SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDING DECEMBER 31, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO ____________
COMMISSION FILE NUMBER 0-21061
SPEEDCOM WIRELESS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 58-2044990
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
7020 PROFESSIONAL PARKWAY EAST
SARASOTA, FL 34240
(941) 907-2300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
Securities registered under Section 12(g) of the Exchange Act: Common Stock,
$0.001 par value, Class A Warrants and Class B Warrants
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) Yes[x] No[ ], and (2) has been subject to such
filing requirements for the past 90 days Yes [x] No [_].
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B not contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. X
-----
Revenues for the most recent fiscal year: $10,662,478.
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked price of such common equity, as of a
specified date within the past 60 days: $21,395,192 as of March 16, 2001.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the last practicable date: March 16, 2001 - 9,324,523 common
shares, $.001 par value.
The following documents are incorporated by reference: The Proxy Statement for
the 2001 Annual Meeting of Shareholders for Part III Item 10, Item 11 and Item
12 of this Form 10-KSB.
Transitional small business disclosure format (check one): Yes [_] No [x]
PART I
Item 1. Description of Business
Company Overview
The predecessor to SPEEDCOM Wireless Corporation (Old SPEEDCOM) was incorporated
in Florida in 1994. Old SPEEDCOM initially served as a reseller of computer
equipment and wireless communications equipment. In 1997, Old SPEEDCOM changed
its name to SPEEDCOM Wireless International Corporation and started selling its
own branded products. On September 26, 2000 Old SPEEDCOM merged into LTI
Holdings, Inc. (LTI), a public "shell" company incorporated in Delaware and
became SPEEDCOM Wireless Corporation (SPEEDCOM or the Company). SPEEDCOM has two
divisions, Wave Wireless Networking (www.wavewireless.com) and InstallGuys
(www.installguys.com). Except as specifically noted to the contrary, the
information herein that predates the merger relates to Old SPEEDCOM, and all
references to SPEEDCOM or the Company refer to Old SPEEDCOM before the merger
and the combined company after the merger.
The Company's wireless products and services are designed to meet the "backbone"
and "last-mile" needs of two distinct markets, the service provider market and
the enterprise market. The former is comprised of various Internet service
providers and telecommunications carriers, which provide fixed wireless
broadband Internet connectivity to business and residential customers. The
latter includes corporations, schools and universities, governments and the
military, which need wireless campus-wide private data networks. In both cases,
the Company's wireless broadband solutions provide the user with lower cost of
ownership and significantly reduced installation time compared to alternative
wired solutions.
The Company's product division, Wave Wireless Networking, offers
high-performance, reliable wireless bridge/routers. Its products range from 11
Megabits per second to 155 Megabits per second in speed and are offered in
various point-to-point and point-to-multipoint configurations. The Company's
service division, InstallGuys, provides a complete menu of wireless turnkey
services ranging from site surveys and installation plans, to maintenance and/or
management of a customer's wireless broadband network.
SPEEDCOM sells its wireless broadband products in domestic and international
markets through both an indirect channel of distributors, resellers and Original
Equipment Manufacturers (OEM's), and a direct sales force. The Company sells its
products in over 60 countries, with international sales making up approximately
45% of SPEEDCOM's total year 2000 revenue (Latin America 26%, Africa 9%, Asia
4%, Europe 3%, Other 3%).
Industry Overview
The fixed wireless broadband market is at an early stage of development and is
rapidly evolving. The outdoor fixed wireless broadband market is made up of two
distinct segments; the enterprise
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market, which is comprised of corporations, schools and universities, the
military, and other similar private customers who use SPEEDCOM products and
services to establish site-wide wireless networks; and the larger and faster
growing segment of the two, the service provider market. This segment is made up
of Internet service providers and telecommunication carriers. These companies
use SPEEDCOM's products to establish high performance "backbone" and/or "last-
mile" links that deliver high-speed Internet, voice, video, and data to their
business and residential customers.
Broadband wireless equipment sales are forecasted to grow from $0.2 billion in
2000 to $4.1 billion by 2003 (Pioneer Consulting, LLC, 2000). The outsourcing of
engineering, installation, maintenance, and management of broadband wireless
networks is expected to grow from $900 million in 2001 to $3.8 billion in 2003.
Most wireless networks use radio frequency (RF) to provide alternative network
access for both data and voice applications. Radio frequency based wireless
broadband networks are designed to run on radio frequencies that do not require
a license (e.g. 2.4 Gigahertz and 5.7 Gigahertz), called "public bands", as well
as frequencies that require the carrier to own a license (e.g. Multi-Channel
Multipoint Distribution System (MMDS) and 3.5 Gigahertz). In the public band,
the industry has adopted a specification that defines standards and attempts to
create compatibility among vendors, which is called the IEEE 802.11b
specification. However, this standard, which is more appropriate for indoor
wireless connectivity than outdoor, sacrifices speed and cost for compatibility
and mobility. The Company offers products that meet the IEEE (Institute of
Electrical and Electronics Engineers) 802.11b specification, but because speed,
range, and cost are most often more important to the users of fixed wireless
equipment, the Company also offers a suite of products that do not strictly
adhere to IEEE 802.11b and instead use slightly modified specifications that are
more suitable for outdoor wireless connectivity.
Also in the public band, consumers can choose between two radio frequency
technologies known as Direct Sequence Spread Spectrum (DSSS) and Frequency
Hopping Spread Spectrum (FHSS). SPEEDCOM uses DSSS, which allows for greater
data throughput, longer range and less interference.
Although there are many standards and frequencies that companies can adhere to
or utilize, SPEEDCOM's next-generation products aim to be flexible enough to
address the needs of both the licensed and unlicensed bands as well as the
various types of transmission methods.
The market for the Company's products is very competitive, and it is expected
that competition will increase in the future, both with respect to current
products and future products, which SPEEDCOM may develop. Within the wireless
industry, business is intensely competitive and is characterized by rapid
technological change, frequent introduction of new products and evolving
industry standards. Management believes that the principal competitive factors
in the fixed wireless broadband market include:
. expertise and familiarity with 2.4 Gigahertz spread spectrum
technology, wireless data communication protocols and broadband
technology;
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. product performance, features, functionality and reliability;
. price/performance characteristics;
. timeliness of new product introductions;
. adoption of emerging industry standards;
. customer service and support;
. size and scope of distribution network; and
. brand name.
Within the fixed wireless broadband industry, the primary competitors are Agere
Systems, Aironet (part of Cisco Systems) and BreezeCom. The Company also
experiences competition from a number of smaller companies that provide wireless
data communication products. The Company also competes with offerings from local
telephone companies and public telephone and telegraph operators around the
world. These offerings typically consist of a data connection a customer leases
from the local telephone operator, typically as part of a multi-year contract
for services. The Company's products offer several advantages over telephone
company based offerings: competitive performance, no recurring monthly payments,
and return-on-investment often in less than 6 months. Because some telephone
company based offerings can be used at distances greater than SPEEDCOM's
products, the two types of solutions may also act as a complimentary solution
for a customer. While some telephone company offerings have the advantage of
being able to connect buildings at distances greater than can be done using
wireless products, the two types of connections are not mutually exclusive and
can be used in combination to connect remote buildings.
The SPEEDCOM Solution
SPEEDCOM's wireless point-to-point and point-to-multipoint bridge and router
products provide fixed wireless networking, primarily outdoors between
buildings. SPEEDCOM's products can reduce the overall cost of network
connectivity through reduced installation and infrastructure costs. SPEEDCOM's
products also facilitate rapid deployment, temporary networks and semi-fixed
connectivity to the indoor and outdoor environments. SPEEDCOM distinguishes
itself from its competitors by bundling a variety of components into a
comprehensive package and offering its customers not only the package, but full
service as well.
Business Strategy
SPEEDCOM's strategy is to continue providing a complete line of wireless
broadband products and services to sell to Internet service providers and
private data network users. SPEEDCOM intends to accomplish this primarily
through its existing product line and the internal development of new products
and services. SPEEDCOM also intends to promote the wider use of its products by
establishing strategic relationships with partners who can reach additional
segments of the market. SPEEDCOM may seek to acquire one or more companies which
complement SPEEDCOM's product offerings in order to facilitate the Company's
growth.
In January 2001, SPEEDCOM acquired worldwide rights for six years to
PacketHop(TM), a wireless routing software developed by SRI International (SRI).
PacketHop(TM) overcomes the
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traditional need for a direct line of sight between a base station and an end
user's location. PacketHop(TM) allows a wireless system to find the closest
connection, bounce the signal from location to location and remember the path.
As a result, PacketHop(TM) enabled wireless networks will be able to reach a
significantly higher percentage of an Internet service provider's potential
customers than a normal fixed wireless network. SPEEDCOM does not believe that
any other company currently has technology equivalent to PacketHop(TM). Under
the terms of the agreement, SPEEDCOM obtains rights for six years to SRI's
PacketHop(TM) technology in the fixed wireless infrastructure market for the
primary frequencies, including 2.4 Gigahertz, MMDS, 3.5 Gigahertz and 5.7
Gigahertz. SRI International has become a shareholder of SPEEDCOM with a seat on
SPEEDCOM's technical advisory board. SRI is entitled to receive a total of
325,000 shares of common stock of SPEEDCOM to be issued in four traunches. Each
traunch is issuable on specific dates based on the achievement of certain
performance goals. SPEEDCOM has also paid $210,000 in cash to SRI.
The Company's research and development expenses during the fiscal year ending
December 31, 2000 and 1999 were $51,253 and $0, respectively. Budgeted research
and development expenses for the fiscal year ending December 31, 2001 are
$402,000.
Products/Services
SPEEDCOM offers a complete line of wireless broadband equipment. SPEEDCOM's high
performance wireless bridge/router systems connect existing enterprise local
area networks (LANs) for point-to-point and point-to-multi-point, campus area,
or metropolitan area networks. Within the current product line, The Company
offers eight low-end products, which can communicate at 11 Megabits per second
at distances up to 25 miles, and one high-end product, which can communicate at
155 Megabits per second at distances up to 10 miles. Because the performance and
distance a particular product is capable of reaching varies depending on the
end-users network configuration, these values may vary from application to
application. SPEEDCOM derives additional revenue from wireless equipment
installation and field support services, which are contracted with its resellers
and directly with end-users. These services include radio frequency site survey
and path analysis, equipment installation and on site trouble shooting of
problems during operation of the equipment.
