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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 SEPTEMBER 30, 2002
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 incorporation or (I.R.S. Employer
organization) Identification No.)
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 October 31, 2002, there were 16,708,313 shares of the registrant's
common stock outstanding.
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INDEX
PAGE NO.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements......................................................... 2
Condensed Balance Sheets as of September 30, 2002
(unaudited) and December 31, 2001.................................... 3
Condensed Statements of Operations for the three months
and nine months ended September 30, 2002 and 2001 (unaudited)........ 4
Condensed Statements of Cash Flows for the nine months
ended September 30, 2002 and 2001 (unaudited)........................ 5
Notes to Financial Statements (unaudited).............................. 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................... 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk................... 16
Item 4. Controls and Procedures...................................................... 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................................ 16
Item 2. Changes in Securities and Use of Proceeds.................................... 17
Item 5. Other Information............................................................ 17
Item 6. Exhibits and Reports on Form 8-K............................................. 17
SIGNATURES.................................................................................. 18
CERTIFICATIONS.............................................................................. 18
1
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.
2
TELAXIS COMMUNICATIONS CORPORATION
CONDENSED BALANCE SHEETS
(in thousands, except share data)
September 30, December 31,
2002 2001
------------- -------------
(unaudited)
Assets
Current assets
Cash and cash equivalents....................................................................... $ 8,579 $ 15,875
Restricted cash................................................................................. 350 --
Marketable securities........................................................................... 4,284 5,588
Trade accounts receivable, less allowance for doubtful accounts ($0 in 2002 and $250 in 2001)... 40 438
Other accounts receivable....................................................................... -- 154
Note receivable, less allowance of $210 in 2001................................................. -- 1,000
Inventories..................................................................................... 32 129
Assets held for sale............................................................................ 1,395 1,659
Other current assets............................................................................ 158 102
------------ ------------
Total current assets......................................................................... 14,838 24,945
------------ ------------
Property, plant and equipment, net.............................................................. 2,857 4,668
Other assets.................................................................................... 72 79
------------ ------------
Total assets................................................................................. $ 17,767 $ 29,692
============ ============
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable................................................................................ $ 161 $ 169
Accrued expenses................................................................................ 1,234 803
Accrued restructuring costs..................................................................... 583 1,298
Current maturities of long-term debt............................................................ 620 562
Current maturities of capital lease obligations................................................. 1,209 1,912
------------ ------------
Total current liabilities.................................................................... 3,807 4,744
------------ ------------
Long-term debt.................................................................................. 144 618
Capital lease obligations....................................................................... 201 956
------------ ------------
Total liabilities............................................................................ 4,152 6,318
------------ ------------
Commitments and contingencies
Stockholders' Equity
Preferred stock, $.01 par value; authorized 4,500,000 shares in 2002 and 2001; none issued...... -- --
Common stock, $.01 par value; authorized 100,000,000 shares in 2002 and 2001; issued 16,820,813
shares, outstanding 16,708,313 shares in 2002 (16,743,198 issued and 16,630,698 outstanding in
2001).......................................................................................... 168 167
Additional paid-in capital...................................................................... 124,700 124,623
Accumulated other comprehensive income.......................................................... 1 4
Notes receivable................................................................................ -- (3)
Treasury stock, at cost (112,500 shares)........................................................ (37) (37)
Accumulated deficit............................................................................. (111,217) (101,380)
------------ ------------
Total stockholders' equity................................................................... 13,615 23,374
------------ ------------
Total liabilities and stockholders' equity................................................... $ 17,767 $ 29,692
============ ============
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 Nine months ended
September 30 September 30
------------------------ ------------------------
2002 2001 2002 2001
(unaudited) (unaudited) (unaudited) (unaudited)
Sales ....................................................... $ 40 $ 431 $ 53 $ 1,921
Cost of sales ............................................... 712 1,472 2,378 5,695
Inventory restructuring cost ................................ 210 4,962 210 4,962
-------- -------- -------- --------
Gross margin (loss) ......................................... (882) (6,003) (2,535) (8,736)
Operating expenses
Research and development, net ......................... 1,014 1,110 3,214 4,937
Selling, general and administrative ................... 2,115 1,357 5,234 5,073
Restructuring costs ................................... (139) 6,687 322 6,687
-------- -------- -------- --------
Total operating expenses ............................ 2,990 9,154 8,770 16,697
-------- -------- -------- --------
Operating loss .............................................. (3,872) (15,157) (11,305) (25,433)
-------- -------- -------- --------
Other income (expense)
Interest and other expense ............................ (73) (145) (271) (465)
Income from settlement of litigation .................. -- -- 1,223 --
Interest and other income ............................. 88 319 516 1,370
-------- -------- -------- --------
Total other income .................................. 15 174 1,468 905
-------- -------- -------- --------
Loss before income taxes .................................... (3,857) (14,983) (9,837) (24,528)
Income taxes ................................................ -- -- -- --
-------- -------- -------- --------
Net loss .................................................... $ (3,857) $(14,983) $ (9,837) $(24,528)
======== ======== ======== ========
Basic and diluted net loss per share ........................ $ (0.23) $ (0.90) $ (0.59) $ (1.47)
======== ======== ======== ========
Shares used in computing basic and diluted net loss per share 16,708 16,721 16,695 16,735
======== ======== ======== ========
The accompanying notes are an integral part of these financial statements.
