SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2004.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to _______.
Commission File Number: 0-25356
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P-Com, Inc.
(Exact name of Registrant as specified in its charter)
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Delaware 77-0289371
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
3175 S. Winchester Boulevard, Campbell, California 95008
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (408) 866-3666
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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 the Exchange Act Rule 12b-2. YES [ ] NO [X]
As of May 12, 2004 there were 268,382,190 shares of the Registrant's Common
Stock outstanding, par value $0.0001 per share. Effective March 10, 2003, the
Registrant's Common Stock was delisted from the NASDAQ Small Cap Market and
commenced trading electronically on the OTC Bulletin Board of the National
Association of Securities Dealers, Inc.
This quarterly report on Form 10-Q consists of 34 pages of which this is page 1.
The Exhibit Index appears on page 35.
P-COM, INC.
TABLE OF CONTENTS
Page
PART I. Financial Information Number
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Item 1 Condensed Consolidated Financial Statements (unaudited)
Condensed Consolidated Balance Sheets as of March 31, 2004
and December 31, 2003................................................................. 3
Condensed Consolidated Statements of Operations for the three
months ended March 31, 2004 and 2003 ................................................ 4
Condensed Consolidated Statements of Cash Flows for the three
months ended March 31, 2004 and 2003 ................................................ 5
Notes to Condensed Consolidated Financial Statements ................................ 7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations ................................................. 17
Item 3 Quantitative and Qualitative Disclosure about Market Risk ............................ 31
Item 4 Controls and Procedures............................................................... 32
PART II. Other Information
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Item 1 Legal Proceedings ................................................................... 33
Item 2 Changes in Securities ............................................................... 33
Item 3 Defaults Upon Senior Securities ..................................................... 33
Item 6 Exhibits and Reports on Form 8-K .................................................... 33
Signatures ...................................................................................... 34
PART I - FINANCIAL INFORMATION
ITEM 1.
P-COM, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, unaudited)
March 31, December 31,
2004 2003
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Current assets:
Cash and cash equivalents $ 4,063 $ 6,185
Accounts receivable, net 6,059 4,801
Inventory 3,889 5,258
Prepaid expenses and other assets 2,982 2,216
Assets of discontinued operations - 40
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Total current assets 16,993 18,500
Property and equipment, net 3,405 3,807
Goodwill 11,968 11,981
Other assets 277 277
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Total assets $ 32,643 $ 34,565
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,188 $ 4,035
Other accrued liabilities 8,639 8,226
Loan payable to bank - 1
Deferred contract obligations 8,000 8,000
Liabilities of discontinued operations 298 313
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Total current liabilities 21,125 20,575
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Other long term liability - 6
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Total liabilities 21,125 20,581
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Series B Preferred Stock 1,413 1,361
Series C Preferred Stock 1,155 870
Series D Preferred Stock 2,000 2,000
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Total Preferred Stock 4,568 4,231
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Stockholders' equity:
Common stock 27 20
Additional paid-in capital 373,620 373,186
Accumulated deficit (366,330) (363,173)
Accumulated other comprehensive loss (293) (206)
Common stock held in treasury, at cost (74) (74)
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Total stockholders ' equity 6,950 9,753
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Total liabilities and stockholders' equity $ 32,643 $ 34,565
============ ============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
P-COM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, unaudited)
Three months ended
March 31,
2004 2003
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Sales $ 6,837 $ 4,617
Cost of sales 5,099 8,225
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Gross profit (loss) 1,738 (3,608)
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Operating expenses:
Research and development/engineering 1,257 1,919
Selling and marketing 1,451 935
General and administrative 1,183 1,635
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Total operating expenses 3,891 4,489
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Operating loss (2,153) (8,097)
Interest expense (75) (517)
Other income (expense), net (113) 98
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Loss from continuing operations (2,341) (8,516)
Loss from discontinued operations (40) (1,858)
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Net loss (2,381) (10,374)
Preferred stock accretions (776) -
---------- ----------
Net loss attributable to common stockholders (3,157) $ (10,374)
========== ==========
Basic and diluted loss per common share:
Loss from continuing operations (0.01) $ (0.23)
Loss from discontinued operations (0.00) (0.05)
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Basic and diluted loss per common share (0.01) $ (0.28)
========== ==========
Shares used in basic and diluted per share computation 244,607 36,538
========== ==========
The accompanying notes are an integral part of these condensed consolidated
finacial statements.
P-COM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)
Three months ended March 31,
2004 2003
Cash flows from operating activities:
Net loss $ (2,381) $ (10,374)
Adjustments to reconcile net loss to net cash
used in operating activities:
Loss from discontinued operations 40 -
Depreciation 421 1,470
Loss on disposal of property and equipment 7 -
Inventory valuation and related charges - 3,460
Asset impairment and other restructuring charges - 2,003
Amortization of warrants 69 -
Gain on vendor settlements (94) -
Changes in operating assets and liabilities:
Accounts receivable (1,241) 101
Inventory 1,336 639
Prepaid expenses and other assets (946) 24
Accounts payable 235 808
Other accrued liabilities 598 283
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Net cash used in operating activities (1,956) (1,586)
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Cash flows from investing activities:
Proceeds from sale of investment in Speedcom 100 -
Loan to Speedcom - (400)
Acquisition of property and equipment (63) -
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Net cash used in investing activities 37 (400)
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Cash flows from financing activities:
Proceeds from sale of common stock, net - 307
Proceeds (payments) on bank loan (1) 115
Proceeds from convertible promissory note, net - 1,368
Payments under capital lease obligations (201) (193)
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Net cash provided by (used in) financing activities (202) 1,597
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Effect of exchange rate changes on cash (1) 8
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Net increase (decrease) in cash and cash equivalents (2,122) (381)
Cash and cash equivalents at beginning of the period 6,185 1,614
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Cash and cash equivalents at end of the period $ 4,063 $ 1,233
========= ===========
The accompanying notes are an integral part of these consolidated financial
statements.
P-COM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
(in thousands, unaudited)
Three months ended March 31
2004 2003
Supplemental cash flow disclosures :
Cash paid for interest $ 20 $ 85
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Non-cash investing and financing activities :
Warrants issued in connection with convertible
promissory notes $ - $ 538
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Conversion of Series C Preferred
stock into Common stock $ 439 $ -
----- -----
P-COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not contain all of the information and
footnotes required by generally accepted accounting principles for complete
consolidated financial statements.
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements reflect all adjustments (consisting only of normal
recurring adjustments) considered necessary for a fair presentation of P-Com,
Inc.'s (referred to herein, together with its wholly-owned subsidiaries, as
"P-Com" or the "Company") financial condition as of March 31, 2004, and the
results of their operations and their cash flows for the three months ended
March 31, 2004 and 2003. These unaudited condensed consolidated financial
statements should be read in conjunction with the Company's audited 2003
consolidated financial statements, including the notes thereto, and the other
information set forth therein, included in the Company's Annual Report on Form
10-K for the year ended December 31, 2003. Operating results for the three-month
period ended March 31, 2004 are not necessarily indicative of the operating
results that may be expected for the year ending December 31, 2004.
Liquidity and Management's Plans
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business. As reflected in the financial statements, for the three-month
period ended March 31, 2004, the Company incurred a net loss of $2.4 million and
used $2.0 million cash in its operating activities. As of March 31, 2004, the
Company had stockholders' equity of $6.9 million, and accumulated deficit of
$366.3 million. Also as of March 31, 2004, the Company had approximately $4.1
million in cash and cash equivalents, and a working capital deficiency of
approximately $4.1 million. To address its working capital deficiency,
management is currently executing a plan that involves the elimination or
reduction of certain liabilities, the acquisition of additional working capital,
increasing revenue and revenue sources, reducing operating expenses and,
ultimately, achieving profitable operations. Management must be successful in
its plan in order to continue as a going concern.
Considering the uncertainty regarding P-Com's ability to materially increase
sales, P-Com's known and likely cash requirements in 2004 will likely exceed
available cash resources. As a result of this condition, management is currently
evaluating (i) the sale of certain non-productive assets; (ii) certain
opportunities to obtain additional debt or equity financing; and (iii) seeking a
strategic acquisition or other transaction that would substantially improve
P-Com's liquidity and capital resource position. P-Com may also be required to
borrow from its existing Credit Facility in order to satisfy its liquidity
requirements.
No assurances can be given that additional financing will continue to be
available to P-Com on acceptable terms, or at all. If the Company is
unsuccessful in its plans to (i) generate sufficient revenues from new and
existing products sales; (ii) diversify its customer base; (iii) decrease costs
of goods sold, and achieve higher operating margins; (iv) obtain additional debt
or equity financing; (v) refinance the obligation due Agilent of approximately
$1.7 million due December 1, 2004; (vi) negotiate agreements to settle
outstanding claims; or (vii) otherwise consummate a transaction that improves
its liquidity position, the Company will have insufficient capital to continue
its operations. Without sufficient capital to fund the Company's operations, the
Company will no longer be able to continue as a going concern. The financial
statements do not include any adjustments relating to the recoverability and
classification of recorded asset amounts or to amounts and classification of
liabilities that may be necessary if the Company is unable to continue as a
going concern.
2. NET LOSS PER SHARE
For purposes of computing basic and diluted net loss per common share for the
quarterly period ended March 31, 2004 and 2003, the weighted average common
share equivalents do not include stock options with an exercise price that
exceeds the average fair market of the Company's Common Stock for the period
because the effect would be anti-dilutive. Because losses were incurred in the
first quarter of 2004 and 2003, all options, warrants, and convertible notes are
excluded from the computations of diluted net loss per share because they are
anti-dilutive.
3. BORROWING ARRANGEMENTS
On September 25, 2003, the Company renewed its Credit Facility with Silicon
Valley Bank (the "Bank") until September 25, 2004. The Credit Facility consists
of a Loan and Security Agreement for a $1.0 million borrowing line based on
domestic receivables, and a Loan and Security Agreement under the Export-Import
("EXIM") program for a $3.0 million borrowing line based on export related
inventories and receivables. The Credit Facility provides for cash advances
equal to 70% of eligible accounts receivable balances for both the EXIM program
and domestic lines, and up to $750,000 for eligible inventories (limited to 25%
of eligible EXIM accounts receivable), under the EXIM program. Advances under
the Credit Facility bear interest at the Bank's prime rate plus 2.5% per annum.
The Credit Facility is secured by all receivables, deposit accounts, general
intangibles, investment properties, inventories, cash, property, plant and
equipment of the Company. The Company has also issued a $4.0 million secured
promissory note underlying the Credit Facility to the Bank. As of March 31, 2004
and December 31, 2003, no amounts were due to the Bank under the Credit
Facility.
The Company has an unsecured overdraft line with a bank in Italy, for borrowings
up to $83,000, based on domestic trade receivables. Borrowings under this line
bear interest at 4.5% per annum. As of March 31, 2004, no amounts were
outstanding under this line.
4. BALANCE SHEET COMPONENTS
Inventory
MARCH 31, DECEMBER 31,
2004 2003
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Raw materials $ 929 $ 3,219
Work-in-process 151 1,682
Finished goods 2,686 277
Inventory at customer sites 123 80
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$ 3,889 $ 5,258
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Inventory consists of the following (in thousands of dollars, unaudited):
Other Accrued Liabilities
Other accrued liabilities consist of the following (in thousands, unaudited):
March 31, December 31,
2004 2003
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Purchase commitment $ 1,239 $ 1,238
Accrued warranty (a, b) 957 1,110
Accrued employee compensation 1,250 1,092
Value added tax payable 306 129
Customer advances 617 468
Lease obligations 2,146 2,335
Accrued rent 472 497
Deferred revenue 298 243
Other 1,354 1,114
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$ 8,639 $ 8,226
=============== =================
a) A summary of product warranty reserve activity for the quarterly
period ended March 31, 2004 is as follows:
Balance at January 1, 2004 $ 1,110
Additions relating to products sold 102
Payments (255)
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Balance at March 31, 2004 $ 957
b) A summary of product warranty reserve activity for the quarterly
period ended March 31, 2003 is as follows:
Balance at January 1, 2003 $ 936
Additions relating to products sold 266
Payments (200)
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Balance at March 31, 2003 $ 1,002
Deferred Contract Obligations
In connection with a Joint Development and License Agreement ("JDL"), the
Company entered into an Original Equipment Manufacturer Agreement ("OEM") with a
vendor. Under the OEM, the Company agreed to pay the vendor $8.0 million for the
vendor's marketing efforts for Company products manufactured under the JDL. As
of March 31, 2004 and 2003, this $8.0 million payment obligation remains
outstanding because the vendor has not performed its marketing obligations. The
Company has written to contest the vendor's claim for $8.0 million and has
asserted additional claims against the vendor in the amount of $11,634,803,
exclusive of interest.
