--------------------------------------------------------------------------------
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 MARCH 31, 2001
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____ TO ______
Commission File Number 000-29053
TELAXIS COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2751645
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
20 INDUSTRIAL DRIVE EAST
SOUTH DEERFIELD, MA 01373
(Address of principal executive offices)
(413) 665-8551
(Registrant's telephone number, including area code)
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 [ ]
As of April 30, 2001, there were 16,743,198 shares of the registrant's
common stock outstanding.
--------------------------------------------------------------------------------
INDEX
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
Item 1. Index to Financial Statements................................... 2
Condensed Balance Sheets as of March 31, 2001 and December
31, 2000.................................................. 3
Condensed Statements of Operations for the three months
ended March 31, 2001 and 2000............................. 4
Condensed Statement of Changes in Stockholders' Equity for
the three months ended March 31, 2001..................... 5
Condensed Statements of Cash Flows for the three months
ended March 31, 2001 and 2000............................. 6
Notes to Financial Statements............................... 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................... 9
Item 3. Qualitative and Quantitative Disclosures About Market Risk...... 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................... 14
Item 2. Changes in Securities and Use of Proceeds....................... 14
Item 6. Exhibits and Reports on Form 8-K................................ 15
SIGNATURES .............................................................. 15
PART I - FINANCIAL INFORMATION
This Quarterly Report on Form 10-Q contains forward-looking statements as
defined by federal securities laws. Forward-looking statements are predictions
that relate to future events or our future performance and are subject to known
and unknown risks, uncertainties, assumptions, and other factors that may cause
actual results, outcomes, levels of activity, performance, developments, or
achievements to be materially different from any future results, outcomes,
levels of activity, performance, developments, or achievements expressed,
anticipated or implied by these forward-looking statements. Forward-looking
statements should be read in light of the cautionary statements and important
factors described in this Form 10-Q, including Part I, Item 2.-- Management's
Discussion and Analysis of Financial Condition and Results of Operations, Safe
Harbor for Forward-Looking Statements. We undertake no obligation to update or
revise any forward-looking statement to reflect events, circumstances or new
information after the date of this Form 10-Q or to reflect the occurrence of
unanticipated events.
Item 1. Financial Statements and Supplementary Data.
INDEX TO FINANCIAL STATEMENTS
Page
------
Condensed Balance Sheets............................................. 3
Condensed Statements of Operations................................... 4
Condensed Statement of Changes in Stockholders' Equity............... 5
Condensed Statements of Cash Flows................................... 6
Notes to Financial Statements ....................................... 7
TELAXIS COMMUNICATIONS CORPORATION
CONDENSED BALANCE SHEETS
(in thousands, except share data)
March 31, December 31,
2001 2000
----------- ------------
(unaudited)
Assets
Current assets
Cash and cash equivalents ....................................................... $ 21,881 $ 27,865
Restricted cash ................................................................. 1,000 --
Marketable securities ........................................................... 11,537 13,158
Trade accounts receivable, less allowance for doubtful accounts
($200 in 2001 and $250 in 2000)................................................ 1,557 2,836
Other accounts receivable ....................................................... 106 297
Inventories ..................................................................... 7,856 7,838
Other current assets ............................................................ 489 486
--------- ---------
Total current assets ........................................................ 44,426 52,480
Property, plant and equipment, net ................................................... 11,800 12,751
Intangible assets, net of accumulated amortization ................................... 187 198
Other assets ......................................................................... 90 109
--------- ---------
Total assets ................................................................ $ 56,503 $ 65,538
========= =========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable ................................................................ $ 4,261 $ 8,156
Customer prepayments ............................................................ 164 218
Accrued expenses ................................................................ 1,670 1,770
Current maturities of long-term debt ............................................ 522 507
Current maturities of capital lease obligations ................................. 2,038 1,563
--------- ---------
Total current liabilities ................................................... 8,655 12,214
Long-term debt ....................................................................... 1,045 1,180
Capital lease obligations ............................................................ 2,359 2,045
--------- ---------
Total liabilities ........................................................... 12,059 15,439
--------- ---------
Stockholders' Equity
Preferred stock, $.01 par value; authorized 4,500,000 shares
in 2001 and 2000; none issued ..................................................... -- --
Common stock, $.01 par value; authorized 100,000,000 shares
in 2001 and 2000; issued and outstanding 16,742,673 shares in 2001
(16,734,673 shares in 2000)........................................................ 167 167
Additional paid-in capital ........................................................... 124,711 124,740
Notes receivable ..................................................................... (294) (331)
Accumulated comprehensive loss ....................................................... (608) --
Accumulated deficit .................................................................. (79,421) (74,318)
Deferred stock compensation .......................................................... (111) (159)
--------- ---------
Total stockholders' equity .................................................. 44,444 50,099
--------- ---------
Total liabilities and stockholders' equity .................................. $ 56,503 $ 65,538
========= =========
The accompanying notes are an integral part of these financial statements.