SPEEDCOM is developing additional products with smaller size, greater
functionality and greater ease of use for new markets. Currently, SPEEDCOM is
developing a next generation of fixed wireless broadband products, which are to
be based on the emerging 802.11a standard, operating in the 5.7 Gigahertz band.
The new products will deliver throughput at rates up to 54 Megabits per second,
nearly five times as fast as today's products. SPEEDCOM will utilize its own
proprietary board design and software, including the PacketHop(TM) software
licensed from SRI, utilizing many off the shelf radio components from one of
several manufacturers of 54 Megabits per second chips (currently being
developed). SPEEDCOM anticipates that these next generation products will be
available in late-2001 and will position the Company to obtain a growing share
of the rapidly expanding fixed wireless market. The Company is also in
discussions with prospective partners to deploy the Company's products in the
licensed MMDS and 3.5 Gigahertz frequency bands.
5
Operations
SPEEDCOM's manufacturing operations consist primarily of final assembly and
testing at its manufacturing facility in Sarasota, Florida. The Company
purchases, under contract manufacturing relationships, all of the circuit
boards, integrated circuits and other components used in its products from third
party suppliers.
All products are manufactured under a quality assurance system, which has been
recognized as meeting the requirements of ISO-9001. ISO-9001 stands for
"International Standardization Organization" with 9001 indicating an
organization with design and development capabilities as well as manufacturing,
sales and service. An impartial third party auditor, The National Standards
Authority of Ireland (NSAI), reviews the quality system twice per calendar year
to ensure compliance and continuous improvement of the system. Each company, by
its own choosing, incorporates various processes and procedures in order to
effectively manage its operations and related functions. The International
Standards Organization has defined a series of standards by which the procedures
and processes a company utilizes to manage its operations can be measured. The
standard indicates a logical progression of processes a business should
consider, evaluate and improve upon in order that the business may operate
effectively. The internationally recognized accreditation is designed to provide
potential customers an insight to the effectiveness of its business operations
and instill in its customers confidence in SPEEDCOM's ability to provide quality
products and services consistently. Furthermore, the accreditation enhances
SPEEDCOM's ability to market its products and services internationally by
validating this commitment. The National Standards Authority of Ireland is one
of many organizations, accredited by the ISO governing body, to perform third
party evaluations to determine compliance with the ISO standard.
SPEEDCOM was first certified in November 1998; the Company has since passed
surveillance audits every 6 months, including one in November 2000.
Suppliers
Many of the key hardware and software components necessary for the assembly of
the Company's products are only available from a single supplier or from a
limited number of suppliers. The Company has experienced delays and shortages in
the supply of components in the past and could experience delays and shortages
in the future. The Company generally does not maintain a significant inventory
of components and does not have long-term supply contracts with its suppliers.
Government Regulation
The Company is subject to various FCC rules and regulations in the United
States. Current FCC regulations permit license-free operation in certain
FCC-certified bands in the radio spectrum.
6
The Company's spread spectrum wireless products are intended for unlicensed
operation primarily in the 2.4-2.4835 Gigahertz frequency bands. Operation in
these frequency bands is governed by rules set forth in Part 15 of the FCC
regulations. The Part 15 rules are designed to minimize the probability of
interference to other users of the spectrum and, thus, accord Part 15 systems
secondary status. In the event that there is interference between a primary user
and a Part 15 user, a higher priority user can require the Part 15 user to
curtail transmissions that create interference. The FCC, however, has
established standards which create an irrefutable presumption of noninterference
for Part 15 users and the Company believes that its products comply with these
requirements. The Company's products also will be subject to regulatory
requirements in international markets and, therefore, the Company will need to
monitor the development of spread spectrum regulations in certain countries that
represent potential markets for its products. Some countries require safety and
electromagnetic compatibility testing in order for SPEEDCOM to sell its
products.
Sales and Marketing
Sales are generated through two primary means: direct sales to our end customers
and a well-developed VAR (value added resellers)/reseller channel who sell and
service SPEEDCOM's products to a local or regional customer base.
SPEEDCOM currently has over 19 in-house salespeople who sell to certain end
users (primarily Internet service providers and larger private data network
clients). The sales force is also responsible for maintaining the value added
reseller/reseller channel. SPEEDCOM currently has over 200 active value added
resellers, resellers and other dealers.
Indirect sales (i.e. sales to dealers/value added resellers) have historically
been the Company's main source of revenue. SPEEDCOM will continue to support
this business channel, expanding both domestically and internationally.
Telemarketing, supported by sales engineers for design services, provides the
primary sales engines, augmented, in part, by a direct sales team to reach large
corporate and institutional accounts as well as telecommunication carriers and
Internet service providers.
Another existing sales channel is catalog sales. Private branding is expected to
eliminate conflicts with the Company's other sales channels.
Customers
Although SPEEDCOM serves a large and varied group of customers, approximately
15% of SPEEDCOM's revenues for the year ended December 31, 2000 were derived
from one customer (IFX/Communications Ventures). The loss of, or a significant
curtailment of purchases by this customer, or other significant customers of the
Company, could have a material adverse effect on the Company's business,
financial condition and results of operations. No single customer accounted for
10% or more of SPEEDCOM's revenues for the year ended December 31, 1999.
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Employees
SPEEDCOM currently has approximately 100 full time employees. None of SPEEDCOM's
employees are represented by a labor union and SPEEDCOM believes that its
relations with its employees are good.
Item 2. Description of Property
SPEEDCOM currently leases approximately 16,480 square feet of office and light
industrial space in Sarasota, Florida and has also leased offices in Miami,
Dallas, San Diego, Calgary, Sao Paulo, Mexico City, Singapore and Shanghai. To
address long-term capacity issues, SPEEDCOM has signed a 15 year lease for a
to-be-constructed 40,000 square foot facility in Sarasota, Florida, which will
include 8,000 square feet of manufacturing capacity. SPEEDCOM anticipates it
will begin using the new facility during the fourth quarter of 2001. SPEEDCOM's
rent for the first twelve months of the lease, including maintenance, will be
approximately $57,000 per month for the new facility.
Item 5. Market for Common Equity and Related Stockholder Matters
Common Stock Information
The following table sets forth the quarterly high and low per share closing
sales price of the Company's common stock for the periods shown, as quoted on
the OTC Bulletin Board. (The Company was listed on the NASDAQ SmallCap Market in
February 2001). Information before September 26, 2000, the date of the merger
with LTI, is for LTI's common stock. The quotations represent stock prices
between dealers and do not include retail mark-up, mark-down or commission and
may not represent actual transactions.
Per share trading price range:
2000 High Low
First Quarter $ 3.59 $2.13
Second Quarter $11.72 $3.20
Third Quarter $22.90 $9.32
Fourth Quarter $10.25 $3.81
1999 High Low
First Quarter $1.33 $0.80
Second Quarter $2.40 $1.00
Third Quarter $2.40 $1.73
Fourth Quarter $2.20 $1.60
Dividends have not been declared or paid during any periods presented.
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As of March 16, 2001, there were 1,120 shareholders.
Recent Sales of Unregistered Securities
During the year ended December 31, 2000, the Company sold the following
securities which were not registered under the Securities Act. The purchases and
sales were exempt pursuant to Section 4(2) of the Securities Act (and/or
Regulation D promulgated thereunder) as transactions by an issuer not involving
a public offering , where the purchasers represented their intention to acquire
the securities for investment only, not with a view to distribution, and
received or had access to adequate information about the registrant.
1. 1,239,934 shares of common stock, warrants to purchase 84,238 shares of
common stock (exercise price $8.72 per share) and warrants to purchase
114,610 shares of common stock (exercise price $6.54 per share) were issued
for a total of $5,162,023 cash to 72 investors, 47 of which were accredited
investors and 25 of which were not accredited investors.
2. 28,653 shares of common stock to our board member, R. Craig Roos, an
accredited investor, in exchange for $95,000, a 6% promissory note and two
months of consulting services.
3. 154,943 shares of common stock to 10 investors, all of which are accredited
investors, for finder's fees and costs in connection with our merger with
LTI.
4. 148,000 shares of common stock issued to Del Mar Consulting Group, an
accredited investor, for services rendered in connection with the merger
with LTI and for investor relations services.
5. 25,000 shares of common stock issued to H.C. Wainwright, an investment
banker and accredited investor, and three of its principals, as a retainer
for services to be rendered through April 2001 in connection with raising
capital for the Company.
6. A $250,000 promissory note to Mr. Sanguinetti our former president and
an accredited investor, together with 25,000 warrants for the purchase of
common stock (exercise price $3.60 per share).
7. A $252,000 promissory note payable in cash or 70,000 shares of common
stock, at the holder's option, to an accredited investor.
8. A $200,000 promissory note payable in cash or 50,000 shares of common
stock, at the holder's option, to an accredited investor.
9. A $10,800 promissory note payable in cash or 3000 shares of common stock,
at the holder's option, to an accredited investor.
10. A $40,000 subordinated promissory note convertible into 10,000 shares of
common stock, to an accredited investor.
In addition, during the year ended December 31, 2000, two employees of the
Company purchased 18,172 shares of common stock pursuant to the exercise of
stock options at $2.62 per share. These purchases and sales were exempt pursuant
to Rule 701 promulgated under the Securities Act.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The discussion in this document contains trend analysis and other forward-
looking statements within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended that involve risks and uncertainties, such as statements concerning
growth and future operating results; developments in markets and strategic
focus; new products and services and product technologies and future economic,
business and regulatory conditions. Such forward-looking statements are
generally accompanied by the words
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such as "plan", "estimate", "expect", "believe", "should", "would", "could",
"anticipate", "may" and other words that convey uncertainty of future events or
outcomes. These forward-looking statements and other statements made elsewhere
in this report are made in reliance on the Private Securities Litigation Reform
Act of 1995. The section below entitled "Certain Factors That May Affect Future
Results, Financial Condition and Market Price of Securities" sets forth material
factors that could cause actual results to differ materially from these
statements.