5. INDEMNIFICATIONS
Officer and Director Indemnifications
As permitted under Delaware law and to the maximum extent allowable under that
law, the Company has agreements whereby the Company indemnifies its current and
former officers and directors for certain events or occurrences while the
officer or director is, or was serving, at the Company's request in such
capacity. These indemnifications are valid as long as the director or officer
acted in good faith and in a manner that a reasonable person believed to be in
or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his or her
conduct was unlawful. The maximum potential amount of future payments the
Company could be required to make under these indemnification agreements is
unlimited; however, the Company has a director and officer insurance policy that
limits the Company's exposure and enables the Company to recover a portion of
any future amounts paid. As a result of the Company's insurance policy coverage,
the Company believes the estimated fair value of these indemnification
obligations is minimal.
Other Indemnifications
As is customary in the Company's industry, as provided for in local law in the
U.S. and other jurisdictions, many of the Company's standard contracts provide
remedies to its customers, such as defense, settlement, or payment of judgment
for intellectual property claims related to the use of our products. From time
to time, the Company indemnifies customers against combinations of loss,
expense, or liability arising from various trigger events related to the sale
and the use of our products and services. In addition, from time to time, the
Company also provides protection to customers against claims related to
undiscovered liabilities or additional product liability. In the Company's
experience, claims made under such indemnifications are rare and the associated
estimated fair value of the liability is not material.
6. STOCKHOLDERS' EQUITY
The authorized capital stock of P-Com was increased on December 2, 2003 to 700
million shares of Common Stock, $0.0001 par value (the "Common Stock"), and 2
million shares of Preferred Stock, $0.0001 par value (the "Preferred Stock"),
including 500,000 shares of which have been designated Series A Junior
Participating Preferred Stock (the "Series A") pursuant to the Stockholder
Rights Agreement (see discussion below), 1,000,000 shares as Series B
Convertible Preferred Stock (the "Series B Preferred Stock"), 10,000 shares as
Series C Convertible Preferred Stock (the "Series C Preferred Stock"), and 2,000
shares of its Preferred Stock as Series D Convertible Preferred Stock (the
"Series D Preferred Stock").
COMMON STOCK
In January 2003, the Company sold 2.1 million shares of Common Stock to an
existing stockholder at a per share price of $0.18, for aggregate net proceeds
of $307,000. The Company did not sell any shares of Common Stock in the quarter
ended March 31, 2004.
For the quarter ended March 31, 2004, 58,517,500 shares of Common Stock were
issued upon conversion of the Company's Series C Preferred Stock.
SERIES B CONVERTIBLE PREFERRED STOCK
On August 4, 2003, as a result of the restructuring of its Convertible Notes,
the principal amount and accrued interest of $21,138,000 was converted into
approximately 1,000,000 shares of Series B Convertible Preferred Stock with a
stated value of $21.138 per share. Each share of Series B Convertible Preferred
Stock converts into a number of shares of the Company's Common Stock equal to
the stated value divided by $0.20. As of December 31, 2003 and March 31, 2004,
there are approximately 108,406 shares of Series B Convertible Preferred Stock
outstanding. The following table reflects changes in Series B Preferred Stock
during the quarterly period ended March 31, 2004:
Shares Amount
(In thousands)
--------------------------------------------------
Balances as of December 31, 2003 108,406 $ 1,361
Preferred Stock accretions to accrete the carrying
value to the redemption value $ 52
--------------------------------------------------
Balances as of March 31, 2004 108,406 $ 1,413
==================================================
(a) The Company accretes its Series B Preferred Stock to redemption value
through periodic charges to retained earnings.
(b) The Series B Preferred Stock is classified as a mezzanine security,
outside of stockholders' equity in the accompanying balance sheet due
to the cash redemption provisions noted below. Under Statements of
Financial Accounting Standards No. 150, this security would have been
classified as equity.
(c) As of March 31, 2004, outstanding Series B Preferred Stock is
convertible into 11,457,487 shares of Common Stock.
If declared, the holders of the Series B Convertible Preferred Stock shall be
entitled to receive dividends payable out of funds legally available. Holders of
Series B Convertible Preferred Stock shall share pro rata in all dividends and
other declared distributions. The basis of distribution shall be the number of
shares of Common Stock that the holders would hold if all of the outstanding
shares of Series B Convertible Preferred Stock had converted into Common Stock.
Any time after January 31, 2004 and subject to certain limitations, the Company
may require the holders of Series B Convertible Preferred Stock to convert all
outstanding shares of Series B Convertible Preferred Stock into shares of Common
Stock, in accordance with the optional conversion formula, and all of the
following conditions are met:
o Closing bid price of the Common Stock for 10 consecutive trading days
prior to delivery of the mandatory conversion Notice equals or
exceeds $0.40;
o Company shall have filed a registration statement covering all shares
of Common Stock issuable upon conversion of the Series B Convertible
Preferred Stock, declared effective by the SEC, and continuing
effectiveness through and including the date of the mandatory
conversion;
o All shares of Common Stock issuable upon conversion of Series B
Convertible Preferred Stock are authorized and reserved for issuance;
registered for resale under the Securities Act; and listed on the
Bulletin Board or other national exchange; and
o All amounts, if any, accrued or payable under the Certificate of
Designation, Rights and Preferences of the Series B Convertible
Preferred Stock ("Certificate of Designation") shall have been paid.
Upon the occurrence of the following events, the holders of Series B Convertible
Preferred Stock may request the Company to purchase their shares of Series B
Convertible Preferred Stock for cash:
o Company fails to remove any restrictive legend on any Common Stock
certificate issued to Series B Convertible Preferred Stock holders
upon conversion as required by the Certificate of Designation;
o Company makes an assignment for creditors or applies for appointment
of a receiver for a substantial part of its business/property or such
receiver is appointed;
o Bankruptcy, insolvency, reorganization or liquidation proceedings
shall be instituted by or against the Company;
o Company sells substantially all of its assets;
o Company merges, consolidates or engages in a business combination
with another entity that is required to be reported pursuant to Item
1 of Form 8-K (unless the Company is the surviving entity and its
capital stock is unchanged);
o Company engages in transaction(s) resulting in the sale of securities
whereby such person or entity would own greater than 50% of the
outstanding shares of Common Stock of the Company (on a fully-diluted
basis);
o Company fails to pay any indebtedness of more than $250,000 to a
third party, or cause any other default which would have a material
adverse effect on the business or its operations.
The Series B Convertible Preferred Stock ranks senior to the Common Stock, the
Series A Preferred Stock and any class or series of capital stock of the Company
created thereafter. The consent of the majority holders of the Series B
Convertible Preferred Stock is required to create any securities that rank
senior or pari passu to the Series B Convertible Preferred Stock. Upon a
liquidation event, any securities senior to the Series B Convertible Preferred
Stock shall receive a distribution prior to the Series B Convertible Preferred
Stock and pursuant to the rights, preferences and privileges thereof, and the
Series B Convertible Preferred Stock shall receive the liquidation preference
with respect to each share. If the assets and funds for distribution are
insufficient to permit the holders of Series B Convertible Preferred Stock and
any pari passu securities to receive their preferential amounts, then the assets
shall be distributed ratably among such holders in proportion to the ratio that
the liquidation preference payable on each share bears to the aggregate
liquidation preference payable on all such shares. If the outstanding shares of
Common Stock are increased/decreased by any stock splits, stock dividends,
combination, reclassification, reverse stock split, etc., the conversion price
shall be adjusted accordingly. Upon certain reclassifications, the holders of
Series B Convertible Preferred Stock shall be entitled to receive such shares
that they would have received with respect to the number of shares of Common
Stock into which the Series B Convertible Preferred Stock would have converted.
If the Company issues any securities convertible for Common Stock or options,
warrants or other rights to purchase Common Stock or convertible securities pro
rata to the holders of any class of Common Stock, the holders of Series B
Convertible Preferred Stock shall have the right to acquire those shares to
which they would have been entitled upon the conversion of their shares of
Series B Convertible Preferred Stock into Common Stock. The Series B Convertible
Preferred Stock does not have voting rights.
SERIES C CONVERTIBLE PREFERRED STOCK AND WARRANTS
In October and December 2003, P-Com issued approximately 10,000 shares of Series
C Convertible Preferred Stock with a stated value of $1,750 per share, together
with warrants to purchase approximately 139.2 million shares of Common Stock.
Each share of Series C Convertible Preferred Stock converts into a number of
shares of the Company's Common Stock equal to the stated value divided by $0.10.
As of December 31, 2003 and March 31, 2004, there are approximately 9,942 shares
and 6,598 shares, respectively, of Series C Convertible Preferred Stock
outstanding. The following table reflects changes in Series C Preferred Stock
during the quarterly period ended March 31, 2004:
Shares Amount
(In thousands)
--------------------------------------------------
Balances as of December 31, 2003
Preferred Stock accretions to accrete the carrying 9,942 $ 870
value to the redemption value
Conversion of Series C Preferred Stock into (3,344) (439)
58,517,500 shares of Common Stock
Preferred Stock accretions to accrete the carrying $ 724
value to the redemption value
--------------------------------------------------
Balances as of March 31, 2004 6,598 $1,155
==================================================
(a) The Company accretes its Series C Preferred Stock to redemption value
through periodic charges to retained earnings.
(b) The Series C Preferred Stock is classified as a mezzanine security,
outside of stockholders' equity in the accompanying balance sheet due
to the cash redemption provisions noted below. Under Statements of
Financial Accounting Standards No. 150, this security would have been
classified as equity.
(c) As of March 31, 2004, outstanding Series C Preferred Stock is
convertible into approximately 115,475,105 shares of Common Stock.
Holders of Series C Convertible Preferred Stock are entitled to receive, out of
legally available funds, dividends at the rate of 6% per annum beginning on the
first anniversary of their date of issuance and 8% per annum beginning on the
second anniversary of their date of issuance. Dividends are payable
semi-annually, either in cash or shares of P-Com Common Stock.
Each share of Series C Convertible Preferred Stock is convertible into a number
of shares of Common Stock equal to the stated value, plus any accrued and unpaid
dividends, divided by an initial conversion price of $0.10. This conversion
price is subject to adjustment for any stock splits, stock dividends or similar
transactions. The conversion price is also subject to adjustment in the event
that P-Com makes a dilutive issuance of Common Stock or other securities that
are convertible into or exercisable for Common Stock at an effective per share
purchase price that is less than the conversion price of the Series C Preferred
Stock in effect at the time of the dilutive issuance. The holders of Series C
Preferred Stock may convert their shares into shares of Common Stock at any
time. However, no holder of Series C Preferred Stock may convert its shares into
shares of Common Stock if the conversion would result in the holder or any of
its affiliates, individually or in the aggregate, beneficially owning more than
9.999% of P-Com's outstanding Common Stock. In the event a holder is prohibited
from converting into Common Stock under this provision due to the 9.999%
ownership limitation discussed above, the excess portion of the Series C shall
remain outstanding, but shall cease to accrue a dividend.
Subject to limitations above, the Series C Convertible Preferred Stock is also
mandatorily convertible at the option of P-Com 180 days after the effective date
of a registration statement covering the shares of Common Stock issuable upon
the conversion of the Series C Convertible Preferred Stock, and upon the
satisfaction of the following conditions: (i) for ten consecutive days, the
Common Stock closes at a bid price equal to or greater than $0.20; (ii) the
continued effectiveness of the registration statement; (iii) all shares of
Common Stock issuable upon conversion of the Series C Convertible Preferred
Stock and Series C-1 and Series C-2 Warrants are authorized and reserved for
issuance, are registered under the Securities Act for resale by the holders, and
are listed or traded on the OTC Bulletin Board or other national exchange; (iv)
there are no uncured redemption events; and (v) all amounts accrued or payable
under the Series C Convertible Preferred Stock Certificate of Designation or
registration rights agreement have been paid. As of March 31, 2004,
approximately 3,344 shares of Series C Convertible Preferred Stock had been
converted into approximately 58,517,500 shares of Common Stock and approximately
6,598 shares of Series C Convertible Preferred Stock remained outstanding and
none of the Series C Warrants had been exercised. The shares of Series C
Convertible Preferred Stock that remain outstanding are convertible into
approximately 115,475,105 shares of Common Stock, subject to the limitation on
conversion described above. The number of shares of Common Stock issuable upon
conversion of the Series C Convertible Preferred Stock and exercise of the
Series C-1 and Series C-2 Warrants are subject to adjustment for stock splits,
stock dividends and similar transactions and for certain dilutive issuances.
