Agreement dated January 27, 1995
between Motorola, Inc. and AirNet Communications Corporation.
10.3 (3) Amendment to Incentive Stock Option Agreements dated February 11,
2000 between AirNet Communications Corporation and William J.
Lee.
10.4 (3) Amendment to Incentive Stock Option Agreements dated February 11,
2000 between AirNet Communications Corporation and Glenn A.
Ehley.
10.5 (3) Amendment to Incentive Stock Option Agreements dated February 11,
2000 between AirNet Communications Corporation and Timothy Mahar.
10.6 (3) Employment Agreement dated August 17, 2001 between AirNet
Communications Corporation and Glenn A. Ehley.
10.7 (5) First Amendment To 1999 Equity Incentive Plan of AirNet
Communications Corporation.
10.8 (7) Account Control Agreement among R. Lee Hamilton, Jr., Salomon
Smith Barney Inc. and AirNet Communications Corporation dated as
of October 2, 2000.
10.9 (7) Promissory Note dated November 9, 2000 in the amount of $112,600
made by R. Lee Hamilton, Jr. in favor of AirNet Communications
Corporation.
10.10 (7) Agreement to Loan Funds dated as of December 22, 2000 by and
between AirNet Communications Corporation and R. Lee Hamilton,
Jr.
10.11 (7) Agreement to Loan Funds dated as of December 22, 2000 by and
between AirNet Communications Corporation and Glenn Ehley.
10.12 (7) Non-Recourse Promissory Note dated March 14, 2001 in the amount
of $995,133 made by R. Lee Hamilton, Jr. in favor of AirNet
Communications Corporation.
10.13 (7) Non-Recourse Promissory Note dated March 16, 2001 in the amount
of $221,997 made by Glenn Ehley in favor of AirNet Communications
Corporation.
10.14 (7) Account Control Agreement among Glenn Ehley, Salomon Smith Barney
Inc. and AirNet Communications Corporation.
10.15 (8) Security Agreement dated as of November 15, 2001 between AirNet
17 of 21
Communications Corporation and Force Computers, Inc., Sanmina
Corporation and Brooktrout, Inc.
10.16 Form of Indemnity Agreement between AirNEt Communications
Corporation and each of its directors and officers.
10.17 Employment, Severance, and Bonus Agreement dated August 13, 2002
between AirNet Communications Corporation and Glenn A. Ehley.
10.18 Amended and Restated Management and Employee Acquisition Bonus
Program effective August 12, 2002.
(1) Incorporated by reference to Registration Statement No. 333-87693 on Form
S-1 as filed with the Securities and Exchange Commission on September 24, 1999,
as amended.
(2) Incorporated by reference to Annual Report on Form 10-K as filed with the
Securities and Exchange Commission on March 29, 2000.
(3) Incorporated by reference to Quarterly Report on Form 10-Q as filed with the
Securities and Exchange Commission on May 15, 2000.
(4) Incorporated by reference to Quarterly Report on Form 10-Q as filed with the
Securities and Exchange Commission on August 14, 2000.
(5) Incorporated by reference to Quarterly Report on Form 10-Q as filed with the
Securities and Exchange Commission on August 14, 2001.
(6) Incorporated by reference to Exhibit 4.1 of the Company's Current Report on
Form 8-K filed with the Securities and Exchange Commission on January 17, 2001.
(7) Incorporated by reference to the Annual Report on Form 10-K as filed with
the Securities and Exchange Commission on April 3, 2001.
(8) Incorporated by reference to the Annual Report on Form 10-K as filed with
the Securities and Exchange Commission on April 1, 2002.
(b) Reports on Form 8-K:
The Company filed a Current Report on Form 8-K with the Securities and Exchange
Commission on April 25, 2002 reporting one event under Item 5, Other Events, and
filing one exhibit under Item 7, Exhibits.
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.
Dated: August 14, 2002
/s/ Glenn A. Ehley
-----------------------------------------------------
Glenn A. Ehley, President and Chief Executive Officer
(Principal Executive Officer)
/s/ Joseph F. Gerrity
-----------------------------------------------------
Joseph F. Gerrity, Chief Financial Officer
(Principal Financial and Principal Accounting Officer)
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AIRNET COMMUNICATIONS CORPORATION
INDEX TO EXHIBITS
EXHIBIT NO.
3.1 (4) Seventh Amended and Restated Certificate of Incorporation.
3.2 (1) Second Amended and Restated Bylaws.
3.3 (2) Amendment to Second Amended and Restated Bylaws.
3.4 (5) Certificate of Designation of Series A Junior Participating Preferred
Stock.
3.5 (5) Certificate of Designation of Series B Convertible Preferred Stock.
