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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
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 0-26747
AIRONET WIRELESS COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 34-1758180
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3875 EMBASSY PARKWAY, AKRON, OHIO 44333
(Address of principal executive offices) (Zip Code)
(330) 664-7900
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former Name, Former Address and Former Fiscal Year,
If Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) Yes [X] No [ ], and (2) has been
subject to such filing requirements for the past 90 days Yes [ ] No [X].
At September 10, 1999, there were 14,131,743 shares of
Registrant's Common Stock outstanding.
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AIRONET WIRELESS COMMUNICATIONS, INC.
INDEX
PAGE
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of June 30, 1999
and March 31, 1999 .............................................. 3
Condensed Consolidated Statements of Operations for the
Three-Month Periods Ended June 30, 1999 and 1998 ................ 4
Condensed Consolidated Statements of Cash Flows for the
Three-Month Periods Ended June 30, 1999 and 1998 ................ 5
Notes to the Condensed Consolidated Financial Statements ........... 6
Item 2. Management's Discussions and Analysis of Financial Condition
and Results of Operation ........................................ 10
Item 3. Quantitative and Qualitative Disclosures about Market Risk ......... 26
Part II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds .......................... 28
Item 4. Submission of Matters to a Vote of Security Holders ................ 29
Item 6. Exhibits and Reports on Form 8-K ................................... 29
Signatures ................................................................... 32
Exhibit Index ................................................................ 33
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AIRONET WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
JUNE 30, MARCH 31,
1999 1999
(UNAUDITED)
----------- --------
ASSETS
Current assets:
Cash and cash equivalents ............................................................ $ 4,703 $ 6,137
Accounts receivable, trade, net ...................................................... 5,714 4,242
Accounts receivable, other ........................................................... 943 243
Receivable from affiliate ............................................................ 6,628 3,609
Inventories .......................................................................... 4,786 4,625
Deferred tax asset ................................................................... 781 733
Prepaid expenses and other ........................................................... 374 404
Income taxes receivable .............................................................. 308 620
-------- --------
Total current assets ............................................................ 24,237 20,613
Property and equipment, net ............................................................... 2,673 2,381
Deferred tax asset ........................................................................ 882 882
Intangible assets, net .................................................................... 2,963 3,191
Other long-term assets .................................................................... 1,310 131
-------- --------
Total assets .................................................................... $ 32,065 $ 27,198
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ..................................................................... $ 5,221 $ 4,618
Payable to affiliate ................................................................. 5,253 2,085
Income taxes payable ................................................................. 423 30
Deferred tax liability ............................................................... 18 10
Accrued liabilities .................................................................. 3,506 3,358
-------- --------
Total current liabilities ....................................................... 14,421 10,101
Line of credit ........................................................................... 2,500 2,500
-------- --------
Total liabilities ............................................................... 16,921 12,601
Commitments and Contingencies ............................................................. -- --
Stockholders' equity:
Common stock, $.01 par value per share; 15,000,000 shares authorized;
9,567,181 shares issued and outstanding ................................................ 96 96
Additional paid-in capital ........................................................... 19,203 19,101
Accumulated deficit .................................................................. (4,155) (4,600)
-------- --------
Total stockholders' equity ...................................................... 15,144 14,597
-------- --------
Total liabilities and stockholders' equity ...................................... $ 32,065 $ 27,198
======== ========
See accompanying notes to the condensed consolidated financial statements.
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AIRONET WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED JUNE 30,
---------------------------
1999 1998
-------- --------
Revenues:
Non-affiliate ......................................................................... $ 9,465 $ 6,162
Affiliate product ..................................................................... 1,493 1,434
Affiliate royalty ..................................................................... 1,445 1,881
-------- --------
Total revenues ..................................................................... 12,403 9,477
-------- --------
Cost of revenues:
Non-affiliate ......................................................................... 5,297 3,908
Affiliate ............................................................................. 1,150 1,214
-------- --------
Total cost of revenues ............................................................. 6,447 5,122
-------- --------
Gross profit:
Non-affiliate ......................................................................... 4,168 2,254
Affiliate product ..................................................................... 343 220
Affiliate royalty ..................................................................... 1,445 1,881
-------- --------
Total gross profit ................................................................. 5,956 4,355
-------- --------
Operating expenses:
Sales and marketing ................................................................... 2,359 1,482
Research and development .............................................................. 1,758 1,624
General and administrative ............................................................ 781 1,100
Goodwill amortization ................................................................. 216 216
-------- --------
Total operating expenses ........................................................... 5,114 4,422
-------- --------
Income (loss) from operations ............................................................. 842 (67)
Interest expense (income), net ............................................................ (17) (10)
-------- --------
Income (loss) before income taxes ......................................................... 859 (57)
Provision (benefit) for income taxes ...................................................... 414 (78)
-------- --------
Net income ............................................................................... $ 445 $ 21
-------- --------
Net income per common share:
Basic ................................................................................. $ 0.05 $ --
-------- --------
Diluted ............................................................................... $ 0.04 $ --
-------- --------
Weighted average shares used in calculating net income per common share:
Basic ................................................................................ 9,367 9,169
-------- --------
Diluted .............................................................................. 10,098 9,356
-------- --------
See accompanying notes to the condensed consolidated financial statements.
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AIRONET WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED JUNE 30,
-----------------------------
1999 1998
--------- ----------
Cash flows from operating activities:
Net income ............................................................................. $ 445 $ 21
------- -------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation ....................................................................... 299 315
Amortization ....................................................................... 282 288
Provision for doubtful accounts .................................................... 87 81
Provision for inventory obsolescence ............................................... 90 81
Deferred income taxes .............................................................. (41) (2)
Stock compensation expense ......................................................... 108 394
Changes in other assets and liabilities:
Accounts receivable, trade ...................................................... (1,559) (1,167)
Accounts receivable, other ...................................................... (700) 58
Receivable from affiliate ...................................................... (3,019) 891
Inventories .................................................................... (250) (328)
Prepaid expenses and other assets .............................................. 30 12
Income taxes receivable ........................................................ 312 --
Other long-term assets ......................................................... (6) (63)
Accounts payable ............................................................... 603 177
Payable to affiliate ........................................................... 3,168 2,734
Income taxes payable ........................................................... 392 (75)
Accrued liabilities ............................................................ 148 (134)
------- -------
Total adjustments ......................................................... (56) 3,262
------- -------
Net cash provided by operating activities ................................. 389 3,283
------- -------
Cash flows from investing activities:
Capital expenditures ................................................................... (591) (404)
Purchases of intangible assets ......................................................... (53) --
------- -------
Net cash used in investing activities ...................................... (644) (404)
------- -------
Cash flows from financing activities:
Payable to affiliate .................................................................. -- (3,648)
Net proceeds from sales of stock ...................................................... -- 1,919
Deferred offering costs ............................................................... (1,179) --
------- -------
Net cash used in financing activities ....................................... (1,179) (1,729)
------- -------
Net (decrease) increase in cash and cash equivalents ...................................... (1,434) 1,150
Cash and cash equivalents at beginning of period .......................................... 6,137 2,864
------- -------
Cash and cash equivalents at end of period ................................................ $ 4,703 $ 4,014
------- -------
See accompanying notes to the condensed consolidated financial statements.
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AIRONET WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
The financial information herein includes the accounts of Aironet
Wireless Communications, Inc. and its subsidiaries (the "Company"). The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all financial information and
disclosures required by generally accepted accounting principles for complete
financial statements. In the opinion of management, these unaudited condensed
consolidated financial statements reflect all adjustments (consisting solely of
normal recurring adjustments) necessary for a fair presentation of the condensed
consolidated statement of financial position as of June 30, 1999 and the related
statements of operations and cash flows for the three-month periods ended June
30, 1999 and 1998. The results of operations for interim periods are not
necessarily indicative of the results to be expected for the full year. For
further information refer to the Consolidated Financial Statements and the Notes
thereto included in the Company's Registration Statement on Form S-1, as amended
(Registration No. 333-78507), filed with the Securities and Exchange Commission
on May 14, 1999 and which became effective on July 29, 1999 (the "Registration
Statement").
The Company has no items of other comprehensive income.
NOTE 2 -- INVENTORIES
Inventories consisted of the following:
JUNE 30, MARCH 31,
1999 1999
------- --------
(in thousands)
Purchased components ............................................................ $2,818 $3,723
Work-in-process ................................................................. 1,312 290
Finished goods .................................................................. 656 612
------ ------
$4,786 $4,625
====== ======
NOTE 3 -- NET INCOME PER COMMON SHARE
Basic net income per common share is based on the weighted
average number of common shares outstanding during the period. Diluted net
income per common share is based on the weighted average number of common shares
outstanding during the period plus, if dilutive, the incremental number of
common shares issuable on a pro forma basis upon the exercise of employee and
non-employee stock options and stock purchase warrants, assuming the proceeds
are used to repurchase outstanding shares at the average market price during the
quarter. A reconciliation of the denominators of the basic and diluted per share
computations is provided below:
THREE MONTHS ENDED JUNE 30,
1999 1998
------- -------
(in thousands)
Weighted average common shares outstanding -- basic ................................. 9,367 9,169
Additional shares potentially issuable for stock options and stock purchase
warrants ......................................................................... 731 187
------ -----
Weighted average common shares outstanding -- diluted ............................... 10,098 9,356
------ ------
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AIRONET WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), (CONTINUED)
For the three months ended June 30, 1999 and 1998, 525,000 and
1,032,737, respectively, of stock options and stock purchase warrants were not
included in the diluted per share computations due to not being "in the money."
The computations of net income per common share for all periods presented do not
include the effects of any dilutive incremental common shares related to stock
options granted or common stock warrants issued with exercise rights that are
contingent, so long as the contingency is not resolved.
NOTE 4 -- BANK DEBT
During July 1998, the Company entered into a revolving credit
agreement with a bank that provides for borrowings up to $5.0 million, which
expires July 1, 2000. Borrowings under the revolving credit agreement are
limited to 80% of the balance of eligible accounts receivable and 50% of the
balance of eligible inventories and cash on deposit with the bank. The revolving
credit agreement carries a quarterly facility fee and a commitment fee on the
unused amount of the agreement. Borrowings under the agreement bear interest at
either the bank's prime rate (7.75% at June 30, 1999) or LIBOR plus 2% (7.28% at
June 30, 1999). The weighted average interest rate on borrowings outstanding for
the three months ended June 30, 1999 was 6.94%. The agreement contains certain
covenants including prohibiting the Company from paying dividends. At June 30,
1999, $2.5 million was available under this agreement. On August 12, 1999 the
Company repaid all amounts then outstanding under the credit line and $5 million
was then available. The revolving credit agreement was amended in April 1999 to
eliminate a requirement that Telxon Corporation's ownership of the Company be at
least 50%.