The investors of Series C were issued 7,000 Series C-1 Warrants and 7,000 Series
C-2 Warrants for every share of Series C purchased. The C-1 Warrant shall have a
term of five years and an initial exercise price of $.15 per warrant, increasing
to $.18 per warrant beginning February 6, 2005. The Series C-2 Warrant shall
have a term of five years and an initial exercise price of $.18 per warrant,
increasing to $.22 per warrant beginning August 6, 2005. Subject to an effective
registration statement, beginning twenty-four (24) months after the Effective
Date, the Company may redeem the Series C-1 Warrants for $0.001 per Warrant if
the Closing Bid Price of the Company's Common Stock is equal to or greater than
$0.36 for ten (10) consecutive trading days. Beginning February 6, 2007, the
Company may redeem the Series C-2 Warrants for $0.001 per Warrant if the Closing
Bid Price of the Company's Common Stock is equal to or greater than $0.44 for
ten (10) consecutive trading days. The Conversion Price of the Series C and the
Exercise Price of the C-1 and C-2 Warrants shall be subject to adjustment for
issuances of Common Stock at a purchase price less than the then-effective
Conversion Price or Exercise Price, based on weighted average anti-dilution
protection, subject to customary carve-outs. (See Common Stock Warrants, below)
If P-Com completes a private equity or equity-linked financing (the "New
Financing"), the Series C holders may exchange any outstanding Series C at 100%
of face value for the securities issued in the New Financing. Such right shall
be voided in the event the Company raises $5.0 million of additional equity
capital at a price of not less than $.12 per share.
For any equity or equity-linked private financing consummated within 12 months
after the closing of the Series C Financing, the investors in the Series C shall
have a right to co-invest in any private financing up to fifty (50%) percent of
the dollar amount invested in the Series C Financing. The investors shall have
five (5) trading days to respond. This co-investment provision shall not apply
to the issuance of stock in situations involving bona-fide strategic
partnerships, acquisition candidates and public offerings.
Upon the occurrence of the following events, (each a "Redemptive Event"), the
holders of Series C Preferred Stock may require the Company to purchase their
shares of Series C Preferred Stock for cash:
o the Company fails to remove any restrictive legend on any Common
Stock certificate issued to Series C Preferred Stock holders upon
conversion as required by the Certificate of Designation and such
failure continues uncured for five business days after receipt of
written notice;
o the Company makes an assignment for the benefit of creditors or
applies for appointment of a receiver for a substantial part of its
usiness/property or such receiver is appointed;
o bankruptcy, insolvency, reorganization or liquidation proceedings
shall be instituted by or against the Company and shall not be
dismissed within 60 days of their initiation;
o the Company sells substantially all of its assets;
o the Company merges, consolidates or engages in a business combination
with another entity that is required to be reported pursuant to Item
1 of Form 8-K (unless the Company is the surviving entity and its
capital stock is unchanged);
o the Company engages in transaction(s) resulting in the sale of
securities to a person or entity whereby such person or entity would
own greater than fifty percent (50%) of the outstanding shares of
Common Stock of the Company (calculated on a fully-diluted basis);
o the Company fails to pay any indebtedness of more than $250,000 to a
third party, or cause any other default which would have a material
adverse effect on the business or its operations.
The Series C Preferred Stock ranks senior to the Common Stock, the Series A
Preferred Stock, the Series B Preferred Stock and ranks pari passu with the
Series D Preferred Stock. The consent of the majority holders of the Series C
Preferred Stock is required to create any securities that rank senior or pari
passu to the Series C Preferred Stock. If P-Com liquidates, dissolves or winds
up, the holders of Series C Preferred Stock and Series D Preferred Stock are
entitled to receive the stated value of their shares plus all accrued and unpaid
dividends prior to any amounts being paid to the holders of Series B Preferred
Stock and P-Com Common Stock. In addition, the holders of Series C Preferred
Stock are entitled to share ratably together with the holders of the Series D
Preferred Stock, the Series B Convertible Preferred Stock and P-Com Common Stock
in all remaining assets after the satisfaction of all other liquidation
preferences. If the assets and funds for distribution are insufficient to permit
the holders of Series C Preferred Stock and any pari passu securities to receive
their preferential amounts, then the assets shall be distributed ratably among
such holders in proportion to the ratio that the liquidation preference payable
on each share bears to the aggregate liquidation preference payable on all such
shares. If the outstanding shares of Common Stock are increased/decreased by any
stock splits, stock dividends, combination, reclassification, reverse stock
split, etc., the conversion price shall be adjusted accordingly.
Upon certain reclassifications, the holders of Series C Preferred Stock shall be
entitled to receive such shares that they would have received with respect to
the number of shares of Common Stock into which the Series C Preferred Stock
would have converted. If the Company issues any securities convertible for
Common Stock or options, warrants or other rights to purchase Common Stock or
convertible securities pro rata to the holders of any class of Common Stock, the
holders of Series C Preferred Stock shall have the right to acquire those shares
to which they would have been entitled upon the conversion of their shares of
Series C Preferred Stock into Common Stock.
The holders of Series C Preferred Stock are entitled to vote together with the
holders of the Series D Preferred Stock and Common Stock, as a single class, on
all matters submitted to a vote of P-Com's stockholders. The holders of Series C
Preferred Stock are entitled to a number of votes equal to the number of shares
of P-Com Common Stock that would be issued upon conversion of their shares of
Series C Preferred Stock.
SERIES D CONVERTIBLE PREFERRED STOCK
P-Com has designated 2,000 shares of its Preferred Stock as Series D Convertible
Preferred Stock. In December 2003, P-Com issued the 2,000 shares of Series D
Convertible Preferred Stock to redeem $2 million of notes payable assumed from
the SPEEDCOM asset acquisition. The Series D Preferred Stock has a stated value
of $1,000 per share. Each share of Series D Preferred Stock is convertible into
a number of shares of Common Stock equal to the stated value divided by an
initial conversion price of $0.15. This conversion price is subject to
adjustment for any stock splits, stock dividends or similar transactions. The
holders of Series D Preferred Stock may convert their shares into shares of
Common Stock at any time. However, no holder of Series D Preferred Stock may
convert its shares into shares of Common Stock if the conversion would result in
the holder or any of its affiliates, individually or in the aggregate,
beneficially owning more than 9.999% of P-Com's outstanding Common Stock. As of
December 31, 2003 and March 31, 2004, there are approximately 2,000 shares of
Series D Convertible Preferred Stock outstanding. The following table reflects
changes in Series D Preferred Stock during the quarterly period ended March 31,
2004:
Amount
Shares (In thousands)
--------------------------------------
Balances as of December 31, 2003 2,000 $ 2,000
--------------------------------------
Balances as of March 31, 2004 2,000 $ 2,000
======================================
(a) The Series D Preferred Stock is classified as a mezzanine security,
outside of stockholders' equity in the accompanying balance sheet due
to the cash redemption provisions noted below. Under Statements of
Financial Accounting Standards No. 150, this security would have been
classified as equity.
(b) As of March 31, 2004, outstanding Series D Preferred Stock is
convertible into 13,333,333 shares of Common Stock.
Holders of Series D Preferred Stock are entitled to share pro-rata, on an
as-converted basis, in any dividends or other distributions that may be declared
by the board of directors of P-Com with respect to the Common Stock. If P-Com
liquidates, dissolves or winds up, the holders of Series D Preferred Stock and
the holders of Series C Preferred Stock are entitled to receive the stated value
of their respective shares plus all accrued and unpaid dividends, pari passu,
and prior to any amounts being paid to the holders of Series B Preferred Stock
and P-Com Common Stock. In addition, the holders of Series D Preferred Stock are
entitled to share ratably together with the holders of Series C Preferred Stock,
Series B Preferred Stock and P-Com Common Stock in all remaining assets after
the satisfaction of all other liquidation preferences.
The holders of Series D Preferred Stock are entitled to certain rights and
preferences with respect to the holders of P-Com Common Stock. The holders of
Series D Preferred Stock are entitled to vote together with the holders of P-Com
Common Stock and holders of Series C Preferred Stock, as a single class, on all
matters submitted to a vote of P-Com's stockholders. The holders of Series D
Preferred Stock are entitled to a number of votes equal to the number of shares
of P-Com Common Stock that would be issued upon conversion of their shares of
Series D Preferred Stock.
Upon the occurrence of the following events, (each a "Redemptive Event"), the
holders of Series D Preferred Stock may require the Company to purchase their
shares of Series D Preferred Stock for cash:
o the Company fails to remove any restrictive legend from certificates
representing shares of P-Com Common Stock that are issued to holders
who convert their shares of Series D Preferred Stock;
o the Company makes an assignment for the benefit of creditors, or
applies for or consents to the appointment of a receiver or trustee;
o Any bankruptcy, insolvency, reorganization or other proceeding for
the relief of debtors is instituted by or against P-Com and is not
dismissed within 60 days;
o the Company sells substantially all of its assets, merges or
consolidates with any other entity or engages in a transaction that
results in any person or entity acquiring more than 50% of P-Com's
outstanding Common Stock on a fully diluted basis;
o the Company fails to pay when due any payment with respect to any of
its indebtedness in excess of $250,000;
o the Company breaches any agreement for monies owed or owing in an
amount in excess of $250,000 and the breach permits the other party
to declare a default or otherwise accelerate the amounts due under
that agreement; and
o the Company permits a default under any agreement to remain uncured
and the default would or is likely to have a material adverse effect
on the business, operations, properties or financial condition of
P-Com.
7. ASSET IMPAIRMENT AND OTHER RESTRUCTURING CHARGES
The Company continually monitors its inventory carrying value in the light of
the slowdown in the global telecommunications market, especially with regard to
an assessment of future demand for its point - to - multipoint, and its other
legacy product lines. In the first quarter of 2003, the Company recorded a $3.4
million inventory related charge to cost of sales, of which $2.0 million was
related to its point - to - multipoint inventories.
A summary of inventory reserve activities is as follows:
Inventory
Reserve
---------
Balance at January 1, 2004 $ 26,178
Additions charged to Statement of Operations 820
Deductions from reserves (653)
---------
Balance at March 31, 2004 $ 26,345
---------
8. DISCONTINUED OPERATIONS
In the first quarter of 2003, the Company committed to a plan to sell its
services business, P-Com Network Services, Inc. ("PCNS"). Accordingly, beginning
in the first quarter of 2003, this business is reported as a discontinued
operation and the financial statement information related to this business has
been presented on one line, titled "Discontinued Operations" in the Consolidated
Statements of Operations for the three-month period ended March 31, 2004 and
2003.
Summarized results of PCNS are as follows (in thousands):
THREE MONTHS ENDED MARCH 31,
2004 2003
-------- --------
Sales $ - $ 946
-------- --------
Loss from operations $ - $ (454)
Gain (Loss) on disposition
of discontinued operations (40) (1,404)
-------- ---------
(40) (1,858)
Provision for income taxes - -
Net profit (loss) $ (40) $ (1,858)
========= =========
The loss from the sale of the discontinued services unit was $40,000 for the
three-months ended March 31, 2004, principally due to the write-off of assets
upon the discontinuation of the services business unit.
The assets and liabilities of the discontinued operations consisted of the
following (in thousands):
MARCH 31, DECEMBER 31,
2004 2003
--------- ------------
Total assets related to discontinued operations
Cash $ - $ -
Accounts receivable - -
Inventory - -
Prepaid expenses and other assets - -
Property plant and equipment - -
--------- ----------
Other assets -
========= ==========
$ - $ -
Total liabilities related to discontinued operations
Accounts payable $ 183 $ 183
Other accrued liabilities 115 130
Loan payable to bank - -
--------- ----------
$ 298 $ 313
========= ==========
9. SALES BY GEOGRAPHIC REGION AND CONCENTRATIONS
The breakdown of product sales by geographic region is as follows (in
thousands):
THREE MONTHS ENDED MARCH 31,
2004 2003
--------- ---------
North America $ 480 $ 284
United Kingdom 2,015 1,577
Europe 1,400 632
Asia 470 1,756
Latin America 1,807 187
Other Geographic Regions 665 181
--------- ---------
$ 6,837 $ 4,617
========= =========
During the three-month period ended March 31, 2004 and 2003, four and one
customers accounted for a total of 67% and 17% of our total sales, respectively.