3
TELAXIS COMMUNICATIONS CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Three months ended March 31,
--------------------------------------
2001 2000
--------------------------------------
(unaudited) (unaudited)
Sales .............................................................................. $ 522 $ 6,316
Cost of sales ...................................................................... 2,086 6,514
--------- ---------
Gross margin (loss) ................................................................ (1,564) (198)
Operating expenses
Research and development, net ................................................. 1,995 1,683
Selling, general and administrative ........................................... 1,992 2,126
--------- ---------
Total operating expenses .................................................... 3,987 3,809
--------- ---------
Operating loss ..................................................................... (5,551) (4,007)
--------- ---------
Other income (expense)
Interest and other expense .................................................... (176) (187)
Interest and other income ..................................................... 624 611
--------- ---------
Total other income (expense) ................................................ 448 424
--------- ---------
Loss from continuing operations before income taxes ................................ (5,103) (3,583)
Income taxes ....................................................................... -- --
--------- ---------
Loss from continuing operations .................................................... (5,103) (3,583)
--------- ---------
Discontinued operations:
Loss on disposition of MMWP segment including
stock compensation expense of $2.8 million in 2000 .............................. -- (2,848)
--------- ---------
Loss from discontinued operations .................................................. -- (2,848)
--------- ---------
Net loss ........................................................................... $ (5,103) $ (6,431)
========= =========
Basic and diluted loss per share from:
Continuing operations ......................................................... $ (0.30) $ (0.37)
========= =========
Discontinued operations ....................................................... $ -- $ (0.29)
========= =========
Net loss ...................................................................... $ (0.30) $ (0.66)
========= =========
Shares used in computing basic and diluted loss per
share ........................................................................... 16,740 9,739
========= =========
The accompanying notes are an integral part of these financial statements.
4
TELAXIS COMMUNICATIONS CORPORATION
CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2001
(in thousands, except share data)
(unaudited)
Comprehensive Common Stock Additional
Income ---------------------------- Paid-in Notes
(Loss) Shares Amount Capital Receivable
--------------------------------------------------------------------------------
Balances, January 1, 2001 ....... 16,734,673 $ 167 $ 124,740 $ (331)
Exercise of common stock options. 8,000 -- 8 --
Amortization of deferred stock
compensation ................. -- -- -- --
Other ........................... -- -- (37) 37
Net loss ..................... $ (5,103) -- -- -- --
Other comprehensive loss
from unrealized loss on
investments .................. (608) -- -- -- --
-------------
Comprehensive Income (Loss) ..... $ (5,711) -- -- -- --
============= -------------- ----------- ----------- ----------
Balances, March 31, 2001 ........ 16,742,673 $ 167 $ 124,711 $ (294)
============== =========== =========== ==========
Deferred Accumulated
Stock Accumulated Comprehensive
Compensation Deficit Loss Total
-------------------------------------------------------------------
Balances, January 1, 2001 ....... $ (159) $ (74,318) $ -- $ 50,099
Exercise of common stock options. -- -- -- 8
Amortization of deferred stock
compensation ................. 11 -- -- 11
Other ........................... 37 -- -- 37
Net loss ..................... -- (5,103) -- (5,103)
Other comprehensive loss
from unrealized loss on
investments .................. -- -- (608) (608)
Comprehensive Income (Loss) ..... -- -- -- --
----------- ------------- ------------- ------------
Balances, March 31, 2001 ........ $ (111) $ (79,421) $ (608) $ 44,444
=========== ============= ============= ============
The accompanying notes are an integral part of these financial statements.
