Back to GetFilings.com

Table of Contents

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2003

Commission File Number: 000-28217

AIRNET COMMUNICATIONS CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

3950 Dow Road, Melbourne, Florida 32934

(Address of Principal Executive Offices) (Zip Code)

(321) 984-1990

(Registrant’s Telephone Number, Including Area Code)

Indicate by check x whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No o

Indicate by check x whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act.)
Yes o No x

The number of shares outstanding of each of the issuer’s classes of common stock as of March 31, 2003, was:

Common stock, par value $.001 per share 23,851,177

Table of Contents

AIRNET COMMUNICATIONS CORPORATION

INDEX

2

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

AIRNET COMMUNICATIONS CORPORATION
CONDENSED BALANCE SHEETS
(In Thousands)

SEE NOTES TO CONDENSED FINANCIAL STATEMENTS

3

Table of Contents

AIRNET COMMUNICATIONS CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

SEE NOTES TO CONDENSED FINANCIAL STATEMENTS

4

Table of Contents

AIRNET COMMUNICATIONS CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

SEE NOTES TO CONDENSED FINANCIAL STATEMENTS

5

Table of Contents

AIRNET COMMUNICATIONS CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(FOR THE THREE MONTHS ENDED MARCH 31, 2003)
(Unaudited)

1) BASIS OF PRESENTATION AND NEW ACCOUNTING PRONOUNCEMENT

The accompanying condensed financial statements are unaudited, but in the opinion of management, reflect all adjustments (consisting only of normal recurring adjustments) necessary to fairly state the Company’s financial position, results of operations, and cash flows as of and for the dates and periods presented. The financial statements of the Company are prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information.

These unaudited condensed financial statements should be read in conjunction with the Company’s audited financial statements and footnotes included in the Company’s Form 10-K/A filed for the year ended December 31, 2002. The results of operations for the three-month period ended March 31, 2003 are not necessarily indicative of the results that may be expected for the entire year ending December 31, 2003 or for any future period.

NEW ACCOUNTING PRONOUNCEMENTS - In June 2002 the FASB issued Statement No. 146, Accounting for Costs Associated with Exit or Disposal Activities (Statement 146). Statement 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies EITF Issue No. 94-3. Statement 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred and is effective for exit or disposal activities initiated after December 31, 2002. The Company adopted this Statement to be effective during the quarter ended March 31, 2003. The adoption of this Statement did not have any impact on the Company.

In December 2002 the FASB issued Statement No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure – an amendment of Statement No. 123 (Statement 148.) Statement 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. This statement also amends the disclosure requirements of Statement 123 and APB Opinion No. 28, Interim Financial Reporting, to require prominent disclosure in both annual and interim financial statements about the Company’s method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company has adopted the disclosure only provisions of SFAS No. 123, Accounting for Stock-Based Compensation (Statement No. 123). Under Statement No. 123, companies have the option to measure compensation costs for stock options using the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB No. 25). Under APB No. 25, compensation expense is generally not recognized when both the exercise price is the same as the market price and the number of shares to be issued is set on the date the employee stock option is granted. Since employee stock options were granted on this basis and the Company has chosen to use the intrinsic value method, no compensation expense has been recognized for stock option grants to employees for the quarters ended March 31, 2003 and 2002.

6

Table of Contents

If the Company had elected to recognize compensation expense for the issuance of options to employees of the Company based on the fair value method of accounting prescribed by Statement No. 123, net loss and loss per share would have been increased to the pro forma amounts as follows:

For the three months ended March 31, 2003 and 2002

In November 2002 the FASB issued FASB Interpretation No. 45 (FIN 45), Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Direct Guarantees of Indebtedness of Others. This statement requires the Company to record, at the inception of a guarantee, the fair value of the guarantee as a liability, with the offsetting entry being recorded based on the circumstances in which the guarantee was issued. Fundings under the guarantee are to be recorded as a reduction of the liability. After funding has ceased, the remaining liability is recognized in the income statement on a straight-line basis over the remaining term of the guarantee. The Company adopted the disclosure provisions of FIN 45 in the fourth quarter of 2002 and the initial recognition and initial measurement provisions on a prospective basis for all guarantees issued after December 31, 2002. This interpretation did not have a material impact on the financial conditions, results of operations, or cashflows of the Company.

Reclassifications – Certain amounts in the 2002 financial statements have been reclassified to conform to the 2003 presentation.