10. COMPREHENSIVE LOSS
Comprehensive loss is comprised of the Company's reported net loss and the
currency translation adjustment associated with our foreign operations.
Comprehensive loss was $3.2 million and $10.4 million for the three months ended
March 31, 2004 and 2003, respectively.
11. CONTINGENCIES
On April 4, 2003, Christine Schubert, Chapter 7 Trustee for Winstar
Communications, Inc. et al, filed a Motion to Avoid and Recover Transfers
Pursuant to 11 U.S.C. Sections 547 and 550, in the United States Bankruptcy
Court for the District of Delaware and served the Summons and Notice on July 22,
2003. The amount of the alleged preferential transfers to P-Com is approximately
$13.7 million. P-Com has filed a response to the Motion that the payments made
by Winstar Communications, Inc. are not voidable preference payments under the
United States Bankruptcy Code. The Bankruptcy Court, P-Com and Winstar have
agreed to settle all preference claims for $100,000.
In June 2000, two former consultants to P-Com Italia S.p.A. filed a complaint
against P-Com Italia in the Civil Court of Rome, Italy seeking payment of
certain consulting fees allegedly due the consultants totaling approximately
$615,000. The Civil Court of Rome has appointed a technical consultant in order
to determine the merit of certain claims made by the consultants. P-Com believes
that the claims are wholly without merit and, while no assurances can be given,
that the claims will be rejected.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q contains forward-looking statements, which
involve numerous risks and uncertainties. The statements contained in this
Quarterly Report on Form 10-Q that are not purely historical may be considered
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, and Section 21E of the Securities Exchange Act of 1934, including
without limitation, statements regarding the Company's expectations, beliefs,
intentions or strategies regarding the future. Our actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth under "Certain Factors
Affecting the Company" contained in this Item 2 and elsewhere in this Quarterly
Report on Form 10-Q. Additional factors that could cause or contribute to such
differences include, but are not limited to, those discussed in our Annual
Report on Form 10-K, and other documents filed by us with the Securities and
Exchange Commission.
Overview. We supply broadband wireless equipment and services for use in
telecommunications networks. Currently, we sell 2.4 GHz and 5.7 GHz spread
spectrum radio systems, as well as 7 GHz, 13 GHz, 14 GHz, 15 GHz, 18 GHz, 23
GHz, 26 GHz, 38 GHz and 50 GHz radio systems. We also provide software and
related services for these products. Additionally, prior to May 2003, we offered
services, including engineering, furnishing and installation, program
management, test and turn-up, and integration of telephone central offices'
transmission and DC power systems, microwave, spread spectrum and cellular
systems. During the quarter ended March 31, 2003, we decided to exit the
services business as part of our strategy to reduce expenses and focus on our
product business.
On December 10, 2003, P-Com acquired the Wave Wireless Networking division of
SPEEDCOM Wireless Corporation ("SPEEDCOM") and related assets, in consideration
for the issuance to SPEEDCOM of 63,500,000 shares of P-Com's Common Stock, and
the assumption of certain of its liabilities, including approximately $1.58
million in notes representing loans by P-Com to SPEEDCOM. Wave Wireless
Networking ("Wave Wireless") specializes in manufacturing, configuring and
delivering custom broadband wireless access networking equipment, including the
SPEEDLAN family of wireless Ethernet bridges and routers, for business and
residential customers internationally. The acquisition provides P-Com with
complementary license - exempt point - to - point and point - to - multipoint
wireless access systems for private networks and security and surveillance
applications.
While management believes that the worldwide slowdown in the telecommunications
equipment industry has subsided, it has yet to show significant signs of
recovery. As a result, our product sales have not recovered to levels necessary
to achieve profitability, despite an increase in product sales of $2.2 million
or 48% in the first quarter of 2004 compared to the same period in the previous
year. Although our sales have increased, we continue to be burdened by high
operating costs. As a result, we continue to focus on reducing our operating and
other expenses by, among other things, consolidating our facilities, negotiating
lower costs for materials, and outsourcing our product manufacturing. These cost
reduction efforts, which include reductions resulting from the Company's exit
from its services business, and reductions in personnel, have allowed us to
reduce our operating loss by $0.6 million during the first quarter of 2004, or
13% compared to the same period in the previous year.
Critical Accounting Policies
Management's Use of Estimates and Assumptions. The preparation of financial
statements in accordance with accounting principles generally accepted in the
U.S. requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates, and such differences could be material and affect
the results of operations reported in future periods.
Revenue Recognition. Revenue from product sales is recognized upon transfer of
title and risk of loss, which is upon shipment of the product, provided no
significant obligations remain and collection is probable. Provisions for
estimated warranty repairs, returns and other allowances are recorded at the
time revenue is recognized.
Allowance for Doubtful Accounts. We maintain an allowance for doubtful accounts
for estimated losses from the inability of our customers to make required
payments. We evaluate our allowance for doubtful accounts based on the aging of
our accounts receivable, the financial condition of our customers and their
payment history, our historical write-off experience and other assumptions. In
order to limit our credit exposure, we require irrevocable letters of credit and
even prepayment from certain of our customers before commencing production.
Inventory. Inventory is stated at the lower of cost or market, cost being
determined on a first-in, first-out basis. We assess our inventory carrying
value and reduce it if necessary, to its net realizable value based on customer
orders on hand, and internal demand forecasts using management's best estimate
given the information currently available. Our customers' demand is highly
unpredictable, and can fluctuate significantly caused by factors beyond the
control of the Company. Our inventories include parts and components that are
specialized in nature or subject to rapid technological obsolescence. We
maintain an allowance for inventories for potentially excess and obsolete
inventories and gross inventory levels that are carried at costs that are higher
than their market values. If we determine that market conditions are less
favorable that those projected by management, such as an unanticipated decline
in demand not meeting our expectations, additional inventory write-downs may be
required.
Property and Equipment. Property and equipment are stated at cost and include
tooling and test equipment, computer equipment, furniture, land and buildings,
and construction-in-progress. Depreciation is computed using the straight-line
method based upon the useful lives of the assets ranging from three to seven
years, and in the case of buildings, 33 years. Leasehold improvements are
amortized using the straight-line method based upon the shorter of the estimated
useful lives or the lease term of the respective assets.
Impairment of Long- Lived Assets, other than Goodwill. In the event that facts
and circumstances indicate that the long-lived assets may be impaired, an
evaluation of recoverability would be performed. If an evaluation were required,
the estimated future undiscounted cash flows associated with the asset would be
compared to the asset's carrying amount to determine if a write-down is
required. A $599,000 impairment valuation charge in connection with property and
equipment for our Point-to-Multipoint product line was charged to restructuring
charges in the first quarter of 2003, and a further $2.5 million impairment
charge for the Point-to-Multipoint property and equipment was recorded in the
second quarter of 2003.
Impairments of Goodwill. Goodwill resulting from the purchase of Wave Wireless
will not be amortized into operations. Rather, such amounts will be tested for
impairment at least annually. This impairment test is calculated at the
reporting unit level, which, for P-Com is at the enterprise level. The annual
goodwill impairment test has two steps. The first, identifies potential
impairments by comparing the fair value of the Company, as determined using its
trading market prices, with its carrying value, including goodwill. If the fair
value exceeds the carrying amount, goodwill is not impaired and the second step
is not necessary. If the carrying value exceeds the fair value, the second step
calculates the possible impairment loss by comparing the implied fair value of
goodwill with the carrying amount. If the implied goodwill is less than the
carrying amount, a write-down will be recorded. In the event that management of
P-Com determines that the value of goodwill has become impaired using this
approach, an accounting charge for the amount of the impairment will be
recorded. No impairment of goodwill resulted from this measurement approach
immediately following the Wave Wireless acquisition. The Company will perform
this test annually, on the first day of the fourth fiscal quarter of each year.
Concentration of Credit Risk. Financial instruments that potentially subject the
Company to significant concentrations of credit risk consist principally of cash
equivalents and trade accounts receivable. The Company places its cash
equivalents in a variety of financial instruments such as market rate accounts
and U.S. Government agency debt securities. The Company, by policy, limits the
amount of credit exposure to any one financial institution or commercial issuer.
The Company performs on-going credit evaluations of its customers' financial
condition to determine the customer's credit worthiness. Sales are then
generally made either on 30 to 60 day payment terms, COD or letters of credit.
The Company extends credit terms to international customers for up to 90 days,
which is consistent with prevailing business practices.
At March 31, 2004 and 2003, approximately 55% and 35%, respectively, of trade
accounts receivable represent amounts due from three customers, respectively.
RESULTS OF OPERATIONS
Sales. For the three months ended March 31, 2004, total sales were
approximately $6.8 million as compared to $4.6 million for the same period in
the prior year. Despite the substantial increase in revenue in the quarter ended
March 31, 2004 compared to the comparable period in 2003, our sales continue to
be adversely affected by the continuing capital expenditure control measures
implemented by North American and European telecommunication companies, and
heightened competition from companies with which we compete.
Approximately $3.5 million of our sales in the first quarter of 2004 came from
Tel-Link out-of-warranty repair activities, compared to $2.1 million in the
comparable period in 2003. P-Com's sales in the three-month period ended March
31, 2004 also benefited from approximately $0.9 million in revenue attributed to
sales of products acquired in the fourth quarter of 2003 as a result of the
acquisition of Wave Wireless.
During the three months ended March 31, 2004, approximately 26% of our sales
were to the Latin American market, and 14% of our sales were to the Asia-Pacific
Rim areas and the Middle East combined. During the same period in 2003, we
generated 4% of our sales to the Latin American market and 38% of our sales in
the Asia-Pacific Rim and the Middle East combined. The United Kingdom market
contributed 29% of the Company's revenue in the three months ended March 31,
2004, compared to 34% in the same period in 2003. Our next largest market is the
European continent, which generated approximately 20% of the Company's revenue
in the three months ended March 31, 2004, compared to 14% in the same period in
2003. The decrease in sales to the Asia-Pacific Rim areas and the Middle East in
the three month period ended March 31, 2004, compared to the comparable period
in 2003 is principally due to a substantial decrease in sales to China. This
decrease is primarily attributable to decreased sales to the Company's product
reseller in the China market. It is currently anticipated that sales to the
China market through this product reseller will not return to levels experienced
in prior quarters in the near term.
The substantial increase in sales to the Latin American market in the quarter
ended March 31, 2004 is attributable to sales to a leading wireless carrier in
Latin America, which began ordering product from the Company beginning in the
third quarter of 2003.
Many of our largest customers use our product to build telecommunication network
infrastructures. These purchases represent significant investments in capital
equipment and are required for network rollout in a geographic area or market.
Consequently, the customer may have different requirements from year to year and
may vary its purchase levels from us accordingly. As noted, the continued
worldwide weakness in the telecommunications industry is significantly affecting
our customers' capital expenditures and consequently our revenue levels.
Gross Profit (Loss). Gross profit (loss) for the three months ended March
31, 2004 and 2003, was $1.7 and $(3.6) million, respectively, or 25% and (78)%
of sales in each of the respective quarters. Excluding the $3.5 million
inventory charge and $0.6 million property and equipment impairment charge taken
in the first quarter of 2003, the gross profit margins for the quarter ended
March 31, 2003 would have been 10%. The higher gross margin during the quarter
ended March 31, 2004 was attributable principally to a higher percentage of
total revenue in the quarter coming from the sale of unlicensed Spread Spectrum
equipment and Tel-Link out-of-warranty repairs, which provide higher gross
margins compared to licensed equipment, which contributed a greater percentage
to total revenue during the three months ended March 31, 2004 compared to the
comparable period in 2003. The Company's gross margins in the quarter ended
March 31, 2004 also benefited from sales of Wave Wireless products. The Company
acquired that product line in the fourth quarter of 2003.
Research and Development. For the three months ended March 31, 2004 and
2003, research and development ("R&D") expenses were approximately $1.3 million
and $1.9 million, respectively. As a percentage of sales, research and
development expenses were at 18% for the three months ended March 31, 2004,
compared to 42% for the three months ended March 31, 2003. The percentage
decrease is due to significant expense reduction efforts as mentioned above.
