-----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, WK2dz/Ze1bm5fiPn915gGEmEZg05j1H8Su4o7Ek6Q9hTFkeW/lJ+E+xcMsBXp462 vpDnXqkfq3HkiiGCgExMtg== 0000914317-03-003372.txt : 20031110 0000914317-03-003372.hdr.sgml : 20031110 20031110163858 ACCESSION NUMBER: 0000914317-03-003372 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20030930 FILED AS OF DATE: 20031110 FILER: COMPANY DATA: COMPANY CONFORMED NAME: YDI WIRELESS INC CENTRAL INDEX KEY: 0000712511 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 042751645 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-29053 FILM NUMBER: 03988810 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: INDUSTRIAL PARK CITY: SOUTH DEERFIELD STATE: MA ZIP: 01373 FORMER COMPANY: FORMER CONFORMED NAME: TELAXIS COMMUNICATIONS CORP DATE OF NAME CHANGE: 19991015 FORMER COMPANY: FORMER CONFORMED NAME: MILLITECH CORP DATE OF NAME CHANGE: 19990913 10-Q 1 form10q-54982_ydi.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 SEPTEMBER 30, 2003 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 YDI WIRELESS, INC. (Exact name of registrant as specified in its charter) DELAWARE 04-2751645 (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 8000 LEE HIGHWAY FALLS CHURCH, VA 22042 (Address of principal executive offices) (703) 205-0600 (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 [_] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes [ ] No [X] As of October 31, 2003, there were 13,620,292 shares of the registrant's common stock outstanding. ================================================================================ YDI WIRELESS, INC. INDEX
PAGE NO. -------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements ............................................ Consolidated Balance Sheets as of September 30, 2003 (unaudited) and December 31, 2002 .......................... 4 Consolidated Statements of Operations for the three months and nine months ended September 30, 2003 and 2002 (unaudited) .. 5 Consolidated Statement of Changes in Stockholders' Equity for the nine months ended September 30, 2003 (unaudited) ....... 6 Consolidated Statements of Cash Flows for the nine months ended September 30, 2003 and 2002 (unaudited) .............. 7 Notes to Consolidated Financial Statements (unaudited) ....... 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ........................................... 19 Item 3. Quantitative and Qualitative Disclosures about Market Risk ...... 27 Item 4. Controls and Procedures ......................................... 27 PART II. OTHER INFORMATION Item 1. Legal Proceedings ............................................... 28 Item 2. Changes in Securities and Use of Proceeds ....................... 29 Item 6. Exhibits and Reports on Form 8-K ................................ 30 SIGNATURES ..................................................................... 30
2 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 or any other subsequent events. Item 1. Financial Statements. 3 YDI WIRELESS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share data)
YDI Wireless, Young Design, Inc. and Inc. and Subsidiaries Subsidiaries (Consolidated) (Consolidated) September 30, December 31, 2003 2002 -------------- ------------ (unaudited) -------------- Assets Current assets: Cash and cash equivalents ...................................................... $ 6,269 $ 939 Restricted cash ................................................................ 141 -- Marketable securities .......................................................... 1,110 -- Accounts receivable, net ....................................................... 2,420 1,686 Refundable income taxes ........................................................ 275 -- Other receivables .............................................................. 166 -- Inventory ...................................................................... 2,869 2,386 Investment securities - trading ................................................ 130 4 Deferred tax asset ............................................................. -- 142 Deposit ........................................................................ -- 1 Prepaid expenses ............................................................... 173 451 ------- ------- Total current assets ....................................................... 13,553 5,609 Property and equipment, net .................................................... 2,696 1,823 Other Assets: Investment in unconsolidated subsidiaries ....................................... -- 36 Investment securities - available-for-sale ...................................... 1,304 841 Intangible assets, net .......................................................... 