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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ending December 31, 2001
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
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SPEEDCOM WIRELESS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 58-2044990
(State or other (I.R.S. Employer
jurisdiction Identification No.)
of 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)
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Securities registered under Section 12(g) of the Exchange Act: Common Stock,
$0.001 par value, Preferred 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: $14,209,528.
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: $1,808,424 as of March 15, 2002.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the last practicable date: March 15, 2002--10,601,332 common
shares, $.001 par value.
The following documents are incorporated by reference: The Proxy Statement
for the 2002 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]
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SPEEDCOM WIRELESS CORPORATION
FORM 10-KSB
For the Period Ended December 31, 2001
INDEX
Page
No.
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PART I
Item 1. Description of Business.............................................................. 3
Item 2. Description of Property.............................................................. 7
Item 3. Legal Proceedings.................................................................... 7
Item 4. Submission of Matters to a Vote of Security Holders.................................. 7
PART II
Item 5. Market for Common Equity and Related Stockholder Matters............................. 7
Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operations 10
Item 7. Financial Statements
Balance Sheets as of December 31, 2001 and 2000.................................... 21
Statements of Operations for the years ended December 31, 2001 and 2000............ 22
Statements of Changes in Stockholders' Equity for the years ended December 31, 2001
and 2000.......................................................................... 23
Statements of Cash Flows for the years ended December 31, 2001 and 2000............ 24
Notes to Financial Statements...................................................... 26
Item 8. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure. 41
PART III
Item 9. Directors and Executive Officers of Registrant....................................... 41
Item 10. Executive Compensation............................................................... 42
Item 11. Security Ownership of Certain Beneficial Owners and Management....................... 42
Item 12. Certain Relationships and Related Transactions....................................... 42
Item 13. Exhibits, Reports on Form 8-K and Schedule........................................... 43
Signatures.................................................................................... 44
Exhibit Index................................................................................. 45
2
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). Except as
specifically noted to the contrary, the information herein that predates the
merger relates to Old SPEEDCOM, and all references to SPEEDCOM refer to Old
SPEEDCOM before the merger and the combined company after the merger.
SPEEDCOM'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 telecommunication 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,
SPEEDCOM's wireless broadband solutions provide the user with lower cost of
ownership and significantly reduced installation time compared to alternative
wired solutions.
SPEEDCOM'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.
SPEEDCOM sells its wireless broadband products in domestic and international
markets through both an indirect channel of distributors, resellers and
Original Equipment Manufacturers and a direct sales force. SPEEDCOM sells its
products in over 60 countries, with international sales making up approximately
53% of SPEEDCOM's total 2001 revenue (Latin America 16%, Africa 12%, Asia 15%,
Europe 3%, Other 7%).
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 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.
Annual revenue nationwide for fixed-wireless service is expected to
skyrocket almost 150 percent this year (2001) to nearly $2 billion, topping $16
billion by 2004. Last year (2000), subscriber numbers hit 65,000 and
projections for the next three years show no sign of waning: 175,000 for 2001,
390,000 for 2002, and 670,000 business subscribers for 2003. (Strategis Group,
2001).
Most wireless networks use radio frequency 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
3
create compatibility among vendors, which is called the IEEE (Institute of
Electrical and Electronics Engineers) 802.11b specification. However, this
standard, which is more appropriate for indoor wireless connectivity than
outdoor, sacrifices speed and cost for compatibility and mobility. SPEEDCOM
offers products that meet the IEEE 802.11b specification, but because speed,
range, and cost are most often more important to the users of fixed wireless
equipment, SPEEDCOM 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 and Frequency Hopping
Spread Spectrum. SPEEDCOM uses Direct Sequence Spread Spectrum, 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 SPEEDCOM'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;
. 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 Alvarion. SPEEDCOM also
experiences competition from a number of smaller companies that provide
wireless data communication products. SPEEDCOM 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. SPEEDCOM'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
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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 merge with one or more companies
which complement SPEEDCOM's product offerings in order to facilitate 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 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.
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. SRI received
a total of 325,000 shares of common stock of SPEEDCOM issued in four traunches.
Each traunch was issuable on specific dates based on the achievement of certain
performance goals. SPEEDCOM has also paid $360,000 in cash to SRI.
SPEEDCOM's research and development expenses during the fiscal year ending
December 31, 2001 and 2000 were $424,299 and $51,253, respectively. This
increase was due to costs relating to changes and enhancements made to
Packethop(TM) and the development of a new operating platform for some of
SPEEDCOM's products.
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 for point-to-point and point-to-multi-point, campus area,
or metropolitan area networks. Within the current product line, SPEEDCOM 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 802.11a and/or 802.16 standards, 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 should be
available in the second quarter of 2003 and will position SPEEDCOM to obtain a
growing share of the rapidly expanding fixed wireless market.
5
Operations
SPEEDCOM's manufacturing operations consist primarily of final assembly and
testing at its manufacturing facility in Sarasota, Florida. SPEEDCOM 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, 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 for the business to 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. 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; SPEEDCOM has since passed
surveillance audits every 6 months, including one in December 2001.
Suppliers
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. SPEEDCOM has experienced delays and shortages in
the supply of components in the past and could experience delays and shortages
in the future. SPEEDCOM generally does not maintain a significant inventory of
components and does not have long-term supply contracts with its suppliers.
Government Regulation
SPEEDCOM 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. SPEEDCOM'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 SPEEDCOM
believes that its products comply with these requirements. SPEEDCOM's products
are also subject to regulatory requirements in international markets and,
therefore, SPEEDCOM 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 larger
strategic end customers and indirect sales through a well-developed value added
resellers/distributor channel who sell and service SPEEDCOM's products to a
local or regional customer base.
6
SPEEDCOM currently has 18 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/distributor channel. SPEEDCOM currently has over 200 active value
added resellers, distributors and other dealers.
Indirect sales (i.e. sales to dealers/value added resellers) have
historically been SPEEDCOM'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 SPEEDCOM's other sales channels.
Customers
No customer accounted for more than 10% of revenues for the year ended
December 31, 2001. 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 SPEEDCOM, could have a material adverse effect on
SPEEDCOM's business, financial condition and results of operations.
Employees
SPEEDCOM currently has approximately 70 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 40,000 square feet of office and
light industrial space in Sarasota, Florida, which includes 8,000 square feet
of manufacturing capacity. SPEEDCOM's rent for the first twelve months of the
lease, which began in October 2001, including maintenance, will be
approximately $57,000 per month for this facility. SPEEDCOM also leases offices
in Miami, San Diego, Sao Paulo, Mexico City, Singapore and Shanghai.
Item 3. Legal Proceedings
SPEEDCOM is not involved in any material legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
This item is inapplicable, as there were not any matters submitted to a vote
of SPEEDCOM's security holders during the fourth quarter of 2001.
PART II
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 SPEEDCOM's common stock for the periods shown, as quoted on the
OTC Bulletin Board until February 2001 and as quoted on the NASDAQ SmallCap
Market after that time. (SPEEDCOM was listed on the NASDAQ SmallCap Market in
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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:
2001 High Low
---- ------ -----
First Quarter. $ 9.13 $3.44
Second Quarter $ 5.25 $2.00
Third Quarter. $ 2.70 $0.92
Fourth Quarter $ 1.35 $0.43
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
Dividends have not been declared or paid during any periods presented.
As of March 15, 2002, there were approximately 1,200 shareholders.
Recent Sales of Unregistered Securities
During the year ended December 31, 2001 SPEEDCOM sold the following
securities, which were not registered under the Securities Act. The purchases
and sales were exempt pursuant to Section 4(2) of the Securities Act (and/or
Regulation D promulgated thereunder) as transactions by an issuer not involving
a public offering, where the purchasers represented their 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. 18,635 shares of common stock (12,635 on January 1, 2001 and 6,000 on
February 23, 2001) were issued for a total of $40,000 cash and services.
These securities were issued to 2 investors, 1 of which was an
accredited investor.
2. A $250,000 promissory note to Mr. Sanguinetti, our former president and
an accredited investor, together with 11,500 warrants for the purchase
of common stock (exercise price $5.40 per share) (January 22, 2001).
3. A $250,000 promissory note and warrants to acquire 73,333 shares of
common stock to Mr. Sanguinetti, our former president and an accredited
investor (June 11, 2001). The note was converted (June 29, 2001) to
111,667 shares of Series A convertible preferred stock, 83,751 Series A
warrants and 111,667 contingent Series B warrants.
4. A $1,500,000 promissory note and warrants to acquire 440,000 shares of
common stock to three institutional accredited investors (June 11,
2001). $550,000 of the note was converted (June 29, 2001) to 245,667
shares of Series A convertible preferred stock, 184,251 Series A
warrants and 245,667 contingent Series B warrants.
5. 10,000 shares of common stock (June 26, 2001), 955,146 shares of Series
A convertible preferred stock (June 29, 2001), warrants to purchase
1,564,694 shares of common stock (exercise price of $3.25 per share)
(June 11, 2001, June 26, 2001 and June 29, 2001) and contingent warrants
to purchase up to 955,146 shares of common stock (exercise price $.001
per share) (June 29, 2001) were issued for a total of $4,750,000 cash,
$25,000 of trade payables, $2,000,000 principal amount of surrendered
8
indebtedness and services. These securities were issued to 10 investors,
all of which were accredited investors and include the investors
described in items (3) and (4) above.
6. 472,500 shares of common stock, 3,835,554 shares of Series B convertible
preferred stock, warrants to purchase 3,068,448 shares of common stock
(exercise price $2.50 per share) and warrants to purchase up to
4,560,481 shares of common stock (liquidation preference of $3.38 per
share) were issued for a total of $2,722,400 cash, $3,462,800 principal
amount of surrendered indebtedness, 955,146 shares of Series A
convertible preferred stock, 716,361 Series A warrants issued in June
2001, 955,146 Series B warrants issued in June 2001 and services. These
securities were issued to 21 investors, 17 of which were accredited
investors and 4 of which were not accredited investors.
In addition, during the year ended December 31, 2001, 18 employees of
SPEEDCOM purchased 41,500 options for $.01 per share, 29,980 options for $2.62
per share, 4,813 options for $2.63 per share and 5,156 options for $3.49 per
share. These purchases and sales were exempt pursuant to Rule 701 promulgated
under the Securities Act.
Critical Accounting Policies
The preparation of accounting principles generally accepted in the United
States requires management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying notes. We
evaluate our estimates and judgments on an on-going basis. We base our
estimates on historical experience and on assumptions that we believe to be
reasonable under the circumstances. Our experience and assumptions form the
basis for our judgments about the carrying value of assets and liabilities that
are not readily apparent from other sources. Actual results may vary from what
we anticipate and different assumptions or estimates about the future could
change our reported results. We believe the following accounting policies are
the most critical to us, in that they are important to the portrayal of our
financial statements and they require our most difficult, subjective or complex
judgments in the preparation of our financial statements:
Revenue Recognition
We recognize revenue on our wireless communications products in accordance
with SEC Staff Accounting Bulletin No. 101, Revenue Recognition in Financial
Statements. Under these guidelines, we defer revenue recognition on
transactions if any of the following exist: persuasive evidence of an
arrangement does not exist, title has not transferred, product payment is
contingent upon performance of installation or service obligations, the price
is not fixed or determinable or payment is not reasonably assured. We accrue a
provision for estimated returns concurrent with revenue recognition. In
addition, we defer revenue associated with long-term customer maintenance
contracts. The value of these contracts is recognized ratably over the length
of the customer contract.
Allowances for Doubtful Accounts
Allowances for doubtful accounts receivable are maintained based on
historical payment patterns, aging of accounts receivable and actual write-off
history. Allowances are also maintained for future sales returns and allowances
based on an analysis of recent trends of product returns.
Impairment of Long-Lived Assets
In assessing the recoverability of SPEEDCOM'S long-lived assets, we must
make assumptions regarding estimated future cash flows and other factors to
determine the fair value of the respective assets. If these estimates or their
related assumptions change in the future, we may be required to record
impairment charges for these assets.
9
Inventory
SPEEDCOM'S inventories are valued at the lower of cost or market. Under
certain market conditions, estimates and judgments regarding the valuation of
inventory are employed by management to properly value inventory.
Non-Marketable Securities
Periodically, we make strategic investments in companies whose stock is not
currently traded on a major stock exchange. The cost method of accounting is
used to account for these investments as we hold a non-material ownership
percentage. Each quarter, we assess the value of these investments by using
information acquired from industry trends, the management of these companies
and other external sources. Future adverse changes in market conditions or poor
operating results of underlying investments could result in losses or an
inability to recover the carrying value of the investments that may not be
reflected in an investment's current carrying value, thereby possibly requiring
an impairment charge in the future.