4.1 (1) Specimen Certificate evidencing shares of Common Stock.
4.2 (1) Second Amended and Restated Shareholders' and Registration Rights
Agreement dated as of April 16, 1997.
4.3 (1) First Amendment to Second Amended and Restated Shareholders' and
Registration Rights Agreement dated as of September 20, 1999.
4.4 (1) Second Amended and Restated Agreement Among Series E, Series F and
Series G Second Amended and Restated Preferred Stockholders and Senior
Registration Rights Agreement dated as of September 7, 1999.
4.5 (1) First Amendment to Second Amended and Restated Agreement Among Series
E, Series F and Series G Preferred Stockholders and Senior
Registration Rights Agreement dated as of September 20, 1999.
4.6 (6) Rights Agreement dated January 9, 2001 between AirNet Communications
Corporation and Continental Stock Transfer & Trust Company.
4.7 (6) Certificate of Designation of Series A Junior Participating Preferred
Stock of AirNet Communications Corporation.
10.1 (1) AirNet Communications Corporation 1999 Equity Incentive Plan.
10.2 (1) OEM and Patent License Option Agreement dated January 27, 1995 between
Motorola, Inc. and AirNet Communications Corporation.
10.3 (3) Amendment to Incentive Stock Option Agreements dated February 11, 2000
between AirNet Communications Corporation and William J. Lee.
10.4 (3) Amendment to Incentive Stock Option Agreements dated February 11, 2000
between AirNet Communications Corporation and Glenn A. Ehley.
10.5 (3) Amendment to Incentive Stock Option Agreements dated February 11, 2000
between AirNet Communications Corporation and Timothy Mahar.
10.6 (3) Employment Agreement dated August 17, 2001 between AirNet
Communications Corporation and Glenn A. Ehley.
10.7 (5) First Amendment To 1999 Equity Incentive Plan of AirNet Communications
19 of 21
Corporation.
10.8 (7) Account Control Agreement among R. Lee Hamilton, Jr., Salomon Smith
Barney Inc. and AirNet Communications Corporation dated as of October
2, 2000.
10.9 (7) Promissory Note dated November 9, 2000 in the amount of $112,600
made by R. Lee Hamilton, Jr. in favor of AirNet Communications
Corporation.
10.10 (7) Agreement to Loan Funds dated as of December 22, 2000 by and between
AirNet Communications Corporation and R. Lee Hamilton, Jr.
10.11 (7) Agreement to Loan Funds dated as of December 22, 2000 by and between
AirNet Communications Corporation and Glenn Ehley.
10.12 (7) Non-Recourse Promissory Note dated March 14, 2001 in the amount of
$995,133 made by R. Lee Hamilton, Jr. in favor of AirNet
Communications Corporation.
10.13 (7) Non-Recourse Promissory Note dated March 16, 2001 in the amount of
$221,997 made by Glenn Ehley in favor of AirNet Communications
Corporation.
10.14 (7) Account Control Agreement among Glenn Ehley, Salomon Smith Barney Inc.
and AirNet Communications Corporation.
10.15 (8) Security Agreement dated as of November 15, 2001 between AirNet
Communications Corporation and Force Computers, Inc., Sanmina
Corporation and Brooktrout, Inc.
10.16 Form of Indemnity Agreement between AirNet Communications Corporation
and each of its directors and officers.
10.17 Employment, Severance, and Bonus Agreement dated August 13, 2002
between AirNet Communications Corporation and Glenn A. Ehley.
10.18 Amended and Restated Management and Employee Acquisition Bonus
Program effective August 12, 2002.
(1) Incorporated by reference to Registration Statement No. 333-87693 on Form
S-1 as filed with the Securities and Exchange Commission on September 24, 1999,
as amended.
(2) Incorporated by reference to Annual Report on Form 10-K as filed with the
Securities and Exchange Commission on March 29, 2000.
(3) Incorporated by reference to Quarterly Report on Form 10-Q as filed with the
Securities and Exchange Commission on May 15, 2000.
(4) Incorporated by reference to Quarterly Report on Form 10-Q as filed with the
Securities and Exchange Commission on August 14, 2000.
(5) Incorporated by reference to Quarterly Report on Form 10-Q as filed with the
Securities and Exchange Commission on August 14, 2001.
(6) Incorporated by reference to Exhibit 4.1 of the Company's Current Report on
Form 8-K filed with the Securities and Exchange Commission on January 17, 2001.
(7) Incorporated by reference to the Annual Report on Form 10-K as filed with
the Securities and Exchange Commission on April 3, 2001.
(8) Incorporated by reference to the Annual Report on Form 10-K as filed with
the Securities and Exchange Commission on April 1, 2002.