492 9 Deferred tax asset .............................................................. -- 245 Deposits ........................................................................ 49 9 Other assets .................................................................... -- -- ------- ------- 1,845 1,140 Total other assets ------- ------- Total assets ............................................................... $18,094 $ 8,572 ======= ======= Liabilities and Stockholders' Equity Current liabilities: Accounts payable and accrued expenses .......................................... $ 3,411 $ 2,158 Current maturities of notes payable ............................................ 249 495 Current deposit - non-refundable ............................................... -- 9 ------- ------- Total current liabilities .................................................. 3,660 2,662 Notes payable, net of current maturities .......................................... 1,333 1,402 ------- ------- Total liabilities .......................................................... 4,993 4,064 Commitments and contingencies ..................................................... -- -- Stockholders' Equity Preferred stock, $0.01 par value; authorized 4,500,000, none issued at September 30, 2003; none authorized, none issued at December 31, 2002 .................. -- -- Common stock, $0.01 par value, authorized 100,000,000, issued 13,592,845 at September 30, 2003; $0.01 par value, 30,000,000 shares authorized, issued 3,750,000 at December 31, 2002 ............................................... 135 37 Additional paid-in capital ..................................................... 4,095 414 Retained earnings .............................................................. 8,375 4,066 Accumulated other comprehensive income: Net unrealized gain/(loss) on available-for-sale securities .................. 496 (9) ------- ------- Total stockholders' equity ................................................. 13,101 4,508 ------- ------- Total liabilities and stockholders' equity $18,094 $ 8,572 ======= =======
The accompanying notes are an integral part of these financial statements. 4 YDI WIRELESS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (unaudited)
YDI Wireless, Young Design, YDI Wireless, Young Design, Inc. and Inc. and Inc. and Inc. and Subsidiaries Subsidiaries Subsidiaries Subsidiaries (Consolidated) (Consolidated) (Consolidated) (Consolidated) ------------- ------------- ------------- ------------ For the Three Months For the Nine Months Ended September 30, Ended September 30, ------------- ------------ ------------ ------------ 2003 2002 2003 2002 ------------- ------------ ------------ ------------ Revenues .................................. $ 8,029 $ 5,139 $ 21,694 $ 15,019 Cost of goods sold ........................ 3,741 3,219 13,140 9,682 ------------ ------------ ------------ ------------ Gross profit .......................... 4,288 1,920 8,554 5,337 Operating expenses: Selling costs ......................... 698 482 1,701 1,056 General and administrative ............ 1,841 928 5,781 3,019 Research and development .............. 706 277 1,280 472 ------------ ------------ ------------ ------------ Total operating expenses ........... 3,245 1,687 8,762 4,547 ------------ ------------ ------------ ------------ Operating income (loss) ................... 1,043 233 (208) 790 Other income (expenses): Interest income ....................... 81 1 112 17 Interest expense ...................... (32) (39) (94) (100) Other income (expenses) ............... (54) (8) (3) (5) Excess of acquired net assets over cost -- -- 4,775 -- ------------ ------------ ------------ ------------ Total other income (expenses) ...... (5) (46) 4,790 (88) ------------ ------------ ------------ ------------ Income before income taxes ................ 1,038 187 4,582 702 Provision for income taxes ............ 410 191 233 191 ------------ ------------ ------------ ------------ Net income (loss) ......................... $ 628 $ (4) $ 4,349 $ 511 ============ ============ ============ ============ Weighted average shares - basic ........... 13,575,775 3,750,000 10,458,683 3,750,000 ============ ============ ============ ============ EPS, basic ............................ $ 0.05 $ 0.00 $ 0.42 $ 0.14 ============ ============ ============ ============ eighted average shares - diluted ......... 14,073,642 3,750,000 10,582,487 3,750,000 ============ ============ ============ ============ EPS, diluted .......................... $ 0.04 $ 0.00 $ 0.41 $ 0.14 ============ ============ ============ ============
The accompanying notes are an integral part of these financial statements. 5 YDI WIRELESS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 (in thousands, except share data) (unaudited) Note: 1 I have attached a copy of the revised table to show how it should now look after revisions.