NOTE 5 -- COMMITMENTS AND CONTINGENCIES
The Company had a Demand Revolving Promissory Note (the "Note")
with Telxon under which the Company would have been required to pay Telxon, on
demand, the lesser of $50 million or amounts due under intercompany advances,
plus interest at the LIBOR at the beginning of the fiscal year (6.34% at April
1, 1997). In May 1999, the Note was canceled. There were no amounts due to
Telxon related to the Note at cancellation.
NOTE 6 -- STOCKHOLDERS' EQUITY AND STOCK WARRANTS AND OPTIONS
Stock-Based Compensation
In July 1996, the Company established the Aironet Wireless
Communications, Inc. 1996 Stock Option Plan which was amended and restated on
March 30, 1998 ("1996 Amended Plan"), was further amended effective March 31,
1999 and was terminated in April 1999. The termination eliminates the Company's
ability to grant further options under the 1996 Amended Plan but does not affect
options outstanding under the 1996 Plan at termination.
The 1996 Amended Plan provided for the granting of options to key
employees of the Company and to certain employees of Telxon and outside
directors. The total number of shares for which the Company may grant options
under the 1996 Amended Plan could not exceed 2,150,500. Options were awarded at
a price not less than the fair market value on the date the option was granted.
Options granted prior to March 30, 1998 have a term of ten years and generally
vest one-third on the date granted and one-third on each of the two successive
anniversary dates therefrom. Options granted on or after March 30, 1998 have the
same terms except an option can only be exercised after the earlier of a change
in control or an initial public offering, as defined in the 1996 Amended Plan
and vest one-third twelve months after the date of grant and one-third on each
of the two successive anniversary dates therefrom. Options granted to
non-employees have been accounted for pursuant to EITF Issue No. 96-18
"Accounting for Equity Instruments that are Issued to Other than Employees for
Acquiring, or in Conjunction with Selling Goods or Services." The non-cash
compensation expense related to non-employees was determined using
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AIRONET WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), (CONTINUED)
the Black-Scholes option pricing model utilizing average assumptions of a
dividend yield of 0%, expected volatility of 51.57%, risk free interest rate of
5.14% and an expected life of two years.
On February 16, 1999, the Company's Board of Directors had
approved, subject to stockholder approval (which was determined to be
perfunctory), the to be adopted Aironet Wireless Communications, Inc. 1999
Omnibus Stock Incentive Plan (the "1999 Plan") and granted options to acquire
400,000 options under such plan. The 1999 Plan provides for the granting of
options, stock appreciation rights, restricted stock and performance units, as
defined, to certain officers and other key employees of the Company. The total
number of shares the Company may grant under the 1999 Plan cannot exceed
1,765,817. Options granted under the 1999 Plan have a ten-year term and must
have an exercise price equal to or greater than the fair market value of the
Company's common stock on the date of grant. Options granted generally vest over
a three-year period on the first three anniversary dates after the date of
grant. The Company's Board of Directors formally adopted and approved the 1999
Plan on April 12, 1999, and the Company's Stockholders formally adopted and
approved the 1999 Plan on May 7, 1999.
On May 25, 1999, a committee of the Board of Directors approved a
grant of 100,000 stock options with an exercise price of $9.00 per share to an
officer of the Company under the terms of the 1999 Plan. The Company accounted
for the grant of 100,000 stock options pursuant to APB Opinion No. 25 with no
compensation expense recorded.
The Company's Board of Directors adopted and approved the Aironet
Wireless Communications, Inc. 1999 Stock Option Plan for Non-Employee Directors
(the "1999 Non-Employee Directors Plan") on April 27, 1999. The Company's
Stockholders adopted and approved the 1999 Non-Employee Directors Plan on May
13, 1999. The 1999 Non-Employee Director Plan entitles each non-employee
Director who is sitting on the Company's Board of Directors on the first day
that the Company's common stock commences trading on NASDAQ subsequent to the
Initial Public Offering (the "Offering"), to purchase 25,000 shares of the
Company's common stock. These grants will be accounted for pursuant to APB
Opinion No. 25. In addition, each non-employee Director who continues to serve
on the Company's Board will automatically be granted options to purchase 5,000
shares of the Company's common stock on each anniversary of his or her election
or re-election to the Board. The Board of Directors also retains the right to
grant additional options to non-employee Directors at its sole discretion.
Options granted under the 1999 Non-Employee Directors Plan have a ten-year term
and must have an exercise price equal to or greater than the fair market value
of the Company's common stock on the date of grant. Options granted immediately
following the Offering vest ratably over a three-year period while the options
granted on the individual Director's anniversary dates vest three years after
they are granted.
On May 25, 1999, the Board of Directors approved a grant of
25,000 stock options with an exercise price of $9.00 per share to a director of
the Company for advisory services related to our initial public offering under
the terms of the 1999 Non-Employee Directors Plan. The Company accounted for the
grant of 25,000 stock options pursuant to SFAS No. 123 and will be reflected as
a reduction of the offering proceeds in connection with the Offering.
Stock Purchase Plan
The Company's Board of Directors approved the Aironet Wireless
Communications, Inc. 1999 Employee Stock Purchase Plan (the "1999 Stock Purchase
Plan") on April 12, 1999. The Company's Stockholders approved the 1999 Stock
Purchase Plan on May 7, 1999. The terms of the 1999 Stock Purchase Plan provide
the opportunity for eligible employees to purchase unrestricted common shares of
the Company, subjected to annual limitations, at a price per share equal to 85%
of the closing price (as defined in the agreement) of the Company's stock.
The total number of shares of common stock that may be purchased under the 1999
Stock Purchase Plan is 500,000 shares.
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AIRONET WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), (CONTINUED)
Stockholder Rights Agreement
On April 12, 1999, the Board of Directors adopted and approved a
stockholder "Rights Plan" and the Board declared a dividend of one common stock
purchase right on each share of common stock outstanding prior to the
effectiveness of the plan; thereafter, shares are issued pursuant to the plan
with a purchase right. The Company's Stockholders approved the Rights Plan on
May 7, 1999. The Rights Plan is designed to deter abusive market manipulation or
unfair takeover tactics and to prevent an acquirer from gaining control of the
Company without offering a fair price to all stockholders. Each purchase right,
when exercisable, entitles the registered holder to purchase one share of common
stock at a price of $125 per share, subject to adjustment. The purchase rights
become exercisable in the event the Company is a party to certain merger or
business combination transactions, as defined, or in the event an "acquiring
person," as defined, becomes a beneficial owner of 15% or more of the Company's
outstanding common stock. In these circumstances, each holder of a share right
(other than the acquiring person) will have the right to receive shares of the
acquiring company or the Company, as appropriate, having a market value of two
times the exercise price of the purchase right. The rights expire ten years from
the effective date of the plan unless earlier redeemed by the Company. The
rights can be redeemed at a price of $.001 per right.
Authorized Capital Stock
On April 12, 1999, the Company's Board of Directors approved and
adopted an amended and restated certificate of incorporation (the "Amended
Certificate") which increased the number of authorized common shares of the
Company from 15,000,000 shares to 60,000,000. In addition, the amended and
restated certificate authorized 500,000 shares of undesignated preferred stock
with a par value of $.01 per share. The Amended Certificate was filed by the
Secretary of State of Delaware and became effective on July 20, 1999.
Notes Payable and Receivable
In February 1998, an employee of the Company exercised 200,000
options with a grant price and fair value of $1.86. At the date of grant the
Company provided the employee a non-recourse loan of $372,000 which was applied
to payment of the exercise price of the options. The terms of the note did not
extend the original option period. The note bears non-recourse interest at 6%
per annum on amounts outstanding through maturity, October 31, 2002, and at a
prime rate plus 4% per annum thereafter until paid. All unpaid principal and all
accrued interest is due in full on October 31, 2002. The 200,000 shares issued
(or approved replacement collateral of equal value at the employee's discretion)
collateralize the note. Any amounts paid on the note shall be applied first to
accrued but unpaid interest and then to unpaid principal. In April 1999, the
Company and the employee amended the note to eliminate a prepayment provision.
Prior to that the amendment the employee could at any time prepay the note
without premium or penalty in amounts of at least $25,000. Pursuant to Emerging
Issues Task Force ("EITF") Issue No. 85-1, "Classifying Notes Received for
Capital Stock" the note has been recorded as a reduction of additional paid-in
capital rather than as an asset. In addition, pursuant to EITF No. 95-16,
"Accounting for Stock Compensation Arrangements with Employee Loan Features
Under APB Opinion No. 25," from the note issuance until the April 1999 amendment
the options were accounted for as variable plan options resulting in a $324,760
non-cash charge recorded in March 1998 and a non-cash charge of $1,077,680
recorded for the year ended March 31, 1999.
NOTE 7 -- SUBSEQUENT EVENTS
In July 1999, the Company completed its initial public offering
(the "Offering") of 6,000,000 shares of common stock, 4,000,000 of which were
sold by the Company and 2,000,0000 of which were sold by Telxon as a selling
stockholder. Proceeds to the Company, after underwriting discounts and
commissions but before offering expenses of approximately $2.0 million was
$40,920,000. In August 1999, the Company used a portion of its proceeds from the
Offering to repay the approximately $2.5 million of indebtedness outstanding
under its line of credit, and invested the balance in short-term,
interest-bearing, investment grade securities pending further use of the
proceeds as described in the Registration Statement. On August 27, 1999, the
Company's underwriters exercised their option to purchase an additional 846,800
shares to cover over-allotments sold by the underwriters in the Offering, of
which 564,562 shares were sold by the Company and 282,238 shares were sold by
Telxon, as a selling stockholder. The closing of this transaction took place
on September 1, 1999 with proceeds to the Company of $5,775,469.26.