2) LIQUIDITY AND GOING CONCERN CONSIDERATIONS

The accompanying condensed financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business; and, as a consequence, the financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company has experienced net operating losses and negative cash flows since inception and, as of March 31, 2003, had an accumulated deficit of $231.0 million. Cash used in operating activities for the three months ended March 31, 2003 was $4.2 million. The Company expects to have a net operating loss in 2003. At March 31, 2003, the Company’s principal source of liquidity was $3.7 million of cash and cash equivalents, which amount is after aggregate draws of $4.8 million against a $6.0 million Bridge Loan for interim funding (see Note 10 to the condensed financial statements). As of April 28, 2003, in accordance with the draw schedule in Note 10 to the condensed financial statements, the lenders advanced a total of $6.0 million to the Company. The amounts drawn against the Bridge Loan are due and payable on May 24, 2003. In addition, on March 31, 2003, the Company had $3.5 million in purchase order commitments. The Company’s current 2003 operating plan projects that cash available from planned revenue combined with the $3.7 million on hand at March 31, 2003 will not be adequate to defer the requirement for additional funding. The Company’s current negotiations for financing of $16 million (less repayment of principal under the Bridge Loan), if successful, is expected to provide the funding needed for the Company to continue operations; however, $8.0 million will be provided to the Company in quarterly installments of $1.0 million over a period of two years starting in June 2003. The Company may need to raise additional capital following the closing in the event its cash flow from operations along with the installments due under the proposed $16.0 million financing are insufficient to sustain operations. See Note 10 to condensed financial statements, – Bridge Financing/Funding Transaction for further explanation. There can be no assurances that the proposed financing can be finalized on terms acceptable to the Company, if at all, or that the negotiated proposed financing will be adequate to sustain operations through 2003. Such conditions raise substantial doubt that the Company will be able to continue as a going concern.

The Company’s future results of operations involve a number of significant risks and uncertainties. The worldwide market for telecommunications products such as those sold by the Company has seen dramatic reductions in demand as compared to the late 1990’s. It is uncertain as to when or whether market conditions will improve. The Company has been negatively

7

Table of Contents

impacted by this reduction in global demand and by the resulting inability to generate sufficient revenues to cover expenses and reach profitability. Other factors that could affect the Company’s future operating results and cause actual results to vary from expectations include, but are not limited to, its ability to raise capital, its dependence on key personnel, its dependence on a limited number of customers (with two customers accounting for 86% of the revenue for the three months ended March 31, 2003), its ability to produce new products, the erosion of product prices, its ability to overcome deployment and installation challenges in developing countries which may include political and civil risks and risks relating to environmental conditions, product obsolescence, ability to generate consistent sales, ability to finance research and development, government regulation, technological innovations and acceptance, competition, reliance on certain vendors and credit risks. The Company’s ultimate ability to continue as a going concern for a reasonable period of time will depend on the Company increasing its revenues and/or reducing its expenses and securing enough additional funding to enable the Company to reach profitability. The Company’s historical sales results and its current backlog do not give the Company sufficient visibility or predictability to indicate when the required higher sales levels might be achieved, if at all.

Since it is unlikely that the Company will achieve profitable operations in the near term, and since the Company will continue to consume cash in the foreseeable future, the Company must reduce the negative cash flows in the near term to continue operations, or secure additional funding. However, there can be no assurances that the Company will succeed in achieving this goal, and failure to do so in the near term will have a material adverse effect on its business, prospects, financial condition and operating results and its ability to continue as a going concern. As a consequence, the Company may be forced to seek protection under the bankruptcy laws. In that event, it is unclear whether the Company could successfully reorganize the capital structure and operations, or whether it could realize sufficient value for its assets to satisfy fully the debts to the Bridge Loan noteholders or liquidation preference obligations to the preferred stockholders. Accordingly, should the Company file for bankruptcy, there is no assurance that any value would be received by its stockholders.

All companies listed on the Nasdaq National Market are required to have net tangible assets of $4 million, total stockholders’ equity of $10 million, and a minimum bid price of at least $1.00 per share (or a minimum bid price of at least $5.00 per share with no net tangible asset requirement). If a stock fails to trade at that level for thirty consecutive business days, Nasdaq will notify the company of its deficiency in writing. The company then has ninety days to cure the deficiency and return its stock to compliance for at least ten consecutive business days (but possibly longer at the discretion of Nasdaq). The Company has not complied with Nasdaq’s listing requirement of a minimum bid price of $1.00 per share since September 2002 and was notified of this deficiency by Nasdaq October 8, 2002 and had until January 6, 2003 to cure this deficiency. On March 19, 2003, the Company received a notice from Nasdaq that the compliance period was extended for an additional ninety days. As a result, the Company had until April 7, 2003 to satisfy the minimum bid price requirement. The Company was notified on April 9, 2003 that it had not satisfied the minimum bid price requirement and that it will be delisted from the Nasdaq National Market effective April 7, 2003. The Company has appealed the delisting action and has a hearing scheduled before Nasdaq on May 15, 2003. There can be no assurance that this appeal will be successful. If the appeal is not successful, the Company may be granted the opportunity to apply to the Nasdaq SmallCap Market, but there can be no assurances that this opportunity will be granted. Should this opportunity not be granted, the Company can apply to