Accumulated Common Stock(A) Additional Other ------------------------ Paid-in Retained Comprehensive Shares Amount Capital Earnings (Loss) Income Total ---------- ----------- ---------- --------- ------------ ----- Balances, January 1, 2003 .............. 3,750,000 $ 37 $ 414 $ 4,066 $ (9) $ 4,508 Merger with Telaxis .................... 9,792,180 98 3,665 -- -- 3,763 Exercise of stock options and warrants . 50,665 -- 16 -- -- 16 Net income ............................. -- -- -- 4,349 -- 4,349 Other .................................. -- -- -- (40) -- (40) Comprehensive income Unrealized gain on investments ....... -- -- -- -- 505 505 ---------- --------- --------- ------- ------- -------- Balances, September 30, 2003 ........... 13,592,845 $ 135 $ 4,095 $ 8,375 $ 496 $ 13,101 ========== ========= ========= ======= ======= ========
(A) Common Stock has been restated for the effect of forward and reverse stock splits that were effective July 9, 2003. The accompanying notes are an integral part of these financial statements. 6 YDI WIRELESS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
YDI Wireless, Young Design Inc. and Inc. and Subsidiaries Subsidiaries (Consolidated) (Consolidated) --------------- ------------- For the Nine Months Ended September 30, ------------------------------- 2003 2002 --------------- ------------- Cash flows from operating activities: Net income ......................................................$ 4,349 $ 511 Depreciation and amortization ................................ 856 89 Unrealized gain on trading securities ........................ 92 - Recognition of excess of acquired net assets over cost ....... (4,775) - Changes in assets and liabilities affecting operations: Accounts receivable, net ................................... (734) (578) Inventory .................................................. (483) (563) Deposits ................................................... (21) (17) Prepaid expenses ........................................... 344 (38) Refundable income taxes .................................... (275) - Deferred tax asset ......................................... 387 606 Intangible assets, net ..................................... (483) 20 Accounts payable and accrued expenses ...................... 1,124 592 Income taxes payable ....................................... - 52 Other ...................................................... 204 25 --------------- ------------- Net cash utilized by operating activities.............. 585 699 --------------- ------------- Cash flows from investing activities: Purchase of securities ......................................... (140) (310) Purchase of property and equipment ............................. (5) (42) Increase in restricted cash .................................... (141) - Increase in marketable securities .............................. (1,110) - Cash received with purchase of Telaxis ......................... 6,711 - --------------- ------------- Net cash used in investing activities ...................... 5,315 (352) --------------- ------------- Cash flows from financing activities: Distributions to Merry Fields members .......................... (40) - Repurchase of fractional shares ................................ (38) - Issuance of notes payable ...................................... 500 900 Repayment of notes payable ..................................... (992) (360) --------------- ------------- Net cash provided by (used in) financing activities ........ (570) 540 --------------- ------------- Net increase (decrease) in cash ................................... 5,330 887 Cash, beginning of period ......................................... 939 1,113 --------------- ------------- Cash, end of period ...............................................$ 6,269 $ 2,020 =============== ============= Supplemental disclosure of cash flow information: Cash paid for interest .........................................$ 94 $ 100 =============== ============= Income taxes paid ..............................................$ 84 $ 191 =============== =============
The accompanying notes are an integral part of these financial statements. 7 YDI WIRELESS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Organization Young Design, Inc. ("Young Design") was incorporated under the laws of the Commonwealth of Virginia on February 28, 1986 to engage in the business of manufacturing and sale of equipment for use in transmission of data access on a wireless basis. Young Design operates its business in Falls Church, Virginia. Zeus Wireless, Inc. ("Zeus") was formed under the laws of the State of California. Zeus was a developer and manufacturer of 2.4 GHz transceivers providing mission critical wireless data connectivity. Zeus' offices are located in Columbia, Maryland. Merry Fields, LLC ("Merry Fields") was formed by certain shareholders of Young Design under the laws of the State of Delaware on August 11, 2000. Merry Fields owns the property and land leased to YDI for its principal operations. On April 1, 2003, Young Design completed a strategic combination transaction (the "combination") with Telaxis Communications Corporation ("Telaxis"), pursuant to a definitive strategic combination agreement dated as of March 17, 2003. Pursuant to the terms of that agreement, Telaxis formed a subsidiary, WFWL Acquisition Subsidiary, that merged with and into Young Design and Telaxis issued new shares of its common stock to the stockholders of Young Design. As of the date of the combination, Telaxis was a Massachusetts corporation. On July 9, 2003, Telaxis reincorporated into Delaware and changed its name to YDI Wireless, Inc. ("YDI Wireless" or the "Company"). For financial reporting purposes, the combination has been treated as a purchase of Telaxis by Young Design (see note 15). 