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 such as "plan", "estimate", "expect",
"believe", "should", "would", "could", "anticipate", "may" and other words that
convey uncertainty of future events or outcomes. These forward-looking
statements and other statements made elsewhere in this report are made in
reliance on the Private Securities Litigation Reform Act of 1995. The section
below entitled "Certain Factors That May Affect Future Results, Financial
Condition and Market Price of Securities" sets forth material factors that
could cause actual results to differ materially from these statements.
Overview
SPEEDCOM is a multi-national company based in Sarasota, Florida. SPEEDCOM
employs approximately 70 people. Through its Wave Wireless Networking division,
SPEEDCOM manufactures a variety of broadband wireless products, including its
SPEEDLAN family of wireless ethernet bridges and routers. Internet service
providers, telephone company operators and private organizations in more than
60 countries use SPEEDCOM products to provide "last-mile" wireless connectivity
between multiple buildings at speeds up to 155 Megabits per second and
distances up to 25 miles.
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Results of Operations
The following table sets forth the percentage of net revenues represented by
certain items in SPEEDCOM's Statements of Operations for the periods indicated.
Fiscal Year Ended December 31,
----------------------------
2001 2000
---- ----
Net revenues........................................ 100% 100%
Cost of goods and services.......................... 59% 54%
---- ---
Gross margin........................................ 41% 46%
Operating costs and expenses:
Salaries and related............................... 38% 34%
General and administrative......................... 24% 18%
Selling expenses................................... 12% 13%
Provision for bad debt............................. 6% 2%
Depreciation and amortization...................... 4% 2%
Severance costs.................................... 4% --
---- ---
88% 69%
---- ---
Loss from operations................................ (47)% (23)%
Other expense:
Interest expense, net.............................. (21)% 0%
Other expense, net................................. (2)% (1)%
---- ---
(23)% (1)%
---- ---
Net loss before extraordinary items................. (70)% (24)%
Extraordinary loss from early extinguishment of debt 26% --
---- ---
Net loss............................................ (96)% (24)%
Assumed dividend from beneficial conversion feature. 37% --
---- ---
Net loss attributable to common stockholders........ (133)% (24)%
==== ===
Fiscal 2001 Compared to Fiscal 2000
Net revenues increased 33% from approximately $10,662,000 in the year ended
December 31, 2000 to approximately $14,210,000 in the year ended December 31,
2001. This increase was due to SPEEDCOM executing its business plan of
expanding the business in a growing market for broadband wireless in 2001,
partially offset by an economic slowdown, which delayed shipments to, and
reduced orders received from customers during the third quarter. Cost of goods
and services increased 44% from approximately $5,784,000 for the year ended
December 31, 2000 to approximately $8,316,000 for the year ended December 31,
2001, due primarily to increases in SPEEDCOM's revenues, increased sales
through distribution channels, which have a lower margin than direct sales and
certain purchasing inefficiencies due to lower cash balances associated with
delays in completing financings for SPEEDCOM. Revenues from customers in
foreign geographic areas increased to 53% of revenues for the year ended
December 31, 2001 as compared to 45% of revenues the year ended December 31,
2000. The percentage of sales that are from international customers is expected
to increase slightly in the year ended December 31, 2002.
Salaries and related, general and administrative and selling expenses
increased by 51% from approximately $6,935,000 for the year ended 2000 to
approximately $10,458,000 for the year ended 2001. This increase was primarily
due to an increase in salaries and related expenses of approximately $1,780,000
related to increased average headcount and the hiring of additional management
in the fourth quarter of 2000 and the first quarter of 2001, spending on
investor relations totaling approximately $302,000, increased spending on
marketing and promotion, such as attendance at industry trade shows of
approximately $54,000, engineering related to the
11
commercialization of PacketHop(TM) technology of approximately $424,000 and
other one time expenses as described below. Additionally, SPEEDCOM incurred
substantially higher professional fees for legal and accounting services due to
the fact that SPEEDCOM was a public entity in 2001 and a private entity for the
majority of 2000 and because of the complex debt and equity financings
completed by SPEEDCOM during the year ended 2001. As discussed above, SPEEDCOM
incurred one-time charges in 2001 related to the termination of investor
relations contracts of approximately $281,000 and investment banking charges of
approximately $306,000.
Bad debt expense increased for the year ended December 2001 primarily due to
the write off of a receivable from a Korean company. In the fourth quarter of
2000 and in the first and second quarters of 2001, SPEEDCOM sold its SPEEDLAN
product for a total of approximately $574,000 to a large Korean based company
(Korean Customer). One of the major clients of the Korean Customer declared
bankruptcy earlier in 2001, which had a significant financial impact on the
Korean Customer. Accordingly, SPEEDOM incurred a significant increase in bad
debt expense for the year.
In 2001, SPEEDCOM recorded a severance charge of approximately $532,000,
reflecting employee termination costs related to staff reductions. The staff
reductions include 20 employees (two at the executive management level,
accounting for $417,000) and were completed in the third and fourth quarters of
2001. The costs include severance pay and other employee benefits, including
amounts paid over future periods.
Net interest expense increased from approximately $36,000 for the year ended
December 31, 2000 to approximately $3,062,000 for the year ended December 31,
2001. This increase was due to the addition of notes payable and loans from
stockholders during the fourth quarter of 2000 and the first six months of 2001
and the acceleration of discounts when the notes and loans were converted to
preferred stock.
SPEEDCOM recorded an extraordinary loss from the early extinguishment of
debt related to the conversions of loans from debt to preferred stock and
warrants during 2001 of $3,786,369. When the loans originated they were
nonconvertible. When the loans were converted to preferred stock, Series A
Warrants and Series B Warrants, the difference in the carrying value as
compared to the combined fair value of the warrants and preferred stock was
immediately expensed to loss from the early extinguishment of debt.
During the year ended December 31, 2001, SPEEDCOM sold its InstallGuys
division. Revenue from the InstallGuys division accounted for less than 2% of
total SPEEDCOM revenues for the year ended December 2001. The sale of the
division is not expected to have a material effect on the operations or
liquidity of SPEEDCOM.
Net loss increased 430% from approximately $2,578,000, or $.31 per share, in
2000 to approximately $13,671,000, or $1.96 per share, in 2001 as a result of
the foregoing factors.
On June 29, 2001, SPEEDCOM converted loans, accrued interest and trade
payables of $2,149,075 to 955,146 shares of $.001 par value preferred stock,
716,361 Series A Warrants valued at $541,364 and 955,146 Series B Warrants. The
Series A Warrants were valued based on the proportionate fair value of the
warrants at the date of the conversion. The Series B Warrants vested contingent
upon certain performance factors. SPEEDCOM estimated the Series B Warrants to
have a value of $468,022 based on the results of the Black-Scholes pricing
model, reduced by one-half due to the uncertainty of whether the warrants will
be fully or partially exercisable, or not exercisable at all. Each of the
Series A Warrants was convertible into .75 shares of common stock and each of
the Series B Warrants was convertible into one share of common stock. This
preferred stock was only redeemable upon the occurrence of a Triggering Event
as defined in the agreement, which is generally a sale, merger or
reorganization, failure of SPEEDCOM to maintain an effective Registration
Statement related to the redeemable preferred stock or failure to have
SPEEDCOM's common stock listed on certain exchanges.
12
On August 23, 2001, SPEEDCOM converted the (i) 955,146 shares of redeemable
preferred stock, (ii) 716,361 Series A Warrants and (iii) 955,146 Series B
Warrants that were issued on June 29, 2001 and (iv) loans to shareholders of
$3,462,800 in exchange for (i) 2,625,598 shares of preferred stock, (ii)
2,100,473 Series A Warrants valued at $455,192, exercisable at $2.50 per share
and (iii) 3,121,814 Series B Warrants valued at $1,271,134, exercisable at
$0.01 per share. This conversion was due to SPEEDCOM's commitment to the
holders of preferred stock and warrants issued in June 2001 that if SPEEDCOM
issues similar instruments at more favorable terms, SPEEDCOM will adjust the
terms of the securities issued in June 2001 in response to this commitment
based on a conversion ratio of two shares of common stock for each share of
preferred stock rather than the ratio of one-to-one in the preferred stock
issued in June 2001. SPEEDCOM has recorded an assumed dividend of $2,292,350,
which equals the increase in the intrinsic value of the preferred stock based
on the incremental number of shares of common stock (955,146) that may be
obtained on conversion of the preferred stock into common stock valued at the
price per share ($2.40) on June 29, 2001. There was no difference in the fair
value of Series A and B Warrants issued in August 2001 compared to the fair
value of the Series A and B Warrants issued in June 2001.
Concurrently on August 23, 2001, SPEEDCOM issued (i) 1,209,956 shares of
preferred stock, (ii) 967,975 Series A Warrants and (iii) 1,438,667 Series B
Warrants for $2,397,010 in cash, net of stock issuance costs. The Series A
Warrants were valued at their proportionate value of $481,587 and the Series B
Warrants were recorded at their proportionate value of $436,277 as additional
paid in capital. The Series B Warrants vest (1) fully if SPEEDCOM does not
achieve positive EBITDA in the fourth quarter of 2001, (2) partially if
SPEEDCOM achieves positive EBITDA in the fourth quarter of 2001 of less than
$100,000, and (3) fully if SPEEDCOM has less than $4,500,000 of revenue in the
fourth quarter of 2001. SPEEDCOM did not meet these thresholds. Accordingly,
all of the Series B Warrants are exercisable as of December 31, 2001.
Additionally, the preferred stock has a beneficial conversion feature valued at
$1,479,146 based on the value of the warrants and the ability to convert the
preferred stock to two shares of common stock. This amount is recorded as an
assumed dividend from beneficial conversion feature because the preferred stock
was convertible when issued.
The terms of the preferred stock provide that if SPEEDCOM has not executed a
definitive agreement with respect to a bona fide merger, stock sale or sale of
all or substantially all of SPEEDCOM's assets with an acceptable acquirer which
would result in a change of control of SPEEDCOM prior to December 28, 2001,
which is publicly announced within 6 months of the date of issuance of the
preferred stock and which closes prior to March 31, 2002, the conversion price
shall be adjusted so that each share of preferred stock shall convert into 2.25
shares of common stock commencing on December 31, 2001, unless the conversion
price on December 31, 2001 would result in more than 2.25 shares of common
stock being issued in exchange for each share of preferred stock. Because
SPEEDCOM did not meet these terms, the conversion price of the preferred stock
was adjusted so that each share of preferred stock shall convert into 2.25
shares of common stock. SPEEDCOM recorded an assumed dividend from beneficial
conversion feature of $573,087 related to the preferred stock which was issued
from the conversion on August 23, 2001, of 955,146 shares of redeemable
preferred stock issued on June 29, 2001, which equals the increase in the
intrinsic value of the preferred stock based on the incremental number of
shares of common stock (238,787) that may be obtained on conversion of the
preferred stock into common stock valued at the price per share ($2.40) on June
29, 2001. SPEEDCOM recorded an assumed dividend from beneficial conversion
feature of $928,932 related to the preferred stock issued on August 23, 2001,
which equals the increase in the intrinsic value of the preferred stock based
on the incremental number of shares of common stock (720,102) that may be
obtained on conversion of the preferred stock into common stock valued at the
price per share ($1.29) on August 23, 2001.
Taxes
At December 31, 2001, SPEEDCOM had net operating loss carryforwards (NOLs)
for federal income tax purposes of approximately $11,500,000. The NOLs expire
at various dates through the year 2021. Utilization of SPEEDCOM'S net operating
loss may be subject to substantial annual limitation due to the ownership
change limitations provided by the Internal Revenue Code and similar state
provisions. Such an annual limitation could result in the expiration of the net
operating loss before utilization.
13
Quarterly Results
The following table sets forth certain quarterly financial data for the
periods indicated.