4
TELAXIS COMMUNICATIONS CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
Nine months ended
September 30,
------------------------------
2002 2001
-------- --------
(unaudited) (unaudited)
Cash flows from operating activities
Net loss ...................................................................... $ (9,837) $(24,528)
Adjustments to reconcile net loss to net cash utilized by operating activities:
Depreciation and amortization .............................................. 1,628 2,829
Non-cash restructuring costs ............................................... 532 8,818
Non-cash compensation expense .............................................. 15 34
Decrease in notes receivable ............................................... 3 --
Changes in assets and liabilities
Trade accounts receivable ................................................ 398 2,317
Other accounts receivable ................................................ 154 252
Inventories .............................................................. (113) 657
Other current assets ..................................................... (56) 223
Accounts payable and accrued expenses .................................... 423 (5,459)
Customer prepayments ..................................................... -- (24)
Accrued restructuring costs .............................................. (528) 1,599
-------- --------
Net cash utilized by operating activities ................................ (7,381) (13,282)
-------- --------
Cash flows from investing activities
Purchase of marketable securities ............................................. (12,764) (19,246)
Maturities of marketable securities ........................................... 14,065 25,760
Additions to property and equipment ........................................... (246) (418)
Proceeds from sale of assets .................................................. 200 --
Repayment of note receivable .................................................. 1,000 --
Reduction to other assets ..................................................... 7 29
-------- --------
Net cash provided by investing activities ................................ 2,262 6,125
-------- --------
Cash flows from financing activities
Funds held in escrow .......................................................... -- (339)
Transfer of restricted cash ................................................... (350) --
Proceeds from capital lease obligations ....................................... -- 569
Repayments of long-term debt and capital lease obligations .................... (1,890) (2,023)
Issuance of common stock upon exercise of options and warrants ................ 63 8
Repayments of notes receivable ................................................ -- 46
-------- --------
Net cash utilized by financing activities ................................ (2,177) (1,739)
-------- --------
Net decrease in cash and cash equivalents ........................................ (7,296) (8,896)
Cash and cash equivalents at beginning of period ................................. 15,875 27,865
-------- --------
Cash and cash equivalents at end of period ....................................... $ 8,579 $ 18,969
======== ========
Supplemental disclosure of cash flow information
Non-cash investing and financing activities:
Equipment acquired under capital lease agreement ........................... $ 0 $ 807
Unrealized loss on investments ............................................. 3 6
The accompanying notes are an integral part of these financial statements.
5
TELAXIS COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Basis of Presentation
The financial information as of September 30, 2002 and for the three months
and nine months ended September 30, 2002 and 2001 is unaudited. In the opinion
of management, such interim financial information includes all adjustments,
including restructuring charges as well as 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 accounting principles generally accepted in the United States of America 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,
2001 included in the Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission. The December 31, 2001 balance sheet data was
derived from audited financial statements, but does not include all disclosures
required by accounting principles generally accepted in the United States of
America. The results of operations for the three months and nine months ended
September 30, 2002 are not necessarily indicative of the results to be expected
for any future period.
Marketable Securities
The Company has invested the proceeds from its February 2000 initial public
offering in accordance with its corporate cash management policy. Marketable
securities are classified as available for sale and are carried at cost plus
accrued interest, which approximates fair value. The Company's investments
consist of short-term, interest bearing, investment grade securities or direct
or guaranteed obligations of the U.S. government. At September 30, 2002, all of
the Company's securities, valued at $4.3 million, mature within 12 months.
Comprehensive Loss and Other Changes in Stockholders' Equity
Comprehensive loss is defined as changes in equity other than from
transactions resulting from investments by owners and distributions to owners.
The Company's comprehensive loss of $9.8 million for the nine months ended
September 30, 2002 and $24.5 million for the nine months ended September 30,
2001 consisted of its reported net losses attributable to common shareholders
and unrealized losses on marketable securities.
The components of comprehensive loss were as follows ( in thousands):
Three months ended Nine months ended
September 30, September 30,
---------------------- --------------------
2002 2001 2002 2001
Net loss ............................ $ (3,857) $ (14,983) $ (9,837) $ (24,528)
Unrealized gain (loss) on investments 6 4 (3) 6
-------- --------- -------- ---------
Comprehensive loss .................. $ (3,851) $ (14,979) $ (9,840) $ (24,522)
======== ========= ======== =========
Other changes in stockholders' equity from December 31, 2001 to September
30, 2002 of an increase of $81,000 include the exercise of common stock options,
common stock grants and a decrease in notes receivable.
2. Restructuring Charges
In July 2001, the Company's Board of Directors approved the Company's plan
to exit its point-to-multipoint outdoor unit product line. In connection with
this decision, the Company recorded an $11.6 million restructuring charge during
the nine months ended September 30, 2001. Of the $11.6 million in restructuring
costs, $9.4 million relates to non-cash writedowns to net realizable value of
the Company's inventories, fixed assets and other assets and $2.2 million
relates to cash paid or to be paid for workforce reductions, excess facility
costs and contract costs.
In the nine months ended September 30, 2002, the Company recorded an
additional non-cash restructuring charge of $461,000 due to a decrease in the
estimated net realizable value of assets held for sale, which consisted of
equipment from the discontinued point-to-multipoint outdoor unit product line.