Overview
SPEEDCOM is a multi-national company based in Sarasota, Florida. The Company
employs approximately 100 people. Through its Wave Wireless Networking division,
SPEEDCOM manufactures a variety of broadband wireless products, including its
Speedlan family of wireless ethernet bridges and routers. Through its
InstallGuys division, SPEEDCOM provides wireless installations and services.
Internet service providers, telephone company operators and private
organizations in more than 60 countries use SPEEDCOM products to provide "last-
mile" wireless connectivity between multiple buildings at speeds up to 155
Megabits per second and distances of more than 25 miles.
Results of Operations
The following table sets forth the percentage of net revenues represented by
certain items in the Company's Statements of Operations for the periods
indicated.
Fiscal Year Ended December 31,
-------------------------------
2000 1999
-------------------------------
Net revenues 100% 100%
Operating costs and expenses:
Cost of goods and services 54% 61%
Salaries and related 34% 32%
General and administrative 18% 11%
Selling expenses 13% 8%
Provision for bad debt 2% 1%
Depreciation and amortization 2% 1%
-------------------------------
123% 114%
-------------------------------
Loss from operations (23)% (14)%
Other income (expense):
Interest expense, net 0% (2)%
Other (expense) income, net (1)% 0%
-------------------------------
(1)% (2)%
10
-------------------------------
Net loss (24)% (16)%
===============================
Fiscal 2000 Compared to Fiscal 1999
Net revenues increased 114% from approximately $4,978,000 in the year ended
December 31, 1999 to approximately $10,662,000 in the year ended December 31,
2000. This increase was due to SPEEDCOM executing its business plan of expanding
the business in a growing market for broadband wireless in 2000 coupled with
SPEEDCOM's poor performance in the 1999 fiscal year due to its operating in a
capital constrained position. Capital constraints in 1999 prevented SPEEDCOM
from purchasing inventory timely, funding research and development, and
promoting and selling the Company's products and limited necessary fixed asset
purchases. Cost of goods and services increased 91% from approximately
$3,025,000 for the year ended December 31, 1999 to approximately $5,784,000 for
the year ended December 31, 2000, due primarily to increases in the Company's
revenues. Revenues from customers in foreign geographic areas increased to 45%
of revenues for the year ended December 31, 2000 as compared to 23% of revenues
the year ended December 31, 1999. The percentage of sales that are from
international customers is expected to increase slightly or remain stable in the
year ended December 31, 2001.
Salaries and related, general and administrative and selling expenses increased
by 175% from approximately $2,524,000 for the 1999 year to approximately
$6,935,000 for the 2000 year. This increase was primarily due to an increase in
employee headcount which increased salaries and related expenses approximately
$2,018,000, spending on investor relations in connection with the merger of
$200,000, increased spending on marketing and promotion, such as attendance at
industry trade shows, of approximately $102,000, coupled with an unusually low
expense level during 1999 due to the Company operating in a capital constrained
position. Additionally, SPEEDCOM incurred higher professional fees of
approximately $395,000 due to the requirement for two years of financial
statement audits for Old SPEEDCOM during 2000 but did not incur any such expense
for an audit in 1999 and significant non-recurring costs in 2000 associated with
the Company's merger with LTI and application to the Nasdaq Small Cap Market.
Net interest expense decreased by approximately 66%, from approximately $108,000
for the year ended December 31, 1999 to approximately $36,000 for the year ended
December 31, 2000. This decrease was due to the elimination in borrowings under
SPEEDCOM's factoring line as a result of an infusion of equity in 2000 and
continued paydown of SPEEDCOM's inventory- based loan facility.
Net loss increased 226% from approximately $791,000, or $.11 per share, in 1999
to approximately $2,578,000, or $.31 per share, in 2000, as a result of the
foregoing factors.
Taxes
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At December 31, 2000, SPEEDCOM had net operating loss carryforwards (NOLs) for
federal income tax purposes of approximately $4,400,000. The NOLs expire at
various dates through the year 2020.
Quarterly Results
The following table sets forth certain quarterly financial data for the periods
indicated.
Three Months Ended
March June September December
----------------------------------------------------------------------
Fiscal 2000
Net revenues $ 1,846,599 $ 2,154,383 $ 3,182,673 $ 3,478,823
Loss from operations $ (179,922) $ (504,048) $ (596,666) $ (1,214,897)
Net loss $ (178,176) $ (500,524) $ (598,882) $ (1,300,185)
Net loss per common share $ (0.02) $ (0.06) $ (0.07) $ (.14)
Weighted average shares outstanding 7,662,726 7,977,218 8,213,558 9,196,994
Fiscal 1999
Net revenues $ 1,037,608 $ 974,217 $ 1,726,783 $ 1,239,173
(Loss) income from operations $ (161,527) $ (141,549) $ 149,252 $ (541,074)
Net (loss) income $ (175,718) $ (168,926) $ 129,208 $ (575,072)
Net loss per common share $ (0.03) $ (0.02) $ 0.02 $ (0.08)
Weighted average shares outstanding 6,982,692 6,982,713 7,058,160 7,212,098
Liquidity and Capital Resources
During the year ended December 31, 2000, SPEEDCOM used approximately $4,340,000
of cash for its operating activities. This was primarily due to increases in
accounts receivable (due to increases in sales) and its net loss for the period.
SPEEDCOM purchased approximately $923,000 of fixed assets during the year ending
December 31, 2000 as compared to approximately $75,000 during the same period in
1999, an 1138% increase. To fund this growth in assets and sales, SPEEDCOM
raised approximately $5,422,000 through the issuance of common stock and
warrants, through private investments and the reverse merger with LTI. As of
December 31, 2000, SPEEDCOM had cash of approximately $227,000.
During the year ended December 31, 1999 SPEEDCOM used approximately $785,000 for
its operating activities. This was primarily due to decreases in accounts
payable and its net loss for the period. SPEEDCOM's cash flow used for financing
activities increased due to the receipt of approximately $967,000 from the sale
of its common stock during the 1999 year. As of December 31, 1999, SPEEDCOM had
cash of approximately $109,000.
In April 2001, SPEEDCOM entered into a one-year $3,000,000 bridge loan. The loan
is due in April 2002 and bears interest at 9% for the first 90 days and 12%
thereafter. As part of the transaction, SPEEDCOM issued 333,333 warrants to
acquire SPEEDCOM common stock at $5.00 per share. The proceeds of the bridge
note will be used to repay certain short-term debt and payables and for general
working capital. The Company obtained net proceeds of
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approximately $2,700,000 for this bridge loan. Additional warrants are issuable
contingent upon the date on which the loan is repaid. The holder of the loan has
certain rights of first refusal on subsequent financings. Interest is due under
the loan in quarterly installments with principal payable in total at the
maturity date of the loan.
The Company believes that current resources are sufficient to execute its
business plan for 2001. However, the Company may seek additional capital to take
advantage of opportunities that may arise. This additional capital could come
from the sale of common or preferred stock, the exercise of outstanding
warrants, or from borrowings. Any material acquisitions of complementary
businesses, products or technologies could also require additional equity or
debt financing. There can be no assurance that such financing will be available
on acceptable terms, if at all. In addition, if the Company's financial results
are significantly less than its operating plan, the Company's business, future
operating results, and financial condition will be adversely effected. In these
circumstances, changes in the Company's cost structure and capital expenditures
could be required. Management believes its projections of revenue growth are
achievable. However, these actions would be implemented if necessary.
Certain Factors That May Affect Future Results, Financial Condition and Market
Price of Securities
If we do not raise additional capital, we may not be able to fulfill our
business plan.
In order to take advantage of possible opportunities in 2001 and to execute our
business plan for 2002, we may need to raise additional financial capital. If we
are unsuccessful in raising that capital, we may not have sufficient funding to
purchase necessary goods and services to execute our business plan.
We may not be able to compete successfully in the fixed wireless broadband
market in view of rapid technological change and the resources required to deal
with technological change.
The markets for our products and the technologies utilized in the industry in
which we operate evolve rapidly and depend on key technologies, including
wireless local area networks, wireless packet data, modem and radio
technologies. SPEEDCOM is developing a series of next generation products, which
incorporates the PacketHop(TM) licensed technology from SRI. Delays in
developing these products could have a negative effect on our future
competitiveness as the industry is constantly changing as new technologies are
developed.
The fixed wireless broadband market is at an early stage of development and is
rapidly evolving. As is typical for a new and rapidly evolving industry, demand
and market acceptance for recently introduced wireless networking products and
services are subject to a high level of uncertainty. Market acceptance of
particular products cannot be predicted; however, it is likely that new products
will not be generally accepted unless they operate at higher speeds and are sold
at lower prices. While the number of businesses recognizing the value of
wireless solutions is increasing, we do not know whether sufficient demand for
our products will emerge and become sustainable. Prospects must be evaluated due
to the risks encountered by a company in the early stages of
13
marketing new products or services, particularly in light of the uncertainties
relating to the new and evolving markets in which we operate. There can be no
assurance that we will succeed in addressing any or all of these risks, and the
failure to do so would reduce demand for SPEEDCOM's products.
We could encounter future competition from larger wireless, computer and
networking equipment companies. We could also encounter additional future
competition from companies that offer products that replace or are alternatives
to radio frequency wireless solutions including, for example, products based on
infra-red technology or laser technology and systems that utilize existing
telephone wires (such as DSL) or cables within a building as a wired network
backbone or satellite systems outside of buildings.
Major changes could render products and technologies obsolete or subject to
intense competition from alternative products or technologies or by improvements
in existing products or technologies. For example, Internet access and wireless
local loop equipment markets may stop growing, whether as a result of the
development of alternative technologies, such as fiber optic, coaxial cable or
satellite systems. Also, new or enhanced products developed by other companies
may be technologically incompatible with SPEEDCOM's products and render our
products obsolete.