5
TELAXIS COMMUNICATIONS CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
Three months ended
March 31,
---------------------------
2001 2000
----------- -----------
(unaudited) (unaudited)
Cash flows from operating activities
Net loss ........................................................... $ (5,103) $ (6,431)
Adjustments to reconcile net loss to net cash utilized by operating
activities:
Depreciation and amortization .................................... 1,137 647
Non-cash compensation expense .................................... 11 2,859
Changes in assets and liabilities
Trade accounts receivable ...................................... 1,279 (3,854)
Other accounts receivable ...................................... 191 --
Inventories .................................................... (18) (6,423)
Other current assets ........................................... (3) (297)
Accounts payable and accrued expenses .......................... (3,284) 4,774
Customer prepayments ........................................... (54) 25
-------- --------
Net cash utilized by operating activities ...................... (5,844) (8,700)
-------- --------
Cash flows from investing activities
Purchase of marketable securities .................................. (12,650) (13,246)
Sale of marketable securities ...................................... 13,663 --
Proceeds from sale of discontinued operations ...................... -- 1,990
Additions to property and equipment ................................ (58) (3,476)
Reduction to other assets .......................................... 19 8
-------- --------
Net cash provided (utilized) by investing activities ........... 974 (14,724)
-------- --------
Cash flows from financing activities
Repayments of line of credit ....................................... -- (500)
Transfer of restricted cash ........................................ (1,000) --
Proceeds from capital lease obligations ............................ 569 --
Repayments of long-term debt and capital lease obligations ......... (728) (599)
Issuance of common stock upon exercise of options and warrants ..... 8 274
Sale of common stock ............................................... -- 78,200
Stock issuance costs ............................................... -- (6,075)
Repayments of notes receivable ..................................... 37 --
-------- --------
Net cash provided (utilized) by financing activities ........... (1,114) 71,300
-------- --------
Net increase (decrease) in cash and cash equivalents ................. (5,984) 47,876
Cash and cash equivalents at beginning of period ...................... 27,865 6,603
-------- --------
Cash and cash equivalents at end of period ............................ $ 21,881 $ 54,479
======== ========
Supplemental disclosure of cash flow information
Non-cash investing and financing activities:
Equipment acquired under capital lease agreement ................. $ 823 $ --
Unrealized loss on investments ................................... (608) --
The accompanying notes are an integral part of these financial statements.
6
TELAXIS COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Basis of Presentation
The financial information as of March 31, 2001 and for the three months
ended March 31, 2001 and 2000 is unaudited. In the opinion of management, such
interim financial information includes all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation of the results for such
interim periods. The financial statements do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. The statements should be read in conjunction with the
financial statements and footnotes as of and for the year ended December 31,
2000 included in the Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission. The December 31, 2000 balance sheet data was
derived from audited financial statements, but does not include all disclosures
required by generally accepted accounting principles. The results of operations
for the three months ended March 31, 2001 are not necessarily indicative of the
results to be expected for any future period.
Marketable Securities
The Company has invested the proceeds from our initial public offering in
accordance with our corporate cash management policy. Marketable securities are
carried at cost plus accrued interest, which approximates fair value.
Investments are placed in instruments with institutions that have "Investment
Grade" ratings or better. The Company's investments consist of municipal and
government bonds and commercial paper. At March 31, 2001, all of the Company's
securities, valued at $11.5 million, mature within twelve months.
Intangible Assets
Intangible assets are recorded at cost and are amortized using the
straight-line method over their expected useful life, which is five years.
2. Restricted Cash
At March 31, 2001, the Company has $1.0 million of restricted cash
classified as a current asset. The cash is held in escrow pending resolution of
a supplier claim arising from the ordinary course of business.