In the three months ended September 30, 2002, the Company recorded an
additional non-cash inventory restructuring charge of $210,000 due to a decrease
in the estimated net realizable value of the Company's Fiber Leap (TM)
inventory. The Company also reduced its estimate of accrued restructuring costs
by $139,000, resulting from the termination of a lease on a research and
development facility in Texas for less than the remaining obligation.
6
Approximately $1.5 million was paid for restructuring costs through
September 30, 2002. Accrued restructuring costs at September 30, 2002 consists
of approximately $375,000 for facility consolidations, $58,000 for workforce
reduction charges, and $150,000 for contract terminations.
3. Restricted Cash
At September 30, 2002, the Company has $350,000 of restricted cash
classified as a current asset. These funds are restricted by the terms of two
standby letters of credit which satisfy certain financial obligations of the
Company.
4. Note Receivable
In February 2002, the Company negotiated the early repayment of a note
receivable and, accordingly, reduced its valuation allowance as of December 31,
2001 to reflect the amount of the note to be repaid of $1.0 million. The $1.0
million amount was fully paid in the quarter ended March 31, 2002.
5. Inventories
Inventories are stated at the lower of cost or market and consist of the
following (in thousands):
September 30, December 31,
2002 2001
-------------- ----------------
(unaudited)
Parts and subassemblies............ $ 32 $ 126
Work-in process.................... -- 3
-------------- ----------------
$ 32 $ 129
============== ================
6. Assets Held for Sale
In July 2001, certain assets were determined to be impaired as a result of
the Company's decision to exit the point-to-multipoint outdoor unit product
line. These assets were written down to their estimated net realizable value and
are included on the balance sheet as assets held for sale. In the nine months
ended September 30, 2002, the value of these assets was further reduced as the
Company continued to assess their estimated net realizable value.
The company has continued to assess the utilization and importance of
certain assets in the ongoing operations of the business and the allocation of
values between assets held for sale and property, plant and equipment for
certain test equipment components. As a result of this continuing assessment,
$445,000 of property, plant and equipment was reclassified to assets held for
sale in the three months ended September 30, 2002.
Substantially all of the assets held for sale were sold at auction in
October 2002 (see Note 11).
7. Property, Plant and Equipment
Property, plant and equipment consist of the following (in thousands):
7
September 30, December 31,
2002 2001
------------- ------------
(unaudited)
Machinery and equipment.............................. $ 10,322 $ 10,070
Furniture and fixtures............................... 723 813
Leasehold improvements............................... 1,199 1,958
Equipment under capital leases....................... 3,029 4,586
------------- ------------
15,273 17,427
Less accumulated depreciation and amortization....... (12,416) (12,759)
------------- -----------
$ 2,857 $ 4,668
============= ==============
The net book value of equipment under capital leases was approximately
$726,000 and $1,395,000 at September 30, 2002 and December 31, 2001,
respectively.
Depreciation expense for the nine months ended September 30, 2002 and 2001
was $1,612,000 and $2,791,000, respectively.
8. Earnings Per Share
Earnings per share has been computed by dividing the 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 Nine months ended
September 30, September 30,
-----------------------------------------------------------------
2002 2001 2002 2001
------------- ------------- ------------- ---------------
(unaudited) (unaudited)
Historical: (in thousands, except per share data)
Net loss.................................................. $ (3,857) $ (14,983) $ (9,837) $ (24,528)
============= ============== ============= ================
Weighted average shares of common stock outstanding....... 16,708 16,721 16,695 16,735
============= ============== ============= ===============
Basic and diluted net loss per share...................... $ (0.23) $ (0.90) $ (0.59) $ (1.47)
============= ============== ============= ===============
9. Accrued Expenses
Accrued expenses consist of the following (in thousands):
September 30, December 31,
2002 2001
----------------- ---------------
(unaudited)
Accrued payroll, commissions and related expenses................................. $ 634 $ 556
Accrued merger costs.............................................................. 408 --
Accrued warranty expense.......................................................... 25 25
Other accrued expenses............................................................ 167 222
----------------- --------------
$ 1,234 $ 803
================= ==============
10. Merger Agreement with P-Com, Inc.
On September 9, 2002, the Company and P-Com, Inc. entered into a definitive
merger agreement, whereby the Company would become a wholly-owned subsidiary of
P-Com. Each share of the Company's common stock would be converted into the
right to receive 1.117 shares of P-Com common stock. The merger requires
approval by the stockholders of each of the Company and P-Com and the
satisfaction or waiver of numerous other conditions to closing set forth in the
merger agreement.
8
11. Subsequent Event
In October 2002, the Company held an auction of the assets held for sale
generating net proceeds of approximately $1.6 million. The gain on sale of these
assets of approximately $200,000 will be recorded in the Company's quarter
ending December 31, 2002.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Overview
We are currently developing and marketing FiberLeap(TM) products, which
transparently transmit fiber optic signals over a wireless link between two
access points. Using our wireless products, fiber optic carriers and enterprises
can obtain connectivity at fiber optic data rates and quality of service, but
where fiber optic cable itself is not available or is not economically viable.
Our current FiberLeap(TM) 2006 product is a compact, easily deployed product
that enables fiberless transmission of data, voice and video communication at
fiber rates that are variable from an OC-3 rate of 155 Mbps to an OC-12 rate of
622 Mbps.
We commenced operations in 1982 and, prior to 1999, derived the significant
majority of our sales from our millimeter-wave products business segment.