Three Months Ended
March June September December
----------- ----------- ----------- -----------
Fiscal 2001
Net revenues................................... $ 4,017,275 $ 4,035,298 $ 2,247,585 $ 3,909,370
Gross margin................................... $ 1,782,784 $ 1,687,096 $ 625,055 $ 1,798,138
Net loss before extraordinary items............ $(1,169,553) $(3,499,803) $(4,468,631) $ (746,441)
Net loss....................................... $(1,169,553) $(4,909,164) $(6,845,639) $ (746,441)
Net loss per common share before extraordinary
items (as previously reported)............... $ (0.13) $ (0.37) $ (0.46) $ --
Net loss per common share before extraordinary
items (net of assumed dividend)--as adjusted* $ (0.13) $ (0.37) $ (0.85) $ (0.22)
Extraordinary loss per common share............ $ -- $ (0.15) $ (0.25) $ --
Net loss per common share...................... $ (0.13) $ (0.52) $ (1.10) $ (0.22)
Weighted average shares outstanding............ 9,313,863 9,497,426 9,687,102 10,117,602
Fiscal 2000
Net revenues................................... $ 1,846,599 $ 2,154,383 $ 3,182,673 $ 3,478,823
Gross margin................................... $ 1,002,394 $ 915,410 $ 1,426,144 $ 1,534,115
Net loss....................................... $ (178,176) $ (500,524) $ (598,882) $(1,300,185)
Net loss per common share...................... $ (0.02) $ (0.06) $ (0.07) $ (0.14)
Weighted average shares outstanding............ 7,662,726 7,977,218 8,213,558 9,196,994
--------
* Previously reported amounts were not reported net of the assumed dividends.
Liquidity and Capital Resources
During the year ended December 31, 2001, SPEEDCOM used approximately
$6,142,000 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, partially offset by the extraordinary charge related to the
early conversion of debt and amortization of discounts related to that debt.
SPEEDCOM purchased approximately $493,000 of fixed assets during the year
ending December 31, 2001 as compared to approximately $923,000 during the same
period in 2000. SPEEDCOM does not have any material commitments for capital
expenditures in the future. To fund this growth in assets and sales, SPEEDCOM
raised approximately $8,779,000 primarily through the issuance of promissory
notes and loans from stockholders and the conversion of these notes and loans
to preferred stock. As of December 31, 2001, SPEEDCOM had cash of approximately
$274,000.
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. 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.
SPEEDCOM believes that it will have to seek additional capital to execute
its business plan for 2002. SPEEDCOM will seek additional capital to fund the
growth of its business, develop next generation products and to take advantage
of opportunities that may arise. This additional capital could come from the
sale of common or preferred stock, 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
14
SPEEDCOM's financial results are significantly less than its operating plan,
SPEEDCOM's business, future operating results, and financial condition will be
adversely affected. In these circumstances, changes in SPEEDCOM'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. Projected cash flows from SPEEDCOM's current
operations are not sufficient to finance SPEEDCOM's current and projected
working capital requirements. SPEEDCOM needs to raise additional financing in
order to continue to pursue its business plan in 2002. If SPEEDCOM is unable to
secure significant additional financing, SPEEDCOM will have to further downsize
its business or explore other alternatives.
Certain Factors That May Affect Future Results, Financial Condition and
Market Price of Securities
If we do not raise additional capital, we will not be able to fulfill our
business plan or continue as a going concern.
In order to take advantage of possible opportunities in 2002 and to execute
our business plan for 2002 and 2003, we need to raise additional financial
capital. This additional capital could come from the sale of common or
preferred stock, the exercise of outstanding warrants, from borrowings,
customer deposits, or from a strategic transaction such as a merger. If we are
unsuccessful in raising that capital, we may not have sufficient funding to
purchase necessary goods and services to execute our business plan. SPEEDCOM's
2002 and 2003 business plans include next generation products which will have
initial lead times for acquiring inventory that are much longer than current
ones and that may require deposits upfront. SPEEDCOM will need to raise
additional capital to fund these longer lead times for purchasing inventory in
order to execute its 2002 and 2003 business plans. If this capital is not
obtained, additional changes in SPEEDCOM's cost structure and capital
expenditures could be required, such as employee terminations and delays in the
introductions of the next generation of products or SPEEDCOM may be unable to
continue as a going concern.
We may not be able to compete successfully in the fixed wireless broadband
market in view of rapid technological change and the resources required to deal
with technological change.
The markets for our products and the technologies utilized in the industry
in which we operate evolve rapidly and depend on key technologies, including
wireless local area networks, wireless packet data, modem and radio
technologies. SPEEDCOM is developing a series of next generation products,
which incorporates the PacketHop(TM) licensed technology from SRI. Delays in
developing these products could have a negative effect on our future
competitiveness as the industry is constantly changing as new technologies are
developed.
The fixed wireless broadband market is at an early stage of development and
is rapidly evolving. As is typical for a new and rapidly evolving industry,
demand and market acceptance for recently introduced wireless networking
products and services are subject to a high level of uncertainty. Market
acceptance of particular products cannot be predicted; however, it is likely
that new products will not be generally accepted unless they operate at higher
speeds and are sold at lower prices. While the number of businesses recognizing
the value of wireless solutions is increasing, we do not know whether
sufficient demand for our products will emerge and become sustainable.
Prospects must be evaluated due to the risks encountered by a company in the
early stages of marketing new products or services, particularly in light of
the uncertainties relating to the new and evolving markets in which we operate.
There can be no assurance that we will succeed in addressing any or all of
these risks, and the failure to do so would reduce demand for SPEEDCOM's
products.
We could encounter future competition from larger wireless, computer and
networking equipment companies. We could also encounter additional future
competition from companies that offer products that replace or are alternatives
to radio frequency wireless solutions. These products include, for example,
products based on infra-red technology, products based on laser technology,
systems that utilize existing telephone wires or cables within a building as a
wired network backbone and satellite systems outside of buildings.
15
Major changes could render products and technologies obsolete or subject to
intense competition from alternative products or technologies or by
improvements in existing products or technologies. For example, Internet access
and wireless local loop equipment markets may stop growing, whether as a result
of the development of alternative technologies, such as fiber optic, coaxial
cable or satellite systems. Also, new or enhanced products developed by other
companies may be technologically incompatible with SPEEDCOM's products and
render our products obsolete.
Many of SPEEDCOM's current and potential competitors have significantly
greater financial, marketing, technical and other resources and, as a result,
may be able to respond more quickly to new or emerging technologies or
standards and to changes in customer requirements, or to devote greater
resources to the development, promotion and sale of products or to deliver
competitive products at a lower end user price. Current and potential
competitors have established or may establish cooperative relationships among
themselves or with third parties to increase the ability of their products to
address the needs of SPEEDCOM's existing and prospective customers.
Accordingly, it is possible that new competitors or alliances among competitors
may emerge and rapidly acquire significant market share. Increased competition
could result in price reductions, reduced operating margins and loss of market
share by SPEEDCOM.
SPEEDCOM's reliance on limited sources of wireless and computer components
could result in delayed product shipment and higher costs and could damage
customer relationships.
Many of the key hardware and software components necessary for the assembly
of SPEEDCOM's products are only available from a single supplier or from a
limited number of suppliers. Our reliance on sole or limited source suppliers
involves several risks, including:
. suppliers could increase component prices significantly, without advance
notice;
. suppliers could discontinue or delay delivery of product components for
reasons such as inventory shortages, new product offerings, increased
cost of materials, destruction of manufacturing facilities, labor
disputes and bankruptcy; and
. in order to compensate for potential component shortages or
discontinuance, in the future we may hold more inventory than is
immediately required, resulting in increased inventory costs.
If our suppliers are unable to deliver or ration components to us, we could
experience interruptions and delays in manufacturing and sales, which could
result in cancellation of orders for products or the need to modify products.
This may cause substantial delays in product shipments, increased
manufacturing costs and increased product prices. Further, we may not be able
to develop alternative sources for these components in a timely way, if at all,
and may not be able to modify our products to accommodate alternative
components. These factors could damage our relationships with current and
prospective customers lasting longer than any underlying shortage or
discontinuance.
Expanding indirect distribution channels may result in increased costs and
lower margins.
To increase revenues, we believe that we must increase the number of our
distribution partners. Management's strategy includes an effort to reach a
greater number of end users through indirect channels. SPEEDCOM is currently
investing, and plans to continue to invest, significant resources to develop
these indirect channels. These efforts may not generate the revenues necessary
to offset such investments. We will be dependent upon the acceptance of our
products by distributors and their active marketing and sales efforts relating
to our products. The distributors to whom we sell products are independent and
are not obligated to deal with SPEEDCOM exclusively. Because SPEEDCOM does not
generally fulfill orders by end users of its products sold through
distributors, SPEEDCOM will be dependent upon the ability of distributors to
accurately
16
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. 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.
SPEEDCOM has incurred significant losses since its inception, and expects to
continue to incur net losses through at least the first half of 2002. SPEEDCOM
intends to increase its operating expenses, however revenues may not grow or
even continue at their current level. If revenues do not rapidly increase or if
expenses increase at a greater pace than revenues, SPEEDCOM will never become
profitable.
17
Our common stock price is volatile.
Our stock and the NASDAQ stock market in general have experienced
significant price and volume fluctuations in recent months and the market
prices of technology companies have been highly volatile. In the past,
following periods of volatility in the market price of a company's securities,
securities class action litigation has often been instituted against that
company. Such litigation could result in substantial costs and diversion of
management's attention.
If our common stock is delisted from the NASDAQ SmallCap Market, it may be more
difficult to sell shares of our common stock.
Our common stock is currently listed on the NASDAQ SmallCap Market. On March
15, 2002, the closing sale price of our common stock was $0.48 per share. We
have been warned that certain standards for continued listing on the NASDAQ
SmallCap Market have not been met relating to our share price. NASDAQ has
issued a warning letter giving a 180 day grace period to SPEEDCOM to regain
compliance. If, after that 180 grace period, the stock price is below $1.00,
another 180 grace period may be given if SPEEDCOM has equity in excess of $5
million. Delisting from the NASDAQ SmallCap Market could result in a less
liquid market for our common stock than would otherwise exist. As a result, our
shares may be more difficult to sell because potentially smaller quantities of
shares could be bought and sold, transactions could be delayed and security
analyst and news coverage of our company may be reduced. These factors could
result in lower prices and larger spreads in the bid and ask prices for our
shares.
We are obligated to issue a substantial number of shares of our common stock
upon conversion of preferred stock and exercise of warrants that are
outstanding.
If the preferred stock securityholders elect to convert their preferred
stock and exercise their warrants in order to sell the underlying shares of
common stock, it will substantially increase the number of SPEEDCOM's shares of
common stock outstanding. The exercise or conversion of a substantial number of
SPEEDCOM's convertible securities may depress the market price of the common
stock and will decrease the relative voting power of existing common stock
securityholders. Should a significant number of SPEEDCOM's convertible
securities be exercised or converted, the resulting increase in the amount of
the common stock in the public market could have a substantial dilutive effect
on SPEEDCOM's outstanding common stock. Public resales of our common stock
following the exercise or conversion of the securities may depress the
prevailing market price of our common stock.
Under the anti-dilution provisions of the preferred stock, if SPEEDCOM
issues common stock or common stock equivalents at a purchase price, conversion
price or warrant or option exercise price that is less than the current
preferred stock conversion price of $1.125 per share, the conversion price of
the preferred stock will be reduced using a customary weighted average basis
formula. Under the anti-dilution provisions of warrants issued in August 2001,
(1) the exercise price will be lowered to equal the purchase price, conversion
price or warrant or option exercise price for any common stock or common stock
equivalents issued (other than to employees) at a purchase price, conversion
price or warrant or option exercise price less than the current per share
exercise price of the applicable warrants ($2.50 in the case of Series A
Warrants and $0.01 in the case of Series B Warrants), and (2) the number of
warrants will be increased by the same percentage as the percentage by which
the exercise price is reduced. Alternatively, (1) the exercise price will be
reduced by the percentage by which the purchase price, conversion price or
warrant or option exercise price of any issued security (others than to
employees) is less than the current market price of the common stock, and (2)
the number of warrants will be increased by the same percentage as the
percentage by which the exercise price is reduced, if this formula results in a
lower exercise price than the adjustment described in the preceding sentence.
Similar anti-dilution provisions apply to warrants to acquire 513,333 shares at
an exercise price of $2.50 per share.
18
Our manufacturing capabilities are limited and could prevent us from keeping up
with customer demand.
SPEEDCOM has no experience in large-scale manufacturing. If our customers
were to place orders substantially greater than current levels, SPEEDCOM's
present manufacturing abilities may not be adequate to meet such demand. There
can be no assurance that we will be able to contract additional manufacturing
personnel on a timely basis.
Our concentrated ownership structure means that our two controlling
shareholders can control the outcome of any shareholder vote.
Michael W. McKinney and Barbara McKinney currently control a majority of
SPEEDCOM's common stock. Therefore, certain corporate actions, which the Board
of Directors may deem advisable for the shareholders of SPEEDCOM as a whole,
such as a business combination, may not be approved by the common shareholders
if submitted to a vote, unless Michael W. McKinney and Barbara McKinney approve
the potential transaction.