2. Summary of Significant Accounting Policies Interim Financial Information In our opinion, the interim financial information as of September 30, 2003 and for the three and nine months ended September 30, 2002 and 2003 contains all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for such periods. Results for interim periods are not necessarily indicative of results to be expected for an entire year. The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles 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 amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. Principles of Consolidation The consolidated financial statements include the accounts of YDI Wireless and its wholly owned subsidiaries and also Merry Fields, a consolidated affiliate. The Company consolidates the financial statements of 8 Merry Fields because it guarantees the affiliate's mortgage debt and substantially all of Merry Field's income is generated from transactions with YDI Wireless. All significant inter-company balances and transactions have been eliminated in consolidation. The operating results of Telaxis are included in the financial statements beginning April 1, 2003. Asset Impairment We periodically evaluate the carrying value of long-lived assets when events and circumstances warrant such a review. The carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flow from such asset is separately identifiable and is less than the carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair market value of the long-lived asset. Fair market value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Cash and Cash Equivalents We consider cash on hand, deposits in banks, money market accounts and investments with an original maturity of three months or less to be cash or cash equivalents. We also separately report any restricted cash balances that are encumbered. Investments In accordance with Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Debt and Equity Securities", securities are classified into three categories: held-to-maturity, available-for-sale, and trading. Because we hold certain securities principally for the purpose of selling them in the near future, they are classified on the balance sheet as trading securities. As a result, the securities are carried at fair value and realized and unrealized gains and losses are included in the consolidated statements of operations. Securities available-for-sale are reported at fair value. Any unrealized gain or loss, net of applicable income taxes, is reported as a separate addition to or reduction from stockholders' equity as other comprehensive income. Investment income includes realized and unrealized gains and loss on investments, interest and dividends. Investments - Equity Method Investments in private companies are accounted for under the equity or cost method based on our voting interest and degree of control or influence we may have over the operations. Accounts Receivable We provide an allowance to account for amounts, if any, of our accounts receivable, which are considered uncollectible. We base our assessment of the allowance for doubtful accounts on historical losses and current economic conditions. Accounts receivable are determined to be past due based on a contractual term of 30 days. We grant unsecured credit to our United States customers. The allowance for doubtful accounts was approximately $300,000 and $185,000 as of September 30, 2003 (unaudited) and December 31, 2002, respectively. Inventory Inventory consists of electronic components and finished goods and is stated at the lower of cost or market. Cost is determined by the first-in, first-out method. Property and Equipment Property and equipment is recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the respective assets, which range from two to seven years for personal property and 39 years for real property. 9 Intangible Assets Intangible assets subject to amortization include intellectual property and a non-compete agreement. Amortization is computed using the straight-line method over three years, which is the estimated useful life of the respective assets. Amortization expense for the nine months ending September 30, 2003 and 2002 (unaudited) totaled approximately $65,000 and $0, respectively. Income Taxes We account for income taxes under SFAS No. 109, "Accounting for Income Taxes." Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The principal differences are net operating loss carry forwards, start-up costs, property and equipment, nonrefundable contract deposits, allowance for doubtful accounts, inventory reserves, and negative goodwill related to acquisitions. Merry Fields is a limited liability company and is taxed as a partnership. Accordingly, for Merry Fields, items of income, deductions, expenses and credits pass through directly to its members and are reported on their tax returns. Revenue Recognition We recognize revenue when a purchase commitment has been received, shipment has been made to the customer, collection is probable and, if contractually required, a customer's acceptance has been received. Excess of Acquired Net Assets Over Cost Young Design's excess of acquired net assets over cost resulted from the acquisition of Telaxis in 2003. The acquisition was accounted for using the purchase method of accounting and the purchase price was allocated to the assets purchased and the liabilities assumed based on the estimated fair values at the date of the acquisition. We recognized the entire $4.7 million of excess acquired net assets over cost as other income in the second quarter 2003 in accordance with SFAS No. 142, "Goodwill and Other Intangibles" because the combination was consummated in that quarter. Research and Development Research and development costs are expensed as incurred. Shipping and Handling Costs Shipping and handling are charged to customers and included in both revenue and costs of goods sold on the Consolidated Statement of Operations. Comprehensive Income We report comprehensive income in accordance with SFAS No. 130, "Reporting Comprehensive Income." As of September 30, 2003 (unaudited) and December 31, 2002, we had approximately $496,000 and $38,000, respectively, of unrealized gains on available-for-sale investments, net of income taxes of $0 and $26,000, respectively. Recent Accounting Pronouncements In April 2003, the Financial Accounting Standards Board ("FASB") issued Statement No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." The Statement amends 10 Statement 133 for decisions made by the Derivatives Implementation Group, in particular the meaning of an initial net investment, the meaning of underlying and the characteristics of a derivative that contains financing components. Presently, we have no derivative financial instruments and, therefore, believe that adoption of the Statement will have no effect on our financial statements. In May 2003, the FASB issued Statement No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." The Statement requires that the issuer classify certain instruments as liabilities, rather than equity, or so-called mezzanine equity. Presently, we have no financial instruments that come under the scope of the Statement and, therefore, believe that adoption of the new Statement will have no impact on our financial statements. 3. Inventory
September 30, 2003 December 31, 2002 ------------------ -------------------- (unaudited) ------------------ Raw Materials .......................................... $ 614 $ 502 Work in process ........................................ 50 9 Finished goods ......................................... 2,405 2,051 ------------------ -------------------- 3,069 2,562 Allowance for excess and obsolescence .................. (200) (176) ------------------ -------------------- Net Inventory .......................................... $ 2,869 $ 2,386 ================== ==================== 4. Marketable Securities September 30, 2003 December 31, 2002 ------------------ -------------------- (unaudited) ------------------ Fixed income .......................................... $ 1,110 $ - ================== ==================== 5. Investment Securities - Trading We hold the following investments classified as trading with a fair market value as follows: September 30, 2003 December 31, 2002 ------------------ -------------------- (unaudited) ------------------ Equity securities ..................................... $ 130 $ 4 ================== ====================
The mark-to-market adjustments were insignificant for both the quarter and nine months ending September 30, 2003 (unaudited). 6. Investment Securities - Available For Sale We owned 165,888 unregistered shares and 304,362 and 257,623, as of September 30, 2003 (unaudited) and December 31, 2002, respectively, registered shares of Phazar Corporation. In addition, we owned 0 and 72,800 registered shares of RF Industries as of September 30, 2003 (unaudited) and December 31, 2002, respectively. During the third quarter of 2003, we recognized approximately $40,000 in gain from the sale of the RF Industries investment that is included in other income (expenses). 11 In September 2000, we purchased 2,000,000 shares of common stock in Spectrum Access, Inc. ("Spectrum"). In exchange for the shares, we granted the use of our broadcasting space in the Falls Church tower, as well as providing selected equipment and training to Spectrum. As of September 30, 2003 (unaudited) and December 31, 2002, our ownership interest of approximately 11 percent has been valued at $10,500.