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THIS FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE
SECURITIES ACT OF 1934, AS AMENDED. SUCH STATEMENTS ARE BASED UPON MANAGEMENTS'
CURRENT EXPECTATIONS THAT INVOLVE RISKS AND UNCERTAINTIES. ANY STATEMENTS
CONTAINED HEREIN THAT ARE NOT STATEMENTS OF HISTORICAL FACT MAY BE DEEMED TO BE
FORWARD-LOOKING STATEMENTS. FOR EXAMPLE, THE WORDS "BELIEVES," "ANTICIPATES,"
"PLANS," "EXPECTS," "INTENDS" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS. AIRONET'S ACTUAL RESULTS AND THE TIMING OF CERTAIN
EVENTS MAY DIFFER SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN THE
FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A DISCREPANCY INCLUDE,
BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "OTHER FACTORS AFFECTING OPERATING
RESULTS, LIQUIDITY AND CAPITAL RESOURCES" BELOW, AS WELL AS RISK FACTORS
INCLUDED IN THE REGISTRATION STATEMENT. ALL FORWARD-LOOKING STATEMENTS IN THIS
DOCUMENT ARE BASED ON INFORMATION AVAILABLE TO AIRONET AS OF THE DATE HEREOF AND
AIRONET ASSUMES NO OBLIGATION TO UPDATE ANY FORWARD-LOOKING STATEMENTS.
OVERVIEW
Aironet designs, develops and markets high speed, standards-based
wireless local area networking solutions. Our products utilize advanced radio
frequency and data communication technologies to connect users to computer
networks ranging in size and complexity from enterprise-wide LANs to home
networks. Each of our product families is designed around our Microcellular
Architecture, a distributed wireless network designed to support the unique
requirements of mobile computing. Our wireless LAN solutions are used as
extensions of existing enterprise networks, enabling personal computer users to
maintain a wireless network connection anywhere throughout a building or around
a campus. In addition, our LAN adapters are configurable as peer-to-peer
wireless networks for providing shared access to files, peripherals and the
Internet in small office/home office environments.
We sell indirectly through a network of distributors, resellers
and OEMs. We have a dedicated OEM sales organization. The typical OEM sales
cycle involves six months during which evaluations and negotiations over price
and sometimes volume levels take place. Our distributors sell product to our
resellers. Our distributors generally maintain inventory to fulfill orders from
our resellers. We have a dedicated sales organization to support our resellers
in their efforts to sell to end users. Resellers have a choice of directly
purchasing through us or through our distributors.
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We recognize revenues from sales to resellers and OEMs at the
time we ship the products. We are a party to contracts with our major
distributors, wherein we either reserve against revenues from our sales to
distributors or defer revenue recognition, depending on the nature and scope of
the distributor's return right. Distributors under contract are afforded price
protection. We reserve against revenue for these price protections, provided to
the distributors under contract. We believe that these rights of return and
price protections are standard negotiated terms provided by manufacturers to
large distributors of high tech products.
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, our
operating results expressed as a percentage of our total revenues.
THREE MONTHS ENDED JUNE 30,
--------------------------
1999 1998
------ --------
Revenues:
Non-affiliate ............................................................. 76% 65%
Affiliate product ......................................................... 12 15
Affiliate royalty ......................................................... 12 20
--- ---
Total revenues ....................................................... 100 100
--- ---
Cost of revenues ............................................................... 52 54
--- ---
Gross profit ................................................................... 48 46
--- ---
Operating expenses:
Selling and marketing ..................................................... 19 16
Research and development .................................................. 14 17
General and administrative ................................................ 6 11
Goodwill amortization ..................................................... 2 2
--- ---
Total operating expenses ............................................. 41 46
--- ---
Income (loss) from operations .................................................. 7 --
Interest expense (income), net ................................................. -- --
--- ---
Income (loss) before income taxes .............................................. 7 --
--- ---
Provision (benefit) for income taxes ........................................... 3 --
--- ---
Net income ..................................................................... 4% --%
--- ---
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The following table presents, for the periods indicated, costs of
revenues and gross profits specifically as a percentage of non-affiliate,
affiliate product and affiliate royalty revenues.
THREE MONTHS ENDED JUNE 30,
---------------------------
1999 1998
------- --------
Cost of revenues:
Non-affiliate ..................................................... 56% 63%
Affiliate product ................................................. 77 85
Affiliate royalty ................................................. -- --
Gross profit:
Non-affiliate ..................................................... 44% 37%
Affiliate product ................................................. 23 15
Affiliate royalty ................................................. 100 100
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
REVENUES
Total Revenues. Total revenues increased 31% from $9.5 million
in the three months ended June 30, 1998 to $12.4 million in the three months
ended June 30, 1999, primarily as a result of increased sales of our high speed
and IEEE 802.11 products to our non-affiliate customers.
During the three months ended June 30, 1999, we derived 29% of
our total revenues from sales to customers outside the United States, compared
to 21% of our total revenues in the three months ended June 30, 1998.
International revenues grew 80% from $2.0 million in the three months ended June
30, 1998 to $3.6 million in the three months ended June 30, 1999. This increase
was due primarily to increased sales of our high speed and IEEE 802.11 based
products. Our foreign sales are made in U.S. dollars, and therefore the
adoption of the Euro should not have a direct impact on our foreign exchange.
Non-affiliate. Non-affiliate revenues grew 53% from $6.2 million
in the three months ended June 30, 1998 to $9.5 million in the three months
ended June 30, 1999. Increased non-affiliate revenues resulted primarily from an
increase in unit shipments to customers of our new high speed (11 Mbps) 4800
Turbo DS in-building wireless LAN product line and the BR500
building-to-building product line.
As a percentage of total revenues, non-affiliate revenues
increased from 65% in the three months ended June 30, 1998 to 77% in the three
months ended June 30, 1999 as a result of higher non-affiliate sales and lower
revenues from our affiliate.
Affiliate. Affiliate revenues are derived from Telxon Corporation
and consist of product and royalty revenues. In recent periods, affiliate
revenues have decreased both in absolute amounts and as a percentage of our
total revenues due to changes in the terms under which we make affiliate sales
and an increase in sales to other customers. As a percentage of total revenues,
affiliate revenues decreased from 76% in fiscal year 1997 to 55% in fiscal year
1998 and 37% in fiscal year 1999. Affiliate revenues as a percentage of total
revenues continued to decrease during the three months ended June 30, 1999 to
24%. This continued decrease is due in large part to a significant increase
in product sales to non-affiliate customers and reflects the market acceptance
of our newer, high speed and standards-compliant products and growth of our
customer base. The decrease is also due in part to a decrease in affiliate
royalty revenue, offset in part by an increase in affiliate product revenue.
Affiliate Product. Product revenues from Telxon increased 7%
from $1.4 million in the three months ended June 30, 1998 to $1.5 million in
the three months ended June 30, 1999 as a result of increased sales to Telxon
of our IEEE 802.11 based product lines: 4800 Turbo DS series, 4500 series and
3500 series.
Affiliate Royalty. Royalty revenues from Telxon decreased 26%
from $1.9 million in the three months ended June 30, 1998 to $1.4 million in
the three months ended June 30, 1999. In the fiscal quarter ended March 31,
1999, the License, Rights and Supply agreement with Telxon was amended to
provide for a decreasing fixed royalty, instead of a per unit royalty. The
fixed royalty permits us to recognize affiliate royalty income on a straight
line basis and resulted in lower royalty revenue in the three months ended June
30, 1999 compared to the three months ended June 30, 1998.
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GROSS PROFIT
Gross profit is derived by subtracting the cost of revenues from
revenues. The cost of revenues consists of expenses to purchase fabricated
components and subassemblies manufactured to meet our design specifications,
salaries and employee benefits for personnel to inspect, assemble, configure and
test products and to manage operations and related overhead.
Total Gross Profit. Our total gross profit increased 36% from
$4.4 million in the three months ended June 30, 1998 to $6.0 million in the
three months ended June 30, 1999. Our total gross margin increased from 46% in
the three months ended June 30, 1998 to 48% in the three months ended June 30,
1999.
Non-affiliate. Non-affiliate gross profit increased 83% from $2.3
million in the three months ended June 30, 1998 to $4.2 million in the three
months ended June 30, 1999. In the fiscal quarter ended March 31, 1998, we began
to ship new generation IEEE 802.11 based products lines to customers. We
incurred increased cost of approximately $0.4 million for the three months
ended June 30, 1998 primarily in supplier start-up fees and rework charges.
Gains in gross profit result from increased unit shipments and favorable
product mix in the three months ended June 30, 1999, together with increased
costs in the prior year comparable quarter. This resulted in an increase in
gross margin from 37% in the three months ended June 30, 1998 to 44% in the
three months ended June 30, 1999.
Affiliate Product. Gross profit from shipments of products to
Telxon increased 50% from $0.2 million in the three months ended June 30, 1998
to $0.3 million in the three months ended June 30, 1999 due primarily to product
mix.
Affiliate Royalty. Each dollar of royalty revenues results in an
equivalent gross profit because there is a de minimus cost of revenues
associated with royalties. Royalty gross profit decreased 26% from $1.9 million
in the three months ended June 30, 1998 to $1.4 million in the three months
ended June 30, 1999. In the fiscal quarter ended March 31, 1999, the License,
Rights and Supply agreement with Telxon was amended to recognize royalty income
on a straight line basis instead of a per unit basis. This resulted in lower
royalty gross profit in the three months ended June 30, 1999 compared to the
three months ended June 30, 1998.
OPERATING EXPENSES
Sales and Marketing. Sales and marketing expenses consist
primarily of sales and marketing salaries, sales commissions, bad debt
allowance, product advertising and promotion, travel and facility occupancy
costs. Our sales and marketing expenses increased 60% from $1.5 million in the
three months ended June 30, 1998 to $2.4 million in the three months ended June
30, 1999. This increase resulted primarily from additions to sales and marketing
management and staff, greater recruiting and relocation fees incurred on behalf
of new hires, additions to trade shows, advertising and reseller support
programs and expanded travel. There were no meaningful offsets in reductions in
spending.
As a percentage of total revenues, sales and marketing expenses
increased from 16% in the three months ended June 30, 1998 to 19% in the three
months ended June 30, 1999. We expect that sales and marketing expenses will
increase in absolute dollars as we expand our branding program and further
develop our sales channels, but will vary from quarter to quarter due to timing
of trade shows, advertising programs and product launches during the year.