SPEEDCOM is subject to extensive and unpredictable government regulation, which
could make our products obsolete, raise our development costs and create
opportunities for other competitors.
SPEEDCOM is subject to various FCC rules and regulations in the United
States and to other government regulations abroad. There can be no assurance
that new FCC regulations will not be promulgated or that existing regulations
outside of the United States would not adversely affect international marketing
of SPEEDCOM's products.
Regulatory changes, including changes in the allocation of available
frequency spectrum, could significantly impact operations by restricting
development efforts, rendering current products obsolete or increasing the
opportunity for additional competition. In September 1993 and in February 1995,
the FCC allocated additional spectrum for personal communications services. In
January 1997, the FCC authorized 300 MHz of additional unlicensed frequencies
in the 5 Gigahertz frequency range. In 2000, the FCC modified the rules for
"frequency hopping spread spectrum" radios to allow greater power utilization
in certain circumstances. These changes in the allocation of available
frequency spectrum could create opportunities for other wireless networking
products and services or shift the competitive balance between SPEEDCOM and its
competitors.
19
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, 2001 and 2000 and the related statements of
operations, changes in stockholders' equity 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, 2001 and 2000, 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.
The accompanying financial statements have been prepared assuming that
SPEEDCOM Wireless Corporation will continue as a going concern. As more fully
described in Note 2, the Company has incurred recurring operating losses and
has negative cash flows from operations. At the present time, the Company is
seeking additional debt or equity funding but has no commitments in place.
These conditions raise substantial doubt about the Company's ability to
continue as a going concern. The financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the outcome of this uncertainty.
/s/ ERNST & YOUNG LLP
Tampa, Florida
March 22, 2002
20
SPEEDCOM WIRELESS CORPORATION
BALANCE SHEETS
December 31,
2001 2000
------------ -----------
ASSETS
Current assets:
Cash............................................................................. $ 273,614 $ 227,066
Restricted cash.................................................................. 42,724 --
Accounts receivable, net of allowances of $231,278 and $296,330 in 2001 and
2000, respectively............................................................. 1,883,533 1,788,206
Current portion of leases receivable............................................. 778,030 43,389
Inventories, net of reserves of $67,091 and $32,596 in 2001 and 2000,
respectively................................................................... 1,678,553 2,388,283
Inventories consigned to others.................................................. 146,681 --
Prepaid expenses and other current assets........................................ 146,593 732,753
------------ -----------
Total current assets.............................................................. 4,949,728 5,179,697
Accounts receivable............................................................... -- 586,578
Property and equipment, net....................................................... 1,034,558 956,133
Leases receivable................................................................. 811,103 36,157
Note receivable--related party.................................................... 267,126 --
Other assets, net................................................................. 122,104 158,405
Investments....................................................................... -- 76,994
Intellectual property, net........................................................ 1,372,937 --
------------ -----------
Total assets...................................................................... $ 8,557,556 $ 6,993,964
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................. $ 2,455,803 $ 2,673,570
Advance from factor.............................................................. 298,676 --
Accrued expenses................................................................. 1,056,140 700,815
Current portion of loans from stockholders....................................... 76,000 336,780
Current portion of deferred revenue.............................................. 74,911 90,047
Current portion of notes and capital leases payable.............................. 33,174 52,901
------------ -----------
Total current liabilities......................................................... 3,994,704 3,854,113
Loans from stockholders, net of current portion................................... -- 203,733
Deferred revenue, net of current portion.......................................... 13,517 50,141
Notes and capital leases payable, net of current portion.......................... 39,254 57,294
Stockholders' equity:
Common stock, $.001 par value, 30,000,000 shares authorized, 10,122,113 and
9,289,529 shares issued and outstanding in 2001 and 2000, respectively......... 10,122 9,289
Preferred stock, $2.25 liquidation value per share, 10,000,000 shares authorized,
3,835,554 and 0 shares issued and outstanding in 2001 and
2000, respectively............................................................. 5,455,702 --
Additional paid-in capital....................................................... 17,710,477 7,889,817
Accumulated deficit.............................................................. (18,666,220) (4,995,423)
Notes receivable--related party.................................................. -- (75,000)
------------ -----------
Total stockholders' equity........................................................ 4,510,081 2,828,683
------------ -----------
Total liabilities and stockholders' equity........................................ $ 8,557,556 $ 6,993,964
============ ===========
See accompanying notes.
21
SPEEDCOM WIRELESS CORPORATION
STATEMENTS OF OPERATIONS
Years Ended December 31,
2001 2000
------------ -----------
Net revenues............................................................... $ 14,209,528 $10,662,478
Cost of goods and services................................................. 8,316,455 5,784,415
------------ -----------
Gross margin............................................................... 5,893,073 4,878,063
Operating costs and expenses:
Salaries and related...................................................... 5,376,486 3,596,052
General and administrative................................................ 3,375,607 1,920,392
Selling expenses.......................................................... 1,705,715 1,418,514
Provision for bad debt.................................................... 873,363 272,957
Depreciation and amortization............................................. 632,960 165,681
Severance costs........................................................... 531,769 --
------------ -----------
12,495,900 7,373,596
------------ -----------
Loss from operations....................................................... (6,602,827) (2,495,533)
Other expense:
Interest expense, net..................................................... (3,062,214) (36,402)
Other expense, net........................................................ (219,387) (45,832)
------------ -----------
(3,281,601) (82,234)
------------ -----------
Net loss before extraordinary items........................................ (9,884,428) (2,577,767)
Extraordinary loss from early extinguishment of debt....................... 3,786,369 --
------------ -----------
Net loss................................................................... (13,670,797) (2,577,767)
Assumed dividend from beneficial conversion feature of preferred stock..... 5,273,515 --
------------ -----------
Net loss attributable to common stockholders............................... $(18,944,312) $(2,577,767)
============ ===========
Net loss per common share before extraordinary items
(net of assumed dividend):
Basic and diluted......................................................... $ (1.57) $ (0.31)
============ ===========
Extraordinary loss per common share:
Basic and diluted........................................................ $ (0.39) --
============ ===========
Net loss per common share attributable to common stockholders:
Basic and diluted......................................................... $ (1.96) $ (0.31)
============ ===========
Shares used in computing basic and diluted net loss per common share before
extraordinary items and net loss per common share........................ 9,678,400 8,266,693
============ ===========
See accompanying notes.
22
SPEEDCOM WIRELESS CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Common Common Preferred Preferred
Stock Stock Stock Stock Accumulated Note
Shares Amount Shares Amount APIC Deficit Receivable Total
---------- ------- --------- ---------- ----------- ------------ ---------- ------------
Balance at January 1, 2000....... 7,351,323 $ 7,351 -- $ -- $ 2,061,943 $ (2,417,656) $ -- $ (348,362)
Issuance of common stock and
warrants for cash............... 1,950,834 1,951 -- -- 5,370,807 -- -- 5,372,758
Exercise of stock options........ 18,822 19 -- -- 49,295 -- -- 49,314
Issuance of common stock for note
and consulting services......... 28,653 28 -- -- 99,972 -- (95,000) 5,000
Services rendered and payment
collected on note............... -- -- -- -- -- -- 20,000 20,000
Issuance of common stock for
services........................ 125,000 125 -- -- 531,125 -- -- 531,250
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
Exercise of stock
options......................... 81,449 81 -- -- 109,534 -- -- 109,615
Services rendered and payment
collected on note............... -- -- -- -- -- -- 75,000 75,000
Issuance of warrants............. -- -- -- -- 1,630,500 -- -- 1,630,500
Issuance of preferred stock and
warrants for cash............... -- -- 1,209,956 1,479,146 530,588 -- -- 2,009,734
Issuance of preferred stock and
warrants in exchange for debt... -- -- 2,625,598 3,976,556 11,110,744 -- -- 15,087,300
Issuance of warrants for services -- -- -- -- 302,070 -- -- 302,070
Issuance of common stock for
extinguishment of note.......... 12,635 13 -- -- 44,087 -- -- 44,100
Issuance of common stock for
intellectual property........... 325,000 325 -- -- 1,239,175 -- -- 1,239,500
Issuance of common stock and
warrants for services........... 413,500 414 -- -- 127,477 -- -- 127,891
Assumed dividend from beneficial
conversion feature of preferred
stock........................... -- -- -- -- (5,273,515) -- -- (5,273,515)
Net loss......................... -- -- -- -- -- (13,670,797) -- (13,670,797)
---------- ------- --------- ---------- ----------- ------------ -------- ------------
Balance at December 31, 2001..... 10,122,113 $10,122 3,835,554 $5,455,702 $17,710,477 $(18,666,220) $ -- $ 4,510,081
========== ======= ========= ========== =========== ============ ======== ============
See accompanying notes.
23
SPEEDCOM WIRELESS CORPORATION
STATEMENTS OF CASH FLOWS
Years Ended December 31,
2001 2000
------------ -----------
Operating activities
Net loss................................................................... $(13,670,797) $(2,577,767)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization............................................. 632,960 165,681
Provision for bad debt.................................................... 873,363 272,957
Provision for inventory obsolescence...................................... 34,495 (22,980)
Common stock issued for services.......................................... 65,877 220,000
Amortization of original issue discount on debt........................... 2,457,304 --
Warrants issued for services.............................................. 302,070 --
Gain on sale of InstallGuys division...................................... (167,771) --
Extraordinary loss from early extinguishment of debt...................... 3,786,369 --
Impairment loss on investment............................................. 76,994 --
Preferred stock received in exchange for services......................... -- (76,994)
Changes in operating assets and liabilities:
Restricted cash......................................................... (42,724) 35,671
Accounts receivable..................................................... (1,665,627) (2,132,586)
Leases receivable....................................................... (294,291) (79,546)
Inventories............................................................. 641,192 (1,812,299)
Inventories consigned to others......................................... (146,681) --
Prepaid expenses and other current assets............................... 489,180 (394,321)
Intellectual property................................................... (360,000) --
Other assets............................................................ (19,530) (114,121)
Accounts payable and accrued expenses................................... 917,101 2,183,159
Deferred revenue........................................................ (51,760) (6,433)
------------ -----------
Net cash used in operating activities...................................... (6,142,276) (4,339,579)
Investing activities
Purchases of equipment..................................................... (492,539) (922,615)
------------ -----------
Net cash used in investing activities...................................... (492,539) (922,615)
Financing activities
Net borrowings from (payments to) factor................................... 298,676 (111,731)
Net proceeds from issuance of preferred stock and warrants................. 2,009,734 5,422,072
Proceeds from loans from and warrants issued to stockholders............... 6,769,000 540,513
Payments of loans from stockholders........................................ (1,870,000) (45,639)
Proceeds from issuance of notes............................................ 12,206 12,500
Payments of notes and capital leases....................................... (647,868) (213,509)
Purchase of treasury stock................................................. -- (223,510)
Proceeds from issuance of common stock..................................... 109,615 --
------------ -----------
Net cash provided by financing activities.................................. 6,681,363 5,380,696
------------ -----------
Net increase in cash....................................................... 46,548 118,502
Cash at beginning of year.................................................. 227,066 108,564
------------ -----------
Cash at end of year........................................................ $ 273,614 $ 227,066
============ ===========
See accompanying notes.
24
SPEEDCOM WIRELESS CORPORATION
STATEMENTS OF CASH FLOWS (CONTINUED)
Years Ended December 31,
2001 2000
---------- --------
Supplemental disclosure of cash flow information
Cash paid for interest............................................... $ 302,600 $ 20,931
Supplemental disclosure of noncash investing and financing activities
Common stock issued for services..................................... $ 96,000 $551,250
Common stock issued for note......................................... -- $ 95,000
Conversion of accounts receivable to lease receivable................ $1,333,000 --
Conversion of accounts payable to notes payable...................... $ 558,442 --
Conversion of accounts payable to preferred stock.................... $ 25,000 --
Common stock issued for intellectual property........................ $1,239,500 --
Conversion of debt to common stock................................... $ 44,100 --
Conversion of debt to preferred stock and warrants................... $6,027,416 --
Conversion of debt issuance costs to equity.......................... $ 163,651 --
Conversion of accrued interest to preferred stock.................... $ 88,764 --
Equipment acquired under capital lease obligations................... $ 59,320 --
See accompanying notes.