September 30, 2003 (unaudited) December 31, 2002 ------------------------------- ------------------------------- Cost Basis Carrying Value Cost Basis Carrying Value --------------- --------------- --------------- --------------- Spectrum ..................... $ 10 $ 10 $ 10 $ 10 RF Industries ................ - - 145 153 Phazar ....................... 794 1,294 700 678 --------------- --------------- --------------- --------------- $ 804 $ 1,304 $ 855 $ 841 =============== =============== =============== ===============
7. Property and Equipment Property and equipment consisted of the following:
September 30, December 31, 2002 2003 ----------------- ------------------- (unaudited) ----------------- Land ..................................................... $ 522 $ 522 Building ................................................. 1,377 1,377 Machinery and equipment .................................. 1,820 - Equipment under capital lease ............................ 623 - Leasehold improvements ................................... 291 - Automobiles .............................................. 37 37 Furniture and equipment .................................. 83 96 Lab equipment ............................................ - 132 ----------------- ------------------- 4,753 2,164 Less: accumulated depreciation ................... (2,057) (341) ----------------- ------------------- Property and equipment, net .............................. $ 2,696 $ 1,823 ================= ===================
Depreciation expense totaled approximately $791,000 and $33,000, respectively for the periods ended September 30, 2003 and 2002 (unaudited). 8. Income Taxes We estimate our annual effective tax rate for the nine months ended September 30, 2003 (unaudited) at 0% based on our estimate of current year projected tax loss. Accordingly, we expect to file amended tax returns for calendar year 2002 and receive refunds of approximately $175,000 and refunds of 2003 estimated tax payments of $83,000. The income tax expense for the nine month period ended September 30, 2003 primarily relates to the increase in the valuation allowance associated with the deferred tax assets since we cannot predict when we will generate taxable income to utilize these assets. During the nine month period ended September 30, 2002, our effective annual tax rate was 42%. 12 9. Notes Payable Notes payable consisted of the following:
September 30, December 31, 2002 2003 ----------------- ---------------------- (unaudited) ----------------- In May 2002, Young Design executed a $750,000 note payable with a financial institution related to the bulk purchase of inventory. The note was non-interest bearing and requires four (4) calendar quarter payments of $187,500 through September 30, 2003 (unaudited). ......... $ - $ 375 In May 2002, Merry Fields executed a loan consolidation and refinance agreement with a financial institution for a term loan of $1,565,374 collateralized by the building and land in Falls Church, Virginia. The loan requires monthly payments of $18,781 consisting of principal and interest. The loan bears interest at 7.34% per annum and matures on May 31, 2012. ................................. 1,435 1,522 Other .................................................... 147 - ----------------- ---------------------- 1,582 1,897 Current portion ................................. (249) (495) ----------------- ---------------------- $ 1,333 $ 1,402 ================= ======================
10. Commitments and Contingencies Leases We have various operating leases for equipment, office and production space. These leases generally provide for renewal or extension at market prices. In August 2000, Merry Fields executed a lease agreement with Young Design for the lease of the building in Falls Church, Virginia. The lease commenced on January 1, 2001 and terminates on December 31, 2010. The lease provides for base monthly rent payments of $20,625 with a 3% fixed annual increase after the base year. All intercompany rental income and expense under the lease agreement have been eliminated in consolidation. Rent expense, excluding rent paid to Merry Fields, for the nine months ended September 30, 2003 and 2002 (unaudited) was approximately $357,000 and $106,000, respectively. 11. 401(k) - Retirement Plan We have a 401(k) retirement plan covering all employees who meet certain minimum eligibility requirements. Each year employees can elect to defer the lesser of 15% of earned compensation or the maximum amount permitted by the Internal Revenue Code. We may make contributions to the plan at our discretion. We made no contribution to the plan for the periods ended September 30, 2003 and 2002 (unaudited). (NOTE: Prior to the effective date of the combination transaction in April 2003, Telaxis had made matching contributions to the 401(k) plan for its employees). 13 12. Warrants and Stock Option Plans The warrant and option numbers shown in this footnote reflect the adjustments to those warrants and options due to the April 1, 2003 combination of Young Design and Telaxis and the reverse/forward stock splits effected on July 9, 2003. Stock Warrants - -------------- The Company has issued warrants for its common stock as follows:
Warrants Outstanding ------------------------------------------------- Number of Shares Per Unit Exercise Right --------------------- --------------------------- Outstanding December 31, 2002 ................. 432,338 $ 2.08 - 8.64 Warrants granted ......................... - - Warrants exercised ....................... (28,635) $ 2.08 Warrants expired/canceled ................ (3,500) $ 8.64 --------------------- --------------------------- Outstanding September 30, 2003 (unaudited) .... 400,203 $ 2.08 ===================== ===========================