Many of SPEEDCOM's current and potential competitors have significantly greater
financial, marketing, technical and other resources and, as a result, may be
able to respond more quickly to new or emerging technologies or standards and to
changes in customer requirements, or to devote greater resources to the
development, promotion and sale of products or to deliver competitive products
at a lower end user price. Current and potential competitors have established or
may establish cooperative relationships among themselves or with third parties
to increase the ability of their products to address the needs of SPEEDCOM's
existing and prospective customers. Accordingly, it is possible that new
competitors or alliances among competitors may emerge and rapidly acquire
significant market share. Increased competition could result in price
reductions, reduced operating margins and loss of market share by SPEEDCOM.
SPEEDCOM's reliance on limited sources of wireless and computer components could
result in delayed product shipment and higher costs and could damage customer
relationships.
Many of the key hardware and software components necessary for the assembly of
SPEEDCOM's products are only available from a single supplier or from a limited
number of suppliers. Our reliance on sole or limited source suppliers involves
several risks, including:
. suppliers could increase component prices significantly, without
advance notice;
. suppliers could discontinue or delay delivery of product components
for reasons such as inventory shortages, new product offerings,
increased cost of materials, destruction of manufacturing
facilities, labor disputes and bankruptcy; and
14
. in order to compensate for potential component shortages or
discontinuance, in the future we may hold more inventory than is
immediately required, resulting in increased inventory costs.
If our suppliers are unable to deliver or ration components to us, we could
experience interruptions and delays in manufacturing and sales, which could
result in cancellation of orders for products or the need to modify products.
This may cause substantial delays in product shipments, increased manufacturing
costs and increased product prices. Further, we may not be able to develop
alternative sources for these components in a timely way, if at all, and may not
be able to modify our products to accommodate alternative components. These
factors could damage our relationships with current and prospective customers
lasting longer than any underlying shortage or discontinuance.
Expanding indirect distribution channels may result in increased costs and
lower margins.
To increase revenues, we believe that we must increase the number of our
distribution partners. Management's strategy includes an effort to reach a
greater number of end users through indirect channels. SPEEDCOM is currently
investing, and plans to continue to invest, significant resources to develop
these indirect channels. These efforts may not generate the revenues necessary
to offset such investments. We will be dependent upon the acceptance of our
products by distributors and their active marketing and sales efforts relating
to our products. The distributors to whom we sell products are independent and
are not obligated to deal with SPEEDCOM exclusively or to purchase any specified
amount of products. Because SPEEDCOM does not generally fulfill orders by end
users of its products sold through distributors, SPEEDCOM will be dependent upon
the ability of distributors to accurately forecast demand and maintain
appropriate levels of inventory. Management expects that SPEEDCOM's distributors
will also sell competing products. These distributors may not continue, or may
not give a high priority to, marketing and supporting our products. This and
other channel conflicts could result in diminished sales through the indirect
channels. Additionally, because lower prices are typically charged on sales made
through indirect channels, increased indirect sales could adversely affect the
average selling prices and result in lower gross margins.
Growth may divert management resources from current operations.
SPEEDCOM has significantly expanded its operations in recent years, and
anticipates that further expansion will be required to address potential growth
in the customer base and market opportunities. This expansion has placed, and
future expansion is expected to place, a significant strain on our management,
technical, operational, administrative and financial resources. SPEEDCOM will
need to effectively manage any expansion, which could divert attention and
resources from current operations. The expansion and planned expansion may be
inadequate to support future operations. We may be unable to attract, retain,
motivate and manage required personnel, including finance, administrative and
operations staff, or to successfully identify, manage and exploit existing and
potential market opportunities because of inadequate staffing.
15
We may also be unable to manage further growth in our multiple relationships
with original equipment manufacturers, distributors and other third parties.
Our international operations and sales involve significant risks that could
reduce sales and increase expenses.
We anticipate that revenues from customers outside North America will continue
to account for a significant portion of our total revenues for the foreseeable
future. Expansion of international operations has required, and will continue to
require, significant management attention and resources. In addition, we remain
heavily dependent on distributors to market, sell and support our products
internationally. International operations are subject to additional risks,
including the following:
. difficulties of staffing and managing foreign operations due to time
differences, language barriers and staffing constraints in the
foreign sales offices;
. longer customer payment cycles and greater difficulties in collecting
accounts receivable increase the amount of time that we have to fund
our purchase of the inventory sold;
. unexpected changes in regulatory requirements, exchange rates, trading
policies, tariffs and other barriers could increase our costs;
. uncertainties of laws and enforcement relating to the protection of
intellectual property could allow competitors to infringe on our
technology;
. limits on the ability to sue and enforce a judgment for accounts
receivable increase the risk of bad debt expense;
. potential adverse tax consequences could create additional expense;
and
. political and economic instability in Latin America could limit our
sales in that region.
SPEEDCOM has a history of losses and may never achieve or sustain profitability.
We have incurred significant losses since our inception. SPEEDCOM intends to
decrease its operating expenses in an attempt to achieve profitability in the
fourth quarter of 2001, however revenues may not grow or even continue at their
current level. If revenues do not rapidly increase or if we are not able to
decrease expenses, we will never become profitable.
Our common stock price is volatile.
Our stock and the Nasdaq stock market in general have experienced significant
price and volume fluctuations in recent months and the market prices of
technology companies have been highly volatile. In the past, following periods
of volatility in the market price of a company's securities, securities class
action litigation has often been instituted against that company. Such
litigation could result in substantial costs and diversion of management's
attention.
Our manufacturing capabilities are limited and could prevent us from keeping
up with customer demand.
16
SPEEDCOM has no experience in large-scale manufacturing. If our customers were
to place orders substantially greater than current levels, SPEEDCOM's present
manufacturing abilities may not be adequate to meet such demand. There can be no
assurance that we will be able to contract additional manufacturing personnel on
a timely basis.
Our concentrated ownership structure means that our two controlling shareholders
can control the outcome of any shareholder vote.
A majority of SPEEDCOM's common stock is currently controlled by Michael W.
McKinney and Barbara McKinney (the McKinneys). Therefore, certain corporate
actions, which the Board of Directors may deem advisable for the shareholders of
SPEEDCOM as a whole, such as a business combination, may not be approved by the
common shareholders if submitted to a vote, unless the McKinneys approve the
potential transaction.
SPEEDCOM is subject to extensive and unpredictable government regulation, which
could make our products obsolete, raise our development costs and create
opportunities for other competitors.
SPEEDCOM is subject to various FCC rules and regulations in the United States
and to other government regulations abroad. There can be no assurance that new
FCC regulations will not be promulgated or that existing regulations outside of
the United States would not adversely affect international marketing of
SPEEDCOM's products.
Regulatory changes, including changes in the allocation of available frequency
spectrum, could significantly impact operations by restricting development
efforts, rendering current products obsolete or increasing the opportunity for
additional competition. In September 1993 and in February 1995, the FCC
allocated additional spectrum for personal communications services. In January
1997, the FCC authorized 300 MHz of additional unlicensed frequencies in the 5
Gigahertz frequency range. In 2000, the FCC modified the rules for "frequency
hopping spread spectrum" radios to allow greater power utilization in certain
circumstances. These changes in the allocation of available frequency spectrum
could create opportunities for other wireless networking products and services
or shift the competitive balance between SPEEDCOM and its competitors.
17
Item 7. Financial Statements
Report of Independent Certified Public Accountants
Board of Directors
SPEEDCOM Wireless Corporation
We have audited the accompanying balance sheets of SPEEDCOM Wireless Corporation
as of December 31, 2000 and 1999 and the related statements of operations,
changes in stockholders' equity (deficit) and cash flows for the years then
ended. Our audits also included the financial statement schedule listed at Item
13. These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of SPEEDCOM Wireless Corporation
at December 31, 2000 and 1999, and the results of its operations and its cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material aspects the
information set forth therein.
/s/ ERNST & YOUNG LLP
Tampa, Florida
April 13, 2001
SPEEDCOM WIRELESS CORPORATION
BALANCE SHEETS
December 31,
2000 1999
---------------------------------
Assets
Current assets:
Cash $ 227,066 $ 108,564
Restricted cash -- 35,671
Accounts receivable, net of allowances of $296,330 and $143,371 in
2000 and 1999, respectively 1,788,206 515,155
Lease receivable 43,389 --
Inventories, net of reserves of $32,596 and $55,576 in
2000 and 1999, respectively 2,388,283 553,004
Prepaid expenses and other current assets 732,753 7,182
---------------------------------
Total current assets 5,179,697 1,219,576
Accounts receivable 586,578 --
Property and equipment, net 956,133 199,199
Lease receivable 36,157 --
Other assets, net 158,405 44,284
Investments 76,994 --
---------------------------------
Total assets $ 6,993,964 $ 1,463,059
=================================
Liabilities and stockholders' equity (deficit)
Current liabilities:
Accounts payable $ 2,673,570 $ 817,092
Current portion of accrued expenses 700,815 362,134
Current portion of loans from stockholders 336,780 45,639
Current portion of deferred revenue 90,047 83,005
Current portion of notes and capital leases payable 52,901 328,781
---------------------------------
Total current liabilities 3,854,113 1,636,651
Accrued expenses, net of current portion -- 12,000
Loans from stockholders, net of current portion 203,733 --
Deferred revenue, net of current portion 50,141 63,616
Notes and capital leases payable, net of current portion 57,294 99,154
Stockholders' equity (deficit):
Common stock, $.001 par value, 30,000,000 shares authorized,
9,289,529 and 7,351,323 shares issued and outstanding in 2000
and 1999, respectively 9,289 7,351
Preferred stock, 10,000,000 shares authorized -- --
Additional paid-in capital 7,889,817 2,061,943
Accumulated deficit (4,995,423) (2,417,656)
Notes receivable - related party (75,000) --
---------------------------------
Total stockholders' equity (deficit) 2,828,683 (348,362)
---------------------------------
Total liabilities and stockholders' equity (deficit) $ 6,993,964 $ 1,463,059
=================================
See accompanying notes.