Selling and Marketing. For the three months ended March 31, 2004 and 2003,
sales and marketing expenses were approximately $1.5 million and $0.9 million,
respectively. The increase in sales and marketing expenses in the quarter ended
March 31, 2004 is due to headcount additions and other related expenses,
principally attributed to the acquisition of Wave Wireless in the fourth quarter
of 2004, and higher commissions in light of increased sales. As a percentage of
sales, selling and marketing expenses was 21% for the three months ended March
31, 2004, compared to 20% for the three months ended March 31, 2003.
General and Administrative. For the three months ended March 31, 2004 and
2003, general and administrative expenses were approximately $1.2 million and
$1.6 million, respectively. The decrease in general and administrative expense
in the first quarter of 2004 is principally attributable to a realization of
savings from cost reduction efforts that continued from 2003 to 2004, including
reduced consulting and legal expenses, and facilities consolidation. As a
percentage of sales, general and administrative expenses were 17% for the three
months ended March 31, 2004, compared to 35% for the three months ended March
31, 2003. The percentage decrease is due to our success in significantly
reducing our expenses throughout the year, as discussed above.
Asset Impairment and Other Restructuring Charges. In the event that
certain facts and circumstances indicate that the long-lived assets may be
impaired, an evaluation of recoverability would be performed. When an evaluation
occurs, management conducts a probability analysis based on the weighted future
undiscounted cash flows associated with the asset. The results are then compared
to the asset's carrying amount to determine if an impairment is necessary. The
cash flow analysis for the property and equipment is performed over the shorter
of the expected useful lives of the assets, or the expected life cycles of our
product line. An impairment charge is recorded if the net cash flows derived
from the analysis are less than the asset's carrying value. We deem that the
property and equipment is fairly stated if the future undiscounted cash flows
exceed its carrying amount.
In the first and second quarter of 2003, the Company determined that there was a
need to reevaluate the carrying value of its property and equipment, which are
held for sale, relating to its point - to - multipoint product line. The
evaluation was performed in light of the continuing slowdown in the global
telecommunications market for this product line. The evaluation resulted in a
$2.5 million provision for asset impairment in the second quarter of 2003, and
$0.6 million provision in the first quarter of 2003.
In connection with the workforce reduction in May 2003, the Company recorded a
$0.2 million charge in the second quarter of 2003 relating to a severance
package given to certain of its executive officers.
Loss on Discontinued Business. In the first quarter of 2003, we decided to
exit our services business, PCNS. Accordingly, beginning in the first quarter of
2003, this business is reported as a discontinued operation and we recorded
losses from its operations and from the disposal of the services business unit
relating to writing down of assets to net realizable value. On April 30, 2003,
the Company entered into an Asset Purchase Agreement with JKB to sell certain
assets of PCNS. The Company is a guarantor of PCNS' obligations under its
premises lease, through July 2007. As part of the sale to JKB, JKB agreed to
sublet the premises from PCNS for one year beginning May 1, 2003. The terms of
the sublease required JKB to pay less than the total amount of rent due under
the terms of the master lease. As a result, the Company remained liable under
the terms of the guaranty for the deficiency, and the total obligation under the
terms of the master lease was approximately $1.5 million, and these were accrued
in the second quarter of 2003 as loss on disposal of discontinued operations. In
the third quarter of 2003, the Company reached a settlement agreement with the
landlord for $0.3 million, and wrote-back the excess accrual of $1.2 million as
a gain on discontinued operations.
Interest Expense. For the three months ended March 31, 2004 and 2003,
interest expense was $0.08 million and $0.5 million, respectively. Interest
expense for the first quarter of 2004 was primarily for interest paid on capital
leases.
Other Income, Net. For the three-month period ended March 31, 2004, other
income (loss), net, totaled $(0.1) million compared to an income of $0.1 million
for the comparable three-month period in 2003. The loss in the three-month
period March 31, 2004 was due to loss on foreign exchange rate.
Provision (Benefit) for Income Taxes. We have not recorded the tax benefit
of our net operating losses since the criteria for recognition has not been
achieved. The net operating losses will be available to offset future taxable
income, subject to certain limitations and expirations.
LIQUIDITY AND CAPITAL RESOURCES
Cash Used in Operations. During the three-month period ended March 31,
2004, we used approximately $2.0 million of cash in operating activities,
primarily due to our net loss of $2.4 million, a $0.1 million non-cash gain from
vendor settlements, which were offset by a $0.1 million non-cash loss related to
amortization of warrants and loss on discontinued operations, and depreciation
expenses of $0.4 million. Significant contributions to cash flow resulted from a
net reduction in inventories of $1.3 million, and a net increase of accounts
payable and other accruals of $0.8 million. These were partially offset by a net
increase of $1.2 million in accounts receivable, and a net increase of $0.9
million in prepaid and other assets.
During the three-month period ended March 31, 2003, we used approximately $1.6
million of cash in operating activities, primarily due to our net loss of $10.4
million, offset by a $1.4 million non-cash loss related to discontinued
operations during the quarter, $3.5 million of inventory charges, $0.6 million
of property and equipment impairment charge, and depreciation expenses of $1.5
million. Significant contributions to cash flow resulted from increases in
accounts payable of $0.8 million and accrued liabilities of $0.3 million, a net
reduction in inventories of $0.6 million, and a net reduction in trade
receivables of $0.1 million.
Cash from Investing Activities. During the three-month period ended March
31, 2004, we used approximately $.06 million of cash in investing activities,
principally due to property and equipment acquisitions during the quarter.
During the three-month period ended March 31, 2003, we used $0.4 million of cash
in investing activities, resulting from a loan made to SPEEDCOM in connection
with the $1.5 million convertible promissory note financing obtained in March
2003.
Cash from Financing Activities. During the three-month period ended March
31, 2004, we used approximately $0.1 million of cash flows from financing
activities, primarily from $0.2 million in payments related to capital lease
obligations, that were offset by $0.1 million from the receipt of proceeds from
the sale of Common Stock.
During the three-month period ended March 31, 2003, we generated $1.6 million of
cash flows from financing activities, primarily from (i) the issuance of
convertible notes, which generated net proceeds of approximately $1.4 million,
(ii) $0.3 million from the issuance of Common Stock, and (iii) $0.1 million from
borrowings under the Credit Facility. The convertible notes were converted into
Series C Preferred Stock in October 2003. The proceeds from financing activities
were offset by capital lease payments totaling approximately $0.2 million.
We do not have any material commitments for capital equipment. Additional future
capital requirements will depend on many factors, including our plans to
increase manufacturing capacity, working capital requirements for our
operations, and our internal free cash flow from operations.
Current Liquidity. As of March 31, 2004, our principal sources of liquidity
consisted of borrowing availability under the Credit Facility, and approximately
$4.1 million of cash and cash equivalents, compared to approximately $6.2
million in cash and cash equivalents at December 31, 2003. Available borrowings
under the Credit Facility at March 31, 2004 were approximately $2.7 million,
compared to $3.7 million at December 31, 2003.
At March 31, 2004, our total liabilities were approximately $21.1 million,
compared to $20.6 million at December 31, 2003. All of our liabilities at March
31, 2004 are current, resulting in negative working capital of approximately
$4.1 million, compared to working capital of $2.1 million at December 31, 2003.
To address its working capital position and ultimately return P-Com to
profitability, management's plan is to continue its focus on increasing sales,
settling outstanding obligations, controlling general and operating expenses,
and reducing the cost of goods sold. Considering the uncertainty regarding
P-Com's ability to materially increase sales, P-Com's known and likely cash
requirements in 2004 will likely exceed available cash resources. As a result of
this condition, management is currently evaluating (i) the sale of certain
non-productive assets; (ii) certain opportunities to obtain additional debt or
equity financing; and (iii) seeking a strategic acquisition or other transaction
that would substantially improve P-Com's liquidity and capital resource
position. P-Com may also be required to borrow from its existing Credit Facility
in order to satisfy its liquidity requirements.
If P-Com fails to (i) generate sufficient revenues from new and existing
products sales; (ii) diversify its customer base; (iii) decrease its costs of
goods sold, and achieve higher operating margins; (iv) obtain additional debt or
equity financing; (v) refinance the obligation due Agilent of approximately $1.7
million due December 1, 2004; (vi) negotiate agreements to settle outstanding
claims; or (vii) otherwise consummate a transaction that improves its liquidity
position, P-Com will have insufficient capital to continue its operations.
Without sufficient capital to fund its operations, P-Com will no longer be able
to continue as a going concern. P-Com's independent accountants' opinion on
P-Com's consolidated financial statements for the year ended December 31, 2003
included an explanatory paragraph which raises substantial doubt about P-Com's
ability to continue as a going concern. The financial statements do not include
any adjustments relating to the recoverability and clarification of recorded
asset amounts or to the amounts and classification of liabilities that may be
necessary if P-Com is unable to continue as a going concern.
CERTAIN FACTORS AFFECTING THE COMPANY
OUR WORKING CAPITAL POSITION HAS DETERIORATED, AND OUR BUSINESS HAS NOT
SUFFICIENTLY RECOVERED.
Our working captial position has deteriorated. Our core business product sales
reduced sharply beginning with the second half of 2001, and are still
significantly below levels necessary to achieve positive cash flow. From
inception to March 31, 2004, our aggregate net loss is approximately $366.3
million. Our cash position has declined to $4.1 million at March 31, 2004, and
is deteriorating. We have negative working capital of $4.1 million as of March
31, 2004. Our short-term liquidity deficiency could disrupt our supply chain,
and result in our inability to manufacture and deliver our products, which would
adversely affect our results of operations.
Our independent accountants' opinion on our 2003 consolidated financial
statements includes an explanatory paragraph indicating substantial doubt about
our ability to continue as a going concern. To continue long term as a going
concern, we will have to increase our sales, decrease costs and possibly induce
creditors to forebear or to convert to equity, raise additional equity
financing, and/or raise new debt financing. We may not accomplish these tasks.
P-COM CANNOT SUSTAIN ITSELF AT THE CURRENTLY DEPRESSED SALES LEVELS.
A continued severe worldwide slowdown in the telecommunications equipment and
services sector is affecting us. Our customers, particularly systems operators
and integrated system providers, are deferring capital spending and orders to
suppliers such as our Company, and in general are not building out any
significant additional infrastructure at this time. In the U.S., most
Competitive Local Exchange Carriers ("CLECs") have declared bankruptcy and,
internationally, 3G-network rollout and commercialization continue to experience
delays. In addition, our accounts receivable, inventory turnover, and operating
stability can be jeopardized if our customers experience financial distress. We
do not believe that our core products sales levels sufficiently recover while an
industry-wide slowdown in demand persists. Until product sales levels can
sufficiently recover, our business, financial condition and results of
operations will continue to be adversely affected. P-Com cannot sustain itself
at the currently depressed sales levels, unless it is able to substantially
reduce costs, or obtain additional debt or equity financing.
OUR PROSPECTS FOR OBTAINING ADDITIONAL FINANCING ARE UNCERTAIN AND FAILURE TO
OBTAIN NEEDED FINANCING WILL AFFECT OUR ABILITY TO PURSUE FUTURE GROWTH AND HARM
OUR BUSINESS OPERATIONS, AND WILL AFFECT OUR ABILITY TO CONTINUE AS A GOING
CONCERN.
In the event the Company is unable to raise additional debt or equity financing,
or otherwise improve its liquidity position, we will not be able to continue as
a going concern. The Company's future capital requirements will depend upon many
factors, including a re-energized telecommunications market, development costs
of new products and related software tools, potential acquisition opportunities,
maintenance of adequate manufacturing facilities and contract manufacturing
agreements, progress of research and development efforts, expansion of marketing
and sales efforts, and status of competitive products. Additional financing may
not be available in the future on acceptable terms or at all. The Company's
history of substantial operating losses could also severely limit the Company's
ability to raise additional financing. In addition, given the recent price for
our Common Stock, if we raise additional funds by issuing equity securities,
additional significant dilution to our stockholders could result.
If the Company is unable to increase sales, decrease costs, or obtain additional
equity or debt financing, the Company may be required to close business or
product lines, further restructure or refinance our debt or delay, further scale
back or eliminate our research and development program, or manufacturing
operations. We may also need to obtain funds through arrangements with partners
or others that may require us to relinquish our rights to certain technologies
or potential products or other assets. Our inability to obtain capital, or our
ability to obtain additional capital only upon onerous terms, could very
seriously damage our business, operating results and financial condition.
