-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BQpyacy1O9DJv6wxITZIJYVd7MzinDu0Voi1SHJHRNKyhx1q4CjxJgapeQYyw0gA WpZ3XydZ8S/vUE3QtBk3LQ== 0000914317-01-500091.txt : 20010515 0000914317-01-500091.hdr.sgml : 20010515 ACCESSION NUMBER: 0000914317-01-500091 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TELAXIS COMMUNICATIONS CORP CENTRAL INDEX KEY: 0000712511 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS, NEC [3679] IRS NUMBER: 042751645 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-29053 FILM NUMBER: 1633583 BUSINESS ADDRESS: STREET 1: 20 INDUSTRIAL DRIVE EAST CITY: SOUTH DEERFIELD STATE: MA ZIP: 01373 BUSINESS PHONE: 4136658551 MAIL ADDRESS: STREET 1: 20 INDUSTRIAL DRIVE EAST STREET 2: P O BOX 109 CITY: SOUTH DEERFEILD STATE: MA ZIP: 013730109 FORMER COMPANY: FORMER CONFORMED NAME: MILLITECH CORP DATE OF NAME CHANGE: 19990913 10-Q 1 form10q_5-11.txt - -------------------------------------------------------------------------------- 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 13 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. 14 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 15 -----END PRIVACY-ENHANCED MESSAGE-----