19
SPEEDCOM WIRELESS CORPORATION
STATEMENTS OF OPERATIONS
Years Ended December 31,
2000 1999
---------------------------------
Net revenues $ 10,662,478 $ 4,977,781
Operating costs and expenses:
Cost of goods and services 5,784,415 3,025,034
Salaries and related 3,596,052 1,578,440
General and administrative 1,920,392 543,782
Selling expenses 1,418,514 402,230
Provision for bad debt 272,957 78,827
Depreciation and amortization 165,681 44,366
---------------------------------
13,158,011 5,672,679
---------------------------------
Loss from operations (2,495,533) (694,898)
Other income (expense):
Interest expense, net (36,402) (107,763)
Other (expense) income, net (45,832) 12,153
---------------------------------
(82,234) (95,610)
---------------------------------
Net loss $ (2,577,767) $ (790,508)
=================================
Net loss per common share:
Basic and diluted $ (0.31) $ (0.11)
=================================
Shares used in computing basic and diluted net loss per
share 8,266,693 7,059,753
=================================
See accompanying notes.
20
SPEEDCOM WIRELESS CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
Common Stock
Shares Amount Additional Accumulated Note Total
Paid-in Deficit Receivable
Capital
Balance at January 1, 1999 6,981,693 $6,982 $1,125,619 $(1,627,148) $ -- $ (494,547)
Issuance of common stock for cash 417,892 417 966,386 -- -- 966,803
Issuance of common stock for services 9,043 9 19,881 -- -- 19,890
Treasury shares purchased (57,305) (57) (49,943) -- -- (50,000)
Net loss -- -- -- (790,508) -- (790,508)
------------------------------------------------------------------------------------------
Balance at December 31, 1999 7,351,323 7,351 2,061,943 (2,417,656) -- (348,362)
Issuance of common stock and 1,950,834 1,951 5,370,807 -- -- 5,372,758
warrants for cash
Exercise of stock options 18,822 19 49,295 -- -- 49,314
Issuance of common stock for 28,653 28 99,972 -- (95,000) 5,000
note and consulting services
Services rendered and payment -- -- -- -- 20,000 20,000
collected on note
Issuance of common stock for 125,000 125 531,125 531,250
services
Treasury shares purchased (185,103) (185) (223,325) -- -- (223,510)
Net loss -- -- -- (2,577,767) -- (2,577,767)
------------------------------------------------------------------------------------------
Balance at December 31, 2000 9,289,529 $9,289 $7,889,817 $(4,995,423) $(75,000) $ 2,828,683
==========================================================================================
See accompanying notes.
21
SPEEDCOM WIRELESS CORPORATION
STATEMENTS OF CASH FLOWS
Years Ended December 31,
2000 1999
--------------------------------
Operating activities
Net loss $ (2,577,767) $ (790,508)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 165,681 55,457
Provision for bad debt 272,957 78,827
Provision for inventory obsolescence (22,980) 44,576
Gain on sale of assets -- (3,350)
Common stock issued for services 220,000 19,890
Changes in operating assets and liabilities:
Restricted cash 35,671 37,198
Accounts receivable (2,132,586) 196,966
Lease receivable (79,546) --
Inventories (1,812,299) 237,992
Prepaid expenses and other current assets (394,321) 1,828
Other assets (191,115) (12,082)
Accounts payable and accrued expenses 2,183,159 (708,224)
Deferred revenue (6,433) 56,250
--------------------------------
Net cash used in operating activities (4,339,579) (785,180)
Investing activities
Proceeds from sale of equipment -- 3,350
Purchases of equipment (922,615) (74,547)
--------------------------------
Net cash used in investing activities (922,615) (71,197)
Financing activities
Repayments of advances from factor (111,731) (115,584)
Proceeds from sale of common stock and warrants 5,422,072 966,803
Proceeds from loans from stockholders 540,513 --
Payments of loans from stockholders (45,639) --
Proceeds from issuance of note 12,500 223,300
Payments of notes and capital leases (213,509) (59,578)
Purchase of treasury stock (223,510) (50,000)
--------------------------------
Net cash provided by financing activities 5,380,696 964,941
--------------------------------
Net increase in cash 118,502 108,564
Cash at beginning of year 108,564 --
--------------------------------
Cash at end of year $ 227,066 $ 108,564
================================
See accompanying notes.
22
SPEEDCOM WIRELESS CORPORATION
STATEMENTS OF CASH FLOWS (CONTINUED)
Years Ended December 31,
2000 1999
--------------------------------
Supplemental disclosure of cash flow information
Cash paid for interest $ 20,931 $ 28,667
Supplemental disclosure of noncash investing and financing
activities
Increase in capital lease obligations -- $ 8,501
Common stock issued for services $ 551,250 $ 19,890
Common stock issued for note $ 95,000 --
See accompanying notes.
23
SPEEDCOM WIRELESS CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
1. Business
SPEEDCOM Wireless Corporation was incorporated in Florida on March 16, 1994 and
reincorporated in Delaware on September 26, 2000. The Company manufactures and
installs custom broadband wireless networking equipment for business and
residential customers internationally. Through its Wave Wireless Networking
division, the Company manufactures a variety of broadband wireless products,
including the Speedlan family of wireless ethernet bridges and routers. Internet
service providers, telephone company operators and private organizations in over
60 countries use SPEEDCOM products to provide "last-mile" wireless connectivity
between multiple buildings at speeds up to 100 Megabits per second and distances
of up to 25 miles. SPEEDCOM Wireless Corporation is an ISO 9001 registered
company.
2. Basis of Presentation
On September 26, 2000, SPEEDCOM Wireless International Corporation merged with
LTI. The parties renamed the combined company SPEEDCOM Wireless Corporation and
continued the business of Old SPEEDCOM. Pursuant to the terms of the merger
agreement, LTI effected a 1 for 4.26 reverse stock split prior to the merger.
The reverse stock split reduced the number of LTI's outstanding common shares to
655,958, the number of shares issuable upon exercise of LTI's stock warrants to
1,966,927 and the number of shares issuable upon exercise of LTI's purchase
options to 39,950. The merger was also effected with the issuance by LTI of
8,515,778 shares of its common stock, on a 1.146 for 1 basis, for the
outstanding common shares of Old SPEEDCOM, which included an additional
1,084,873 shares issued to Old SPEEDCOM shareholders as a closing adjustment
under the merger agreement. All shares issued pursuant to the reverse merger
were included in calculating the Net loss per common share.
Since LTI was a non-operating shell company, the merger was treated as a
recapitalization of the Company for accounting purposes. As a result, the
Company recorded the transaction as the issuance of common stock for the net
monetary assets of LTI (principally cash), accompanied by a recapitalization of
equity. The Company recorded a net increase in equity of $1,215,937, which
represented the total net assets of LTI, which is included in the Issuance of
common stock and warrants for cash line item of the Statements of Changes in
Stockholders' Equity (Deficit). The Company has recorded the transaction to
reflect the shares outstanding under the current structure. There has been no
change in the basis under which the assets and liabilities of the Company are
recorded. Accordingly, except as specifically noted to the contrary, (1) the
financial information herein that predates the merger consists of information
about Old SPEEDCOM, and (2) all references to SPEEDCOM or the Company refer to
Old SPEEDCOM before the merger and to the combined company after the merger. The
financial statements presented in this Form 10-KSB/A reflect the financial
position of the remaining legal entity, LTI, which subsequently changed its name
to SPEEDCOM Wireless Corporation. All shares, options
24
and warrants issued by SPEEDCOM prior to the merger have been retroactively
restated for all periods presented to reflect the 1.146 for 1 merger exchange
ratio.
The accompanying financial statements have been prepared pursuant to the rules
and regulations of the Securities and Exchange Commission (SEC).
In the opinion of management, the financial statements reflect all adjustments
(consisting of only normal and recurring adjustments) necessary to present
fairly the financial position, results of operations and cash flows for those
periods presented.
3. Summary of Significant Accounting Policies
Revenue Recognition
The Company contracts with customers under short-term (generally two to four
weeks in duration) arrangements to configure, assemble, and install wireless
communications products. The Company recognizes revenue on its wireless
communications products upon shipment as title transfer occurs at the time of
shipment. The Company does not extend any form of price protection to its
customers or resellers. Customers may exchange or return merchandise within 30
days if the product is found to be non-functional upon delivery. The Company
also sells extended maintenance agreements, for periods of one to three years.
Revenue on extended maintenance agreements is deferred and recognized on a
straight-line basis over the term of the agreement.
Effective January 1, 2000, the Company adopted the provisions of the Securities
and Exchange Staff Accounting Bulletin No. 101, REVENUE RECOGNITION IN FINANCIAL
STATEMENTS (SAB 101). SAB 101 provides guidance on the recognition,
presentation, and disclosures of revenue in financial statements. The adoption
of SAB 101 had no impact on the Company's financial statements.
Concentration of Credit Risk
The Company's financial instruments that are exposed to concentrations of credit
risk, as defined by Statement of Financial Accounting Standards (SFAS) No. 105,
DISCLOSURE OF INFORMATION ABOUT FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET
RISK AND FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OF CREDIT RISK, are primarily
cash and cash equivalents and accounts receivable.
The Company places its cash and temporary cash investments with high-quality
institutions. Accounts receivable are from the configuration, assembly and
installation of wireless communications products. Credit is extended based on
evaluation of the customer's financial condition and generally collateral is not
required. Anticipated credit losses are provided for in the financial statements
and have been within management's expectations. As of December 31, 2000, 49% of
the Company's accounts receivable were from one customer. As of December 31,
1999, no single customer accounted for more than 10% of the Company's accounts
receivable.