25
SPEEDCOM WIRELESS CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001
1. Business
SPEEDCOM Wireless Corporation (SPEEDCOM) was incorporated in Florida on
March 16, 1994 and reincorporated in Delaware on September 26, 2000. SPEEDCOM
manufactures and installs custom broadband wireless networking equipment for
business and residential customers internationally. Through its Wave Wireless
Networking division, SPEEDCOM manufactures a variety of broadband wireless
products, including the SPEEDLAN family of wireless Ethernet bridges and
routers. Internet service providers, telephone company operators and private
organizations in over 60 countries use SPEEDCOM products to provide "last-mile"
wireless connectivity between multiple buildings at speeds up to 155 Megabits
per second and distances up to 25 miles. SPEEDCOM Wireless Corporation is an
ISO 9001 registered company.
2. Going Concern
These financial statements are prepared on a going-concern basis, which
assumes that SPEEDCOM will realize its assets and discharge its liabilities in
the normal course of business. SPEEDCOM incurred an operating loss of
$6,602,827 and negative cash flows from operations of $6,142,276 for the year
ended December 31, 2001. In addition, it is uncertain if projected future cash
flows from operations will be sufficient to finance projected working capital
requirements. These circumstances lend doubt as to the ability of SPEEDCOM
Wireless Corporation to continue in normal business operations. Management is
seeking to raise capital in 2002, but there is no assurance that these
undertakings will be successful. The ability of SPEEDCOM to continue as a going
concern is dependent upon obtaining adequate sources of financing and
developing and maintaining profitable operations.
3. Basis of Presentation
On September 26, 2000, SPEEDCOM Wireless International Corporation merged
with LTI Holdings, Inc. (LTI). The parties renamed the combined company
SPEEDCOM Wireless Corporation and continued the business of SPEEDCOM Wireless
International Corporation (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 attributable to
common stockholders in 2001 and 2000.
Since LTI was a non-operating shell company, the merger was treated as a
recapitalization of SPEEDCOM for accounting purposes. As a result, SPEEDCOM
recorded the transaction as the issuance of common stock for the net monetary
assets of LTI (principally cash), accompanied by a recapitalization of equity.
SPEEDCOM 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 in 2000. SPEEDCOM 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 SPEEDCOM 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 refer to Old SPEEDCOM before the merger and to
the combined company after the merger. The financial statements presented in
this Form 10-KSB reflect the financial position of the remaining legal entity,
LTI, which
26
subsequently changed its name to SPEEDCOM Wireless Corporation. All shares,
options 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.
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.
4. Summary of Significant Accounting Policies
Revenue Recognition
SPEEDCOM contracts with customers under short-term (generally two to four
weeks in duration) arrangements to configure, assemble, and install wireless
communications products. SPEEDCOM recognizes revenue on its wireless
communications products upon shipment as title transfer occurs at the time of
shipment assuming all of the four criteria set forth in SAB 101 described below
are met. Customers may exchange or return merchandise within 30 days if the
product is found to be non-functional upon delivery. SPEEDCOM accrues a
provision for estimated returns concurrent with revenue recognition. SPEEDCOM
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, SPEEDCOM 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 SPEEDCOM's financial statements.
Concentration of Credit Risk
SPEEDCOM's financial instruments that are exposed to concentrations of
credit risk, as defined by Statement of Financial Accounting Standards (SFAS)
No. 107, DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, are primarily
cash and accounts receivable.
SPEEDCOM 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. As of December 31, 2001, 31% of SPEEDCOM's accounts receivable were
from two customers. As of December 31, 2000, 49% of SPEEDCOM's accounts
receivable were from one customer.
Factored Accounts Receivable
SPEEDCOM accounts for its accounts receivable factoring arrangement as a
secured borrowing pursuant to SFAS No. 140, ACCOUNTING FOR TRANSFERS AND
SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES. SPEEDCOM's
assets, including accounts receivable, inventory and property and equipment
secure the agreement. As a result, the balances of accounts receivable sold to
the lending institution as of December 31, 2001 are shown as assets of SPEEDCOM
and the amounts advanced to SPEEDCOM are shown as 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.
27
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
Statement of Financial Accounting Standards No. 144 (SFAS 144) ACCOUNTING
FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS, prescribes general
standards for the recognition and measurement of impairment losses. SFAS 144
supercedes Statement of Financial Accounting Standards No. 121 (SFAS 121),
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO
BE DISPOSED OF. SFAS 144 is effective for companies with year-ends beginning
after December 15, 2001. SPEEDCOM elected to early adopt SFAS 144 during 2001.
SPEEDCOM evaluates long-lived assets for impairment by comparing their
discounted expected future cash flows to their carrying amounts. An impairment
loss is recognized if the undiscounted expected future cash flows are less than
the carrying value of the asset. No impairment loss was recognized in 2001 or
2000.
Investments
Investments are stated at the lower of cost or market value. SPEEDCOM sold
equipment, generating revenue of $159,736 and $76,994 during the fiscal years
ending December 31, 2001 and 2000, respectively in exchange for common stock of
another entity. At December 31, 2001, SPEEDCOM determined that the value of the
investment had declined to zero and accordingly decreased the carrying value of
the investment to zero.
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.
Intellectual Property
Intellectual property is stated at cost. Amortization is calculated using
the straight-line method over the estimated useful life of the Intellectual
property, which is six years. See Note 16.
Financial Instruments
SPEEDCOM's significant financial instruments include accounts receivable,
accounts payable, notes payable and preferred stock. SPEEDCOM believes that the
carrying values of financial instruments in the accompanying balance sheets
approximate their respective fair values.
Income Taxes
Currently, SPEEDCOM 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
SPEEDCOM 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)
28
and related interpretations. Accordingly, in cases where exercise prices equal
or exceed fair market value of the stock at the date of grant, SPEEDCOM
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
SPEEDCOM. 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 SPEEDCOM had adopted the fair value measurement standard of SFAS
123, ACCOUNTING FOR STOCK-BASED COMPENSATION, for all stock-based compensation,
is included in Note 16 to the financial statements.
Advertising Costs
SPEEDCOM's policy is to expense advertising costs as incurred. During the
years ended December 31, 2001 and 2000, SPEEDCOM incurred $108,135 and
$327,590, respectively, in advertising expenses. Such amounts are included in
selling expenses.
Research and Development Costs
SPEEDCOM's research and development expenses during the fiscal year ending
December 31, 2001 and 2000 totaled $424,299 and $51,253, respectively.
Loss Per Share
SPEEDCOM 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 5,652,497 and 644,355 shares of
common stock, unexercised preferred stock to purchase 2,573,859 and 0 shares of
common stock and unexercised convertible debt to purchase 0 and 123,000 shares
of common stock for the years ended December 31, 2001 and 2000, respectively
were not included in the computations of diluted loss per share because assumed
conversion would be antidilutive.
The weighted average number of shares outstanding does not include 459,219
additional shares that became issuable as a result of a repricing anti-dilution
provision that applies to 83,000 shares of common stock issued on October 30,
2000 for a price of $7.35 per share, or a total of $610,050. Additional shares
will be issued based on a reset price, which is the weighted average closing
price of SPEEDCOM common stock for the first ten trading days of January 2002;
provided that the reset price is not less than $1.1251 or more than $1.19.
Because the average price of SPEEDCOM's common stock during the first ten
trading days of 2002 was below the $1.1251 reset floor, the total number of
shares, as adjusted after repricing, is determined by dividing $610,050 by such
floor.
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 amounts 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 2001
presentation.
29
5. Recently Issued Accounting Standards
In 2001, the Financial Accounting Standards Board issued SFAS 140,
ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS
OF LIABILITIES, which is effective for fiscal years ending after December 15,
2000. The adoption of this statement did not have a significant effect on
SPEEDCOM's financial position and results of operations.
In 2001, the Financial Accounting Standards Board issued SFAS 141, BUSINESS
COMBINATIONS, which is effective for all business combinations initiated after
June 30, 2001. The adoption of this Statement did not have a significant effect
on SPEEDCOM's financial position and results of operations.
In 2001, the Financial Accounting Standards Board issued SFAS 142, GOODWILL
AND OTHER INTANGIBLE ASSETS, which is effective for fiscal years beginning
after December 15, 2001. The adoption of this Statement is not expected to have
a significant effect on SPEEDCOM's financial position and results of operations.
6. Leases Receivable
Leases receivable represent sales-type leases resulting from the
configuration, assembly, and installation of wireless communications products
with terms ranging from one to five years. Future minimum lease payments to be
received under sales-type leases in effect as of December 31, 2001 are as
follows:
Year ending December 31:
2002....................................... $ 778,030
2003....................................... 743,155
2004....................................... 67,948
----------
Total minimum lease payments............... $1,589,133
Less interest.............................. (164,002)
----------
Present value of net minimum lease payments $1,425,131
==========
Actual cash collections may differ primarily due to customer early buy-outs
and refinancings.
7. Inventories
A summary of inventories at December 31, 2001 and 2000 is as follows:
2001 2000
---------- ----------
Component parts..... $ 596,985 $1,156,966
Completed assemblies 1,081,568 1,231,317
---------- ----------
$1,678,553 $2,388,283
========== ==========
8. Inventories Consigned to Others
A summary of inventories consigned to others at December 31, 2001 and 2000
is as follows:
2001 2000
-------- -------
Component parts..... $ -- $ --
Completed assemblies 146,681 --
-------- -------
$146,681 $ --
======== =======
30
9. Property and Equipment
A summary of property and equipment at December 31, 2001 and 2000 is as
follows:
2001 2000
---------- ----------
Computer and office equipment $1,083,687 $ 822,006
Automobiles.................. 26,062 51,737
Leasehold improvements....... 121,278 86,207
Furniture and fixtures....... 176,885 135,415
Store and warehouse.......... 179,680 101,719
Construction in progress..... -- 49,244
---------- ----------
1,587,592 1,246,328
Less accumulated depreciation (553,034) (290,195)
---------- ----------
$1,034,558 $ 956,133
========== ==========
Property and equipment included computer and office equipment of $100,455
and $67,797 acquired under capital lease arrangements at December 31, 2001 and
2000. Amortization and depreciation expense amounted to $406,397 and $165,681
for the years ended December 31, 2001 and 2000, respectively. Amortization of
assets under capital lease arrangements is included in depreciation expense.
10. Intellectual Property
A summary of intellectual property at December 31, 2001 and 2000 is as
follows:
2001 2000
---------- --------
Intellectual property........ $1,599,500 $ --
Less accumulated amortization (226,563) --
---------- --------
$1,372,937 $ --
========== ========
11. Accrued Expenses
A summary of accrued expenses at December 31, 2001 and 2000 is as follows:
2001 2000
---------- --------
Accrued payroll....................... $ 170,419 $377,640
Accrued commissions................... 71,179 109,052
Severance costs....................... 256,826 --
Registration statement late filing fee 163,970 --
Other................................. 393,746 214,123
---------- --------
$1,056,140 $700,815
========== ========
12. Loans from Stockholders
SPEEDCOM issued a $250,000 promissory note to SPEEDCOM's former President in
December 2000. The note had an interest rate of the greater of 12% or DLJ's
standard margin rate plus 1.5%. The note was payable in December 2001 or at the
closing of an equity offering by SPEEDCOM of at least $5,000,000, whichever was
earlier. SPEEDCOM 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 was recorded as additional paid in capital and
as an original issue discount reducing the carrying value of the note. The
discount was being amortized to interest expense over the life of the note. The
loan was not convertible into preferred stock per the original loan agreement.
On August 23, 2001, this loan was converted to 111,111 shares of preferred
stock,
31
88,889 Series A Warrants and 132,111 Series B Warrants. The Series A Warrants
were valued at $93,333. The Series B Warrants vest contingent upon certain
performance factors and were valued at $84,551. The difference in the carrying
value on the promissory note as compared to the combined fair value of the
warrants and preferred stock is recorded as an extraordinary loss from the
early extinguishment of debt.
SPEEDCOM issued a $252,000 non-interest bearing promissory note in December
2000, with beneficial conversion features. The note was due in December 2001,
payable in cash or 70,000 shares of common stock, at the holder's option. The
70,000 shares had a fair value of $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 additional paid in capital and as an original issue discount
reducing the carrying value of the note. The discount was being amortized to
interest expense over the life of the note. On August 23, 2001, this loan was
converted to 112,000 shares of preferred stock, 89,600 Series A Warrants and
133,168 Series B Warrants. The Series A Warrants were valued at $51,096. The
Series B Warrants vest contingent upon certain performance factors and were
valued at $85,227. The unamortized portion of the original issue discount on
the promissory note is fully recorded to interest expense.