3. Inventories
Inventories are stated at the lower of cost or market and consist of the
following (in thousands):
March 31, December 31,
2001 2000
-------------- ---------------
(unaudited)
Finished goods........................... $ 1,283 $ 1,405
Parts and subassemblies.................. 6,207 4,960
Work-in process.......................... 366 1,473
-------------- ---------------
$ 7,856 $ 7,838
============== ===============
7
4. Property, Plant and Equipment
Property, plant and equipment consist of the following (in thousands):
March 31, December 31,
2001 2000
----------------- ----------------
(unaudited)
Machinery and equipment........................................... $ 15,219 $ 15,952
Furniture and fixtures............................................ 823 820
Leasehold improvements............................................ 2,160 2,117
Equipment under capital leases.................................... 7,447 6,624
----------------- ----------------
25,649 25,513
Less accumulated depreciation and amortization.................... (13,849) (12,762)
----------------- ----------------
$ 11,800 $ 12,751
================= ================
The net book value of equipment under capital leases was approximately
$4,034,000 and $3,728,000 at March 31, 2001 and December 31, 2000, respectively.
Depreciation expense for the three months ended March 31, 2001 and 2000 was
$1,121,000 and $608,000, respectively.
5. Earnings Per Share
Earnings per share has been computed by dividing the loss from continuing
operations, loss from discontinued operations and net loss by the weighted
average common shares outstanding. No effect has been given to the future
exercise of common stock options and stock warrants, since the effect would be
antidilutive for all reporting periods.
Three months ended
March 31,
(unaudited)
------------------------------
2001 2000
-------------- -------------
Historical: (in thousands, except per share data)
Loss from continuing operations....................... $ (5,103) $ (3,583)
============== =============
Weighted average shares of common stock outstanding... 16,740 9,739
============== =============
Basic and diluted loss per share from continuing
operations............................................ $ (0.30) $ (0.37)
============== =============
Loss from discontinued operations..................... $ -- $ (2,848)
============== =============
Weighted average shares of common stock outstanding... 16,740 9,739
============== =============
Basic and diluted loss per share from discontinued
operations... $ -- $ (0.29)
============== =============
Net loss.............................................. $ (5,103) $ (6,431)
============== =============
Weighted average shares of common stock outstanding... 16,740 9,739
============== =============
Basic and diluted net loss per share.................. $ (0.30) $ (0.66)
============== =============
6. Discontinued Operations
In August 1999, the Board of Directors voted and authorized management to
dispose of the Company's millimeter-wave products (MMWP) business segment. This
segment consisted of the development and manufacture of millimeter-wave
components and assemblies, including antennas and quasi-optical products,
multiplexer
8
products, and passive waveguide products. On February 8, 2000 the Company
completed the sale of substantially all of the assets of the MMWP segment to
Millitech LLC for approximately $3.6 million.
The results of the MMWP operations have been segregated from continuing
operations and reported as a separate line item in the statement of operations.
As a result of the sale, the Company received cash proceeds of $2.0 million
and a subordinated note for $1.2 million with interest on the principal at 12%.
The principal is payable in five equal semi-annual payments of $50,000 beginning
on July 1, 2002 through July 1, 2004. On December 31, 2004, the entire remaining
principal balance of $960,000 plus accrued interest is due. Interest is payable
semi-annually on the first days of January and July of each year during the term
of the note, and commenced on July 1, 2000. The Company has fully reserved this
subordinated note. For the three months ended March 31, 2000, the Company
recorded stock compensation expense of $2.8 million as a result of the
accelerated vesting of incentive stock options for employees who left the
Company and were hired by Millitech, LLC.
Sales for the MMWP segment were $0 and $770,000 for the three months ended
March 31, 2001 and 2000, respectively.
7. Accrued Expenses
Accrued expenses consist of the following (in thousands):
March 31, December 31,
--------------- ---------------
2001 2000
--------------- ---------------
(unaudited)
Accrued payroll, commissions and related expenses..................... $ 867 $ 1,071
Accrued warranty expense.............................................. 412 412
Accrued contract costs................................................ 147 --
Deferred revenue...................................................... 64 94
Other accrued expenses................................................ 180 193
--------------- ---------------
$ 1,670 $ 1,770
=============== ===============
8. Subsequent Event
As of March 31, 2001, our cash equivalents balance includes an unrealized
loss of $625,000 due to the decline in market value of a $2.5 million investment
in commercial paper issued by Pacific Gas & Electric, a public utility company
in California. On April 30, 2001 the Company sold this commercial paper for $2.5
million resulting in the full recovery of the unrealized losses included in
accumulated comprehensive loss as of March 31, 2001.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Overview
We develop and supply broadband wireless access products used by network
service providers to deliver integrated voice, video and data services to
business and residential subscribers. We sell our products primarily to network
system integrators, which include our products in broadband wireless systems
sold to network service providers. Our planar products, based on a printed
circuit board design, can be mass-produced using low-cost, highly automated
manufacturing techniques. These planar products address a network service
provider's need for cost-effective deployment to many subscribers.