Research and Development. Research and development expenses
consist primarily of salaries and employee benefits for our technical employees
who develop our products, as well as costs for prototype development, operating
supplies, depreciation of equipment and amortization of software utilized in
research and development efforts. Research and development expenses increased
13% from $1.6 million in the three months ended June 30, 1998 to $1.8 million in
the three months ended June 30, 1999. This increase resulted primarily from
additions to engineering personnel and related expenses supporting
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new product development, additions to prototype development expense and an
addition in facility occupancy expenses. This increase was partially offset by
decreases in operating parts and supplies and decreases in equipment rental and
other outside services expenses.
As a percentage of total revenues, research and development
expenses decreased from 17% in the three months ended June 30, 1998 to 15% in
the three months ended June 30, 1999. We expect that research and development
expenses will increase in absolute dollars as we expand our offering of high
speed networking solutions.
General and Administrative. General and administrative expenses
consist primarily of administrative salaries and wages, employee benefits and
incentives, legal, audit and occupancy expenses. Our general and administrative
expenses decreased 27% from $1.1 million in the three months ended June 30, 1998
to $0.8 million in the three months ended June 30, 1999. This decrease resulted
primarily from the elimination of a $0.3 million non-cash compensation expense
relating to a non-recourse loan we provided to an employee in February 1998 and
a decrease in occupancy expenses. This decrease was partially offset by
additional expenses for new general and administrative personnel.
PROVISION FOR INCOME TAXES
Our effective income tax rate of 137% exceeded the statutory rate
for the three months ended June 30, 1998 primarily due to various permanent
items such as goodwill, state taxes, foreign rate differential, and
non-deductible compensation expense resulting from the exercise of specific
stock options paid for by a note to us in February 1998. Our effective income
tax rate for the three months ended June 30, 1999 was 48% which exceeded the
statutory rate primarily due to various permanent items such as goodwill, state
taxes, and the foreign rate differential.
LIQUIDITY AND CAPITAL RESOURCES
During the periods presented, we have financed our operations
primarily through funds provided from operating activities and the sale of
equity securities. At June 30, 1999, we had cash and cash equivalents of $4.7
million. At that time, we had $2.5 million outstanding under a $5.0 million line
of credit. Amounts outstanding under this line of credit bear interest at London
Interbank Overnight Rate plus 2% or the bank's prime rate. At June 30, 1999, the
applicable rate was 7.02%. Outstanding amounts are uncollateralized, and credit
availability under the line of credit is based upon a formula comprised of
accounts receivable and inventory. There are no financial ratio compliance
requirements under this credit line, and there are no material financial
covenants beyond restrictions on further indebtedness, establishment of new
subsidiaries, limitation on acquisitions and mergers and sale of assets outside
of the normal course of business without the consent of the lender. At June 30,
1999, an additional $2.5 million was available under this line of credit. In
August 1999 we repaid all outstanding debt under the line of credit with a
portion of the proceeds from the Offering, leaving available credit of $5
million. The line of credit expires in July 2000, subject to renewal provisions.
Operating Activities. In the three months ended June 30, 1999,
operations provided $0.4 million of cash primarily from net income of $0.4
million and increases in payables due to Telxon offset by increases in accounts
receivables and receivables due from Telxon. The increase in non-affiliate
accounts receivables was primarily due to growth in our business. In the three
months ended June 30, 1998, operations provided $3.3 million of cash, primarily
from increases in payables due to Telxon and depreciation and amortization
partially offset by increases in trade accounts receivables and a reduction in
receivables from Telxon. Net income for the period was essentially breakeven.
Since our initial public offering in July 1999, we have begun to reduce the
level of services acquired from Telxon and as a result we expect that payables
to Telxon will decrease, and we expect the decrease to be partially offset by
the cost of obtaining those services from others. To the extent that we
experience further growth in operations, additional cash will be needed to fund
increases in accounts receivables and inventory.
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Investment Activities. Investment activities used $0.6 million
and $0.4 million in the three month periods ending June 30, 1999 and 1998,
respectively. Cash was used in each of these periods primarily to fund
purchases of engineering, product testing and laboratory equipment and software.
Growth in expenditures was primarily due to expanded product development
activities.
Financing Activities. Financing activities used $1.2 million in
the three months ended June 30, 1999, due to deferred offering costs in
anticipation of our initial public offering. Financing activities used $1.7
million in the three months ended June 30, 1998, primarily because of the
repayment of cash advances from Telxon partially offset by the sale of common
stock in a private offering.
On July 30, 1999, we concluded the Offering of 6,000,000 shares
of common stock, in which we sold 4 million shares of common stock and received
approximately $40.9 million in cash after underwriter discounts and commissions
but prior to deduction of unpaid offering expenses. A portion of the proceeds
from the Offering was used to repay approximately $2.5 in outstanding debt under
our line of credit, with the balance remaining for general corporate purposes.
We believe that the proceeds of the Offering, cash and cash equivalents balances
generated from operations and our existing line of credit will be sufficient to
meet our operating and capital expenditure requirements for at least the next
twelve months. To the extent necessary, we may also satisfy capital needs
through bank borrowings and capital leases if these sources are available on
satisfactory terms. We currently anticipate capital expenditures of $1.4 million
over the balance of fiscal year 2000. We may also from time to time consider the
acquisition of complementary technologies, although we have no present
commitments or agreements with respect to any specific acquisitions. Any
specific acquisitions could be of a size that would require us to raise
additional funds through the issuance of additional equity or debt securities.
There can be no assurance that these funds, if required, would be available on
terms acceptable to us, if at all.
Significant Balance Sheet Fluctuations. Payables to Telxon
increased 152% from $2.1 million at March 31, 1999 to $5.3 million at June 30,
1999. Receivables from Telxon increased 83% from $3.6 million to $6.6 million
during the same time periods. Payables to Telxon are primarily for services and
direct payments made on behalf of the Company, and receivables from Telxon are
primarily for royalties and product purchases. The net receivable from Telxon
decreased 13% from $1.5 million to $1.3 million during these same periods.
Non-affiliate accounts receivables increased 36% from $4.2 million at March 31,
1999 to $5.7 million at June 30, 1999, due primarily to the growth in our
business and the recent addition of new distributors.
YEAR 2000 READINESS DISCLOSURE
Year 2000 issues result from the fact that many computer programs
were written with date-sensitive codes that utilize only the last two digits of
a date rather than all four digits to refer to a particular year. As the year
2000 approaches, these computer programs may be unable to process accurately
date- dependent information, as a program might interpret the year 2000 as 1900.
The potential for Year 2000 issues arise primarily in three
areas:
- - the products we sell, which might be date dependent and, as a result,
improperly operate;
- - our dependence on vendors and contract manufacturers for components and
subassemblies that might be impacted by the Year 2000 issues, and their
inability to provide us with goods on a timely basis and within
specifications due to their unresolved Year 2000 issues; and
- - our internal use of hardware or software computing resources which
improperly recognize the true date and which could cause us to, among
other things, improperly process customer orders or business
information, and could result in failure of our internal systems.
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In the fiscal quarter ended March 31, 1999, we hired an
independent Year 2000 consultant to augment our internal efforts to complete a
plan for systematically assessing our Year 2000 exposure. Our assessment plan
has been completed, and we are now taking actions consistent with that plan.
HOW FAR ALONG ARE WE?
We have completed testing of 100% of our critical systems and a
majority of our non-critical systems, with the following results.
Our Products. We have evaluated our product line for year 2000
issues and found that our products are not date-dependent, and we will be making
no Year 2000 product revisions.
Vendors. We have obtained a Year 2000 compliance response from
70% of our vendors. We continue to request vendor certifications from our
remaining vendors.
Internal Systems. Consistent with the results of our readiness
assessment, we have performed a live Year 2000 test of our payables, receivables
and financial reporting systems, and our manufacturing, purchasing and sales
systems. Of these systems, two add-on software packages which perform non-
critical functions had Year 2000 deficiencies. These deficiencies have been
corrected. We have completed testing of our desktop PCs. Of these PCs, only one
PC was not Year 2000 compliant. This PC has been upgraded and is currently Year
2000 compliant. Laboratory PCs will not be tested as they are known not to be
Year 2000 compliant and they perform only non date sensitive tasks. Our computer
servers have been fully tested. One unit was not Year 2000 compliant and was
replaced in July 1999.
YEAR 2000 PROBLEMS EXPERIENCED TO DATE
We have experienced no Year 2000 problems to date. No information
technology projects have been deferred due to our Year 2000 efforts.
TIMETABLE
Our Year 2000 readiness plan is task oriented by department. We
use no independent verification or validation process to assure reliability,
risks or costs estimates. The following table illustrates our Year 2000
readiness.
CATEGORY TESTING PROBLEMS DETECTED REMEDIATION
- -------- ------- ----------------- -----------
Internal Systems 100% completed Two add-on software packages, Software packages and the PC have
one PC and one computer server been upgraded and the server was
replaced in July 1999
Products 100% completed None to date None required to date
Vendors Response received from None to date None required to date
70% of vendors
Cost of Remediation. We currently estimate that our Year 2000
assessment efforts and correction of any internal Year 2000 issues identified
during our assessment, will total less than $100,000; however, in the event we
discover a Year 2000 issue which was previously unanticipated, we could incur
costs far in excess of this amount which would have a material adverse effect on
our business and financial results.
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WILL WE BE READY?
Most Likely Consequences of Year 2000 Problems. We expect to
identify and resolve all Year 2000 problems that could materially adversely
affect our business operations. However, we believe that it is not possible to
determine with complete certainty that all Year 2000 problems affecting us have
been identified or corrected. The number of devices and systems that could be
affected and the interactions among these devices and systems are too numerous
to address. In addition, no one can accurately predict which Year 2000
problem-related failures will occur or the severity, timing, duration or
financial consequences of these potential failures. We believe that a
significant number of operational inconveniences and inefficiencies for us, our
contract manufacturers and our customers will divert management's time and
attention, financial and human resources from ordinary business activity if any
of these Year 2000 problem related failures occur. Contingency Plans. We
continue to discus contingency plans to be implemented if our efforts to
identify and correct Year 2000 problems are not effective. We have begun to
formalize our contingency plan and will test the plan when complete. Depending
on the systems affected, these plans could include:
- - accelerated replacement of affected equipment or software;
- - short to medium-term use of backup equipment and software or other
redundant systems;
- - increased work hours for our personnel or the hiring of additional
information technology staff; and
- - the use of contract personnel to correct, on an accelerated basis, any
Year 2000 problems that arise or to provide interim alternate solutions
for information system deficiencies.