In December 2000, SPEEDCOM issued a $200,000 non-interest bearing promissory
note, with beneficial conversion features. The note was due in January 2002,
payable in cash or 50,000 shares of common stock, at the holder's option. The
50,000 shares had a fair value of $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 additional paid in capital and as an original issue discount
reducing the carrying value of the note. The discount was being amortized to
interest expense over the life of the note. On June 29, 2001, this loan, along
with a $25,000 trade payable, was converted to 100,000 shares of redeemable
preferred stock, 75,000 Series A Warrants and 100,000 Series B Warrants. The
Series A Warrants were valued at $90,000. The Series B Warrants vest contingent
upon certain performance factors and were valued at $49,000. The unamortized
portion of the original issue discount on the promissory note is fully recorded
to interest expense. On August 23, 2001, the redeemable preferred stock was
exchanged for 100,000 shares of preferred stock, 80,000 Series A Warrants and
118,900 Series B Warrants. The Series A Warrants were valued at $45,622. The
Series B Warrants vest contingent upon certain performance factors and were
valued at $76,095.
Also in December 2000, SPEEDCOM issued a $10,800 non-interest bearing
promissory note with beneficial conversion features. The note was due in
December 2001, payable in cash or 3,000 shares of common stock, at the holder's
option. The 3,000 shares had a fair value of $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 additional paid in capital and as an original issue discount
reducing the carrying value of the note. The discount was being amortized to
interest expense over the life of the note. On August 23, 2001, this loan was
converted to 4,800 shares of preferred stock, 3,840 Series A Warrants and 5,708
Series B Warrants. The Series A Warrants were valued at $2,190. The Series B
Warrants vest contingent upon certain performance factors and were valued at
$3,653. The unamortized portion of the original issue discount on the
promissory note is fully recorded to interest expense.
During January 2000, SPEEDCOM issued a 10% convertible subordinated
promissory note for $40,000, due for payment in January 2003. The note was
convertible into 10,000 shares of common stock at any time during its term. The
note was subordinate to all other debt instruments. The $40,000 note and
accrued interest was converted to common stock in January 2001.
In April 2001, SPEEDCOM borrowed $3,000,000 from an institutional investor.
The loan was due in April 2002 and had an interest rate of 9% for the first 90
days and 12% thereafter. This loan was convertible at the option of the
investor into debt or equity securities at a conversion price equal to 110% of
the outstanding principal amount. As part of the transaction, SPEEDCOM issued
warrants to acquire 333,333 shares of SPEEDCOM common stock at $5.00 per share.
The 333,333 warrants had a fair value of $930,000 more than the face value of
the note based on the per-share value at the date of the note. Additionally,
this loan had beneficial conversion features based on the value of the warrants
and the ability to convert to other securities at 110% of the principal amount.
The value of this beneficial conversion feature of $1,230,000 is combined with
the $930,000
32
yielding a total of $2,160,000 that has been recorded to additional paid in
capital and as an original issue discount reducing the carrying value of the
note. The debt discount was being amortized to interest expense over the life
of the note. Additional warrants were issuable contingent upon the date on
which the loan was repaid. The holder of the loan had certain rights of first
refusal on subsequent financings. Interest was due under the loan in quarterly
installments with principal payable in total at the maturity date of the loan.
On June 29, 2001, SPEEDCOM permitted $1,000,000 of this loan plus accrued
interest to be converted to 497,812 shares of redeemable preferred stock,
373,359 Series A Warrants and 497,812 Series B Warrants. The Series A Warrants
were valued at $448,030. The Series B Warrants vest contingent upon certain
performance factors. On August 23, 2001, the redeemable preferred stock was
exchanged for 497,812 shares of preferred stock, 398,225 Series A Warrants and
591,898 Series B Warrants. On August 23, 2001, the remaining $2,000,000 of this
loan plus accrued interest was converted to 1,011,756 shares of preferred
stock, 809,506 Series A Warrants and 1,203,104 Series B Warrants. The Series A
Warrants were valued at $461,638. The Series B Warrants vest contingent upon
certain performance factors and were valued at $769,987.
SPEEDCOM issued a 9% $40,000 promissory note to SPEEDCOM's Vice President of
Sales in May 2001. The note and interest were paid in August 2001.
In June 2001, SPEEDCOM issued a $250,000 promissory note to SPEEDCOM's
former President. The note had an interest rate of 10% and was payable in April
2002. SPEEDCOM concurrently granted a total of 73,333 warrants with a $3.25
strike price in connection with this note. The proportionate fair value of the
warrants amounted to $92,500 and has been recorded to additional paid in
capital and as an original issue discount reducing the carrying value of the
note. The loan was not convertible into preferred stock per the original loan
agreement. On June 29, 2001, this loan plus accrued interest was converted to
111,667 shares of redeemable preferred stock, 83,751 Series A Warrants and
111,667 Series B Warrants. The Series A Warrants were valued at $169,177. The
Series B Warrants vest contingent upon certain performance factors and were
valued at $54,717. The difference in the carrying value on the promissory note
as compared to the combined fair value of the warrants and preferred stock is
recorded as an extraordinary loss from the early extinguishment of debt. On
August 23, 2001, the redeemable preferred stock was exchanged for 111,667
shares of preferred stock, 89,334 Series A Warrants and 132,773 Series B
Warrants.
In June 2001, SPEEDCOM borrowed $1,500,000 from three institutional
investors. The loan had an interest rate of 10% and was payable in April 2002.
SPEEDCOM concurrently granted a total of 440,000 warrants with a $3.25 strike
price in connection with this loan. The proportionate fair value of the
warrants amounted to $555,000 and has been recorded to additional paid in
capital and as an original issue discount reducing the carrying value of the
loan. The loan was not convertible into preferred stock per the original loan
agreement. On June 29, 2001, $550,000 of this loan was converted to 245,667
shares of redeemable preferred stock, 184,251 Series A Warrants and 245,667
Series B Warrants. The Series A Warrants were valued at $372,187. The Series B
Warrants vest contingent upon certain performance factors and were valued at
$120,377. The difference in the carrying value related to the converted portion
of this loan as compared to the combined fair value of the warrants and
preferred stock is recorded as an extraordinary loss from the early
extinguishment of debt. On August 23, 2001, the redeemable preferred stock was
exchanged for 245,667 shares of preferred stock, 196,550 Series A Warrants and
292,096 Series B Warrants. On August 23, 2001, the remainder of this loan plus
accrued interest was converted to 430,785 shares of preferred stock, 344,529
Series A Warrants and 512,056 Series B Warrants. The Series A Warrants were
valued at $196,475. The Series B Warrants vest contingent upon certain
performance factors and were valued at $327,716. The difference in the carrying
value related to this loan as compared to the combined fair value of the
warrants and preferred stock is recorded as an extraordinary loss from the
early extinguishment of debt.
SPEEDCOM recorded a loss from the early extinguishment of debt related to
some of the conversions discussed above. When the nonconvertible loans
originated, value was allocated to the warrants based on the Black-Scholes
pricing model. This value was being amortized over the maturity of the loan.
When the loan was converted to preferred stock, Series A Warrants and Series B
Warrants, the difference in the carrying value as compared to the combined fair
value of the warrants and preferred stock was immediately expensed to loss from
the early extinguishment of debt.
33
SPEEDCOM issued an 18% $50,000 promissory note to SPEEDCOM's Vice President
of Sales in December 2001. The note is due in March 2002 and is secured by
property of SPEEDCOM. During February 2002, $10,000 of this loan had been
repaid.
SPEEDCOM also issued an 18% $106,000 promissory note to an investor in
December 2001 that was due December 28, 2001. SPEEDCOM paid $80,000 of this
note in December 2001. In January 2002, SPEEDCOM paid the remaining $26,000
balance on the note and accrued interest.
13. Notes and Capital Leases Payable
A summary of notes and capital leases payable at December 31, 2001 and 2000
is as follows:
2001 2000
-------- --------
10.5% bank note payable in monthly installments through June 2003,
secured by equipment and inventories............................ $ -- $ 46,631
8%-10.6% automobile loans payable in monthly installments through
January 2003, secured by equipment.............................. 5,057 29,460
Capital lease obligations......................................... 67,371 34,104
-------- --------
72,428 110,195
Less current portion.............................................. (33,174) (52,901)
-------- --------
$ 39,254 $ 57,294
======== ========
Aggregate future maturities of notes and capital leases payable as of
December 31, 2001 are as follows:
Year ending December 31:
Notes Leases
------ --------
2002............................. $4,697 $ 36,300
2003............................. 360 30,056
2004............................. -- 14,285
------ --------
Total maturities and payments.... $5,057 80,641
======
Less amount representing interest (13,270)
Less current portion............. (28,477)
--------
$ 38,894
========
14. Income Taxes
A reconciliation of the differences between the effective income tax rate
and the statutory federal tax rate follows:
2001 2000
------ ------
Tax at U.S. statutory rate......... (34.00)% (34.00)%
State taxes, net of federal benefit (2.60) (3.58)
Change in valuation allowance...... 26.95 37.10
Other.............................. 9.65 0.48
------ ------
0.00 % 0.00 %
====== ======
34
Significant components of SPEEDCOM's deferred tax assets and liabilities are
as follows:
2001 2000
----------- -----------
Deferred tax assets:
Net operating loss carryforwards $ 4,326,302 $ 1,643,440
Accounts receivable............. 87,030 111,509
Deferred revenue................ 33,275 52,753
Accrued expenses................ 33,138 43,288
Other........................... 59,806 24,605
----------- -----------
Gross deferred tax assets........ 4,539,551 1,875,595
Less: valuation allowance........ (4,539,551) (1,875,595)
----------- -----------
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, 2001 and 2000 to fully offset
the deferred tax asset.
At December 31, 2001 and 2000, SPEEDCOM's net operating loss carryforwards
for federal income tax purposes are approximately $11,500,000 and $4,400,000,
expiring in various amounts from 2012 through 2021. Utilization of SPEEDCOM'S
net operating loss may be subject to substantial annual limitation due to the
ownership change limitations provided by the Internal Revenue Code and similar
state provisions. Such an annual limitation could result in the expiration of
the net operating loss before utilization.
15. Preferred Stock
On June 29, 2001, SPEEDCOM converted loans, accrued interest and trade
payables of $2,149,075 to 955,146 shares of $.001 par value preferred stock,
716,361 Series A Warrants valued at $541,364 and 955,146 Series B Warrants. The
Series A Warrants were valued based on the proportionate fair value of the
warrants at the date of the conversion. The Series B Warrants vested contingent
upon certain performance factors. SPEEDCOM estimated the Series B Warrants to
have a value of $468,022 based on the results of the Black-Scholes pricing
model, reduced by one-half due to the uncertainty of whether the warrants will
be fully or partially exercisable, or not exercisable at all. Each of the
Series A Warrants was convertible into .75 shares of common stock and each of
the Series B Warrants was convertible into one share of common stock. This
preferred stock was only redeemable upon the occurrence of a Triggering Event
as defined in the agreement, which is generally a sale, merger or
reorganization, failure of SPEEDCOM to maintain an effective Registration
Statement related to the redeemable preferred stock or failure to have
SPEEDCOM's common stock listed on certain exchanges.
On August 23, 2001, SPEEDCOM converted the (i) 955,146 shares of redeemable
preferred stock, (ii) 716,361 Series A Warrants and (iii) 955,146 Series B
Warrants that were issued on June 29, 2001 and (iv) loans to shareholders of
$3,462,800 in exchange for (i) 2,625,598 shares of preferred stock, (ii)
2,100,473 Series A Warrants valued at $455,192, exercisable at $2.50 per share
and (iii) 3,121,814 Series B Warrants valued at $1,271,134, exercisable at
$0.01 per share. This conversion was due to SPEEDCOM's commitment to the
holders of preferred stock and warrants issued in June 2001 that if SPEEDCOM
issues similar instruments at more favorable terms, SPEEDCOM will adjust the
terms of the securities issued in June 2001 in response to this commitment
based on a conversion ratio of two shares of common stock for each share of
preferred stock rather than the ratio of one-to-one in the preferred stock
issued in June 2001. SPEEDCOM has recorded an assumed dividend of $2,292,350,
which equals the increase in the intrinsic value of the preferred stock based
on the incremental number of shares of common stock (955,146) that may be
obtained on conversion of the preferred stock into common stock valued at the
price per share ($2.40) on June 29, 2001. There was no difference in the fair
value of Series A and B Warrants issued in August 2001 compared to the fair
value of the Series A and B Warrants issued in June 2001.