We commenced operations in 1982 and had derived the significant majority of
our sales from our millimeter-wave products business segment prior to 1999.
Millimeter waves are electromagnetic waves having wavelengths between one and
ten millimeters. In August 1999, we adopted a plan to focus all of our resources
on
9
our broadband point-to-multipoint wireless access business segment and to
dispose of the millimeter-wave products segment. We decided to dispose of this
segment because it would have required us to reallocate financial and management
resources from the more attractive broadband point-to-multipoint wireless access
business segment. The segment was sold on February 8, 2000. As a result, we have
presented the operations of the millimeter-wave products segment as a
discontinued operation in our financial statements. The following management's
discussion and analysis focuses on our ongoing broadband wireless access
business. We anticipate that network system integrators for point-to-point
wireless access networks will accept the point-to point RF products we intend to
develop based on our point-to-multipoint wireless access product experience. We
also anticipate that our recently announced Virtual Fiber Radio/TM/ will become
an important part of our business.
Our first prototype broadband point-to-multipoint wireless access equipment
was evaluated in a trial in 1995. Before receiving our first volume order for
equipment in June 1999, virtually all of our shipments of products were for site
demonstrations and initial commercial deployments.
For the three months ended March 31, 2001, approximately 99.6% of our sales
were to a customer located in Canada. For the three months ended March 31, 2000,
approximately 93.4% our sales were to a customer located in Canada, 4.4% of our
sales were to customers located in the United States, and 2.2% of our sales were
to a customer located in Korea. We expect that sales to customers located
outside the United States will continue to be significant.
Result of Operations
The following table provides continuing operations data as a percentage of
sales for the periods presented. The percentages may not add due to rounding.
Three Months Ended
March 31,
(unaudited)
-------------------------------
2001 2000
--------------- -------------
Sales.................................................. 100.0% 100.0%
Cost of sales.......................................... 399.6 103.1
--------------- -------------
Gross margin (loss).................................... (299.6) (3.1)
Operating expenses
Research and development, net...................... 382.2 26.6
Selling, general and administrative................ 381.6 33.7
--------------- -------------
Total operating expenses......................... 763.8 60.3
--------------- -------------
Operating loss......................................... (1,063.4) (63.4)
Other income (expense)................................. 85.8 6.7
--------------- -------------
Loss from continuing operations before income taxes.... (977.6) (56.7)
Income taxes........................................... (0.0) (0.0)
--------------- -------------
Loss from continuing operations........................ (977.6)% (56.7)%
=============== =============
Three Months Ended March 31, 2001 and 2000
Sales
Sales decreased 92% to $522,000 for the three months ended March 31, 2001
from $6.3 million for the three months ended March 31, 2000. Unit shipments
decreased to 52 for the three months ended March 31, 2001 from 3,998 for the
same period in 2000. The decrease in unit shipments and revenue is a result of
the weakness in the overall broadband wireless telecommunications market and the
decrease in shipments to a major customer while we continue to work to resolve
changes to their approval processes relating to product development and
production.
10
Cost of Sales
Cost of sales consists of component and material costs, direct labor costs,
warranty costs, overhead related to manufacturing our products and customer
support costs. Cost of sales decreased $4.4 million to $2.1 million for the
three months ended March 31, 2001 from $6.5 million for the three months ended
March 31, 2000. Gross margins were negative 299.6% in the three months ended
March 31, 2001 and negative 3.1% for the three months ended March 31, 2000. The
decrease in cost of sales and the decline in gross margin as a percentage of
sales were attributable primarily to decreased shipments of our products and the
impact of overhead costs incurred on lower production volume. The decrease was
partially offset by a reduction in overhead costs of approximately $417,000.