P-COM RELIES ON A LIMITED NUMBER OF CUSTOMERS FOR A MATERIAL PORTION OF ITS
SALES AND THE LOSS OF OR REDUCTION IN SALES TO ANY OF THOSE CUSTOMERS COULD HARM
ITS BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATION.
For the three-months ended March 31, 2004, sales to four customers accounted for
67% of total sales. The loss of any one of these customers would have an
immediate and material effect on P-Com's sales. P-Com's ability to maintain or
increase its sales in the future will depend, in part upon its ability to obtain
orders from new customers as well as the financial condition and success of its
customers, the telecommunications industry and the global economy. P-Com's
customer concentration also results in concentration of credit risk. As of March
31, 2004, three customers accounted for 55% of P-Com's total accounts receivable
balances. Many of P-Com's significant recurring customers are located outside
the U.S., primarily in the United Kingdom, continental Europe, and Latin
America. Some of these customers are implementing new networks and are
themselves in the various stages of development. They may require additional
capital to fully implement their planned networks, which may be unavailable to
them on an as-needed basis, and which P-Com cannot supply in terms of long-term
financing.
If P-Com's customers cannot finance their purchases of P-Com's products or
services, this may adversely affect P-Com's business, operations and financial
condition. The financial difficulties of existing or potential customers may
also limit the overall demand for P-Com's products and services. Current
customers in the telecommunications industry have, from time to time, undergone
financial difficulties and may therefore limit their future orders or find it
difficult to pay for products sold to them. Any cancellation, reduction or delay
in orders or shipments, for example, as a result of manufacturing or supply
difficulties or a customer's inability to finance its purchases of P-Com's
products or services, would adversely affect P-Com's business. Difficulties of
this nature have occurred in the past and P-Com believes they will occur in the
future. For instance, in July 2002, P-Com announced a multiple year $100.0
million supply agreement with an original equipment manufacturer in China. Even
with an agreement in place, the customer has changed the timing and the product
mix requested, and has cancelled or delayed most of its orders. Enforcement of
the specific terms of the agreement would be difficult and expensive within
China, and P-Com may not ultimately realize the total benefits expected in the
contract period.
Finally, acquisitions in the telecommunications industry are common, which
tends to further concentrate the potential customer base in larger companies.
P-COM FACES SUBSTANTIAL COMPETITION AND MAY NOT BE ABLE TO COMPETE EFFECTIVELY.
P-Com faces intense competition worldwide from a number of leading
telecommunications equipment and technology suppliers. These companies offer a
variety of competitive products and services and some offer broader
telecommunications product lines. These companies include Alcatel Network
Systems, Alvarion, Stratex Networks, Ceragon, Ericsson Limited, Fresnel, Harris
Corporation-Farinon Division, NEC, Sagem, Nortel, NERA, Nokia
Telecommunications, SIAE, Siemens, and Proxim. Many of these companies have
greater installed bases, financial resources and production, marketing,
manufacturing, engineering and other capabilities than P-Com. P-Com faces actual
and potential competition not only from these established companies, but also
from start - up companies that are developing and marketing new commercial
products and services. Some of P-Com's current and prospective customers and
partners have developed, are currently developing or could manufacture products
competitive with P-Com's products. Nokia and Ericsson have developed competitive
radio systems, and there is new technology featuring free space optical systems
now in the marketplace.
The principal elements of competition in P-Com's market and the basis upon which
customers may select its systems include price, performance, software
functionality, perceived ability to continue to be able to meet delivery
requirements, and customer service and support. Recently, certain competitors
have announced the introduction of new competitive products, including related
software tools and services, and the acquisition of other competitors and
competitive technologies. P-Com expects competitors to continue to improve the
performance and lower the price of their current products and services and to
introduce new products and services or new technologies that provide added
functionality and other features. New product and service offerings and
enhancements by P-Com's competitors could cause a decline in sales or loss of
market acceptance of its systems. New offerings could also make P-Com's systems,
services or technologies obsolete or non-competitive. In addition, P-Com is
experiencing significant price competition and expects that competition to
intensify.
P-COM'S OPERATING RESULTS HAVE BEEN ADVERSELY AFFECTED BY DETERIORATING GROSS
MARGINS.
The intense competition for many of P-Com's products has resulted in a continued
reduction in its average selling prices. These reductions have not been offset
by a corresponding decrease in cost of goods sold, resulting in deteriorating
gross margins in some of its product lines. These deteriorating gross margins
may continue in the short term. Reasons for the decline include the maturation
of the systems, the effect of volume price discounts in existing and future
contracts and the intensification of competition.
If P-Com cannot significantly reduce costs, develop new products in a timely
manner or in the event it fails to achieve increased sales of new products at a
higher average selling price, then it may be unable to offset declining average
selling prices in many of its product lines. If P-Com is unable to offset
declining average selling prices, or achieve corresponding decreases in
manufacturing operating expenses, its gross margins will continue to decline.
P-COM'S OPERATING RESULTS COULD BE ADVERSELY AFFECTED BY CONTINUED DECLINE IN
CAPITAL SPENDING IN THE TELECOMMUNICATIONS MARKET.
Although much of the anticipated growth in the telecommunications infrastructure
is expected to result from the entrance of new service providers, many new
providers do not have the financial resources of existing service providers. For
example, in the U.S., most competitive local exchange carriers are continuing to
experience financial distress. If these new service providers are unable to
adequately finance their operations, they may cancel or delay orders. Moreover,
purchase orders are often received and accepted far in advance of shipment,
therefore, P-Com typically permits orders to be modified or canceled with
limited or no penalties. In periods of weak capital spending on the part of
traditional customers, P-Com is at risk for curtailment or cancellation of
purchase orders, which can lead to adverse operating results. Ordering materials
and building inventory based on customer forecasts or non-binding orders can
also result in large inventory write-offs, such as what occurred in 2000, 2001
and 2003.
Global economic conditions have had a depressing effect on sales levels in the
past four years. The soft economy and reported slowdown in capital spending in
2001, 2002 and 2003 in the U.S. and European telecommunications markets has had
a significant depressing effect on the sales levels in each of these years. In
fiscal 2003, P-Com's sales in the U.S. and Europe markets totaled approximately
$13.1 million, compared to $13.3 million in 2002, and $50.8 million in 2001.
P-COM DOES NOT HAVE THE CUSTOMER BASE OR OTHER RESOURCES OF MORE ESTABLISHED
COMPANIES, WHICH MAKES IT DIFFICULT FOR IT TO ADDRESS THE LIQUIDITY AND OTHER
CHALLENGES IT FACES.
Although P-Com has installed and has in operation over 150,000 radio units
globally, it has not developed a large installed base of its equipment or the
kind of close relationships with a broad base of customers of a type enjoyed by
larger, more developed companies, which would provide a base of financial
performance from which to launch strategic initiatives and withstand business
reversals. In addition, P-Com has not built up the level of capital often
enjoyed by more established companies, so from time to time, it faces serious
challenges in financing its continued operations. P-Com may not be able to
successfully address these risks.
FAILURE TO MAINTAIN ADEQUATE LEVELS OF INVENTORY COULD RESULT IN A REDUCTION OR
DELAY IN SALES AND HARM P-COM'S RESULTS OF OPERATIONS.
P-Com's customers have increasingly been demanding short turnaround on orders
rather than submitting purchase orders far in advance of expected shipment
dates. This practice requires that P-Com keep inventory on hand to meet market
demands. Given the variability of customer needs and purchasing power, it is
difficult to predict the amount of inventory needed to satisfy customer demand.
If P-Com over-estimates or under-estimates inventory requirements to fulfill
customer needs, or if purchase orders are terminated by customers, P-Com's
results of operations could continue to be adversely affected. In particular,
increases in inventory or cancellation of purchase orders could adversely affect
operations if the inventory is ultimately not used or becomes obsolete. This
risk was realized in the large inventory write-downs from 1999 to 2004.
P-COM'S LIMITED MANUFACTURING CAPACITY AND SOURCES OF SUPPLY MAY AFFECT ITS
ABILITY TO MEET CUSTOMER DEMAND, WHICH WOULD HARM ITS SALES AND DAMAGE ITS
REPUTATION.
P-Com's internal manufacturing capacity has been significantly reduced as a
result of the substantial decline in sales since 2001, and management's decision
to outsource much of the production of its products. Under certain market
conditions, such as when there is high capital spending and rapid system
deployment, P-Com's internal manufacturing capacity will not be sufficient to
fulfill customers' orders, and its contract manufacturers may not be able to
react to P-Com's demands on a timely basis. P-Com, or its contract manufacturers
failure to manufacture, assemble and ship systems and meet customer demands on a
timely and cost-effective basis could damage relationships with customers and
have a material adverse effect on its business, financial condition and results
of operations.
In addition, certain components, subassemblies and services necessary for the
manufacture of P-Com's systems are obtained from a sole supplier or a limited
group of suppliers. Many of these suppliers are in difficult financial positions
as a result of the significant slowdown that P-Com, too, has experienced.
P-Com's reliance on contract manufacturers and on sole suppliers or a limited
group of suppliers involves risks. From time to time, P-Com has experienced an
inability to obtain, or to receive in a timely manner, an adequate supply of
finished products and required components and subassemblies. This inability is
due to the above factors and, in some cases, P-Com's financial condition. As a
result, P-Com has less control over the price, timely delivery, reliability and
quality of finished products, components and subassemblies.
A significant ramp-up of production of products and services could require P-Com
to make substantial capital investments in equipment and inventory, in
recruitment and training of additional personnel and possibly in investment in
additional manufacturing facilities. If undertaken, P-Com anticipates these
expenditures would be made in advance of increased sales. In this event,
operating results would be adversely affected from time-to-time due to
short-term inefficiencies associated with the addition of equipment and
inventory, personnel or facilities and these cost categories may periodically
increase as a percentage of revenues.
P-COM'S BUSINESS DEPENDS ON THE ACCEPTANCE OF ITS PRODUCTS AND SERVICES, AND IT
IS UNCERTAIN WHETHER THE MARKET WILL ACCEPT AND DEMAND ITS PRODUCTS AND SERVICES
AT LEVELS NECESSARY FOR SUCCESS.
P-Com's future operating results depend upon the continued growth and increased
availability and acceptance of micro-cellular, personal communications
networks/personal communications services and wireless local loop access
telecommunications services, in the U.S. and internationally. The volume and
variety of wireless telecommunications services or the markets for and
acceptance of the services may not continue to grow as expected. The growth of
these services may also fail to create anticipated demand for P-Com's systems.
Predicting which segments of these markets will develop and at what rate these
markets will grow is difficult.
Some sectors of the telecommunications market will require the development and
deployment of an extensive and expensive telecommunications infrastructure. In
particular, the establishment of personal communications networks/personal
communications services networks requires significant capital expenditures.
Communications providers may determine not to make the necessary investment in
this infrastructure, or the creation of this infrastructure may not occur in a
timely manner, as has been the case in 2001 through 2003. Moreover, one
potential application of P-Com's technology, the use of its systems in
conjunction with the provision of alternative wireless access in competition
with the existing wireline local exchange providers, depends on the pricing of
wireless telecommunications services at rates competitive with those charged by
wireline operators. Rates for wireless access must become competitive with rates
charged by wireline companies for this approach to be successful. Absent that,
consumer demand for wireless access will be negatively affected. If P-Com
allocates resources to any market segment that does not grow, it may be unable
to reallocate capital and other resources to other market segments in a timely
manner, ultimately curtailing or eliminating its ability to enter the other
segments.
Certain current and prospective customers are delivering services and features
that use competing transmission media, such as fiber optic and copper cable,
particularly in the local loop access market. To successfully compete with
existing products and technologies, P-Com must offer systems with superior price
and performance characteristics and extensive customer service and support.
Additionally, P-Com must supply these systems on a timely and cost-effective
basis, in sufficient volume to satisfy these prospective customers'
requirements, in order to induce them to transition to P-Com's technologies. Any
delay in the adoption of P-Com's systems and technologies may result in
prospective customers using alternative technologies in their next generation of
systems and networks. P-Com's financial condition may prevent P-Com from meeting
this customer demand or may dissuade potential customers from purchasing from
P-Com. Prospective customers may design their systems or networks in a manner
that excludes or omits P-Com's products and technology. Existing customers may
not continue to include P-Com's systems in their products, systems or networks
in the future. P-Com's technology may not replace existing technologies and
achieve widespread acceptance in the wireless telecommunications market. Failure
to achieve or sustain commercial acceptance of P-Com's currently available radio
systems or to develop other commercially acceptable radio systems would
materially adversely affect P-Com.