Millimeter waves are electromagnetic waves having wavelengths between one and
ten millimeters and frequencies from 30 GHz to 300 GHz. In August 1999, we
adopted a plan to focus all of our resources on our broadband connectivity
business (then focused on point-to-multipoint outdoor units) 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 broadband point-to-multipoint outdoor unit business. The
segment was sold on February 8, 2000. The following management's discussion and
analysis addresses our broadband connectivity business.
Due to changing market conditions, we made the decision to exit the
point-to-multipoint outdoor unit business in July 2001 and to focus all of our
resources on closing the connectivity gap in fiber networks. Since that time, we
restructured our company to address this new opportunity, FiberLeap(TM) trial
and Beta units have been developed and tested, a new marketing program has been
initiated, and limited production has begun.
We announced in September 2002 that we have demonstrated technical
feasibility of our new EtherLeap(TM) product. EtherLeap(TM) is an 802.11-based
Ethernet Local Area Network, or LAN, radio operating at millimeter-wave
frequencies that can operate in point-to-point, point-to-multipoint, and mesh
architectures. The initial EtherLeap(TM) model developed by us, which is based
specifically on an 802.11(b) system providing wireless connectivity at up to 11
megabits per second (Mbps), operates at 28 GHz. We sold and delivered our first
EtherLeap(TM) product in the third quarter of 2002. From July 2001 until this
announcement relating to EtherLeap(TM), our business was focused on our
FiberLeap(TM) products. While we remain an independent company, we expect to
focus more of our marketing, development, and other efforts on potential
EtherLeap(TM) products.
The overall economic climate in the United States has declined since we
decided to focus on our FiberLeap(TM) products. In particular, telecommunication
markets have experienced a severe downturn, which has been highlighted by the
bankruptcy filings of several former prominent telecommunications companies.
Telecommunication markets remain depressed, and we cannot predict how long they
will take to recover or the extent of any recovery. This uncertainty in the
telecommunications industry and in the larger economy has made it very difficult
to successfully launch our FiberLeap(TM) and EtherLeap(TM) products and to build
a business based on those products. While we continue to talk with potential
purchasers of our FiberLeap(TM) and EtherLeap(TM) products, we do not have any
significant customers for those products and we cannot predict when (or if) we
will obtain significant customers. Our current
9
financial position may be inadequate to enable us to continue to pursue our
efforts to build our FiberLeap(TM) and EtherLeap(TM) business until more
favorable market conditions return.
In light of these factors, our board decided that the company should
explore a wide variety of strategic opportunities and alternatives. On September
9, 2002 we entered into a definitive merger agreement with P-Com, Inc. We have
retained the investment banking firm Ferris, Baker Watts as our financial
adviser to assist with the consideration of the merger and other various
options. See "Safe Harbor for Forward-Looking Statements" below.
For the three months and nine months ended September 30, 2002, all of our
sales were to customers located in the United States. For the three months and
nine months ended September 30, 2001, approximately 98% and 99% of our sales
were to a customer located in Canada. Sales to customers located outside the
United States may represent a significant portion of our total sales in future
periods.
Critical Accounting Policies
The preparation of the Company's consolidated financial statements in
accordance with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect: the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements; and the reported
amounts of revenues and expenses during the reporting periods. Note 1 of the
"Notes to Consolidated Financial Statements" in the Company's Annual Report on
Form 10-K for the year ended December 31, 2001 describes the significant
accounting policies used in the preparation of the consolidated financial
statements. The Company's management is required to make judgments and estimates
about the effect of matters that are inherently uncertain. Actual results could
differ from management's estimates. The most significant areas involving
management judgments and estimates are described below.
We believe the following critical accounting policies affect the more
significant judgments and estimates used in the preparation of our financial
statements.
Assets Held for Sale
The Company has identified certain equipment as being surplus to the
ongoing operations of the business as it has exited certain product lines and
restructured certain of its operations. The Company has continued to assess the
net realizable value of these assets and in the future, additional surplus
assets may be identified and adjustments to their net realizable value made.
Income Taxes
The Company records a valuation allowance to reduce deferred tax assets to
the amount that is more likely than not to be realized. Deferred tax assets, net
of valuation allowance are $0 at September 30, 2002 and $0 at December 31, 2001.
In assessing the need for a valuation allowance, the Company estimates
future taxable income, considering the feasibility of ongoing tax planning
strategies and the realizability of tax loss carryforwards. Valuation allowances
related to deferred tax assets can be impacted by changes to tax laws, changes
to statutory tax rates and future taxable income levels. An adjustment to the
deferred tax asset will increase income in the period the adjustment is made in
the event that the Company is able to realize deferred tax assets in the future
in excess of the net recorded amount.
Inventory Valuation
Inventory is stated at the lower of cost or market, cost being determined
on a first-in, first-out basis. Provisions are made to reduce excess or obsolete
inventory to its estimated net realizable value. The process for evaluating the
value of excess and obsolete inventory often requires the Company to make
subjective judgments and estimates concerning future sales levels, quantities
and prices at which such inventory will be able to be sold in the normal course
of business. Accelerating the disposal process or incorrect estimates of future
sales potential may necessitate future adjustments to these provisions.