Research and Development Expenses
Research and development expenses consist primarily of personnel and
related costs associated with our product development efforts. These include
costs for development of products and components, test equipment and related
facilities. Gross research and development expenses were $2.0 million for the
three months ended March 31, 2001 and 2000. Research and development costs were
partially offset by customer funding of $36,000 and $357,000 for the three
months ended March 31, 2001 and 2000, respectively. Net of customer
reimbursements, our research and development expenses increased 18.5% to $2.0
million in the three months ended March 31, 2001 from $1.7 million for the three
months ended March 31, 2000, as we continued to allocate significant resources
for the development of new products.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of employee
salaries and associated costs for selling, marketing, customer support,
information systems, finance, legal, and administration. Selling, general and
administrative expenses decreased 6.3% to $2.0 million for the three months
ended March 31, 2001 from $2.1 million for the three months ended March 31,
2000. The decrease was due primarily to a decrease of $135,000 in costs related
to recruiting and hiring additional personnel.
Other Income (Expense)
Other income (expense) consists of interest earned on cash and marketable
securities offset by interest expense on debt and capital lease obligations and
miscellaneous non-operating expenses. Total other income (expense) increased to
$448,000 in income for the three months ended March 31, 2001 from $424,000 in
income for the three months ended March 31, 2000. Interest expense decreased to
$176,000 for the three months ended March 31, 2001 from $187,000 for the three
months ended March 31, 2000. Interest and other income increased to $624,000 for
the three months ended March 31, 2001 from $611,000 for the same period in 2000
primarily due to an increase in the average daily cash balance subsequent to our
initial public offering in February 2000.
Liquidity and Capital Resources
Since 1997, we have financed our operations primarily through the sale of
redeemable preferred stock, from proceeds of our initial public offering in
February 2000 and, to a much lesser extent, from cash generated by our
discontinued operations. We have also issued subordinated notes and used
equipment lease financing and bank lines of credit to provide cash.
On February 7, 2000 the Company completed an initial public offering of
4,600,000 shares of its common stock at $17.00 per share under the terms and
conditions contained in an underwriting agreement dated February 1, 2000 with
various underwriters. We received net proceeds from our initial public offering
of $71.1 million, after underwriting discounts and commission and offering
costs, to be used primarily for general corporate purposes.
11
At March 31, 2001, we had cash and cash equivalents of $22.9 million
(including restricted cash of $1.0 million - see Note 2 to Financial Statements)
and marketable securities of $11.5 million. Cash equivalents included an
unrealized loss of $625,000 due to the decline in market value of an investment
in commercial paper issued by Pacific Gas & Electric (see Note 8 to Financial
Statements).
The decrease in accounts receivable to $1.6 million at March 31, 2001 from
$2.8 million at December 31, 2000 reflects the decline in revenue for the three
months ended March 31, 2001. The decrease in accounts payable to $4.3 million at
March 31, 2001 from $8.2 million at December 31, 2000 reflects the reduction of
inventory procurement due to the decrease in production and sales of our
point-to-multipoint broadband wireless access equipment.
At March 31, 2001, we had approximately $1.6 million in long-term debt, of
which $225,000 is due through June 2003 with an interest rate of 10% and
$1,385,000 is due through November 2003 with an interest rate of 12%.
At March 31, 2001, we had approximately $4.4 million in capital lease
obligations, which are due through January 2005.
Cash utilized in operating activities in the three months ended March 31,
2001 was $5.8 million compared to $8.7 million for the same period in 2000. For
the three months ended March 31, 2001, cash used in operating activities has
primarily represented funding of our net losses and payments of outstanding
accounts payable and vendor commitments. For the three months ended March 31,
2000, cash used in operating activities primarily represented funding of our net
losses and inventory build to meet expected production requirements.
Cash provided by investing activities for the three months ended March 31,
2001 was $974,000 compared to cash utilized of $14.7 million for the same period
in 2000. In the three months ended March 31, 2001 these amounts related
primarily to the purchase and sale of marketable securities. In the three months
ended March 31, 2000, these amounts related primarily to the purchase of
equipment used in our manufacturing and research and development activities and
the purchase of marketable securities.