Our implementation of any of these contingency plans could have a
material adverse effect on our business, financial condition and results of
operations.
OTHER FACTORS AFFECTING OPERATING RESULTS, LIQUIDITY AND CAPITAL RESOURCES
OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO EVALUATE OUR BUSINESS AND
PROSPECTS
We were incorporated in 1993 and therefore have only a short
operating history for you to evaluate. Your evaluation of our business and
results of operations must take into account this short operating history, which
may not be indicative of future results. Our business and prospects should also
be considered in light of the risks frequently encountered by companies in their
early stages of development in new and rapidly evolving markets. Because of our
short existence, our limited operating history as an independent company,
fluctuations in our past results, past operating deficits and the early stage of
development of our market, we cannot assure you that we will sustain
profitability.
Only since March 1998 has our business operated without the
financial support of Telxon. A significant portion of the revenues reflected in
our financial statements are still earned from Telxon based on agreed upon
prices determined when Telxon was our majority stockholder. For the periods
presented, our financial statements do not represent our performance as an
independent company. In the future, loss of this revenue for any reason could
adversely affect our results of operations. We lease two facilities from Telxon
and are parties to various agreements with Telxon, including our license and
sales agreement. Arrangements with Telxon cannot be considered to be arm's
length, and therefore they do not necessarily reflect terms which could have
been negotiated with unrelated third parties. As a large stockholder and
customer, Telxon may be able to assert influence over us, which could impact our
business or prevent us from realizing benefits in some situations.
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FLUCTUATIONS IN OUR OPERATING RESULTS MAY ADVERSELY AFFECT THE TRADING PRICE OF
OUR COMMON STOCK
Our quarterly and annual operating revenues, expenses and
operating results may fluctuate due to a number of factors including:
- - the timing and cancellation of customer orders;
- - our ability to introduce new products and technologies on a timely
basis;
- - market acceptance of our and our customers' products;
- - introduction of products by our competitors;
- - the level of orders received which can be shipped in a quarter;
- - the timing of our investments in research and development;
- - the timing and provision of pricing protection and returns from our
distributors;
- - whether our customers buy from a distributor, an OEM or directly from
us;
- - cost and availability of components and subassemblies;
- - competitive pressures on selling prices;
- - finished product availability and quality;
- - general economic conditions; and
- - changes in product mix.
Our business is characterized by short-term orders and shipment
schedules. We have experienced difficulties efficiently managing our production
and inventory levels because, among other reasons, customers can typically
cancel or reschedule orders without significant penalty. Since we do not have a
substantial, noncancellable backlog, we typically plan our production and
inventory levels based on internal forecasts of customer demand, which are
highly unpredictable and can fluctuate substantially. Significant customer
cancellations or unforeseen fluctuations in customer demand could cause us to
over or under produce products, which could lead to overstocking or to
frustrating customer expectations, either of which could negatively affect
operating results or cause significant variations in our operating results from
quarter to quarter.
DECLINING SELLING PRICES OF NETWORKING EQUIPMENT MAY ADVERSELY AFFECT OUR
REVENUES
Historically, average selling prices of networking equipment have
decreased over the life of a product. As a result, the average selling prices of
our products should be expected to decrease in the future, which may adversely
affect our operating results if we do not correspondingly decrease our costs.
OUR OPERATING RESULTS WILL SUFFER IF SALES DO NOT INCREASE AS ANTICIPATED TO
SUPPORT THE EXPENSES OF EXPANDING OUR BUSINESS
Because our operating expenses for personnel, new product
development and inventory continue to increase, we must continue to generate
increased sales to offset these increased expenses. We have limited ability to
reduce expenses quickly in response to any revenue shortfalls. In response to
anticipated long lead times to obtain inventory and materials from our contract
manufacturers and suppliers, we have in the past and may continue to need to
order in advance of anticipated customer demand. This advance ordering has and
may continue to result in higher inventory levels, and we have and will continue
to depend on an increase in customer demand. Any significant shortfall in
customer demand would adversely impact our quarterly and annual operating
results.
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IF THE WIRELESS NETWORKING MARKET DOES NOT CONTINUE TO EVOLVE, OR IF OUR PRODUCT
DEVELOPMENT DOES NOT KEEP PACE WITH ITS EVOLUTION, DEMAND FOR OUR PRODUCTS MAY
DECLINE SIGNIFICANTLY
The wireless networking market is at an early stage of
development, is rapidly evolving and its future is uncertain. Demand and market
acceptance for recently introduced wireless networking products and services
like ours are subject to a high level of uncertainty. It is likely that new
wireless LAN products will not be generally accepted unless they operate at
higher speeds and are sold at competitive prices. We cannot predict whether the
wireless networking market will continue to develop in a way that sufficient
demand for our products will emerge and become sustainable. Our prospects must
be evaluated in light of the uncertainties relating to the new and evolving
market in which we operate. If the wireless networking market does not develop
sufficiently, or if our products are not sufficiently accepted, our business,
financial condition and operating results will suffer.
WE MAY NOT SUCCEED OR MAY LOSE SIGNIFICANT MARKET SHARE AS A RESULT OF THE
INTENSE COMPETITION IN THE WIRELESS LAN MARKET
The market for our products is very competitive, and we expect
that competition will increase in the future. Increased competition could
adversely affect our revenues and profitability through pricing pressure, loss
of market share and other factors. This market has historically been dominated
by relatively few companies, including Lucent, Proxim and BreezeCom. We believe
we will encounter competition from a number of other companies that develop, or
have announced plans to develop, wireless networking products. We believe that
our success will depend in part on our ability to compete favorably in the
following areas:
- - expertise and familiarity with 2.4 GHz spread spectrum technology,
wireless data communication protocols and LAN 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.
We have also historically faced competitive pressure from
companies that have increased their brand awareness by dedicating significant
resources to marketing and advertising.
We face the risk that our competitors may introduce faster, more
competitively priced products. Many of our current and potential competitors
have significantly greater financial, marketing, research, technical and other
resources. If we are unable to compete successfully, we could experience price
reductions, reduced operating margins and loss of market share, any of which
could have a material adverse effect on our business and operating results.
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OUR SUCCESS DEPENDS ON THE TIMELY DEVELOPMENT OF NEW PRODUCTS
We derive substantially all of our product revenues from sales of
products for wireless networking solutions. This market is characterized by:
- - intense competition;
- - rapid technological change;
- - short product life cycles; and
- - emerging industry standards.
We have in the past experienced delays in product development
which resulted in delayed commercial introduction of new products. These kinds
of delays could be repeated and could have an adverse effect on our business.
The development of new wireless LAN products is highly complex. Our success in
developing and introducing new products depends on a number of factors,
including:
- - accurate new product definition;
- - timely completion and introduction of new product designs;
- - achievement of cost efficiencies in design and manufacturing; and
- - market acceptance of the new products.
We cannot guarantee that we will be successful in these efforts
or that our competitors will not be more successful, which, in either case,
would have a material adverse effect on our business and results of operations.
WE RELY ON LIMITED SOURCES OF KEY COMPONENTS AND IF WE ARE UNABLE TO OBTAIN
THESE COMPONENTS WHEN NEEDED, WE WILL NOT BE ABLE TO DELIVER OUR PRODUCTS TO OUR
CUSTOMERS ON TIME
We rely on Atmel Corporation, M/A-COM, Raytheon Company,
Hewlett-Packard Company, Harris Semiconductor and Sawtek, Inc. as our critical
sole source suppliers. Although we have been informed by some of these suppliers
that they have redundant manufacturing facilities, there is no assurance that
they will be able to manufacture or provide these components in a timely way.
Should any supply disruption occur, we may not be able to develop an alternative
source for these components.
We have experienced limited delays and shortages in the supply of
other less critical components which have slowed the manufacturing schedule of
our products or caused us to revise or adjust these schedules. We could
experience delays and shortages in the future. We generally do not maintain a
significant inventory of components and do not have long-term supply contracts
with our suppliers. Our reliance on sole or limited source suppliers involves
several risks, including:
- - suppliers could increase component prices significantly, without notice
and with immediate effect;
- - suppliers could discontinue the manufacture or supply of components or
delay delivery of components used in our products 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, we may in the future decide to hold more inventory than
is immediately required, resulting in increased inventory costs.
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Though we have not in the past experienced any significant delays
in shipping or sales of product due to delays or shortages of components, if our
suppliers were unable to deliver or ration components to us, we could experience
interruptions and delays in product manufacturing, shipping and sales. This
could result in our inability to fulfill customer orders, the cancellation of
orders for our products, substantial delays in our product shipments, increased
manufacturing costs and increased product prices. Further, we might not be able
to develop alternative sources for these components in a timely way, if at all,
and might 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. Any of these risks, if realized, could materially and adversely
affect our business operating results and financial condition.
A LIMITED NUMBER OF CUSTOMERS ACCOUNT FOR A SIGNIFICANT PORTION OF OUR REVENUES
AND DECREASED DEMAND BY THESE CUSTOMERS WOULD ADVERSELY AFFECT OUR REVENUES
Historically, a relatively small number of customers, especially
Telxon, have accounted for a significant portion of our total revenues in any
particular period. Three of our customers, Telxon, ARtem Datenfunksysteme GmbH,
and Business Partner Solutions, Inc., each accounted for over 10% of our total
revenues for the quarter ended June 30, 1999. In the quarter ended June 30,
1999, Telxon accounted for 24% of our total revenues. Our four largest
non-affiliate customers accounted for 54% of our non-affiliate revenues or 41%
of our total revenues for the same period. We have no long-term volume purchase
commitments from any of our customers. We anticipate that sales of our products
to relatively few customers will continue to account for a significant portion
of our total revenues, because our customers generally resell our products to
end users. Due to these factors, some of the following may reduce our operating
results:
- - reduction, delay or cancellation of orders from one or more of our
significant customers;
- - development by one or more of our significant customers of other,
competitive sources of supply;
- - selection by one or more of our significant customers of equipment
manufactured by one of our competitors as a preferred solution;
- - loss of one or more of our significant customers or a disruption in
our sales and distribution channels to these customers; or
- - failure of one of our significant customers to make timely payment
of our invoices.
We cannot be certain that these significant customers will
continue purchasing levels of previous periods and a decline in these levels for
any reason would negatively affect our revenues.