Results of Operations
Three Months and Nine Months Ended September 30, 2002 and 2001
Sales
Sales decreased 91% to $40,000 for the three months ended September 30,
2002 from $431,000 for the three months ended September 30, 2001. Sales
decreased 97% to $53,000 for the nine months ended September 30, 2002 from $1.9
million for the nine months ended September 30, 2001. The decrease in sales from
2001 to 2002 reflects our decision to exit our point-to-multipoint outdoor unit
product line. In 2002, we have not yet generated revenue from sales of our
FiberLeap(TM) products, and we have only generated $40,000 from the sale of our
EtherLeap(TM) products.
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 by $760,000 to $712,000 for the three
months ended September 30, 2002 from $1.5 million for the three months ended
September 30, 2001. Cost of sales decreased by $3.3 million to $2.4 million for
the nine months ended September 30, 2002 from $5.7 million for the nine months
ended September 30, 2001. Inventory restructuring cost decreased by $4.8 million
to $210,000 for the three months and nine months ended September 30, 2002 from
$5.0 million for the three months and nine months ended September 30, 2001.
Gross loss was $882,000 in the three months ended September 30, 2002 and $6.0
million for the three months ended September 30, 2001. Gross loss was $2.5
million in the nine months ended September 30, 2002 and $8.7 million for the
nine months ended September 30, 2001. The change in cost of sales was
attributable primarily to decreased shipments of our point-to-multipoint outdoor
unit products and a significant decrease in our manufacturing personnel and
equipment cost. The decline in gross loss was due to the change in cost of sales
and a $4.8 million decrease in inventory restructuring cost.
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 decreased by $96,000 to $1.0
million for the three months ended September 30, 2002 from $1.1 million for the
three months ended September 30, 2001. Gross research and development expenses
decreased by $2.0 million to $3.2 million for the nine months ended September
30, 2002 from $5.2 million for the nine months ended September 30, 2001. This
decrease is attributable to reductions in the size of our research and
development staff, development material, capital equipment, and related
facilities and support costs. Research and development costs were partially
offset by customer funding of $266,000 for the nine months ended September 30,
2001.
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 increased by $758,000 to $2.1 million for the three
months ended September 30, 2002 from $1.4 million for the three months ended
September 30, 2001. Selling, general and administrative expenses increased by
$161,000 to $5.2 million for the nine months ended September 30, 2002 from $5.1
million for the nine months ended September 30, 2001. The increase was due
primarily to professional fees related to the proposed merger with P-Com and
also severance costs resulting from a reduction in workforce.
11
Other Income (Expense)
Other income (expense) consists of interest and dividends earned on cash
and marketable securities and other non-operating income offset by interest
expense on debt and capital lease obligations and miscellaneous non-operating
expenses. Total other income decreased to $15,000 in income for the three months
ended September 30, 2002 from $174,000 in income for the three months ended
September 30, 2001. Total other income increased to $1.5 million in income for
the nine months ended September 30, 2002 from $905,000 in income for the nine
months ended September 30, 2001. Interest expense decreased to $73,000 for the
three months ended September 30, 2002 from $145,000 for the three months ended
September 30, 2001. Interest expense decreased to $271,000 for the nine months
ended September 30, 2002 from $465,000 for the nine months ended September 30,
2001. The decreases in interest expense were due to repayment of long-term debt
and capital lease obligations. Interest and other income decreased to $88,000
for the three months ended September 30, 2002 from $319,000 for the same period
in 2001. Interest and other income decreased to $516,000 for the nine months
ended September 30, 2002 from $1.4 million for the same period in 2001. The
decreases in interest income were a result of decreases in cash and marketable
securities balances and reductions in interest rates. Income from settlement of
litigation of $1.2 million for the nine months ended September 30, 2002 resulted
from the settlement of the litigation against Alcatel.
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 we completed an initial public offering of 4,600,000
shares of our common stock at $17.00 per share. 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.
At September 30, 2002, we had cash and cash equivalents of $8.9 million
(including restricted cash of $350,000 - see Note 3 to Financial Statements) and
marketable securities of $4.3 million.
The decrease in accounts receivable to $40,000 at September 30, 2002 from
$438,000 at December 31, 2001 reflects the settlement of accounts receivable and
the related allowance for doubtful accounts from Alcatel as a result of the
settlement of litigation against Alcatel. The decrease in note receivable from
$1.0 million at December 31, 2001 to $0 at September 30, 2002 reflects the early
repayment received.
At September 30, 2002, we had approximately $764,000 in long-term debt, of
which $73,000 is due through June 2003 with an interest rate of 10% and
approximately $691,000 is due through November 2003 with an interest rate of
12%.
At September 30, 2002, we had approximately $1.4 million in capital lease
obligations, which are due through January 2005.
Cash utilized in operating activities in the nine months ended September
30, 2002 was $7.4 million compared to $13.3 million for the same period in 2001.
For both of these periods, cash used in operating activities has primarily
represented funding of our net losses.
Cash provided by investing activities for the nine months ended September
30, 2002 was $2.3 million compared to cash provided by investing activities of
$6.1 million for the same period in 2001. In the nine months ended September 30,
2002, these amounts related primarily to the purchase and sale of marketable
securities and repayment of a note receivable. In the nine months ended
September 30, 2001, these amounts related primarily to the purchase and sale of
marketable securities.