Cash utilized by financing activities in the three months ended March 31,
2001 was $1.1 million compared to cash provided of $71.3 million for the same
period in 2000. The financing activities for the three months ended March 31,
2001 consisted primarily of the proceeds from equipment lease financing less
payments on capital lease obligations and long term debt. The financing
activities for the three months ended March 31, 2000 consisted primarily of the
proceeds from our initial public offering.
Our future cash requirements will depend upon a number of factors,
including the timing and level of research and development activities and sales
and marketing campaigns, and our ability to significantly increase our sales
orders and manufacturing volumes and improve our gross margin. We believe that
our cash and marketable securities balances at March 31, 2001 will provide
sufficient capital to fund our operations for at least 12 months. Thereafter, we
may require additional capital to fund our operations. In addition, from time to
time we evaluate opportunities to acquire complementary technologies or
companies. Should we identify any of these opportunities, we may need to raise
additional capital to fund the acquisitions and our operations. There can be no
assurance that financing will be available to us on favorable terms or at all.
Disclosures About Market Risk
The following discusses our exposure to market risk related to changes in
interest rates, equity prices and foreign currency exchange rates. This
discussion contains forward-looking statements that are exposed to risks and
uncertainties, many of which are out of our control. Actual results could vary
materially as a result of a number of factors, including those discussed above
under "Part I - Financial Information" and below under "Safe Harbor for
Forward-Looking Statements."
As of March 31, 2001, we had cash and cash equivalents of $22.9 million.
Substantially all of these amounts consisted of highly liquid investments with
remaining maturities at the date of purchase of less than 90 days
12
(see Note 8 to Financial Statements). As of March 31, 2001, we had marketable
securities of $11.5 million which consisted of municipal and government bonds
with maturities through September 2001. These investments are exposed to
interest rate risk and will decrease in value if market interest rates increase.
A hypothetical increase or decrease in market interest rates by 10 percent from
the March 31, 2001 rates would cause the fair value of these short-term
investments to decline by an insignificant amount. Due to the short duration of
these investments, an immediate increase in interest rates would not have a
material effect on our financial condition or results of operations. Declines in
interest rates over time will, however, reduce our interest income.
We do not own any significant equity investments. Therefore, we do not
currently have any direct equity price risk.
Currently, all sales to international customers are denominated in United
States dollars and, accordingly, we are not currently exposed to foreign
currency exchange rate risks.
Safe Harbor for Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements as
defined by federal securities laws which are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements include statements concerning plans, objectives,
goals, strategies, expectations, intentions, projections, developments, future
events, performance or products, underlying assumptions and other statements
which are other than statements of historical facts. In some cases, you can
identify forward-looking statements by terminology such as "may," "will,"
"should," "expects," "intends," "plans," "anticipates," "contemplates,"
"believes," "estimates," "predicts," "projects," "potential," "continue," and
other similar terminology or the negative of these terms. From time to time, we
may publish or otherwise make available forward-looking statements of this
nature. All such forward-looking statements, whether written or oral, and
whether made by us or on our behalf, are expressly qualified by the cautionary
statements described in this Form 10-Q, including those set forth below, and any
other cautionary statements which may accompany the forward-looking statements.
In addition, we undertake no obligation to update or revise any forward-looking
statement to reflect events, circumstances or new information after the date of
this Form 10-Q or to reflect the occurrence of unanticipated events, and we
disclaim any such obligation.
We believe that the forward-looking statements included in this Form 10-Q
have a reasonable basis. However, forward-looking statements are only
predictions that relate to future events or our future performance and are
subject to known and unknown risks, uncertainties, assumptions, and other
factors that may cause actual results, outcomes, levels of activity,
performance, developments, or achievements to be materially different from any
future results, outcomes, levels of activity, performance, developments, or
achievements expressed, anticipated or implied by these forward-looking
statements. As a result, we cannot guarantee future results, outcomes, levels of
activity, performance, developments, or achievements, and there can be no
assurance that our expectations, intentions, anticipations, beliefs or
projections will result or be achieved or accomplished.