35
Concurrently on August 23, 2001, SPEEDCOM issued (i) 1,209,956 shares of
preferred stock, (ii) 967,975 Series A Warrants and (iii) 1,438,667 Series B
Warrants for $2,397,010 in cash, net of stock issuance costs. The Series A
Warrants were valued at their proportionate value of $481,587 and the Series B
Warrants were recorded at their proportionate value of $436,277 as additional
paid in capital. The Series B Warrants vest (1) fully if SPEEDCOM does not
achieve positive EBITDA in the fourth quarter of 2001, (2) partially if
SPEEDCOM achieves positive EBITDA in the fourth quarter of 2001 of less than
$100,000, and (3) fully if SPEEDCOM has less than $4,500,000 of revenue in the
fourth quarter of 2001. SPEEDCOM did not meet these thresholds. Accordingly,
all of the Series B Warrants are exercisable at $0.01 as of December 31, 2001.
Additionally, the preferred stock has a beneficial conversion feature valued at
$1,479,146 based on the value of the warrants and the ability to convert the
preferred stock to two shares of common stock. This amount is recorded as an
assumed dividend from beneficial conversion feature because the preferred stock
was convertible when issued.
The terms of the preferred stock provide that if SPEEDCOM has not executed a
definitive agreement with respect to a bona fide merger, stock sale or sale of
all or substantially all of SPEEDCOM's assets with an acceptable acquirer which
would result in a change of control of SPEEDCOM prior to December 28, 2001,
which is publicly announced within 6 months of the date of issuance of the
preferred stock and which closes prior to March 31, 2002, the conversion price
shall be adjusted so that each share of preferred stock shall convert into 2.25
shares of common stock commencing on December 31, 2001, unless the conversion
price on December 31, 2001 would result in more than 2.25 shares of common
stock being issued in exchange for each share of preferred stock. Because
SPEEDCOM did not meet these terms, the conversion price of the preferred stock
was adjusted so that each share of preferred stock shall convert into 2.25
shares of common stock. SPEEDCOM recorded an assumed dividend from beneficial
conversion feature of $573,087 related to the preferred stock which was issued
from the conversion on August 23, 2001, of 955,146 shares of redeemable
preferred stock issued on June 29, 2001, which equals the increase in the
intrinsic value of the preferred stock based on the incremental number of
shares of common stock (238,787) that may be obtained on conversion of the
preferred stock into common stock valued at the price per share ($2.40) on June
29, 2001. SPEEDCOM recorded an assumed dividend from beneficial conversion
feature of $928,932 related to the preferred stock issued on August 23, 2001,
which equals the increase in the intrinsic value of the preferred stock based
on the incremental number of shares of common stock (720,102) that may be
obtained on conversion of the preferred stock into common stock valued at the
price per share ($1.29) on August 23, 2001.
Each share of preferred stock issued in August 2001 is convertible at any
time into two shares of common stock, subject to anti-dilution protection, and
will accrue dividends, beginning August 23, 2003, to be paid upon conversion at
the rate of 14% per year times the $2.25 per share liquidation preference. The
conversion ratio is subject to adjustment to 2.25 shares of common stock for
each share of common stock if a change of control transaction is not signed,
announced or closed by specified dates ending on March 31, 2002. The
liquidation preference will increase to $3.38 ($4.50 if paid in stock) if a
change of control agreement is not announced by February 23, 2002 and closed by
April 23, 2002. The liquidation preference will increase to $3.04 ($3.83 if
paid in stock) if a change of control agreement is announced by February 23,
2002 and closed by April 23, 2002. In addition, the terms of the Series B
convertible preferred stock provide for mandatory conversion, automatically,
without any action on the part of the holder, if (1) at least 12 months after
the date of issuance of the Series B convertible preferred stock, the closing
bid price of the common stock exceeds $2.25 for a period of twenty consecutive
trading days, and (2) the underlying common stock is registered under the
Securities Act of 1933. The term of the Series A Warrants issued in August 2001
expires on August 23, 2006. The Series B Warrants expire 20 days following the
release of the audited financial statements for the 2001 fiscal year.
Under the anti-dilution provisions of the preferred stock, if SPEEDCOM
issues common stock or common stock equivalents at a purchase price, conversion
price or warrant or option exercise price that is less than the current
preferred stock conversion price of $1.125 per share, the conversion price of
the preferred stock will be reduced using a customary weighted average basis
formula. Under the anti-dilution provisions of the Series A and Series B
Warrants issued in August 2001, (1) the exercise price will be lowered to equal
the purchase price, conversion price or warrant or option exercise price for
any common stock or common stock equivalents issued
36
(other than to employees) at a purchase price, conversion price or warrant or
option exercise price less than the current per share exercise price of the
applicable warrants ($2.50 in the case of the Series A Warrants and $0.01 in
the case of the Series B Warrants), and (2) the number of warrants will be
increased by the same percentage as the percentage by which the exercise price
is reduced. Alternatively, (1) the exercise price will be reduced by the
percentage by which the purchase price, conversion price or warrant or option
exercise price of any issued security (others than to employees) is less than
the current market price of the common stock, and (2) the number of warrants
will be increased by the same percentage as the percentage by which the
exercise price is reduced, if this formula results in a lower exercise price
than the adjustment described in the preceding sentence. Similar anti-dilution
provisions apply to warrants to acquire 513,333 shares at an exercise price of
$2.50 per share.
The Company may recognize an additional assumed dividend when these
contingencies regarding the conversion ratio are resolved and the preferred
stock is revalued.
16. Stockholders' Equity
As of December 31, 2001, SPEEDCOM had the following warrants outstanding to
purchase common stock of SPEEDCOM:
Number Expiration Date Price
------ --------------- -----
3,668,448 8/23/2006 $2.50
4,560,481 4/21/2002 $0.01
513,333 6/11/2006 $2.50
25,000 12/5/2002 $3.60
11,500 1/21/2003 $5.40
84,238 7/31/2002 $8.72
3,000 2/8/2002 $6.50
135,000 6/24/2003 $3.25
150,000 3/31/2006 $6.00
During January 2000, SPEEDCOM issued a 10% convertible subordinated
promissory note for $40,000, due for payment in January 2003. The note and
accrued interest converted into 12,635 shares of common stock in 2001.
During 2001, 41,500 options were exercised for $.01 per share, 29,980
options were exercised for $2.62 per share, 4,813 options were exercised for
$2.63 per share and 5,156 options were exercised for $3.49 per share. SPEEDCOM
also issued 6,000 shares of common stock for finder's fees and 10,000, 40,000,
1000 and 6,500 shares for consulting services at $2.23, $2.40, $2.05 and $1.16
per share, respectively.
In January 2001, SPEEDCOM acquired worldwide rights to PacketHop(TM), a
revolutionary wireless routing software developed by SRI International (SRI).
PacketHop(TM) overcomes the traditional need for a direct line of sight between
a base station and an end user's location. Under the terms of the agreement,
SPEEDCOM obtains worldwide rights to SRI's PacketHop(TM) technology in the
fixed wireless infrastructure market for the primary frequencies below 6 GHz.
Per the agreement, SRI International is entitled to receive a total of 325,000
shares of common stock of SPEEDCOM to be issued in four traunches. Each traunch
is measured on the specific date that the stock is issued on. The first traunch
was due on signing the agreement. The three remaining traunches were due on
achievement of certain performance criteria. The first traunch was granted in
January 2001 for 100,000 shares at $6.50 per share. The second traunch was
granted in April 2001 for 75,000 shares at $4.30 per share. The third traunch
was granted in July 2001 for 75,000 shares at $2.36 per share. The fourth
traunch was granted in October 2001 for 75,000 shares at $1.20 per share. As of
December 31, 2001, the value of these shares at the date of grant is classified
in Intellectual property on the balance sheet. SPEEDCOM also has paid $360,000
in cash, included in Intellectual property on the balance sheet, which is being
amortized over six years (the term of the agreement, barring default). For the
year ended December 31, 2001, amortization in the amount of $226,563 has been
recorded.
37
As part of the selling compensation paid to the firm of H.C. Wainwright &
Co., Inc., which organized the August 2001 financing agreement as discussed in
Notes 12 and 15, SPEEDCOM issued to the firm and officers of the firm a total
of 350,000 shares of common stock. These shares were recorded as an increase in
common stock and a decrease in additional paid in capital.
There are an additional 459,219 shares that became issuable as a result of a
repricing provision that applies to 83,000 shares of common stock issued on
October 30, 2000 for a price of $7.35 per share, or a total of $610,050.
Additional shares will be issued based on a reset price, which is the weighted
average closing price of SPEEDCOM common stock for the first ten trading days
of January 2002; provided that the reset price is not less than $1.1251 or more
than $1.19. Because the average price of SPEEDCOM's common stock during the
first ten trading days of 2002 was below the $1.1251 reset floor, the total
number of shares, as adjusted after repricing, is determined by dividing
$610,050 by such floor. These shares were issued in January 2002.
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 expire July 31, 2002. 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 have expired.
During 2000, 18,822 options were exercised for $2.62 per share. SPEEDCOM
also issued 154,943 shares of common stock for finder's fees and costs incurred
in connection with the merger as discussed in Note 3 above. Pursuant to the
merger as discussed above and in Note 3, 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 SPEEDCOM 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, 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. In 2001, the note was repaid
in full by the board member.
In September 2000, SPEEDCOM 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
38
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 in 2001.
In December 2000, SPEEDCOM 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 SPEEDCOM. The amounts were charged against equity when capital was
raised in 2001.
During the year ended December 31, 2000, SPEEDCOM repurchased 185,103 shares
of its common stock, for cash. These shares were retired when repurchased.
Employee Stock-Based Compensation
At December 31, 2001 and 2000, SPEEDCOM had 3,000,000 shares of common stock
reserved for issuance under employee incentive stock bonus, purchase or option
plans. 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 1,650,616 were issued outside these two plans to Executive Officers.
All full time employees are eligible for both plans. Plan 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, 2001 there were 879,331 shares unissued
under both plans.
Employee stock option activity was as follows during the years ended
December 31, 2001 and 2000:
2001 2000
--------------------------- ---------------------------
Weighted Average Weighted Average
Options Exercise Price Options Exercise Price
--------- ---------------- --------- ----------------
Outstanding--
Beginning of year........... 2,937,978 $2.95 1,721,298 $2.62
Granted at market price..... 1,237,058 2.74 1,293,156 3.35
Exercised................... (75,449) 1.24 (18,822) 2.62
Expired or cancelled........ (328,302) 3.75 (57,654) 3.24
--------- ----- --------- -----
Outstanding--end of year..... 3,771,285 $2.75 2,937,978 $2.95
========= ===== ========= =====
Exercisable as of December 31 2,897,020 $2.79 1,037,579 $2.62
========= ===== ========= =====
The weighted average fair value of the options granted during 2001 and 2000
is $1.70 and $2.10, respectively. The range of exercise prices of the options
is $.01 through $10.25. The weighted average remaining contractual life of the
options as of December 31, 2001 and 2000 is 3.1 and 3.3 years, respectively.
Pro forma information regarding SPEEDCOM's stock option grants is presented
below. The fair market value for these options was estimated at the date of
grant using the Black-Scholes option pricing model. 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, the
volatility used was 0.64 in 2001 and 1.27 in 2000 and the risk free interest
rate was assumed to be 4.54% in 2001 and 5.77% in 2000. 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.
39
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. SPEEDCOM's
pro forma information follows at December 31, 2001 and 2000:
2001 2000
------------ -----------
Reported net loss............................. $(13,670,797) $(2,577,767)
Estimated fair value of options............... (2,225,654) (527,634)
------------ -----------
Pro forma net loss............................ $(15,896,451) $(3,105,401)
============ ===========
Reported net loss per share: basic and diluted $ (1.96) $ (0.31)
Effect for the fair value of options.......... (0.23) (0.07)
------------ -----------
Pro forma net loss............................ $ (2.19) $ (0.38)
============ ===========
17. Leases
SPEEDCOM leases office and manufacturing facilities and computer and office
equipment under operating leases. Rent expense under operating leases, amounted
to $547,054 and $243,167 for the years ended December 31, 2001 and 2000,
respectively. Future noncancellable lease payments under operating leases for
each year ended December 31 are as follows: 2002-$763,573; 2003-$721,135;
2004-$711,843; 2005-$696,708; 2006-$684,423 and thereafter-$6,669,000.
18. Employee Benefit Plan
SPEEDCOM 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. SPEEDCOM will contribute 25% matching after an employee has been
with SPEEDCOM for 90 days. SPEEDCOM's contributions to the plan were $58,572
and $26,453 for the years ended 2001 and 2000, respectively.