WE MUST EXPAND OUR DISTRIBUTION CHANNELS IN ORDER TO INCREASE SALES OF OUR
PRODUCTS
To increase revenues, we believe we must increase the number of
our distribution partners. Our strategy includes an effort to reach a greater
number of end users through indirect channels. We are currently investing, and
plan to continue to invest, significant resources to develop these indirect
channels. This could adversely affect our operating results if we do not
generate the revenues necessary to offset these 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 our products are independent and are not obligated to deal with us
exclusively or to purchase any specified amount of our products. Because we do
not generally fulfill orders by end users of our products sold through
distributors, we will be dependent upon the ability of distributors to
accurately forecast demand and maintain appropriate levels of inventory. If we
are unable to expand our distribution channels, we may not be able to increase
sales of our product.
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OUR DISTRIBUTORS MAY NOT GIVE PRIORITY TO OUR PRODUCTS WHICH MIGHT RESULT IN
LOWER PRODUCT SALES
We expect that our 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 channel and adversely
affect our operating results. Additionally, because lower prices are typically
charged on sales made through indirect channels, increased indirect sales could
adversely affect our average selling prices and result in lower gross margins.
COMPLIANCE WITH EXISTING AND POTENTIAL INDUSTRY STANDARDS MAY BE DIFFICULT AND
COSTLY
We have developed and continue to develop our products to comply
with existing industry standards and anticipated future standards. We may not
introduce products that comply with future industry standards on a timely basis.
In particular, we expend, and intend to continue to expend, substantial
resources in developing products and product features that are designed to
conform to the IEEE 802.11 wireless LAN standard, as well as to other industry
standards that have not yet been formally adopted. Further, our high speed 4800
Turbo DS series of products is designed to conform with the proposed high speed
addition to the IEEE 802.11 standard. Our products may fail to meet future
industry standards or the standards ultimately adopted by the industry may vary
from those anticipated by us.
We participated in the promulgation of the IEEE 802.11 standard
through two of our senior officers who are members of the IEEE 802.11 Standards
Committee. Companies participating in the promulgation of the IEEE 802.11
standard have represented to the IEEE that they will grant licenses to their
patents on a fair and equitable basis if those patents are required to implement
products that comply with the standard. Our ability to market IEEE 802.11
compliant products may depend upon our ability to obtain these licenses from the
other participating companies. Our failure to obtain any required license at a
commercially reasonable cost could have a material adverse effect on our
competitive position and results of operations.
EXISTING AND POTENTIAL WIRELESS LAN STANDARDS MAY NOT ACHIEVE MARKET ACCEPTANCE
AND MAY LOWER BARRIERS TO MARKET ENTRY, EITHER OF WHICH WOULD HAVE A NEGATIVE
IMPACT ON OUR BUSINESS
Because we develop our products to comply with industry
standards, sales of our products could decline if these standards do not gain
market acceptance or if consumers ultimately prefer to purchase products which
do not comply with these standards, or which comply with new or competing
standards, or which are based on proprietary designs. Also, product
standardization may have the effect of lowering barriers to entry in the markets
in which we seek to sell our products, by diminishing product differentiation.
This would increase competition based upon criteria such as the relative size
and marketing skills of competitors and we may not compete favorably.
COMPLIANCE WITH VARYING GOVERNMENT REGULATIONS IN MULTIPLE JURISDICTIONS WHERE
WE SELL PRODUCTS MAY BE DIFFICULT AND COSTLY
In the United States, our products are subject to various Federal
Communications Commission rules and regulations. Current FCC regulations permit
license-free operation in certain FCC-certified bands in the radio frequency
spectrum. FCC rules require compliance with administrative and technical
requirements as a condition to the operation or marketing of devices that emit
radio frequency energy, such as our products. Our products comply with Part 15
of the current FCC regulations permitting license-free operation of radio
devices in the 902-928 MHz and 2.4-2.4835 GHz radio frequency bands.
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The Part 15 regulations are designed to minimize the probability of interference
to the other users of those frequency bands and accord Part 15 systems secondary
status. In order of priority, the primary users of those band widths are the
following:
- - devices which use radio waves to produce heat rather than to
communicate;
- - governmental uses;
- - vehicle monitoring systems; and
- - amateur radio.
In the event of interference between a primary user in those band
widths and a Part 15 user, the primary user can require the Part 15 user to
curtail transmissions that create interference. Our products are also subject to
regulatory requirements in markets outside the United States, where we have
limited experience in gaining regulatory approval. The regulatory environment in
which we operate subjects us to several risks, including:
- - if users must cease use of our products because their operation causes
interference to authorized users of the radio frequency spectrum, or
authorized users cause interference which must be accepted by users of
our products, market acceptance of our products and our results of
operations could be adversely affected;
- - regulatory changes, including changes in the allocation of available
radio frequency spectrum or requirements for licensed operation, may
significantly impact our operations by rendering current products
non-compliant or restricting the applications and markets served by our
products; and
- - we may not be able to comply with all applicable regulations in each
of the countries where our products are sold or proposed to be sold,
and we may need to modify our products to meet local regulations.
OUR SUCCESS DEPENDS ON OBTAINING AND PROTECTING INTELLECTUAL PROPERTY
Our success depends in part on our ability to obtain and preserve
patent and other intellectual property rights covering our products and
development and testing tools. The process of seeking patent protection can be
time consuming and expensive. We cannot assure you that:
- - patents will issue from currently pending or future applications;
- - our existing patents or any new patents will be sufficient in scope
to provide meaningful protection or any commercial advantage to us;
- - foreign intellectual property laws will protect our intellectual
property rights; or
- - others will not independently develop similar products, duplicate
our products or design around any patents issued to us.
Intellectual property rights are uncertain and involve complex
legal and factual questions. Though we are not aware of any third party
intellectual property rights that would prevent our use and sale of our
products, we may unknowingly infringe the proprietary rights of others. Any
infringement could result in significant liability to us. If we do infringe the
proprietary rights of others, we could be forced to either seek a license to
those intellectual property rights or alter our products so that they no longer
infringe those proprietary rights. A license could be very expensive to obtain
or may not be available at all. Similarly, changing our products or processes to
avoid infringing the rights of others may be costly or impractical.
We also rely on trade secrets, proprietary know-how and
confidentiality provisions in agreements with employees and consultants to
protect our intellectual property. Other parties may not comply with the terms
of their agreements with us, and we may not be able to adequately enforce our
rights against these parties.
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WE COULD BECOME SUBJECT TO LITIGATION REGARDING INTELLECTUAL PROPERTY RIGHTS
WHICH COULD SERIOUSLY HARM OUR BUSINESS
Any dispute regarding intellectual property, whether ours or that
of another company, may result in legal proceedings. These types of proceedings
may be costly and time consuming for us, even if we eventually prevail. If we do
not prevail, we might be forced to pay significant damages, the prevailing
party's litigation expenses and obtain a license or stop making the subject
product.
IF WE FAIL TO MANAGE OUR GROWTH, OUR BUSINESS, FINANCIAL CONDITION AND PROSPECTS
COULD BE SERIOUSLY HARMED
We have expanded our operations in recent years, and we
anticipate that further expansion will be required to address potential growth
in our customer base and market opportunities, as well as to provide corporate
services previously provided to us by Telxon. This expansion has placed, and
future expansion is expected to place, a significant strain on our management,
technical, operational, administrative and financial resources. We have recently
hired new employees, including a number of key managerial and operations
personnel, who have not yet been fully integrated into our operations.
Our current and planned expansion of personnel, systems,
procedures and controls may be inadequate to support our 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 our OEMs, distributors and other third parties. If
we are unable to manage growth effectively, our business, financial condition
and results of operations could be adversely affected.
OUR INTERNATIONAL OPERATIONS MAY BE ADVERSELY AFFECTED BY ADDITIONAL RISKS
UNIQUE TO THOSE MARKETS
Revenues from customers outside of the United States accounted
for approximately 29% of our total revenues for the three months ended June 30,
1999. We anticipate that revenues from customers outside of the United States
will continue to account for a significant portion of our total revenues for the
foreseeable future. Expansion of our 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. Our international operations are subject
to additional risks, including the following:
- - difficulties of staffing and managing foreign
operations;
- - longer customer payment cycles and greater
difficulties in collecting accounts receivable;
- - unexpected changes in regulatory requirements,
exchange rates, trading policies, tariffs and other
barriers;
- - uncertainties of laws and enforcement relating to the
protection of intellectual property;
- - language barriers;
- - potential adverse tax consequences; and
- - political and economic instability.
We currently sell products in countries that have recently
experienced significant problems with their economies, the value of their
currency, availability of credit and their ability to engage in foreign trade in
general, including in Russia and Japan. We are unable to determine whether
economic downturns in any particular country will adversely effect our business
or results of operations. We cannot predict the impact that any future
fluctuations
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in foreign currency exchange rates or the adoption of the Euro, the single
European currency introduced in January 1999, may have on our operating results
and financial condition.
RISKS RELATING TO YEAR 2000 ISSUES MAY ADVERSELY AFFECT OUR BUSINESS
Many existing computer systems and software products do not
properly recognize dates after December 31, 1999. This "Year 2000" problem could
result in miscalculations, data corruption, system failures or disruptions of
operations. We reasonably expect that at worst these disruptions could result in
our inability to process transactions, manufacture and ship products, send
invoices or engage in similar normal business activities for an indefinite
period of time, which could impair our viability.
The Year 2000 problem could also affect embedded systems, such as
building security systems, machine controllers, telephone switches and other
equipment. Our systems may suffer from date related problems, and if so, we may
need to upgrade or replace our computer systems, software and other equipment,
which could result in significant expenditures.
Neither our current products nor our prior products utilize
internal calendars that are dependent upon the input of, or reference to, a
specific date, and we do not anticipate designing any products that are date
dependent. Furthermore, the purchasing patterns of our customers or potential
customers may be affected by Year 2000 issues as companies expend significant
resources to correct their current systems for Year 2000 compliance. These
expenditures may result in reduced funds available for network equipment and
other purchases, which could have a material adverse effect on our business,
operating results and financial condition.
We rely on numerous third parties who may not be Year 2000
compliant. This includes our contract manufacturers, our sole and limited source
component suppliers and other vendors, and our distributors, resellers and OEMs.