12
Cash utilized by financing activities in the nine months ended September
30, 2002 was $2.2 million compared to cash utilized by financing activities of
$1.7 million for the same period in 2001. The financing activities for both
periods consisted primarily of payments on capital lease obligations and long
term debt and transfers to restricted cash. In addition, the September 30, 2001
amounts were partially offset by the proceeds from equipment lease financing.
Our 2002 and future cash requirements will depend upon a number of factors,
including the timing and extent of growth in our FiberLeap(TM) and EtherLeap(TM)
product lines, and the timing and level of research and development activities
and sales and marketing campaigns, and our ability to generate sales orders
while controlling manufacturing and overhead costs. While we believe that our
cash and marketable securities balances at September 30, 2002 will provide
sufficient capital to fund our operations as currently conducted through
September 30, 2003, our capital needs may be higher or lower depending on the
outcome of the proposed merger with P-Com and other possible strategic
alternatives and other factors. If additional capital is required or desired, it
may not 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 September 30, 2002, we had cash and cash equivalents of $8.9 million.
Substantially all of these amounts consisted of highly liquid investments with
remaining maturities at the date of purchase of less than 90 days. As of
September 30, 2002, we had marketable securities of $4.3 million, which
consisted of short-term, interest-bearing, investment grade securities or direct
or guaranteed obligations of the U.S. government with maturities through August
2003. These investments are exposed to interest rate risk and will decrease in
value if market interest rates increase. We believe a hypothetical increase in
market interest rates by 10 percent from the September 30, 2002 rates would not
cause the fair value of these investments to decline significantly, since the
investments mature within twelve months. Although 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 reduce our
interest income.
We do not own any material equity investments. Therefore, we do not
currently have any direct equity price risk. In the past three years, all sales
to international customers were denominated in United States dollars and,
accordingly, we were not exposed to foreign currency exchange rate risks.
In April 2002, Statement of Financial Accounting Standards ("SFAS") No.
145, "Rescission of FASB Statements No. 4, 44, and 64, amendment of FASB
Statement No. 13, and Technical Corrections," was issued. The standard
eliminates an inconsistency between the required accounting for sale-leaseback
transactions and the required accounting for certain lease modifications that
have economic effects that are similar to sale-leaseback transactions. The
adoption of this statement is not expected to have a material impact on the
Company's financial position, results of operations or cash flow.
In June 2002, SFAS No. 146, "Accounting for Costs Associated with Exit or
Disposal Activities," was issued. This statement provides guidance on the
recognition and measurement of liabilities associated with exit or disposal
activities and requires that such liabilities be recognized when incurred. This
statement is effective for exit or disposal activities that are initiated after
December 31, 2002 and does not impact the Company's existing restructuring
accruals. Adoption of this standard may impact the timing of recognition of
costs associated with future exit and disposal activities.
Safe Harbor for Forward-Looking Statements
General Overview
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
13
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.
Cautionary Statements of General Applicability
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, difficulties or delays in obtaining
customers; dependence on a limited number of customers; lack of or delay in
market acceptance and demand for our current and contemplated products; our
having limited capital; the expense of defending and the outcome of pending and
future stockholder litigation; developments in our relatively new industry and
in the larger economy; the downturn and ongoing uncertainty in the
telecommunications industry and larger economy; our recent focus on our current
business; difficulties or delays inherent in entering new markets and business
areas; difficulties or delays in developing and establishing new products,
product lines, and business lines; difficulties or delays in developing,
manufacturing, and supplying products with the contemplated or desired features,
performance, price, cost, and other characteristics; difficulties in estimating
costs of developing and supplying products; difficulties in developing,
manufacturing, and supplying products in a timely and cost-effective manner;
difficulties or delays in developing improved products when expected or desired
and with the additional features contemplated or desired; our limited ability to
predict our future financial performance; 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, particularly in light of our business uncertainty, previous
workforce restructurings, and lower stock price; our dependence on key
personnel; inability to protect our proprietary technology; the potential for
intellectual property infringement, warranty, product liability, and other
claims; failure of our customers to sell broadband connectivity solutions that
include our products; difficulties in our customers or ultimate end-users of our
products obtaining sufficient funding; the impact, availability, pricing, and
success of competing technologies and products; general competition in the
broadband connectivity industry and in other industries we enter; difficulties
in distinguishing our products from competing technologies and products;
difficulties in complying with existing governmental regulations and
developments or changes in governmental regulation; difficulties or delays in
obtaining any necessary governmental or regulatory permits, waivers, or
approvals, including any necessary for us to offer and sell a type-approved
product with the contemplated performance and other characteristics; our
dependence on third-party suppliers and manufacturers; difficulties in obtaining
satisfactory performance from third-party manufacturers and suppliers; 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; the effect of our
anti-takeover defenses (including our stockholder rights plan); and risks
associated with any acquisitions or investments in which we may be involved.
Many of 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, 2001 filed with
the Securities and Exchange Commission.
Specific Cautionary Statements relating to Contemplated Merger with P-Com,
Inc.