25
Factored Accounts Receivable
The Company accounted for its accounts receivable factoring arrangement as a
secured borrowing pursuant to SFAS No. 125, ACCOUNTING FOR TRANSFERS AND
SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENT OF LIABILITIES. As a result,
the balances of accounts receivable sold to the lending institution as of
December 31, 1999 are shown as assets of the Company and the amounts advanced to
the Company are shown as being payable to the factor. The related service charge
is reflected in interest expense in the period that the accounts receivable are
transferred. Cash balances retained by the lending institution are reflected in
the accompanying financial statements as restricted. As of December 31, 2000
this agreement was terminated, therefore there were no borrowings outstanding
under this arrangement.
Inventories
Inventories consist of telecommunications equipment, related component parts
used in the assembly of wireless network products and finished assemblies ready
for installation. Inventories are recorded at the lower of cost (using the
first-in, first-out method) or net realizable value. Labor and overhead costs
related to assemblies and installations in process are included in the cost of
finished assemblies.
Impairment of Long-Lived Assets
In accordance with SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED
ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, the Company reviews its
long-lived assets for impairment when events or changes in circumstances
indicate that the carrying value of such assets may not be recoverable. This
review consists of a comparison of the carrying value of the asset held for use
in operations with the asset's expected future undiscounted cash flows with
interest costs. Estimates of expected future cash flows represent management's
best estimate based on reasonable and supportable assumptions and projections.
If the expected future cash flow exceeds the carrying value of the asset, no
impairment is recognized. If the carrying value of the asset exceeds the
expected future cash flows, an impairment exists and is measured by the excess
of the carrying value over the fair value of the asset. Any impairment
provisions recognized are permanent and may not be restored in the future. No
impairment loss was recognized in 2000 or 1999.
Investments
Investments are stated at the lower of cost or market value. As of December 31,
2000, the cost of the Company's investments estimated their fair market value,
thus no unrealized gain or loss was recorded.
26
Property And Equipment
Property and equipment are stated at cost. Depreciation and amortization are
calculated using the straight-line method over the estimated useful lives of
depreciable assets ranging from three to five years. Leasehold improvements are
amortized over the shorter of the useful life of the asset or the term of the
related lease agreement.
Financial Instruments
The Company's significant financial instruments include accounts receivable,
accounts payable and notes payable. The Company believes that the carrying
values of financial instruments in the accompanying balance sheets approximate
their respective fair values.
Income Taxes
Currently, the Company follows the liability method of accounting for income
taxes in accordance with SFAS No. 109, ACCOUNTING FOR INCOME TAXES (SFAS 109).
Under SFAS 109, deferred income taxes are recorded based upon differences
between the financial reporting and tax bases of assets and liabilities, and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to affect taxable income.
Stock-Based Compensation
The Company accounts for employee stock-based compensation using the intrinsic
method in accordance with Accounting Principles Board No. 25, ACCOUNTING FOR
STOCK ISSUED TO EMPLOYEES, (APB 25) and related Interpretations. Accordingly, in
cases where exercise prices equal or exceed fair market value of the stock at
the date of grant, the Company recognized no compensation expense for stock
option grants. In cases where exercise prices are less than fair value of the
stock at the date of grant, compensation is recognized over the period of
performance or the vesting period. For purposes of stock-based compensation
prior to the reverse merger with LTI, the fair value of the stock underlying the
awards has been determined relative to the sales prices received in private
placements of common stock by the Company. For purposes of stock-based
compensation after the reverse merger with LTI, the fair value of the stock
underlying the awards has been determined to be the market price on the date of
grant. Pro forma financial information, assuming that the Company had adopted
the fair value measurement standard of SFAS 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION, for all stock-based compensation, is included in Note 11 to the
financial statements.
Advertising Costs
The Company's policy is to expense advertising costs as incurred. During the
years ended December 31, 2000 and 1999, the Company expensed $327,590 and
$16,637, respectively, in advertising expenses. Such amounts are included in
selling expenses.
27
Research and Development Costs
The Company's research and development expenses during the fiscal year ending
December 31, 2000 and 1999 were $51,253 and $0, respectively.
Loss Per Share
The Company has applied the provisions of SFAS 128, EARNINGS PER SHARE, which
establishes standards for computing and presenting earnings (loss) per share.
Basic earnings (loss) per share is computed by dividing net earnings (loss) by
the weighted average number of shares outstanding for the period. The
calculation of diluted earnings per share includes the effect of dilutive common
stock equivalents. No dilutive common stock equivalents existed in any year
presented.
Unexercised options and warrants to purchase 644,355 and 0 shares of common
stock and unexercised convertible debt to purchase 123,000 and 0 shares of
common stock for the years ended December 31, 2000 and 1999, respectively were
not included in the computations of diluted loss per share because assumed
conversion would be antidilutive.
Use Of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amount reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Reclassifications
Certain prior year amounts have been reclassified to conform to the 2000
presentation.
4. Recently Issued Accounting Standards
In June 2000, the Financial Accounting Standards Board issued SFAS 138,
ACCOUNTING FOR CERTAIN DERIVATIVE INSTRUMENTS AND CERTAIN HEDGING ACTIVITIES, an
amendment of Statement 133, which is effective for fiscal years beginning after
June 15, 2000. The adoption of this Statement did not have a significant effect
on the Company's financial position and results of operations.
5. Inventories
A summary of inventories at December 31, 2000 and 1999 is as follows:
28
2000 1999
------------------------------
Component parts $ 1,156,966 $ 458,385
Completed assemblies 1,231,317 94,619
------------------------------
$ 2,388,283 $ 553,004
==============================
6. Property And Equipment
A summary of property and equipment at December 31, 2000 and 1999 is as follows:
2000 1999
-----------------------------
Computer and office equipment $ 822,006 $ 192,952
Automobiles 51,737 43,637
Leasehold improvements 86,207 18,706
Furniture and fixtures 135,415 16,775
Store and warehouse 101,719 22,117
Construction in progress 49,244 29,526
-----------------------------
1,246,328 323,713
Less accumulated depreciation (290,195) (124,514)
-----------------------------
$ 956,133 $ 199,199
=============================
Property and equipment included computer and office equipment of $67,797
acquired under capital lease arrangements at December 31, 2000 and 1999.
Amortization and depreciation expense amounted to $165,681 and $55,457 for the
years ended December 31, 2000 and 1999, respectively. Amortization of assets
under capital lease arrangements is included in depreciation expense.
7. Accrued Expenses
A summary of accrued expenses at December 31, 2000 and 1999 is as follows:
2000 1999
------------------------------
Accrued payroll $ 287,252 $ 79,956
Accrued commissions 109,052 10,673
Other 304,511 271,505
------------------------------
$ 700,815 $ 362,134
==============================
8. Loans from Stockholders
A summary of unsecured stockholder loans at December 31, 1999 is as follows:
29
19% note payable originally due February 28, 1998 $ 5,139
19% note payable originally due December 19, 1998 16,000
19% note payable originally due January 21, 1999 15,000
19% note payable originally due November 13, 1999 7,500
19% note payable originally due November 25, 1999 2,000
----------
$ 45,639
==========
All of the above notes were paid in January 2000. Interest expense amounted to
$10,989 for the year ended December 31, 1999.
SPEEDCOM issued a $250,000 promissory note to the Company's President in
December 2000. The note bears an interest rate of the greater of 12% or DLJ's
standard margin rate plus 1.5%. The note is payable in December 2001 or at the
closing of an equity offering by the Company of at least $5,000,000, whichever
is earlier. The Company concurrently granted a total of 25,000 warrants with a
$3.60 strike price in connection with this note. The proportionate fair value of
the warrants amounted to $62,500 and has been recorded as an addition to paid-in
capital and as an original issue discount reducing the carrying value of the
note. The discount is being amortized to interest expense over the remaining
life of the note. The balance of the note at December 31, 2000 amounted to
$187,500.
The Company issued a $252,000 non-interest bearing promissory note in December
2000, with beneficial conversion features. The note is due in December 2001,
payable in cash or 70,000 shares of common stock, at the holder's option. The
70,000 shares are worth $115,500 more than the face value of the note based on
the per-share value at the date of the note. This amount has been recorded as an
addition to paid-in capital and as an original issue discount reducing the
carrying value of the note. The discount is being amortized to interest expense
over the remaining life of the note. The balance of the note at December 31,
2000 amounted to $143,145.
In December 2000, the Company issued a $200,000 non-interest bearing promissory
note, with beneficial conversion features. The note is due in January 2002,
payable in cash or 50,000 shares of common stock, at the holder's option. The
50,000 shares are worth $37,500 more than the face value of the note based on
the per-share value at the date of the note. This amount has been recorded as an
addition to paid-in capital and as an original issue discount reducing the
carrying value of the note. The discount is being amortized to interest expense
over the remaining life of the note. The balance of the note at December 31,
2000 amounted to $163,733.
Also in December 2000, the Company issued a $10,800 non-interest bearing
promissory note with beneficial conversion features. The note is due in December
2001, payable in cash or 3,000 shares of common stock at the holder's option.
The 3,000 shares are worth $4,950 more than the face value of the note based on
the per-share value at the date of the note. This amount has been recorded as an
addition to paid-in capital and as an original issue discount reducing the
carrying value of the note. The discount is being amortized to interest expense
over the remaining life of the note. The balance of the note at December 31,
2000 amounted to $6,135.
30
During January 2000, the Company issued a 10% convertible subordinated
promissory note for $40,000, due for payment in January 2003. The note is
convertible into 10,000 shares of common stock at any time during its term. The
note is subordinate to all other debt instruments. The $40,000 note and accrued
interest was converted in 2001.
9. Notes and Capital Leases Payable
A summary of notes and capital leases payable at December 31, 2000 and 1999 is
as follows:
2000 1999
------------------------------------
12% promissory note, originally due September 1999,
in default at December 31, 1999 $ -- $ 175,000
Advances under accounts receivable factor arrangement -- 111,731
10.5% bank note payable in monthly installments through June
2003, secured by equipment and inventories 46,631 61,032
8%-10.6% automobile loans payable in monthly installments through
January 2003, secured by equipment 29,460 28,821
Capital lease obligations 34,104 51,351
------------------------------------
110,195 427,935
Less current portion (52,901) (328,781)
------------------------------------
$ 57,294 $ 99,154
====================================
The Company entered into a $200,000 promissory note with a vendor during 1999.