Failure of any of these third parties to be Year 2000 compliant could require us
to incur significant unanticipated expenses to remedy any resulting problems or
to replace the affected third party. This could reduce our revenues and could
have a material adverse effect on our business, operating results and financial
condition. To date, we have not developed contingency plans for those
eventualities.
WE ARE DEPENDENT ON KEY PERSONNEL AND IF WE ARE UNABLE TO HIRE OR RETAIN NEEDED
PERSONNEL, OUR ABILITY TO DO BUSINESS PROFITABLY COULD BE HARMED
There are a limited number of skilled design, process and testing
engineers and marketing professionals involved in the wireless data
communication industry. The competition for these employees is intense. Skilled
professionals often move among the various competitors in this industry. Our
future growth depends in large part on retaining our current employees and
attracting new technical, marketing and management personnel. The loss of key
employees or failure to attract new key employees could materially affect our
business.
RECENTLY HIRED KEY EMPLOYEES MAY NOT SUCCESSFULLY INTEGRATE INTO OUR MANAGEMENT
TEAM
We have recently hired a number of our officers, including our
Senior Vice President and Chief Financial Officer in January 1999, Senior Vice
President, Sales and Marketing in August 1998 and Vice President, Marketing in
January 1999. These individuals have not previously worked together and are in
the process of integrating as a management team, together and with existing
management. There can be no assurances that they will be able to effectively
work together or successfully manage any growth we experience.
THERE MAY BE POTENTIAL HEALTH AND SAFETY RISKS RELATED TO OUR PRODUCTS WHICH
COULD NEGATIVELY AFFECT PRODUCT SALES
There has been public concern regarding the potential health and
safety risks of electromagnetic emissions. Our wireless networking products emit
electromagnetic radiation, but we do not believe that our products pose a safety
concern. If safety or health issues do arise, product sales could decline or
cease. These issues could have a
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material adverse effect on our business and results of operations. Even if
safety concerns ultimately prove to be without merit, negative publicity could
have a material adverse effect on our ability to market products.
OUR COMMON STOCK PRICE MAY BE VOLATILE
The stock market has experienced significant price and volume
fluctuations, and the market prices of technology companies have been highly
volatile. Our stock price may also be volatile.
DELAWARE LAW AND OUR CORPORATE DOCUMENTS INCLUDE ANTI-TAKEOVER PROVISIONS WHICH
MAY LIMIT THE VALUE STOCKHOLDERS CAN REALIZE FROM OUR STOCK
Our corporate documents and applicable provisions of the Delaware
General Corporation Law could discourage, delay or prevent a third party or
significant stockholder from acquiring or gaining control of us. These
provisions:
- - authorize the issuance of preferred stock with rights
senior to those of common stock, which our Board of
Directors can create and issue without prior
stockholder approval;
- - prohibit stockholder action by written consent;
- - establish advance notice requirements for submitting
nominations for election to the Board of Directors
and for proposing matters that can be acted upon by
stockholders at a meeting; and
- - establish staggered terms for members of the Board of
Directors.
In addition, we are a party to a Rights Agreement, pursuant to
which each share of our common stock includes a companion purchase right. Under
circumstances controlled by our Board of Directors, the purchase rights may
impose severe impediments to any person seeking to acquire us or gain control
over us. Any of these anti-takeover provisions could lower the market price of
the common stock and could deprive our stockholders of the opportunity to
receive a premium for their shares in the event that we are sold.
THE NUMBER OF OUR SHARES WHICH ARE PUBLICALLY TRADED MAY INCREASE IN THE NEAR
FUTURE
Over six million of our total outstanding shares are restricted
from immediate resale but may be sold into the market in the near future, which
could cause the market price of our common stock to drop significantly, even if
our business is doing well All of our officers, directors, stockholders, warrant
holders and each holder of more than 5,000 options have executed lock up
agreements in which they agreed not to sell any shares of common stock during
the period ending 180 days after the date of the prospectus in the Registration
Statement. This restriction can be waived by the underwriters at any time
without notice to us, our stockholders or the public in general.
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to the impact of interest rate changes and, to a
lesser extent, foreign currency fluctuations. We are experiencing increases in
our sales into foreign markets of products manufactured in the United States.
Foreign currency fluctuations could effect the price competitiveness and margins
of foreign sales. We have not entered into interest rate or foreign currency
transactions for speculative purposes or otherwise. Our foreign currency
exposures were immaterial at June 30, 1999.
Our exposure to interest rate changes results in part from our
variable-rate line of credit. At June 30, 1999, we had $2.5 million due July 1,
2000 bearing interest at either the bank's prime rate or London Interbank
Overnight Rate plus 2%. A one percentage point change in the weighted average
interest would not have a material impact on our annual interest expense. In
August 1999, we repaid all outstanding amounts under the line of credit.
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Our exposure to interest rate changes also results from
investment of funds in excess of current operating requirements. We invest our
funds in short-term, interest-bearing, investment grade securities. Our interest
income is sensitive to changes in the general level of U.S. interest rates. Due
to the nature of our short-term investments, we have concluded that there is no
material market risk exposure. Therefore, no quantitative tabular disclosures
are required.
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PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) We are furnishing the following information with regard to
all securities sold by us during the period covered by this report that were not
registered under the Securities Act of 1933. In May 1999, we granted options to
purchase an aggregate of 125,000 shares of common stock, at an exercise price of
$9.00 per share. The sales of these securities were deemed to be exempt from
registration under the Securities Act of 1933 in reliance on Section 4(2) or
Regulation D promulgated thereunder, or Rule 701 promulgated under Section 3(b)
of the Securities Act of 1933, as transactions by an issuer not involving a
public offering or transactions pursuant to compensatory benefit plans and
contracts relating to compensation as provided under such Rule 701. The
recipients of securities in each such transaction represented their intention to
acquire the securities for investment only and not with a view to, or for sale
in connection with, any distribution thereof, and appropriate legends were
affixed to share certificates and instruments issued in such transactions. All
recipients had adequate access, through their relationships with us, to
information about us.
(d) We are furnishing the following information with respect to
the use of proceeds from our initial public offering. A Registration Statement
on Form S-1, as amended (Registration No. 333- 78507), was initially filed with
the Securities and Exchange Commission on May 14, 1999, was declared effective
on July 29, 1999 and the offering commenced on July 30, 1999. The managing
underwriters for the offering were Dain Rauscher Wessels, a division of Dain
Rauscher Incorporated, Prudential Securities and CIBC World Markets.
Of the 6,000,000 shares of common stock, $0.01 par value,
offered, we sold 4,000,000 shares and a selling stockholder sold 2,000,000
shares. We received no proceeds from the shares sold by the selling stockholder.
Payment of expenses from the proceeds were to persons other than our directors,
officers, general partners or their associates, persons owning 10% or more of
our equity securities or affiliates of the Company. The following table sets
forth approximate proceeds and expenses.
Our aggregate public offering price ................................................ $44,000,000
Selling stockholder's aggregate public offering price .............................. $22,000,000
Our underwriting discounts and commissions ......................................... $ 3,080,000
Selling stockholder's underwriting discounts and commissions ....................... $ 1,540,000
Our offering expenses .............................................................. $ 2,000,000
Our aggregate net proceeds ......................................................... $38,920,000
In August 1999, we repaid the approximately $2,500,000
outstanding indebtedness under our credit line. Pending further uses, we have
invested our net proceeds from the offering in short-term, interest-bearing,
investment grade securities. We have not identified any other specific
expenditures which will be made with the net proceeds from the offering, but we
expect to use the proceeds for general corporate purposes, which may include:
- - expansion of our engineering organization and product
development programs;
- - expansion of our marketing and sales capabilities;
- - expansion of our general and administrative
functions;
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- - investment in complementary technology through licensing arrangements
and otherwise; and
- - working capital.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
1. By a written consent of the stockholders dated April 21, 1999,
our stockholders removed Norton W. Rose from our Board of Directors and elected
John W. Paxton to serve until the next annual meeting or until his successor is
elected. Holders of 7,276,5000 shares out of 9,567,181 shares issued and
outstanding executed the written consent.
2. By a written consent of the stockholders dated May 7, 1999,
our stockholders took the following actions by written consent:
a. approved our initial public offering and the taking of all
acts required in connection therewith;
b. approved and adopted our 1999 Employee Stock Purchase Plan;
c. approved and adopted our 1999 Omnibus Stock Incentive Plan;
d. approved and adopted our Amended and Restated Certificate of
Incorporation to, among other things, authorize preferred
stock, stagger the terms of our Board of Directors, abolish
the right of stockholders to act by written consent,
establish procedures to call special meetings and to
establish procedures to amend our bylaws;
e. approved and adopted our Second Amended and Restated Bylaws
to, among other things, effect certain changes to corporate
governance; and
f. approved and adopted our 1999 Rights Agreement with Harris
Trust and Savings Bank, trustee.
Holders of 8,978,277 shares out of 9,567,181 shares issued and outstanding
executed the written consent.
3. By a written consent of the stockholders dated May 13, 1999,
our stockholders approved and adopted our 1999 Stock Option Plan for
Non-Employee Directors. Holders of 7,276,500 shares out of 9,567,181 shares
issued and outstanding executed the written consent.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
3.1+ Amended and Restated Certificate of Incorporation of Aironet
Wireless Communications, Inc.
3.2* Second Amended and Restated Bylaws of Aironet Wireless
Communications, Inc.
4.1* Specimen of certificate for shares of Aironet's common stock
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30
4.2+ Rights Agreement between Aironet Wireless Communications, Inc.
and Harris Trust and Savings Bank, as Rights Agent, dated as of
June 25, 1999, including form of rights certificate
4.3* Warrant certificate issued to Furneaux & Company, LLC
4.4 Registration Rights Agreement by and among Aironet and certain
of its security holders, dated as of March 31, 1998 included as
Exhibit 10.4.3 to Aironet's Registration Statement on Form S-1,
as amended (Registration No. 333-78507)
10.1 Aironet's Compensation and Benefits Plans
10.1.1* Aironet Wireless Communications, Inc. 1996 Stock Option Plan
10.1.2* Amended and Restated Aironet Wireless Communications, Inc. 1996
Stock Option Plan
10.1.3* First Amendment to Amended and Restated Aironet Wireless
Communications, Inc. 1996 Stock Option Plan
10.1.4* Aironet Wireless Communications, Inc. 1999 Employee Stock
Purchase Plan
10.1.5* Aironet Wireless Communications, Inc. 1999 Omnibus Stock
Incentive Plan
10.1.6* Aironet Wireless Communications, Inc. 1999 Stock Option Plan for
Non-Employee Directors
10.1.7* Employment Agreement between Aironet and Roger J. Murphy, Jr.