DUE TO P-COM'S INTERNATIONAL SALES AND OPERATIONS, P-COM IS EXPOSED TO ECONOMIC
AND POLITICAL RISKS AND SIGNIFICANT FLUCTUATIONS IN THE VALUE OF FOREIGN
CURRENCIES RELATIVE TO THE UNITED STATES DOLLAR.
As a result of P-Com's current heavy dependence on international markets,
especially in the United Kingdom, the European continent, the Middle East,
China, and Latin America, P-Com faces economic, political and foreign currency
fluctuations that are often more volatile than those commonly experienced in the
United States. Approximately 93% of P-Com's sales in the three-month period
ending March 31, 2004 were made to customers located outside of the United
States. Historically, P-Com's international sales have been denominated in
British pounds sterling, Euros or United States dollars. A decrease in the value
of British pounds or Euros relative to United States dollars, if not hedged,
will result in an exchange loss for P-Com if it has Euro or British pounds
sterling denominated sales. Conversely, an increase in the value of Euro and
British pounds sterling will result in increased margins for P-Com on Euro or
British pounds sterling denominated sales as its functional currency is in
United States dollars. For international sales that P-Com would require to be
United States dollar-denominated, such a decrease in the value of foreign
currencies could make its systems less price-competitive if competitors choose
to price in other currencies and could adversely affect its financial condition.
P-Com funds its Italian subsidiary's operating expenses, which are denominated
in Euros. An increase in the value of Euro currency, if not hedged relative to
the United States dollar, could result in more costly funding for P-Com's
Italian operations, and as a result, higher cost of production to it as a whole.
Conversely, a decrease in the value of Euro currency will result in cost savings
for P-Com.
Additional risks are inherent in P-Com's international business
activities. These risks include:
o changes in regulatory requirements;
o costs and risks of localizing systems (homologation) in foreign
countries;
o availability of suitable export financing, particularly in the case
of large projects which P-Com must ship in short periods; P-Com's
bank line of credit allows this financing up to $4.0 million, subject
to numerous conditions;
o timing and availability of export licenses, tariffs and other trade
barriers;
o difficulties in staffing and managing foreign operations, branches
and subsidiaries;
o difficulties in managing distributors;
o terrorist activities;
o recurrence of worldwide health epidemic similar to SARS, which
significantly affected P-Com's ability to travel and do business in
Asia and the Pacific Rim areas;
o potentially adverse tax consequences; and
o difficulty in accounts receivable collections, if applicable.
Due to political and economic instability in new markets, economic, political
and foreign currency fluctuations may be even more volatile than conditions in
developed countries. Countries in the Asia/Pacific, African, and Latin American
regions have in recent years experienced weaknesses in their currency, banking
and equity markets. These weaknesses have adversely affected and could continue
to adversely affect demand for P-Com's products.
P-COM'S INTERNATIONAL OPERATIONS SUBJECT P-COM TO THE LAWS, REGULATIONS AND
LOCAL CUSTOMS OF THE COUNTRIES IN WHICH IT CONDUCTS BUSINESS, WHICH MAY BE
SIGNIFICANTLY DIFFERENT FROM THOSE OF THE UNITED STATES.
In many cases, local regulatory authorities own or strictly regulate
international telephone companies. Established relationships between
government-owned or government-controlled telephone companies and their
traditional indigenous suppliers of telecommunications often limit access to
these markets. The successful expansion of P-Com's international operations in
some markets will depend on its ability to locate, form and maintain strong
relationships with established companies providing communication services and
equipment in designated regions. The failure to establish these regional or
local relationships or to successfully market or sell P-Com's products in
specific international markets could limit its ability to compete in today's
highly competitive local markets for broadband wireless equipment.
In addition, many of P-Com's customer purchases and other agreements are
governed by a wide variety of complex foreign laws, which may differ
significantly from United States laws. Therefore, P-Com may be limited in its
ability to enforce its rights under those agreements and to collect damages, if
awarded in any litigation.
GOVERNMENTAL REGULATIONS AFFECTING MARKETS IN WHICH P-COM COMPETES COULD
ADVERSELY AFFECT ITS BUSINESS AND RESULTS OF OPERATIONS.
Radio communications are extensively regulated by the United States and foreign
governments as well as by international treaties. P-Com's systems must conform
to a variety of domestic and international requirements established to, among
other things, avoid interference among users of radio frequencies and to permit
interconnection of equipment. Historically, in many developed countries, the
limited availability of radio frequency spectrum has inhibited the growth of
wireless telecommunications networks. Each country's regulatory process differs.
To operate in a jurisdiction, P-Com must obtain regulatory approval for its
systems and comply with differing regulations.
Regulatory bodies worldwide continue to adopt new standards for wireless
telecommunications products. The delays inherent in this governmental approval
process may cause the cancellation, postponement or rescheduling of the
installment of communications systems by P-Com's customers and P-Com. The
failure to comply with current or future regulations or changes in the
interpretation of existing regulations could result in the suspension or
cessation of operations. Those regulations or changes in interpretation could
require P-Com to modify its products and services and incur substantial costs in
order to comply with the regulations and changes.
In addition, P-Com is also affected by domestic and international authorities'
regulation of the allocation and auction of the radio frequency spectra.
Equipment to support new systems and services can be marketed only if permitted
by governmental regulations and if suitable frequency allocations are auctioned
to service providers. Establishing new regulations and obtaining frequency
allocation at auction is a complex and lengthy process. If PCS operators and
others are delayed in deploying new systems and services, P-Com could experience
delays in orders. Similarly, failure by regulatory authorities to allocate
suitable frequency spectrum could have a material adverse effect on P-Com's
results. In addition, delays in the radio frequency spectra auction process in
the United States could delay P-Com's ability to develop and market equipment to
support new services.
P-Com operates in a regulatory environment subject to significant change.
Regulatory changes, which are affected by political, economic and technical
factors, could significantly impact P-Com's operations by restricting its
development efforts and those of its customers, making current systems obsolete
or increasing competition. Any such regulatory changes, including changes in the
allocation of available spectra, could have a material adverse effect on P-Com's
business, financial condition and results of operations. P-Com may also find it
necessary or advisable to modify its systems and services to operate in
compliance with these regulations. These modifications could be expensive and
time-consuming.
P-COM MAY ENTER INTO AGREEMENTS TO MERGE OR CONSOLIDATE WITH OTHER COMPANIES,
AND IT MAY INCUR SIGNIFICANT COSTS IN THE PROCESS, WHETHER OR NOT THESE
TRANSACTIONS ARE COMPLETED.
P-Com signed an Agreement and Plan of Merger with Telaxis Communications
Corporation, dated September 9, 2002. This merger agreement was terminated by
mutual agreement on January 7, 2003. On January 27, 2003, P-Com signed a letter
of intent to acquire privately held Procera Networks Inc., of Sunnyvale,
California, in a stock-for-stock transaction. This acquisition effort was
terminated in April 2003. On June 16, 2003, P-Com entered into an Asset Purchase
Agreement with SPEEDCOM Wireless Corporation to acquire substantially all of the
assets of SPEEDCOM (the "SPEEDCOM Acquisition"). The SPEEDCOM Acquisition closed
on December 10, 2003. P-Com may not be able to close any strategic acquisition
on the timetable it anticipates, if at all. P-Com has and may further incur
significant non-recoverable expenses in these efforts.
INTEGRATING P-COM'S AND SPEEDCOM'S OPERATIONS IS EXPECTED TO NEGATIVELY AFFECT
SPEEDCOM'S SALES, AND WILL DIVERT MANAGEMENT'S ATTENTION AWAY FROM ITS
DAY-TO-DAY OPERATIONS.
Integration of P-Com's and SPEEDCOM's operations, products and personnel
negatively affected SPEEDCOM's sales in the fourth quarter of 2003 and the first
quarter of 2004, and is expected to negatively affect its sales in the short
term. In addition, the SPEEDCOM Acquisition is expected to continue to place a
significant burden on P-Com's management and its internal and financial
resources. The negative affect on SPEEDCOM's sales during the fourth quarter of
2003 and first quarter of 2004, and the diversion of P-Com management's
attention and any difficulties encountered in the transition and integration
process, will negatively affect P-Com's financial condition.
THE SPEEDCOM ACQUISITION WILL CONTINUE TO RESULT IN SIGNIFICANT COSTS TO P-COM.
P-Com assumed approximately $630,000 in accounts payable of SPEEDCOM, and
assumed certain other liabilities in connection with the SPEEDCOM Acquisition.
These liabilities are expected to continue to affect P-Com's financial condition
in the short-term.
THE NASDAQ SMALLCAP MARKET HAS DELISTED OUR STOCK AND THIS MIGHT SEVERELY LIMIT
THE ABILITY TO SELL ANY OF OUR COMMON STOCK.
NASDAQ moved our stock listing from the NASDAQ National Market to the NASDAQ
Small Cap Market effective August 27, 2002 due to our failure to meet certain
listing requirements, including a minimum bid price of $1.00 per share. We
subsequently failed to meet certain NASDAQ Small Cap Market quantitative listing
standards, including a minimum $1.00 per share bid price requirement, and the
NASDAQ Listing Qualifications Panel determined that our stock would no longer be
listed on the NASDAQ Small Cap Market. Effective March 10, 2003, our Common
Stock commenced trading electronically on the OTC Bulletin Board of the National
Association of Securities Dealers, Inc. This move could result in a less liquid
market available for existing and potential stockholders to trade shares of our
Common Stock and could ultimately further depress the trading price of our
Common Stock.
Our Common Stock is subject to the Securities Exchange Commission's ("SEC")
"penny stock" regulation. For transactions covered by this regulation,
broker-dealers must make a special suitability determination for the purchase of
the securities and must have received the purchaser's written consent to the
transaction prior to the purchase. Additionally, for any transaction involving a
penny stock, the rules generally require the delivery, prior to the transaction,
of a risk disclosure document mandated by the SEC relating to the penny stock
market. The broker-dealer is also subject to additional sales practice
requirements. Consequently, the penny stock rules may restrict the ability of
broker-dealers to sell the company's Common Stock and may affect the ability of
holders to sell the Common Stock in the secondary market, and the price at which
a holder can sell the Common Stock.
OUR STOCK PRICE HAS BEEN VOLATILE AND HAS EXPERIENCED SIGNIFICANT DECLINE, AND
MAY CONTINUE TO BE VOLATILE AND DECLINE.
In recent years, the stock market in general, and the market for shares of small
capitalization technology stocks in particular, have experienced extreme price
fluctuations. These fluctuations have often negatively affected small cap
companies such as P-Com, and may impact our ability to raise equity capital in
periods of liquidity crunch. Companies with liquidity problems also often
experience downward stock price volatility. We believe that factors such as
announcements of developments related to our business (including any financings
or any resolution of liabilities), announcements of technological innovations or
new products or enhancements by us or our competitors, developments in the
emerging countries' economies, sales by competitors, sales of significant
volumes of our Common Stock into the public market, developments in our
relationships with customers, partners, lenders, distributors and suppliers,
shortfalls or changes in revenues, gross margins, earnings or losses or other
financial results that differ from analysts' expectations, regulatory
developments, fluctuations in results of operations could and have caused the
price of our Common Stock to fluctuate widely and decline over the past two
years during the telecommunication recession. The market price of our Common
Stock may continue to decline, or otherwise continue to experience significant
fluctuations in the future, including fluctuations that are unrelated to our
performance.
ISSUING SECURITIES AS A MEANS OF RAISING CAPITAL AND THE FUTURE SALES OF THESE
SECURITIES IN THE PUBLIC MARKET COULD LOWER P-COM'S STOCK PRICE AND ADVERSELY
AFFECT ITS ABILITY TO RAISE ADDITIONAL CAPITAL IN SUBSEQUENT FINANCINGS.