On September 10, 2002, we announced that we have signed an agreement to
merge with P-Com, Inc. There have been changes in business conditions, results,
and expectations for both companies since the merger agreement was signed. We
are continuing to pursue a transaction with P-Com in light of the changed
conditions of the two companies. There can be no assurance whatsoever that a
merger will be consummated on the terms previously announced or at all due to
the risks and uncertainties relating to and arising from changes that have
occurred since the merger agreement was signed, our and P-Com's ability to
secure the necessary stockholder approvals, and our and P-Com's desire and
ability to satisfy the other conditions to the closing of the merger. We are not
currently able to provide an estimated closing date for a transaction. Whether
or not a merger is completed, we will be expending
14
substantial time and incurring substantial costs relating to the contemplated
merger and our directors and management may be interested in and distracted by
the contemplated merger. There are additional risks even if a merger is
completed, including, without limitation, risks relating to the ability of the
companies to integrate effectively in a cost-effective, timely manner without
material loss of employees or customers, the risk that the contemplated benefits
and cost savings from the merger may not be fully realized or may take longer to
realize than expected, and potential negative reactions of investors,
competitors, customers, employees, and others.
Specific Cautionary Statements Concerning Focus on FiberLeap(TM) and
EtherLeap(TM) Product Lines
In July 2001, we announced that we were going to focus on our FiberLeap(TM)
product line and exit our old point-to-multipoint outdoor unit product line. In
September 2002, we introduced our EtherLeap(TM) product line. As a result, it is
difficult to predict our future prospects in these markets based on our limited
history. Many of the cautionary statements contained in this Form 10-Q are
particularly relevant in light of this recent decision and focus. Our future
depends on our ability to develop, market, gain market acceptance of, and sell
our FiberLeap(TM) and EtherLeap(TM) products. We have limited experience with
these new product lines and in the markets the FiberLeap(TM) and EtherLeap(TM)
products address. We currently have no significant customers for our
FiberLeap(TM) or EtherLeap(TM) products. We are in the process of developing our
FiberLeap(TM) and EtherLeap(TM) product lines and obtaining the governmental
approvals necessary for the commercial sale and deployment of our FiberLeap(TM)
products. There can be no assurance that we will be successful in developing the
FiberLeap(TM) or EtherLeap(TM) product line, obtaining customers for our
FiberLeap(TM) or EtherLeap(TM) products, obtaining all necessary governmental
approvals for our FiberLeap(TM) and EtherLeap(TM) products at all or in a timely
manner, developing or establishing an acceptable business based solely on sales
of FiberLeap(TM) and EtherLeap(TM) products, or addressing the other issues
inherent in entering a new line of business. These issues, together with many of
the other cautionary statements contained in this Form 10-Q, could have an
adverse effect on our business, financial condition, results of operations, and
viability as an ongoing company.
Specific Cautionary Statements relating to Possible Delisting from Nasdaq
National Market
Our common stock is currently traded on the Nasdaq National Market. One of
the requirements for continued listing on that market is that the minimum bid
price of our stock must remain above $1.00. We received a letter of notice dated
July 11, 2002 from the Nasdaq Stock Market stating that, due to our minimum bid
price levels remaining under the $1.00 level for 30 consecutive trading days, we
were on notice that we could be subject to a delisting procedure should the bid
price continue to remain under the $1.00 level for an additional 90-day period
(ending October 9, 2002), unless our stock attained a bid price of $1.00 or more
for a period of 10 consecutive days during that 90-day period. We received a
notice, dated October 10, 2002, from the Nasdaq Stock Market stating that, due
to the minimum bid price remaining below $1.00, our common stock was subject to
delisting from the Nasdaq National Market effective October 18, 2002. We have
requested a hearing before a Nasdaq Listing Qualifications Panel to review that
determination. This request stays the delisting. The hearing is scheduled for
Friday November, 22, 2002.
There are other requirements for continued listing on the Nasdaq National
Market, such as having a minimum of $4.0 million of net tangible assets, $5.0
million minimum value of public float, 400 round lot stockholders, and two
market makers. We received a letter of notice dated October 2, 2002 from the
Nasdaq Stock Market stating that the market value of our public float had been
below $5.0 million for 30 consecutive trading days and our common stock could be
delisted on that basis if not cured. We will also have to address this
noncompliance at our hearing scheduled for November 22, 2002. There can be no
assurance that we will continue to meet the other continued listing
requirements.
There can be no assurance that the Nasdaq Listing Qualifications Panel will
grant our request for continued listing or any other requests we might make,
including any request to have the listing of our common stock transferred to the
Nasdaq SmallCap Market. Should our stock be delisted from the Nasdaq National
Market, we may apply to have our stock listed on the Nasdaq SmallCap Market or
traded on the OTC Bulletin Board. These alternatives may result in a less liquid
market available for existing and potential stockholders to buy and sell shares
of our stock and could further depress the price of our stock. Further, there
can be no assurance that we will meet the requirements for listing on the Nasdaq
SmallCap Market, one of which is a minimum $1.00 bid price.
15
We may take certain actions to attempt to increase the bid price and market
value of our stock. While there are numerous actions that could be taken to
attempt to increase the bid price and market value of our stock, two of the
possibilities are a reverse stock split and a stock repurchase. Any such actions
(even if successful) may have adverse effects on us, such as adverse reaction
from employees, investors and financial markets in general, adverse publicity,
and adverse reactions from customers. Further, there can be no assurance that we
will have or be given sufficient time to undertake these activities in light of
the status of the delisting process.
Possible Implications of Cautionary Statements
The items described above, either individually or in some combination,
could have a material adverse impact on our reputation, business, need for
additional capital, ability to obtain additional debt or equity financing,
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. These items
could also impair our ability to fulfill the conditions to closing the
contemplated merger sith P-Com, which could prevent the merger from happening.
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.
Item 4. Controls and Procedures.