10.1.8* Employment Letter Agreement between Aironet and Richard G. Holmes
10.1.9* Employment Letter Agreement between Aironet and Ronald B. Willis
10.1.10* Employment Letter Agreement between Aironet and Harvey A. Ikeman
10.1.11* Promissory Note made by Roger J. Murphy, Jr. to the order of
Aironet in the principal amount of $372,000
10.1.11.1* Amendment to Promissory Note, included as Exhibit 10.1.11
10.1.12* Telxon's Retirement & Uniform Matching Profit Sharing Plan, as
amended (in which Aironet's employees participate pursuant to the
Services Agreement included as Exhibit 10.7)
10.1.12.1* Supplemental Participation Agreement and Certificate of
Resolution to Telxon's Retirement & Uniform Matching Profit
Sharing Plan, as amended
10.1.13* Telxon 1995 Employee Stock Purchase Plan
10.2 Material Leases
10.2.1* Lease between Aironet and Telxon Corporation for 91 Springside
Drive, Akron, Ohio, dated as of April 1, 1998
10.2.2* Sublease Agreement between Aironet and Telxon Corporation for
3875 Embassy Parkway, Bath, Ohio dated as of September 1, 1998
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31
10.2.3* Lease renewal between Telxon Corporation and Aironet, dated June
16, 1999, for Lease included as Exhibit 10.2.1 and Sublease
included as 10.2.2
10.3* Loan Agreement between Aironet and The Huntington National Bank,
dated as of July 24, 1998
10.3.1+ First Amendment to Loan Agreement dated April 30, 1999 amending
the Loan Agreement included as Exhibit 10.3.
10.4* Subscription Agreement by and among Aironet and the investors who
executed the same, dated as of March 31, 1998
10.4.1* Form of warrant issued pursuant to the Subscription Agreement
included as Exhibit 10.4
10.4.2* Stockholders Agreement by and among Aironet and its stockholders
party thereto, dated as of March 31, 1998, in connection with the
transactions under the Subscription Agreement included as Exhibit
10.4
10.4.2.1* Form of Addendum to Stockholders Agreement included as Exhibit
10.4.2
10.4.3* Registration Rights Agreement by and among Aironet and certain of
its security holders, dated as of March 31, 1998
10.4.3.1* Form of Addendum to Registration Rights Agreement included as
Exhibit 10.4.3
10.4.3.2* Addendum by Telantis Venture Partners IV, Inc. to Registration
Rights Agreement included as Exhibit 10.4.3
10.5* License, Rights and Supply Agreement between Aironet and Telxon
Corporation, dated as of March 31, 1998
10.5.1* First Amendment to License, Rights and Supply Agreement dated as
of March 31, 1999
10.6* Tax Benefit and Indemnification Agreement between Aironet and
Telxon Corporation, dated as of March 31, 1998
10.6.1* Promissory Note made by Aironet to the order of Telxon
Corporation with the Tax Benefit and Indemnification Agreement
included as Exhibit 10.6
10.7* Services Agreement between Aironet and Telxon Corporation, dated
as of March 31, 1998
10.8* Assignment of Patent Applications made by Telxon Corporation in
favor of Aironet, dated as of March 30, 1998
10.9* Assignment of Patent Applications made by Aironet in favor of
Telxon Corporation, dated as of March 30, 1998
10.10* Cross Covenant Not to Sue between Aironet and Telxon Corporation,
dated as of March 31, 1998
10.11* AirAware Acknowledgment between Aironet and Telxon Corporation,
dated as of March 30, 1998
10.12* LM3000 Software Agreement between Aironet and Telxon Corporation,
dated as of March 30, 1998
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10.13* Patent Continuation in Part Agreement between Aironet and Telxon
Corporation, dated as of March 30, 1998
10.14* Patent License Agreement between Aironet and Telxon Corporation,
dated as of March 30, 1998
10.15* Nondisclosure Agreement between Aironet and Telxon Corporation,
dated as of March 31, 1998
27+ Financial Data Schedule
- ---------------
+Filed herewith.
*Incorporated by reference to this exhibit number to Aironet's Registration
Statement on Form S-1, as amended (Registration No. 333-78507) filed on May 14,
1999 and declared effective on July 29, 1999.
(b) We filed no reports on Form 8-K during the quarter ended June 30, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Dated: September 10, 1999 Aironet Wireless Communications, Inc.
By:/s/ Richard G. Holmes
------------------------------------------
Richard G. Holmes
Senior Vice President and Chief Financial
Officer
(Principal Financial and Accounting Officer)
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
3.1+ Amended and Restated Certificate of Incorporation of Aironet
Wireless Communications, Inc.
3.2* Second Amended and Restated Bylaws of Aironet Wireless
Communications, Inc.
4.1* Specimen of certificate for shares of Aironet's common stock
4.2+ Rights Agreement between Aironet Wireless Communications, Inc.
and Harris Trust and Savings Bank, as Rights Agent, dated as of
June 25, 1999, including form of rights certificate
4.3* Warrant certificate issued to Furneaux & Company, LLC
4.4 Registration Rights Agreement by and among Aironet and certain of
its security holders, dated as of March 31, 1998 included as
Exhibit 10.4.3 to Aironet's Registration Statement on Form S-1,
as amended (Registration No. 333-78507)
10.1 Aironet's Compensation and Benefits Plans
10.1.1* Aironet Wireless Communications, Inc. 1996 Stock Option Plan
10.1.2* Amended and Restated Aironet Wireless Communications, Inc. 1996
Stock Option Plan
10.1.3* First Amendment to Amended and Restated Aironet Wireless
Communications, Inc. 1996 Stock Option Plan
10.1.4* Aironet Wireless Communications, Inc. 1999 Employee Stock
Purchase Plan
10.1.5* Aironet Wireless Communications, Inc. 1999 Omnibus Stock
Incentive Plan
10.1.6* Aironet Wireless Communications, Inc. 1999 Stock Option Plan for
Non-Employee Directors
10.1.7* Employment Agreement between Aironet and Roger J. Murphy, Jr.
10.1.8* Employment Letter Agreement between Aironet and Richard G. Holmes
10.1.9* Employment Letter Agreement between Aironet and Ronald B. Willis
10.1.10* Employment Letter Agreement between Aironet and Harvey A. Ikeman
10.1.11* Promissory Note made by Roger J. Murphy, Jr. to the order of
Aironet in the principal amount of $372,000
10.1.11.1* Amendment to Promissory Note, included as Exhibit 10.1.11
10.1.12* Telxon's Retirement & Uniform Matching Profit Sharing Plan, as
amended (in which Aironet's employees participate pursuant to the
Services Agreement included as Exhibit 10.7)
10.1.12.1* Supplemental Participation Agreement and Certificate of
Resolution to Telxon's Retirement & Uniform Matching Profit
Sharing Plan, as amended
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10.1.13* Telxon 1995 Employee Stock Purchase Plan
10.2 Material Leases
10.2.1* Lease between Aironet and Telxon Corporation for 91 Springside
Drive, Akron, Ohio, dated as of April 1, 1998
10.2.2* Sublease Agreement between Aironet and Telxon Corporation for
3875 Embassy Parkway, Bath, Ohio dated as of September 1, 1998
10.2.3* Lease renewal between Telxon Corporation and Aironet, dated June
16, 1999, for Lease included as Exhibit 10.2.1 and Sublease
included as 10.2.2
10.3* Loan Agreement between Aironet and The Huntington National Bank,
dated as of July 24, 1998
10.3.1+ First Amendment to Loan Agreement dated April 30, 1999, amending
the Loan Agreement included as Exhibit 10.3
10.4* Subscription Agreement by and among Aironet and the investors who
executed the same, dated as of March 31, 1998
10.4.1* Form of warrant issued pursuant to the Subscription Agreement
included as Exhibit 10.4
10.4.2* Stockholders Agreement by and among Aironet and its stockholders
party thereto, dated as of March 31, 1998, in connection with the
transactions under the Subscription Agreement included as Exhibit
10.4
10.4.2.1* Form of Addendum to Stockholders Agreement included as Exhibit
10.4.2
10.4.3* Registration Rights Agreement by and among Aironet and certain of
its security holders, dated as of March 31, 1998
10.4.3.1* Form of Addendum to Registration Rights Agreement included as
Exhibit 10.4.3
10.4.3.2* Addendum by Telantis Venture Partners IV, Inc. to Registration
Rights Agreement included as Exhibit 10.4.3
10.5* License, Rights and Supply Agreement between Aironet and Telxon
Corporation, dated as of March 31, 1998
10.5.1* First Amendment to License, Rights and Supply Agreement dated as
of March 31, 1999
10.6* Tax Benefit and Indemnification Agreement between Aironet and
Telxon Corporation, dated as of March 31, 1998
10.6.1* Promissory Note made by Aironet to the order of Telxon
Corporation with the Tax Benefit and Indemnification Agreement
included as Exhibit 10.6
34
35
10.7* Services Agreement between Aironet and Telxon Corporation, dated
as of March 31, 1998
10.8* Assignment of Patent Applications made by Telxon Corporation in
favor of Aironet, dated as of March 30, 1998
10.9* Assignment of Patent Applications made by Aironet in favor of
Telxon Corporation, dated as of March 30, 1998
10.10* Cross Covenant Not to Sue between Aironet and Telxon Corporation,
dated as of March 31, 1998
10.11* AirAware Acknowledgment between Aironet and Telxon Corporation,
dated as of March 30, 1998
10.12* LM3000 Software Agreement between Aironet and Telxon Corporation,
dated as of March 30, 1998
10.13* Patent Continuation in Part Agreement between Aironet and Telxon
Corporation, dated as of March 30, 1998
10.14* Patent License Agreement between Aironet and Telxon Corporation,
dated as of March 30, 1998
10.15* Nondisclosure Agreement between Aironet and Telxon Corporation,
dated as of March 31, 1998
27+ Financial Data Schedule
- ---------------
+Filed herewith.
*Incorporated by reference to this exhibit number to Aironet's Registration
Statement on Form S-1, as amended (Registration No. 333-78507) filed on May 14,
1999 and declared effective on July 29, 1999.
35