P-Com has traditionally relied on debt and equity financings to meet its working
capital needs including the issuances of Series B Convertible Preferred Stock in
August 2003 and Series C Convertible Preferred Stock in October and December
2003. When the shares of Common Stock that are issuable upon conversion of these
securities are subsequently sold in the public market, the trading price of
P-Com Common Stock may be negatively affected. As of March 31, 2004, the last
reported sale price of P-Com common stock was $0.06. Future sales of P-Com's
Common Stock, particularly shares issued upon the exercise or conversion of
outstanding or newly issued securities upon exercise of its outstanding options,
could have a significant negative effect on the market price of P-Com's Common
Stock. If the market price of P-Com Common Stock continues to decrease, P-Com
may not be able to conduct additional financings in the future on acceptable
terms or at all, and its ability to raise additional capital will be
significantly limited.
THE CONVERSION OR EXERCISE OF P-COM'S OUTSTANDING CONVERTIBLE SECURITIES WILL
HAVE A SIGNIFICANT DILUTIVE EFFECT ON P-COM'S EXISTING STOCKHOLDERS.
In March, May and July 2003, P-Com issued warrants to purchase approximately 8.8
million shares of its Common Stock. In August 2003, P-Com's remaining 7%
Convertible Subordinated Notes due 2005 were converted into 1.0 million shares
of Series B Convertible Preferred Stock, of which 889,393 shares were converted
into approximately 94 million shares of Common Stock in December 2003. The
remaining outstanding shares of Series B Convertible Preferred Stock are
convertible into approximately 11 million shares of P-Com Common Stock.
In October and December 2003, P-Com issued approximately 10,000 shares of Series
C Convertible Preferred Stock together with warrants to purchase approximately
139.2 million shares of common stock. These shares of Series C Convertible
Preferred Stock are convertible into approximately 174.0 million shares of
Common Stock. In December 2003, P-Com issued 2,000 shares of Series D
Convertible Preferred Stock, which, in turn, are convertible into approximately
13.3 million shares of Common Stock. Although the conversion or exercise of
these securities is subject to limitations that prevent any single holder from
holding more than 4.999% or 9.999%, as the case may be, of P-Com's outstanding
Common Stock, the conversion or exercise of these securities will nevertheless
result in substantial dilution to P-Com's existing stockholders.
In December 2003, P-Com also issued 63,500,000 shares of its Common Stock in
connection with the SPEEDCOM Acquisition. This issuance resulted in substantial
dilution to P-Com's existing stockholders.
A RECENT AMENDMENT TO P-COM'S BYLAWS INCREASES P-COM'S ABILITY TO CONDUCT
FINANCING TRANSACTIONS USING ITS EQUITY SECURITIES AND, AS A RESULT, MAY CAUSE
FURTHER DILUTION TO P-COM'S STOCKHOLDERS.
At P-Com's 2003 annual meeting of stockholders, P-Com's stockholders approved a
proposal to amend P-Com's bylaws. As a result of this amendment, P-Com may issue
securities that are convertible into or exercisable for shares of P-Com Common
Stock at a conversion or exercise price that is subject to downward adjustment
without obtaining additional stockholder approval. This downward adjustment
mechanism is designed to protect the holders of these securities from having
their investments diluted by future issuances of P-Com Common Stock at a lower
price per share. This is accomplished by issuing an increased number of shares
of P-Com Common Stock to these security holders upon the conversion or exercise
of those securities. If the market price of P-Com Common Stock continues to
decline and P-Com is forced to continue raising capital through dilutive equity
financings, the holders of these convertible securities will be protected from
any dilution that may occur but, as a result, P-Com's other stockholders will be
diluted to a greater extent than if these convertible securities did not exist.
DUE TO THE RESERVATION OF A SUBSTANTIAL NUMBER OF P-COM'S AUTHORIZED AND
UNISSUED SHARES OF COMMON STOCK, P-COM HAS LITTLE OR NO FLEXIBILITY TO ISSUE
ADDITIONAL SHARES OF STOCK IN CONNECTION WITH FINANCING PROGRAMS, ACQUISITIONS
AND OTHER CORPORATE PURPOSES.
P-Com is authorized to issue a total of 700 million shares of Common Stock. In
addition, P-Com is required to reserve shares of Common Stock for issuance upon
conversion or exercise of P-Com's outstanding convertible securities. P-Com has
also reserved shares of Common Stock for issuance under its 1995 Stock
Option/Stock Issuance Plan. As a result, P-Com will have little or no
flexibility to act in the future with respect to financing programs,
acquisitions, forward stock splits and other corporate purposes without the
delay and expense involved in obtaining stockholder approval each time an
opportunity requiring the issuance of shares of Common Stock arises. Such a
delay could cause P-Com to lose the opportunity to pursue one or more of these
transactions. Moreover, P-Com's stockholders may refuse to grant the necessary
approval.
P-COM'S STOCK PRICE HAS BEEN VOLATILE AND HAS EXPERIENCED SIGNIFICANT DECLINE,
AND IT MAY CONTINUE TO BE VOLATILE AND CONTINUE TO DECLINE.
In recent years, the stock market in general, and the market for shares of small
capitalization technology stocks in particular, have experienced extreme price
fluctuations. These fluctuations have often negatively affected small cap
companies such as P-Com, and may impact its ability to raise equity capital in
periods of liquidity crunch. Companies with liquidity problems also often
experience downward stock price volatility. P-Com believes that factors such as
announcements of developments relating to its business (including any financings
or any resolution of liabilities), announcements of technological innovations or
new products or enhancements by P-Com or its competitors, developments in the
emerging countries' economies, sales by competitors, sales of significant
volumes of P-Com Common Stock into the public market, developments in its
relationships with customers, partners, lenders, distributors and suppliers,
shortfalls or changes in revenues, gross margins, earnings or losses or other
financial results that differ from analysts' expectations, regulatory
developments and fluctuations in results of operations could and have caused the
price of P-Com Common Stock to fluctuate widely and decline over the past two
years during the telecommunications recession. The market price of P-Com Common
Stock may continue to decline, or otherwise continue to experience significant
fluctuations in the future, including fluctuations that are unrelated to P-Com's
performance.
P-COM HAS ADOPTED ANTI-TAKEOVER DEFENSES THAT COULD DELAY OR PREVENT AN
ACQUISITION OF P-COM.
P-Com's stockholder rights plan, certificate of incorporation, equity incentive
plans, bylaws and Delaware law may have a significant effect in delaying,
deferring or preventing a change in control and may adversely affect the voting
and other rights of other holders of P-Com Common Stock.
The rights of the holders of P-Com Common Stock will be subject to, and may be
adversely affected by, the rights of any other preferred stock that may be
issued in the future, including the Series A Junior Participating Preferred
Stock that may be issued pursuant to the stockholder rights plan, upon the
occurrence of certain triggering events. In general, the stockholder rights plan
provides a mechanism by which the share position of anyone that acquires 15% or
more (or 20% or more in the case of the State of Wisconsin Investment Board and
Firsthand Capital Management) of P-Com's Common Stock will be substantially
diluted. Future issuance of stock or additional preferred stock could have the
effect of making it more difficult for a third party to acquire a majority of
P-Com's outstanding voting stock.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have international sales and facilities and are, therefore, subject to
foreign currency rate exposure. Historically, our international sales have been
denominated in British pounds sterling, Euro and U.S. dollars. The functional
currencies of our wholly-owned foreign subsidiaries are the local currencies.
Assets and liabilities of these subsidiaries are translated into U.S. dollars at
exchange rates in effect at the balance sheet date. Income and expense items are
translated at average exchange rates for the period. Accumulated net translation
adjustments are recorded in stockholders' equity. Foreign exchange transaction
gains and losses are included in the results of operations, and were not
material for all periods presented. Based on our overall currency rate exposure
at March 31, 2004, a near-term 10% appreciation or depreciation of the U.S.
dollar would have an insignificant effect on our financial position, results of
operations and cash flows over the next fiscal year. We do not use derivative
financial instruments for speculative or trading purposes.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. As of the end of the
quarter ended March 31, 2004, the Company's management, including its chief
executive officer and chief financial officer, has evaluated the effectiveness
of the Company's disclosure controls and procedures, as such term is defined in
Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as
amended (the "Exchange Act"). Based on that evaluation, the Company's chief
executive officer and chief financial officer concluded that the Company's
disclosure controls and procedures were effective as of March 31, 2004 to ensure
that information required to be disclosed by the Company in reports that it
files or submits under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in Securities and Exchange Commission
rules and forms.
(b) Changes in internal control over financial reporting. There were no changes
in the Company's internal control over financial reporting identified in
connection with the evaluation required by Exchange Act Rule 13a-15(d) that
occurred during the most recent fiscal quarter that has materially affected or
is reasonably likely to materially affect the Company's internal control over
financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On June 20, 2003, Agilent Financial Services, Inc. filed a complaint
against the Company for Breach of Lease, Claim and Delivery and Account Stated,
in Superior Court of the State of California, County of Santa Clara. The amount
claimed in the complaint is approximately $2.5 million, and represents
accelerated amounts due under the terms of capitalized equipment leases of the
Company. On June 27, 2003, the parties filed a Stipulation for Entry of Judgment
and Proposed Order of Dismissal of Action With Prejudice. Under the terms of the
Stipulation, the Company paid Agilent $50,000 on July 15, 2003 and $100,000 on
September 1, 2003, and is obligated to pay $50,000 per month for fourteen
months, from October 1, 2003, up to and including November 1, 2004, and
$1,725,000 on December 1, 2004. As a result of the Stipulation, judgment under
the Complaint will not be entered unless and until the Company defaults under
the terms of the Stipulation. In the event the Company satisfies each of its
payment obligations under the terms of the Stipulation, the Complaint will be
dismissed, with prejudice.
On April 4, 2003, Christine Schubert, Chapter 7 Trustee for Winstar
Communications, Inc. et al, filed a Motion to Avoid and Recover Transfers
Pursuant to 11 U.S.C. Sections 547 and 550, in the United States Bankruptcy
Court for the District of Delaware and served the Summons and Notice on July 22,
2003. The amount of the alleged preferential transfers to P-Com is approximately
$13.7 million. P-Com has filed a response to the Motion that the payments made
by Winstar Communications, Inc. are not voidable preference payments under the
United States Bankruptcy Code. The Bankruptcy Court, P-Com and Winstar have
agreed to settle all preference claims for $100,000.
In June 2000, two former consultants to P-Com Italia S.p.A. filed a
complaint against P-Com Italia in the Civil Court of Rome, Italy seeking payment
of certain consulting fees allegedly due the consultants totaling approximately
$615,000. The Civil Court of Rome has appointed a technical consultant in order
to determine the merit of certain claims made by the consultants. P-Com believes
that the claims are wholly without merit and, while no assurances can be given,
that the claims will be rejected.
Other than the ongoing amounts claimed by Christine Schubert, Chapter 7
Trustee for Winstar Communications, Inc., the amount of ultimate liability with
respect to each of the currently pending actions is less than 10% of P-Com's
current assets. In the event P-Com is unable to satisfactorily resolve these and
other proceedings that arise from time to time, its financial position and
results of operations may be materially affected.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
10.1 Employment Letter Agreement, dated April 7, 2004,
between P-Com, Inc. and Elsbeth Kahn.
31.1 Certification of Principal Executive Officer Pursuant to
Exchange Act Rule 13a-14(a).
31.2 Certification of Principal Financial Officer Pursuant to
Exchange Act Rule 13a-14(a).
32.1 Certification of Chief Executive Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
On March 2, 2004, we filed a Form 8-K current report announcing the
receipt of $2.0 million in orders from a wireless
telecommunications company in Latin America.
On February 5, 2004, we filed a Form 8-K current report to announce
its partnership with Velocitech to manage the production of
license-exempt products developed by P-Com's Wave Wireless
Networking Division.
On February 2, 2004, we filed a Form on Form 8-K to announce our
financial results for the fourth quarter and fiscal year ended
December 31, 2003.
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.
P-COM, INC.
By: /s/ Sam Smookler
----------------
Sam Smookler
President
and Chief Executive Officer
(Duly Authorized Officer)
Date: May 15, 2004
By: /s/ Daniel W. Rumsey
--------------------
Daniel W. Rumsey
Interim Chief Financial Officer
(Principal Financial Officer)
Date: May 15, 2004
EXHIBIT INDEX
10.1 Employment Letter Agreement, dated April 7, 2004, between P-Com, Inc.
and Elsbeth Kahn.
31.1 Certification of Principal Executive Officer Pursuant to Exchange Act
Rule 13a-14(a).
31.2 Certification of Principal Financial Officer Pursuant to Exchange Act
Rule 13a-14(a).
32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certification of Interim Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.