UNITED STATES
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, 2004
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) |
For the transition period from to .
Commission file number: 0-31659
NOVATEL WIRELESS, INC.
(exact name of registrant as specified in its charter)
| Delaware | 86-0824673 | |
| (State or other jurisdiction or incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| 9255 Towne Centre Drive, Suite 225, San Diego, CA | 92121 | |
| (Address of principal executive offices) | (zip code) | |
Registrant’s telephone number, including area code: (858) 320-8800
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨.
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes ¨ No x.
The number of shares of the Registrant’s common stock outstanding as of July 31, 2004 was 27,959,677.
As used in this report on Form 10-Q, unless the context otherwise requires, the terms “we,” “us,” “our,” “the Company” and “Novatel Wireless” refer to Novatel Wireless, Inc., a Delaware corporation and its wholly-owned subsidiaries.
Forward-Looking Statements
This report contains forward-looking statements based on our current expectations, assumptions, estimates and projections about Novatel Wireless and our industry. These forward-looking statements include, but are not limited to, statements regarding: increasing demand for access to wireless data and factors affecting that demand; the future growth of wireless wide area networking and factors affecting that growth; changes in wireless transmission standards and technologies; growth in 3G infrastructure spending; the sufficiency of our capital resources; the effect of changes in accounting standards and in aspects of our critical accounting policies; and our general business and strategy, including plans and expectations relating to technology, product development, strategic relationships, customers, manufacturing, service activities and international expansion. The words “anticipate,” “believe,” “expect,” “intend,” “plan,” “project,” “will” and similar words and phrases are also intended to identify forward-looking statements.
Forward-looking statements involve risks and uncertainties. Our actual results could differ materially from those anticipated in such forward-looking statements as a result of certain factors, as more fully described elsewhere in this report. For a detailed discussion of these risks and uncertainties, see the “Business — Risks Related to Our Business” section of this Form 10-Q. We undertake no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future, except as otherwise required pursuant to our on-going reporting obligations under the Securities Exchange Act of 1934, as amended.
Trademarks
The Novatel Wireless logo, “Merlin,” “MobiLink” “Freedom Box” and “Expedite” are U.S. trademarks of Novatel Wireless, Inc. Other trademarks, trade names or service marks used in this report are the property of their respective owners.
1
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
NOVATEL WIRELESS, INC.
CONSOLIDATED BALANCE SHEETS
| June 30, 2004 |
December 31, 2003 |
|||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 31,162,000 | $ | 3,942,000 | ||||
| Marketable securities |
41,074,000 | — | ||||||
| Restricted cash |
175,000 | 635,000 | ||||||
| Accounts receivable, net of allowance for doubtful accounts of $152,000 and $311,000 in 2004 and 2003, respectively |
13,943,000 | 8,986,000 | ||||||
| Accounts receivable — related parties (Note 10) |
— | 399,000 | ||||||
| Inventories |
4,708,000 | 2,349,000 | ||||||
| Prepaid expenses and other |
1,127,000 | 1,378,000 | ||||||
| Total current assets |
92,189,000 | 17,689,000 | ||||||
| Property and equipment, net |
2,827,000 | 1,915,000 | ||||||
| Marketable securities |
6,050,000 | — | ||||||
| Intangible assets, net |
5,185,000 | 4,629,000 | ||||||
| Other assets |
42,000 | 188,000 | ||||||
| $ | 106,293,000 | $ | 24,421,000 | |||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 10,333,000 | $ | 6,730,000 | ||||
| Accrued expenses |
4,951,000 | 1,179,000 | ||||||
| Restructuring accrual |
988,000 | 1,222,000 | ||||||
| Deferred revenues |
3,846,000 | 6,218,000 | ||||||
| Capital lease obligations |
720,000 | 82,000 | ||||||
| Total current liabilities |
20,838,000 | 15,431,000 | ||||||
| Commitments and contingencies (Note 8) |
||||||||
| Stockholders’ equity: |
||||||||
| Preferred stock, par value $.001, 2,000,000 shares authorized: |
||||||||
| Convertible Series A preferred stock amended in 2003, 0 and 1,025 shares issued and outstanding at June 30, 2004 and December 31, 2003, respectively (Note 6) |
— | — | ||||||
| Convertible Series B preferred stock, 0 and 4,703 shares issued and outstanding at June 30, 2004 and December 31, 2003, respectively (Note 6) |
— | — | ||||||
| Common stock, par value $.001, 50,000,000 shares authorized, 27,910,494 and 12,737,640 shares issued and outstanding at June 30, 2004 and December 31, 2003, respectively |
28,000 | 13,000 | ||||||
| Additional paid-in capital |
329,013,000 | 256,253,000 | ||||||
| Accumulated other comprehensive income |
(18,000 | ) | — | |||||
| Deferred stock compensation |
(14,000 | ) | (142,000 | ) | ||||
| Accumulated deficit |
(243,554,000 | ) | (247,134,000 | ) | ||||
| Total stockholders’ equity |
85,455,000 | 8,990,000 | ||||||
| $ | 106,293,000 | $ | 24,421,000 | |||||
See accompanying notes to unaudited consolidated financial statements.