Interest was required to be paid monthly and all outstanding principal and
accrued interest was payable in full on September 30, 1999. At December 31,
1999, the principal balance outstanding on the note was $175,000 and was in
default. However, the note was repaid in full in the year 2000.
During 1999 and a portion of 2000, the Company had an accounts receivable
factoring arrangement with a lending institution that provided for the sale of
certain accounts receivable balances aggregating no more than $400,000. The
lending institution charged a fee of 2.5% of the face value of the receivables
purchased. The arrangement provided for full recourse to the lending
institution. Advances by the lending institution amounted to $111,731 as of
December 31, 1999. Subsequent to December 31, 1999, the advances were repaid and
no additional advances were taken on the arrangement which has been terminated.
Aggregate future maturities of notes and capital leases payable as of December
31, 2000 are as follows:
31
Notes Leases
------------------------------------
2001 $33,586 $ 24,042
2002 23,570 12,455
2003 15,434 6,211
2004 2,970 --
2005 and thereafter 531 --
------------------------------------
Total maturities and payments $76,091 $ 42,708
==================------------------
Less amount representing interest (8,604)
------------------
Less current portion (19,315)
------------------
$ 14,789
==================
10. Income Taxes
A reconciliation of the differences between the effective income tax rate and
the statutory federal tax rate follows:
2000 1999
------------------------------------
Tax at U.S. statutory rate (34.00)% (34.00)%
State taxes, net of federal benefit (3.58) (3.61)
Change in valuation allowance 37.10 37.44
Other 0.48 0.17
------------------------------------
0.00% 0.00%
====================================
Significant components of the Company's deferred tax assets and liabiltities are
as follows:
2000 1999
------------------------------------
Deferred tax assets:
Net operating loss carryforwards $ 1,643,440 $ 768,447
Accounts receivable 111,509 53,951
Deferred revenue 52,753 55,174
Accrued expenses 43,288 20,865
Other 24,605 20,913
------------------------------------
Gross deferred tax assets 1,875,595 919,350
Less: valuation allowance (1,875,595) (919,350)
------------------------------------
Net deferred tax asset $ -- $ --
====================================
Generally accepted accounting principles require a valuation allowance be
recorded to reduce the deferred tax assets reported if, based on the weight of
the evidence, it is more likely than not that some portion or all of the
deferred tax assets will not be realized. After consideration of all the
evidence, both positive and negative, management has determined that a valuation
allowance is necessary at December 31, 2000 and 1999 to fully offset the
deferred tax asset.
32
At December 31, 2000, the Company's net operating loss carryforward for federal
income tax purposes are approximately $4,400,000, expiring in various amounts
from 2012 through 2020.
11. Stockholders' Equity
During the year ending December 31, 2000, the following shares of common stock
were issued for cash:
Number of Shares Price
-----------------------------------------------------
4,584 $1.96
105,441 $2.18
229,220 $2.84
656 $3.05
498,267 $3.49
84,238 $4.36
47,755 $5.24
186,773 $6.98
83,000 $7.35
Included in the above sales of $4.36 per share are shares of common stock with
detachable warrants to purchase up to 84,238 shares of common stock at an
exercise price of $8.72 per share. These warrants have a term of two years. Also
included in the above sales of $5.24 per share are 47,755 shares of common stock
with detachable warrants to purchase up to 114,610 shares of common stock at
$6.54 per share. These warrants expired on October 7, 2000 without being
exercised.
During August 2000, 9,004 options were exercised for $2.62 per share. During
October 2000, 9,168 options were exercised for $2.62 per share. During December
2000, 650 options were exercised for $2.62 per share. The Company also issued
154,943 shares of common stock for finder's fees and costs incurred in
connection with the merger as discussed in Note 2 above. Pursuant to the merger
as discussed above and in Note 2, in September 2000, LTI effected a 1 for 4.26
reverse stock split which reduced the number of LTI's outstanding common shares
to 655,958, the number of LTI's stock warrants to 1,966,927 and the number of
LTI's purchase options to 39,950. The merger was also effected with the issuance
by LTI of 8,515,778 shares of its common stock, on a 1 for 1.146 basis, for the
outstanding common shares of Old SPEEDCOM, which included an additional
1,084,873 shares issued to Old SPEEDCOM shareholders as a closing adjustment
under the merger agreement. Net proceeds on the sales of stock during the year
ending December 31, 2000 amounted to $5,422,072. The merger agreement did not
change the terms of the issued stock options other than the adjustment of the
quantity and share price for the 1.146 for 1 exchange ratio.
In addition to sales of stock for cash, during May 2000 the Company issued
28,653 shares of common stock to a board member in exchange for a $95,000, 6%
promissory note and two months of consulting services. A value of $100,000 was
ascribed to the common stock issued,
33
based upon the then most recent sale of common stock at a price of $3.49 per
share. The value was allocated to the face value of the note receivable in the
amount of $95,000 (contra-equity) and deferred consulting services (expense) in
the amount of $5,000. During the 2000 fiscal year repayment of $15,000 of the
note was in the form of consulting fees and repayment of $5,000 of the note was
in cash. Subsequent to year end, the note was repaid in full by the board
member.
In September 2000, the Company issued 148,000 shares of common stock with an
ascribed value of $4.00 per share to Del Mar Consulting Group. Of these shares,
48,000 were for services rendered in connection with the merger with LTI, and
100,000 of these shares were for investor relations services. Half of these
investor relations services were rendered in 2000 and the remainder will be
rendered in 2001.
In December 2000, the Company issued a retainer of $25,000 in cash and 25,000
shares of common stock with an ascribed value of $5.25 per share to H.C.
Wainwright, a Boston based investment banker. These amounts are included in
prepaid expenses and other assets as of December 31, 2000. The retainers are for
services to be rendered through April 2001 in connection with raising capital
for the Company. The amounts will be charged against equity when capital is
raised or expensed if such efforts are unsuccessful.
During the years ended December 31, 2000 and 1999, the Company repurchased
185,103 and 57,305 shares of its common stock, for cash, respectively. These
shares were retired when repurchased.
During the period from January 1999 to September 1999, the Company sold 238,528
shares of its common stock at a per share price of $1.96. During the period from
October 1999 to December 1999, the Company sold 289,390 shares of its common
stock at a per share price of $2.18. Of the total shares sold, 110,026 shares
were unissued at December 31, 1999. These shares were issued subsequent to
December 31, 1999. The net proceeds on sales of stock during the year ending
December 31, 1999 were $966,803.
The Company has 10,000,000 shares of preferred stock authorized. There are not
any shares issued or outstanding as of December 31, 2000 or 1999.
Employee Stock-Based Compensation
At December 31, 2000 and 1999, the Company had 3,000,000 and 2,000,000 shares of
common stock reserved for issuance under employee incentive stock bonus,
purchase or option plans, respectively. One plan, initiated in July 1998,
reserved 2,000,000 shares, and another plan, initiated in September 2000,
reserved 1,000,000 shares. Additional options of 1,503,552 were issued outside
these two plans prior to the merger with LTI to employees and management. All
full time employees are eligible for both plans. Options have a term of 5 years
and vest 25% annually on the employee's anniversary date over a four-year
period. As of December 31, 2000 there were 961,150 shares unissued under the
plans.
34
Employee stock option activity was as follows during the years ended December
31, 2000 and 1999:
2000 1999
Options Weighted Average Options Weighted Average
Exercise Price Exercise Price
Outstanding--
Beginning of year 1,721,298 $2.62 1,092,176 $2.62
Granted at market price 1,293,156 3.35 659,551 2.62
Exercised (18,822) 2.62 -- --
Expired or cancelled (57,654) 3.24 (30,429) 2.62
-------------------------------------------------------------------------
Outstanding - end of year 2,937,978 $2.95 1,721,298 $2.62
Exercisable as of December 31 1,037,579 $2.62 344,303 $2.62
=========================================================================
The weighted average fair value of the options granted during 2000 and 1999 is
$2.10 and $.21, respectively. The weighted average remaining contractual life of
the options as of December 31, 2000 and 1999 is 3.3 and 2.8 years, respectively.
Pro forma information regarding the Company's stock option grants is presented
below. The fair market value for these options was estimated at the date of
grant using the "Minimum Value" method for 1999. The Minimum Value method
calculates the excess of the fair value of the stock at the date of grant over
the present value of both the exercise price and the expected dividend payments,
each discounted at the risk-free rate over the expected exercise life of the
option. The fair market value for these options was estimated at the date of
grant using the Black-Scholes option pricing model for 2000. In order to
calculate the fair value, the following assumptions were made: the expected
dividend payment rate used was zero, the expected option life used was five
years in 2000 and 1999, the volatility used was 1.268 in 2000 and the risk free
interest rate was assumed to be 5.77% in 2000 and 5.23% in 1999. Because the
options have a four-year vesting period, the pro forma effect shown below is not
reflective of the reported net earnings or losses in future years.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows at December 31, 2000 and 1999:
2000 1999
------------------------------------
Reported net loss $(2,577,767) $ (790,508)
Estimated fair value of options (527,634) (138,451)
------------------------------------
Pro forma net loss $(3,105,401) $ (928,959)
====================================
Reported net loss per share: basic and diluted $ (0.31) $ (0.11)
Effect for the fair value of options (0.07) (0.02)
------------------------------------
Pro forma net loss $ (0.38) $ (0.13)
====================================
12. Leases
The Company leases office and manufacturing facilities, computer and office
equipment under operating leases. Rent expense under operating leases, amounted
to $243,167 and $80,002 for
35
the years ended December 31, 2000 and 1999, respectively. Future noncancellable
lease payments under operating leases for each year ended December 31 are as
follows: 2001-$227,615; 2002-$75,611; 2003-$35,122; 2004-$24,822; and 2005-
$11,015.
In addition, SPEEDCOM has signed an operating lease for a to-be-constructed
40,000 square foot facility, which will include 8,000 square feet of
manufacturing capacity. The lease term is for 15 years upon completion of
construction. The monthly base rent will be approximately $42,000. SPEEDCOM
anticipates it will begin using the new facility during the fourth quarter of
2001.