19. Bad Debt Expense
In the fourth quarter of 2000 and in the first and second quarters of 2001,
SPEEDCOM sold its SPEEDLAN product line for a total of $573,612 to a large
Korean based company (Korean Customer). One of the major clients of the Korean
Customer declared bankruptcy in 2001, which had a significant financial impact
on the Korean Customer. The inventory that was sold to the Korean Customer is
in the possession of a principal of that company. SPEEDCOM is retaining an
attorney to issue legal letters, apply to the courts to capture the inventory
and to gain access to the inventory for assessment. It is unclear if SPEEDCOM
will be successful in its efforts. Accordingly, SPEEDCOM has written off
$455,647 of the receivable in 2001, which represents the remaining unpaid
balance.
20. Severance Costs
In 2001, SPEEDCOM recorded severance costs of $531,769, reflecting employee
termination costs relating to staff reductions. The staff reductions include
twenty employees (two at the executive management level, accounting for
$417,000) and were completed in 2001. The costs include severance pay and other
employee benefits, including amounts to be paid over future periods. As of
December 31, 2001, SPEEDCOM has paid approximately $275,000 of the total
$531,769 charged to expense.
21. Sale of Assets
During 2001, SPEEDCOM sold its InstallGuys division to SPEEDCOM'S Chief
Executive Officer. In return, SPEEDCOM received two 6% secured promissory notes
totaling $211,295. SPEEDCOM recorded a gain on the sale of $167,771, which is
classified in Other expense, net in the Statements of Operations. The notes and
interest are due in August 2004.
40
22. Segment and Geographic Information
SPEEDCOM 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.
SPEEDCOM's business and principal operations are domiciled in North America.
SPEEDCOM 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 53% and 45% of total revenues
for the years ended December 31, 2001 and 2000, respectively. During 2001, 16%,
15% and 12% of SPEEDCOM's revenues were derived from customers located in Latin
America, Asia and Africa, respectively. During 2000, 26% of SPEEDCOM's revenues
were derived from customers located in Latin America. No other foreign
geographic area contributed 10% or greater of total revenues for 2001 or 2000.
SPEEDCOM has no significant property in any foreign geographic area.
No single customer accounted for 10% or more of SPEEDCOM's revenue for the
year ended December 31, 2001. 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.
23. Subsequent Event
In February 2002, SPEEDCOM converted two of its leases receivable, recorded
at $1,289,901, into a new lease receivable with $336,066 due immediately, five
payments of $50,000 due over a five month period and a balloon payment of
$328,208 due in August 2002. As a result of this restructuring of the lease
SPEEDCOM incurred a charge of $395,542 in the first quarter of 2002.
Item 8. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Ernst & Young LLP served as pre-merger SPEEDCOM's independent certified
public accountants before its merger into LTI and continued as the independent
certified public accountants for the post-merger company, with the approval of
SPEEDCOM's Board of Directors. Therefore, as a technical matter, SPEEDCOM was
deemed to have changed its independent certified public accountants effective
with the merger on September 26, 2000. Grant Thornton LLP served as independent
certified public accountants of LTI before the merger. Grant Thornton LLP's
report on LTI's financial statements for the year ended March 31, 2000 was
unqualified.
PART III
Item 9. Directors and Executive Officers of Registrant
The following table sets forth the names, ages and positions of the persons
who serve as Executive Officers and Directors of SPEEDCOM.
Name Age Positions(s)
---- --- ------------
Michael W. McKinney 45 Chairman and Chief Executive Officer, Director
R. Craig Roos...... 56 Vice Chairman and Director
Michael Sternberg.. 56 Director
Ben Haidri......... 39 Director
Michael W. McKinney founded SPEEDCOM in 1994. Mr. McKinney has 20 years of
local area network and wide area network computer networking experience as an
executive of AT&T and NCR. He holds a bachelor of science in economics and
finance from Miami University, Oxford, OH.
41
R. Craig Roos joined SPEEDCOM's Board of Directors as Vice Chairman in
February 2000. Mr. Roos is founder and sole owner of Roos Capital Planners,
Inc., which he formed in 1979. Mr. Roos has served on the boards of several
companies in the wireless, communications, software, media and
telecommunications industries. He has previously served as chairman of
MobileMedia Corporation from 1993 until 1995. Mr. Roos also was a co-founder of
Locate, a digital local access carrier specializing in high-speed T-1 level
radio carrier technologies. Mr. Roos has testified before the United States
Congress on telecommunications issues and is a former chairman of the
Alternative Local Telecommunications trade association. Mr. Roos has a
bachelor's degree in economics from Davis & Elkins College and a masters of
business administration from Fairleigh Dickinson University.
Michael Sternberg joined SPEEDCOM's Board of Directors in March 2002. Mr.
Sternberg has been CEO of multiple start up telecom companies, including local
exchange company KMC Telecom. Mr. Sternberg was part of the original founding
team at Metropolitan Fiber Systems that was eventually sold for $12 billion to
MCI. One other notable venture included the start up of a satellite company
that achieved $30 million in revenue within 18 months of the company's
inception, including the negotiated purchase and launch of the only two
satellites launched by a U.S. company from Russia. At KMC Telecom, Mr.
Sternberg helped grow the company from 7 to 1,300 employees, with sales and
operations throughout the U.S. KMC Telecom under his leadership increased its
value from $6 million to $1.8 billion in value in less than four years by
building 35 city networks (switching, lightwave and fiber optics). KMC Telecom
secured over $1 billion in funding with Mr. Sternberg's assistance. Mr.
Sternberg also led the company to sixteen consecutive quarters of performance
at or above plan before leaving.
Ben Haidri joined SPEEDCOM's Board of Directors in March 2002. Mr. Haidri
has been involved with the software industry since 1986, holding a number of
senior positions with Novell as well as startups and leading technology
providers. Mr. Haidri has expertise in the areas of wireless and security, and
has over 15 years experience in strategic relations, marketing and product
management. Prior to joining SECURITAE, a private company, Mr. Haidri directed
product management for Novell's security products. Mr. Haidri is a former
officer of Zions Bancorporation, participating on behalf of Digital Signature
Trust.
Item 10. Executive Compensation
The information required by Item 10 of Form 10-KSB is incorporated by
reference to the information contained in the section captioned "Executive
Compensation" of SPEEDCOM's definitive Proxy Statement for the 2002 Annual
Meeting of Shareholders to be held May 6, 2002, which SPEEDCOM will file with
the Securities and Exchange Commission within 120 days after the end of the
fiscal year covered by this report.
Item 11. Security Ownership of Certain Beneficial Owners and Management
Information regarding this item is incorporated by reference from the
section entitled "Security Ownership of Certain Beneficial Owners and
Management" of SPEEDCOM's definitive Proxy Statement for the 2002 Annual
Meeting of Shareholders.
Item 12. Certain Relationships and Related Transactions
The information required by Item 12 of Form 10-KSB is incorporated by
reference to the information contained in the section captioned "Certain
Relationships and Related Transactions" of SPEEDCOM's definitive Proxy
Statement for the 2002 Annual Meeting of Shareholders to be held May 6, 2002,
which SPEEDCOM will file with the Securities and Exchange Commission within 120
days after the end of the fiscal year covered by this report.
42
Item 13. Exhibits, Reports on Form 8-K and Schedule
(a) Exhibits
The exhibits in the accompanying Exhibit Index are filed as part of
this Annual Report on Form 10-KSB.
(b) Reports on Form 8-K
None.
Schedule II - Valuation and Qualifying Accounts
Balance at Charged to Balance at
Beginning of Costs and End of
Period Expense Deductions Period
------------ ---------- ---------- ----------
For the year ended December 31, 2000:
Deducted from asset accounts:
Allowance for doubtful accounts..... $143,371 $272,957 $119,998(1) $296,330
======== ======== ======== ========
Allowance for inventory obsolescence $ 55,576 $ -- $ 22,980(2) $ 32,596
======== ======== ======== ========
For the year ended December 31, 2001:
Deducted from asset accounts:
Allowance for doubtful accounts..... $296,330 $873,363 $938,415(1) $231,278
======== ======== ======== ========
Allowance for inventory obsolescence $ 32,596 $ 34,495 $ -- $ 67,091
======== ======== ======== ========
--------
(1) Uncollectible accounts written off, net of recoveries
(2) Revaluation of slow-moving and obsolete inventory
43
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
Name Title Date
---- ----- ----
/s/ MICHAEL W. MCKINNEY Chairman, Chief Executive April 1, 2002
----------------------------- Officer and Director
Michael W. McKinney
/s/ SARA BYRNE Vice President of Finance and April 1, 2002
----------------------------- Accounting acting as
Sara Byrne Controller and Chief
Financial Officer
/s/ R. CRAIG ROOS Vice Chairman and Director April 1, 2002
-----------------------------
R. Craig Roos
/s/ MICHAEL STERNBERG Director April 1, 2002
-----------------------------
Michael Sternberg
/s/ BEN HAIDRI Director April 1, 2002
-----------------------------
Ben Haidri
44
EXHIBIT INDEX
Number Description
------ -----------
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(5) Amended and Restated Certificate of Incorporation of SPEEDCOM Wireless Corporation, as
amended
3.2(3) Amended and Restated Bylaws of SPEEDCOM Wireless Corporation
4.1(3) Purchase Agreement, dated April 13, 2001, by and among SPEEDCOM Wireless Corporation and
the Purchasers, as defined
4.2(3) Registration Rights Agreement, dated April 13, 2001, by and among SPEEDCOM Wireless
Corporation and the Purchasers, as defined
4.3(3) Form of Warrant of SPEEDCOM Wireless Corporation, dated April 13, 2001
4.4(4) 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
4.5(4) Promissory Note for $500,000 issued to S.A.C. Capital Associates, LLC
4.9(4) Promissory Note for $250,000 issued to SDS Merchant Fund, L.P.
4.6(4) Promissory Note for $750,000 issued to Oscar Private Equity Investments, L.P.
4.7(4) Promissory Note for $250,000 issued to Bruce Sanguinetti
4.8(4) Warrant No. W-1 to Purchase 146,667 Shares of Common Stock issued to S.A.C. Capital
Associates, LLC
4.9(4) Warrant No. W-2 to Purchase 73,333 Shares of Common Stock issued to SDS Merchant Fund, L.P.
4.10(4) Warrant No. W-3 to Purchase 220,000 Shares of Common Stock issued to Oscar Private Equity
Investments, L.P.
4.11(4) Warrant No. W-4 to Purchase 73,333 Shares of Common Stock issued to Bruce Sanguinetti
4.12(5) Purchase Agreement, dated August 23, 2001, by and among SPEEDCOM Wireless Corporation and
the Purchasers, as defined herein
4.13(5) Registration Rights Agreement, dated August 23, 2001, by and among SPEEDCOM Wireless
Corporation and the Purchasers, as defined
4.14(5) Form of Series A Warrant of SPEEDCOM Wireless Corporation dated August 23, 2001
4.15(5) Form of Series B Warrant of SPEEDCOM Wireless Corporation dated August 23, 2001
4.16(5) Settlement Agreement between SPEEDCOM Wireless Corporation and I.W. Miller Group, Inc.
dated June 25, 2001
10.4(1)* Executive Employment Agreement between SPEEDCOM Wireless International Corporation and
Jay O. Wright
10.5(1)* Executive Employment Agreement between SPEEDCOM Wireless International Corporation and
Bruce Sanguinetti
10.6(1)* Executive Employment Agreement between SPEEDCOM Wireless International Corporation and
Michael McKinney
10.7(1)* Non-Qualified Stock Option Agreement
45
Number Description
------ -----------
10.8(1)* Non-Qualified Stock Option Plan
10.9(6) Promissory Note for $250,000 issued to Bruce Sanguinetti dated December 6, 2000
10.10(6) Promissory Note for $40,000 issued to Bill Davis dated May 11, 2001
10.11(6) Lease Agreement between SPEECOM Wireless Corporation and Lakewood Ranch Properties, LLC
10.12(6) Intellectual Property License Agreement between SPEEDCOM Wireless Corporation and SRI
International
16.1(2) Letter on change of certifying accountant
23.1 Consent of Independent Certified Public Accountants
24.1(5) Powers of Attorney
--------
(1) Incorporated by reference to the Form 8-K filed October 11, 2000.
(2) Incorporated by reference to the Form 10-KSB filed April 17, 2001.
(3) Incorporated by reference to the Form 10-QSB filed May 14, 2001.
(4) Incorporated by reference to the Form 8-K filed July 2, 2001.
(5) Incorporated by reference to the Form S-3 filed September 18, 2001.
(6) Incorporated by reference to the Form 10-QSB filed November 14, 2001.
* Management contract or compensatory plan.
46