2
NOVATEL WIRELESS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||||||||
| As restated (see Note 2) |
As restated (see Note 2) |
|||||||||||||||
| Revenue |
$ | 24,116,000 | $ | 7,659,000 | $ | 39,260,000 | $ | 15,148,000 | ||||||||
| Cost of revenue |
16,401,000 | 7,972,000 | 27,199,000 | 14,238,000 | ||||||||||||
| Gross margin |
7,715,000 | (313,000 | ) | 12,061,000 | 910,000 | |||||||||||
| Operating costs and expenses: |
||||||||||||||||
| Research and development |
2,373,000 | 1,446,000 | 4,333,000 | 3,181,000 | ||||||||||||
| Sales and marketing |
969,000 | 612,000 | 1,797,000 | 1,289,000 | ||||||||||||
| General and administrative |
1,274,000 | 1,040,000 | 2,199,000 | 2,019,000 | ||||||||||||
| Restructuring charges |
— | (175,000 | ) | — | 238,000 | |||||||||||
| Amortization of deferred stock compensation (*) |
60,000 | 130,000 | 127,000 | 581,000 | ||||||||||||
| Total operating costs and expenses |
4,676,000 | 3,053,000 | 8,456,000 | 7,308,000 | ||||||||||||
| Operating income (loss) |
3,039,000 | (3,366,000 | ) | 3,605,000 | (6,398,000 | ) | ||||||||||
| Other income (expense): |
||||||||||||||||
| Interest income |
143,000 | — | 158,000 | 1,000 | ||||||||||||
| Interest expense |
— | (1,654,000 | ) | (1,000 | ) | (1,724,000 | ) | |||||||||
| Other income (expense), net |
20,000 | — | (37,000 | ) | 85,000 | |||||||||||
| Net income (loss) |
$ | 3,202,000 | $ | (5,020,000 | ) | $ | 3,725,000 | $ | (8,036,000 | ) | ||||||
| Accretion of dividends and beneficial conversion features pertaining to preferred stock |
(34,000 | ) | (4,652,000 | ) | (145,000 | ) | (4,845,000 | ) | ||||||||
| Net income (loss) applicable to common stockholders |
$ | 3,168,000 | $ | (9,672,000 | ) | $ | 3,580,000 | $ | (12,881,000 | ) | ||||||
| Per share data: |
||||||||||||||||
| Net income (loss) per common share: |
||||||||||||||||
| Basic |
$ | 0.13 | $ | (1.35 | ) | $ | 0.18 | $ | (1.82 | ) | ||||||
| Diluted |
$ | 0.11 | $ | (1.35 | ) | $ | 0.14 | $ | (1.82 | ) | ||||||
| Weighted average shares used in computation of basic and diluted net income (loss) per common share: |
||||||||||||||||
| Basic |
23,675,852 | 7,144,176 | 19,475,837 | 7,065,211 | ||||||||||||
| Diluted |
28,613,854 | 7,144,176 | 26,896,205 | 7,065,211 | ||||||||||||
| (*) Amortization of deferred stock compensation: |
||||||||||||||||
| Cost of revenue |
$ | 8,000 | $ | 13,000 | $ | 16,000 | $ | 32,000 | ||||||||
| Research and development |
20,000 | 35,000 | 40,000 | 86,000 | ||||||||||||
| Sales and marketing |
21,000 | 34,000 | 42,000 | 84,000 | ||||||||||||
| General and administrative |
11,000 | 48,000 | 29,000 | 379,000 | ||||||||||||
| $ | 60,000 | $ | 130,000 | $ | 127,000 | $ | 581,000 | |||||||||
See accompanying notes to unaudited consolidated financial statements.
3
NOVATEL WIRELESS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Six Months Ended June 30, |
||||||||
| 2004 |
2003 |
|||||||
| As restated (see Note 2) |
||||||||
| Cash flows from operating activities: |
||||||||
| Net income (loss) |
$ | 3,725,000 | $ | (8,036,000 | ) | |||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
||||||||
| Depreciation and amortization |
1,672,000 | 1,982,000 | ||||||
| Inventory write down |
— | 1,853,000 | ||||||
| Accretion of interest expense on convertible notes |
— | 1,539,000 | ||||||
| Compensation for stock options issued below fair value |
127,000 | 581,000 | ||||||
| Provision for bad debt |
— | 92,000 | ||||||
| Compensation for warrants issued in connection with convertible debt |
— | 79,000 | ||||||
| Gain on sale of property and equipment |
(3,000 | ) | (85,000 | ) | ||||
| Changes in assets and liabilities: |
||||||||
| Restricted cash |
460,000 | (10,000 | ) | |||||
| Accounts receivable |
(4,558,000 | ) | 1,616,000 | |||||
| Inventories |
(2,359,000 | ) | 740,000 | |||||
| Prepaid expenses and other |
397,000 | 554,000 | ||||||
| Accounts payable |
3,603,000 | 57,000 | ||||||
| Accrued expenses |
3,772,000 | (116,000 | ) | |||||
| Inventory purchase commitments |
— | (432,000 | ) | |||||
| Restructuring accrual |
(234,000 | ) | (476,000 | ) | ||||
| Deferred revenues |
(2,372,000 | ) | (727,000 | ) | ||||
| Net cash provided by (used in) operating activities |
4,230,000 | (789,000 | ) | |||||
| Cash flows from investing activities: |
||||||||
| Purchases of property and equipment |
(847,000 | ) | (25,000 | ) | ||||
| Proceeds from sale of property and equipment |
44,000 | 105,000 | ||||||
| Purchases of marketable securities |
(47,142,000 | ) | — | |||||
| Purchase of intangible assets |
(1,525,000 | ) | ||||||