13. Employee Benefit Plan
The Company has established a 401(k) profit-sharing plan. Employees 21 years or
older are eligible to participate in the plan. Participants may elect to
contribute, on a tax-deferred basis, up to the legal maximum, of their
compensation. The Company will contribute 25% matching after an employee has
been with the Company for 90 days. The Company's contributions to the plan were
$26,453 and $14,406 for the years ended 2000 and 1999, respectively.
14. Segment and Geographic Information
The Company operated during all periods in a single operating segment when
applying the management approach defined in Statement of Financial Accounting
Standards No. 131, DISCLOSURES ABOUT SEGMENTS.
The Company's business and principal operations are domiciled in North America.
The Company generated revenue in the following geographic areas: North America,
Latin America, Asia, Africa, Middle East, Europe and Australia. Revenues from
customers in foreign geographic areas represented 45% and 23% of total revenues
for the years ended December 31, 2000 and 1999, respectively. During 2000, 26%
of the Company's revenues were derived from customers located in Latin America.
No other foreign geographic area contributed 10% or greater of total revenues
for 2000 or 1999. The Company has no significant property in any foreign
geographic area.
Although SPEEDCOM serves a large and varied group of customers, approximately
15% of SPEEDCOM's revenues for the year ended December 31, 2000 were derived
from one customer.
No single customer accounted for 10% or more of SPEEDCOM's revenue for the year
ended December 31, 1999.
15. Financial Results and Management's Plans
The Company incurred losses and used cash in operations in the years ended
December 31, 2000 and 1999. These conditions stemmed primarily from initiatives
undertaken by management to build infrastructure in the Company to promote
significant growth of revenues. If the Company's financial results are
significantly less than its operating plan, the Company's business, future
36
operating results, and financial condition will be adversely effected. In these
circumstances, changes in the Company's cost structure and capital expenditures
could be required. Management believes its projections of revenue growth are
achievable. However, these actions would be implemented if necessary.
16. Subsequent Events
During 2000, SPEEDCOM entered into an agreement whereby a customer agreed to
purchase $1,200,000 of equipment and services over a 12-month period. Payment
terms extended over a 24-month period. In January 2001, the Company entered into
a lease agreement with the customer, whereby the customer altered the purchase
agreement and instead agreed to lease the equipment from the Company with
payments not to exceed $2,000,000. The lease agreement is for a term of 36
months and is recorded as a sales type lease.
In January 2001, SPEEDCOM issued a promissory note to the Company's President
for $250,000, payable in April 2001 or at the closing of an equity or debt
offering by the Company of at least $1,000,000, whichever is earlier. The note
bears an interest rate of the greater of 12% or DLJ's standard margin plus 1.5%.
In addition, the Company immediately granted him a total of 7,000 warrants with
an exercise price of $5.40, plus 4,500 warrants with an exercise price of $5.40,
which vest one-third each month for the first three months of the note.
In March 2001, SPEEDCOM borrowed $1,500,000 in senior secured debt. The loan is
due February 2005 and carries an interest rate of 8%. This loan was repaid in
April 2001.
In April 2001, SPEEDCOM borrowed $3,000,000 from a Connecticut based hedge fund.
The loan is due in April 2002 and bears interest at 9% for the first 90 days and
12% thereafter. As part of the transaction, SPEEDCOM issued 333,333 warrants to
acquire SPEEDCOM stock at $5.00 per share. Additional warrants are issuable
contingent upon the date on which the loan is repaid. The holder of the loan has
certain rights of first refusal on subsequent financings. Interest is due under
the loan in quarterly installments with principle payable in total at the
maturity date of the loan. The Company obtained net proceeds of approximately
$2,700,000 for this bridge loan, which will be used to repay certain short-term
debt and payables for general working capital.
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits
The exhibits in the accompanying Index to Exhibits are filed as
part of this Annual Report on Form 10-KSB.
(b) Reports on Form 8-K
Form 8-K was filed on October 11, 2000 regarding a change in
control of the registrant in accordance with the merger with LTI
Holdings, Inc.
37
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SPEEDCOM Wireless Corporation
/s/ Michael W. McKinney Chairman, Chief Executive November 16, 2001
-------------------------
Michael W. McKinney Officer and Director
/s/ Sara Byrne Vice President of Finance November 16, 2001
-------------------------
Sara Byrne and Accounting acting as
Controller and Chief Financial
Officer
/s/ R. Craig Roos Vice Chairman and Director November 16, 2001
-------------------------
R. Craig Roos
/s/ Bruce Sanguinetti Director November 16, 2001
-------------------------
Bruce Sanguinetti
/s/ John T. von Harz III Director November 16, 2001
-------------------------
John T. von Harz III
/s/ Mark Boyce Director November 16, 2001
-------------------------
Mark Boyce
38
Exhibit Index
Number Description
2.1(1) Asset Purchase Agreement between Packaging Atlanta Corporation and Laminating Technologies Inc. dated April 26, 1999
2.2 Agreement and Plan of Merger by and between SPEEDCOM Wireless International Corporation and LTI Holdings, Inc., dated
as of August 4, 2000 (included as Appendix A to the proxy statement/prospectus filed as part of Form S-4 Registration Statement
(File No. 333-43098) and incorporated herein by reference)
3.1(8) Amended and Restated Certificate of Incorporation of SPEEDCOM Wireless Corporation, as amended
3.2(4) Amended and Restated Bylaws
3.3(6) Amended and Restated Bylaws of SPEEDCOM Wireless Corporation
4.1(2) Form of Bridge Note
4.2(2) Form of Warrant Agreement
4.3(2) Form of Underwriter's Unit Purchase Option
4.4(6) Purchase Agreement, dated April 13, 2001, by and among SPEEDCOM Wireless Corporation and the Purchasers, as defined
therein
4.5(6) Registration Rights Agreement, dated April 13, 2001, by and among SPEEDCOM Wireless Corporation and the Purchasers, as
defined 4.6(6) Form of Warrant of SPEEDCOM Wireless Corporation, dated April 13, 2001
4.7(7) Note and Warrant Purchase Agreement by and among SPEEDCOM Wireless Corporation, S.A.C. Capital Associates, LLC, SDS
Merchant Fund, L.P., Oscar Private Equity Investments, L.P. and Bruce Sanguinetti
4.8(7) Promissory Note for $500,000 issued to S.A.C. Capital Associates, LLC
4.9(7) Promissory Note for $250,000 issued to SDS Merchant Fund, L.P.
4.10(7) Promissory Note for $750,000 issued to Oscar Private Equity Investments, L.P.
4.11(7) Promissory Note for $250,000 issued to Bruce Sanguinetti
4.12(7) Warrant No. W-1 to Purchase 146,667 Shares of Common Stock issued to S.A.C. Capital Associates, LLC
4.13(7) Warrant No. W-2 to Purchase 73,333 Shares of Common Stock issued to SDS Merchant Fund, L.P.
4.14(7) Warrant No. W-3 to Purchase 220,000 Shares of Common Stock issued to Oscar Private Equity Investments, L.P.
4.15(7) Warrant No. W-4 to Purchase 73,333 Shares of Common Stock issued to Bruce Sanguinetti
4.16(8) Purchase Agreement, dated August 23, 2001, by and among SPEEDCOM Wireless Corporation and the Purchasers, as defined
herein
4.17(8) Registration Rights Agreement, dated August 23, 2001, by and among SPEEDCOM Wireless Corporation and the Purchasers,
defined herein 4.18(8) Form of Series A Warrant of SPEEDCOM Wireless Corporation dated August 23, 2001
4.19(8) Form of Series B Warrant of SPEEDCOM Wireless Corporation dated August 23, 2001
4.20(8) Settlement Agreement between SPEEDCOM Wireless Corporation and I.W. Miller Group, Inc. dated June 25, 2001
10.1(3) Registration Rights Agreement between the registrant and Michael E. Noonan
10.2(2)* Amended and Restated 1996 Stock Option Plan
10.3(2)* Form of Indemnification Agreement
10.4(4)* Executive Employment Agreement between SPEEDCOM Wireless International Corporation and Jay O. Wright
10.5(4)* Executive Employment Agreement between SPEEDCOM Wireless International Corporation and Bruce Sanguinetti
10.6(4)* Executive Employment Agreement between SPEEDCOM Wireless International Corporation and Michael McKinney
10.7(4)* Non-Qualified Stock Option Agreement
10.8(4)* Non-Qualified Stock Option Plan
10.9(9) Promissory Note for $250,000 issued to Bruce Sanguinetti dated December 6, 2000.
10.10(9) Promissory Note for $40,000 issued to Bill Davis dated May 11, 2001.
10.11(9) Lease Agreement between SPEECOM Wireless Corporation and Lakewood Ranch Properties, LLC.
10.12(9) Intellectual Property License Agreement between SPEEDCOM Wireless Corporation and SRI International
16.1(5) Letter on change of certifying accountant
23.1(5) Consent of Independent Certified Public Accountants
24.1(8) Powers of Attorney
------------
(1) Incorporated by reference to the registrant's Definitive Proxy Statement dated May 27, 1999.
(2) Incorporated by reference to the registrant's Registration Statement on Form SB-2 (File No. 333-6711) filed with the
SEC on June 24, 1996.
39
(3) Incorporated by reference to Amendment No. 1 to the registrant's Registration Statement on Form SB-2 (File No. 333-
6711) filed with the SEC on July 31, 1996.
(4) Incorporated by reference to the Form 8-K filed October 11, 2000.
(5) Incorporated by reference to the Form 10-KSB filed April 17, 2001.
(6) Incorporated by reference to the Form 10-QSB filed May 14, 2001.
(7) Incorporated by reference to the Form 8-K filed July 2, 2001.
(8) Incorporated by reference to the Form S-3 filed September 18, 2001.
(9) Incorporated by reference to the Form 10-QSB filed November 14, 2001.
* Management contract or compensatory plan.
40