In addition to other factors and matters discussed elsewhere in this Form
10-Q, in our other periodic reports and filings made from time to time with the
Securities and Exchange Commission, and in our other public statements from time
to time (including, without limitation, our press releases), some of the
important factors that, in our view, could cause actual results to differ
materially from those expressed, anticipated or implied in the forward-looking
statements include, without limitation, our unsettled relationship with our
largest customer Alcatel; dependence on a limited number of customers; our
having limited capital; our inability to predict the date of our profitability;
the expected fluctuation in our quarterly results; the expected volatility in
our stock price; difficulties in attracting and retaining qualified personnel;
our dependence on key personnel; our reliance on third-party suppliers;
difficulties in achieving product improvements; difficulties in developing new
products (such as our contemplated Virtual Fiber Radio/TM/ and point-to-point
radio frequency products); difficulties in entering new business lines; delays
in development or manufacture of products; difficulties in estimating costs of
products; our recent focus on our current business; inability to protect our
proprietary technology; intellectual property infringement claims; warranty and
product liability claims; failure of our customers to sell broadband wireless
access solutions that include our products; difficulties in network service
providers obtaining sufficient funding; developments and
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changes in this new industry and its growth; availability and success of
competing access technologies; general competition in the broadband wireless
access industry; difficulties in complying with existing governmental
regulations and developments or changes in governmental regulation; dependence
on third-party manufacturers; risks associated with foreign sales such as
currency and political risk; investment risk resulting in the decrease in value
of our investments; difficulties in collecting our accounts receivable; future
stock sales by our current stockholders, including our directors and management;
effect of our anti-takeover defenses; and risks associated with any acquisitions
or investments we may make. These and other risks and uncertainties are
described in more detail in our annual report on Form 10-K for the year ended
December 31, 2000 filed with the Securities and Exchange Commission.
The items described above, either individually or in some combination,
could have a material adverse impact on our reputation, business, need for
additional capital, current and contemplated products gaining market acceptance,
development of new products and new areas of business, cash flow, results of
operations, financial condition, stock price, viability as an ongoing company,
results, outcomes, levels of activity, performance, developments, or
achievements. Given these uncertainties, investors are cautioned not to place
undue reliance on forward-looking statements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
See Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations, Disclosures about Market Risk.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
We are subject to potential liability under contractual and other matters
and various claims and legal actions which are pending or may be asserted. These
matters arise in the ordinary course and conduct of our business. While the
outcome of all of the pending and potential claims and legal actions against us
cannot be forecast with certainty, we believe that such matters should not
result in any liability which would have a material adverse effect on our
business.
Item 2. Changes in Securities and Use of Proceeds.
Recent Sales of Unregistered Securities
The Company has not issued or sold any unregistered securities in the three
months ended March 31, 2001.
Use of Proceeds from Registered Offerings
On February 1, 2000, the Securities and Exchange Commission declared
effective a Form S-1 Registration Statement (File No. 333-87885) filed by the
Company in connection with an initial public offering of 4,600,000 shares of its
Common Stock, par value $.01 per share. The offering of Common Stock commenced
on February 2, 2000 and closed on February 7, 2000 with all of the 4,600,000
shares sold at a price of $17.00 per share for an aggregate price of $78.2
million. All shares were sold by the Company; there were no selling
stockholders. Credit Suisse First Boston was the lead managing underwriter of
the offering and Banc of America Securities LLC and CIBC World Markets Corp.
were co-managers of the offering.
The gross proceeds of the offering were approximately $78.2 million. The
Company incurred approximately $7.1 million of expenses in connection with the
offering, of which approximately $5.5 million represented underwriting discounts
and commission, and $1.6 million represented offering costs, including legal
fees, accounting fees, underwriters' out-of-pocket expenses and printing
expenses.
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The Company received approximately $71.1 million of net proceeds from the
offering. Those net proceeds will be used for working capital and for general
corporate purposes. Pending such uses, the net proceeds have been invested in
short-term, interest-bearing, investment grade securities or direct or
guaranteed obligations of the U.S. government. From the time of receipt through
March 31, 2001, the Company has applied $36.7 million of the net proceeds from
the offering toward working capital, financing capital expenditures, and funding
operating losses.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
None
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the quarter ended March 31,
2001.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Telaxis Communications Corporation
Date: May 14, 2001 By: /s/ Dennis C. Stempel
----------------------------------------------
Dennis C. Stempel,
Chief Financial Officer, Principal Financial
Officer, Principal Accounting Officer and Duly
Authorized Officer
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