(a) Disclosure controls and procedures. Within 90 days before filing this
report, we evaluated the effectiveness of the design and operation of our
disclosure controls and procedures. Our disclosure controls and procedures are
the controls and other procedures that we designed to ensure that we record,
process, summarize and report in a timely manner the information we must
disclose in reports that we file with or submit to the SEC. Our disclosure
controls and procedures include a significant portion of our internal accounting
controls. John L. Youngblood, our President and Chief Executive Officer, and
Dennis C. Stempel, our Senior Vice President and Chief Financial Officer,
supervised and participated in this evaluation. Based on this evaluation, Dr.
Youngblood and Mr. Stempel concluded that, as of the date of their evaluation,
our disclosure controls and procedures were effective.
(b) Internal controls. Since the date of the evaluation described above,
there have not been any significant changes in our internal accounting controls
or in other factors that could significantly affect those controls.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
During the period from June 12 to September 13, 2001, four purported
securities class action lawsuits were filed against us in the U.S. District
Court for the Southern District of New York, Katz v. Telaxis Communications
Corporation et al., Kucera v. Telaxis Communications Corporation et al.,
Paquette v. Telaxis Communications Corporation et al., and Inglis v. Telaxis
Communications Corporation et al. The lawsuits also named one or more of the
underwriters in our initial public offering and certain of our officers and
directors. On April 19, 2002, the plaintiffs filed a single consolidated amended
complaint which supersedes the individual complaints originally filed. The
amended complaint alleges, among other things, violations of the registration
and antifraud provisions of the federal securities laws due to alleged
statements in and omissions from our initial public offering registration
statement concerning the underwriters' alleged activities in connection with the
underwriting of our shares to the public. The amended complaint seeks, among
other things, unspecified damages and costs associated with the litigation.
These lawsuits against us have been assigned along with, we understand,
approximately 1,000 other lawsuits making substantially similar allegations
against approximately 300 other publicly-traded companies and
16
their public offering underwriters to a single federal judge in the U.S.
District Court for the Southern District of New York for consolidated pre-trial
purposes. On July 15, 2002, we, together with the other issuers named as
defendants in these coordinated proceedings, filed a collective motion to
dismiss the consolidated amended complaints on various legal grounds common to
all or most of the issuer defendants. This motion is currently pending. In
October 2002, all claims against our directors and officers who had been parties
to these lawsuits were dismissed without prejudice. We deny any liability and
intend to vigorously defend the allegations against us.
We are subject to potential liability under contractual and other matters
and various claims and legal actions which may be asserted. These matters may
arise in the ordinary course and conduct of our business. While the outcome of
the 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
We did not issue or sell any unregistered securities in the three months
ended September 30, 2002.
Use of Proceeds from Registered Offerings
On February 1, 2000, the Securities and Exchange Commission declared
effective our registration statement on Form S-1 (File No. 333-87885) filed in
connection with the initial public offering of 4,600,000 shares of our common
stock.
We received approximately $71.1 million of net proceeds from the offering.
Those net proceeds are being used for working capital and 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 September
30, 2002, we have applied approximately $57.9 million of the net proceeds from
the offering toward working capital, financing capital expenditures, and funding
operating losses.
Item 5. Other Information.
Certification Under Sarbanes-Oxley Act
Our chief executive officer and chief financial officer have furnished to
the Securities and Exchange Commission the certification with respect to this
report that is required by Section 906 of the Sarbanes-Oxley Act of 2002.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit
Number Description
------ -----------
2.1 Agreement and Plan of Merger, dated as of September 9, 2002,
by and among P-Com, Inc., XT Corporation and the Company*
4.1 Amendment No. 1 to Rights Agreement, dated as of September 9,
2002, between Telaxis and Registrar and Transfer Company*
10.1 Amendment 1 to Employment Agreement, dated as of August 29,
2002, by and between Telaxis and Dennis C. Stempel
10.2 Amendment 1 to Employment Agreement, dated as of August 29,
2002, by and between Telaxis and David L. Renauld
- ---------------------------
All non-marked exhibits are being filed herewith.
* Incorporated herein by reference to the exhibits to Form 8-K filed with the
SEC on September 12, 2002.
17
(b) Reports on Form 8-K
On August 14, 2002, we filed a report on Form 8-K to report that we were
exploring strategic opportunities.
On September 12, 2002, we filed a report on Form 8-K to report that we had
signed an agreement to merge with P-Com, Inc.
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: November 14, 2002 By: /s/ Dennis C. Stempel
----------------------------------------------
Dennis C. Stempel,
Senior Vice President, Chief Financial Officer
and Treasurer (principal financial and
accounting officer)
CERTIFICATIONS
I, John L. Youngblood, President and Chief Executive Officer of Telaxis
Communications Corporation, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Telaxis
Communications Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for,
the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
- --------------------------------------------------------------------------------
18
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated
in this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: November 14, 2002 /s/ John L. Youngblood
------------------------------
John L. Youngblood
President and Chief Executive Officer
I, Dennis C. Stempel, Senior Vice President and Chief Financial Officer of
Telaxis Communications Corporation, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Telaxis
Communications Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for,
the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
19
- --------------------------------------------------------------------------------
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated
in this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: November 14, 2002 /s/ Dennis C. Stempel
-------------------------------------------------
Dennis C. Stempel
Senior Vice President and Chief Financial Officer