Expiration Date Number of Warrants ----------------------- ------------------ September 2006 ........ 300,897 July 2007 ............. 99,306 Stock Options Issued - -------------------- The Company has stock option plans that provide for the granting of options to employees, directors, and consultants. The plans permit the granting of options to purchase a maximum of 1,491,507 shares of common stock at various prices and require that the options be exercisable at the prices and at the times as determined by the Board of Directors, not to exceed ten years from date of issuance. As of September 30, 2003, 619,580 options are available for issuance under these plans. A summary of the option activity is as follows:
Options Outstanding ------------------------------------------------- Number of Shares Per Share Exercise Price --------------------- --------------------------- Outstanding December 31, 2002 ................. 1,144,401 $ 1.32 - 161.00 Options granted .......................... 53,750 $ 0.92 - 4.00 Options exercised ........................ (36,773) $ 1.52 - 3.24 Options expired/canceled ................. (289,451) $ 1.60 - 161.00 --------------------- --------------------------- Outstanding September 30, 2003 (unaudited) .... 871,927 $ 0.92 - 161.00 ===================== ===========================
We have adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation" ("SFAS 123"), but apply the intrinsic value method set forth in Accounting Principles Board Opinion No. 25. For stock options granted during 2003, we have estimated the fair value of each option granted using the Black-Scholes option-pricing model with the following assumptions: risk-free interest rate of 2.37% for the options granted during 2003, expected volatility of 284%, expected option life of 4 years and no dividend payment expected for 2003. Using these assumptions, the fair value of the stock options granted in 2003 is $3.68 per stock option. If we had elected to recognize compensation expense based on the fair value at the grant dates, consistent with the method prescribed by SFAS No. 123, net income per share would have been changed to the pro forma amount indicated below: 14
Nine Months Ended September 30, (unaudited) -------------------------------- 2003 2002 ---------------- --------------- Net Income (unaudited) attributable to common stockholders, as reported: $ 4,349 $ 511 Less: Total stock based employee compensation expense determined under the fair value based method for all awards.................... 1,453 - ---------------- --------------- Pro forma net income attributable to common stockholders ............... $ 2,896 $ 511 ================ =============== Basic net income per common share, as reported $ 0.42 $ 0.14 ================ =============== Basic net income per common share, pro forma $ 0.28 $ 0.14 ================ =============== Diluted net income per common share, as reported $ 0.41 $ 0.14 ================ =============== Diluted net income per common share, pro forma $ 0.27 $ 0.14 ================ ===============
13. Earnings per share (unaudited):
Three Months Ended September 30, Nine Months Ended September 30, ----------------- ---------------- ---------------- ---------------- 2003 2002 2003 2002 ----------------- ---------------- ---------------- ---------------- Numerator (in thousands) Net income (loss) ............ $ 628 $ (4) $ 4,349 $ 511 ================= ================ ================ =============== Denominator - weighted average shares Denominator for basic earnings per share .................... 13,575,775 3,750,000 10,458,683 3,750,000 Dilutive effect of stock options .............................. 497,867 - 123,804 - ----------------- ---------------- ---------------- --------------- Denominator for diluted earnings per share .................... 14,073,642 3,750,000 10,582,487 3,750,000 ================= ================ ================ =============== Basic earnings per share ..... $ 0.05 $ 0.00 $ 0.42 $ 0.14 ================= ================ ================ =============== Diluted earnings per share ... $ 0.04 $ 0.00 $ 0.41 $ 0.14 ================= ================ ================ ===============
14. Concentrations We maintain our cash, cash equivalent, and restricted cash balances in several banks. The balances are insured by the Federal Deposit Insurance Corporation up to $100,000 per bank. At September 30, 2003 (unaudited) and December 31, 2002, the uninsured portion totaled approximately $6.1 million and $976,000, respectively. As of September 30, 2003 (unaudited) and December 31, 2002, accounts receivable from none and two major customers, respectively, totaled approximately $0 and $477,000, respectively, which represented 0% and 28%, respectively, of total accounts receivable. One customer accounted for 10% of sales for the nine months ended September 30, 2003 (unaudited). One customer accounted for 17% of sales for the quarter ended September 30, 2003 (unaudited). No customer exceeded 10% of sales for the three or nine month periods ended September 30, 2002 (unaudited). For the three months ending September 30, 2002, two vendors accounted for 36% of cost of goods sold. For the same period ended September 30, 2003, two vendors accounted for 48% of cost of goods sold. For the nine 15 months ended September 30, 2003 (unaudited), one vendor accounted for 28% of cost of goods sold and for the same period ended September 30, 2002 (unaudited), two vendors accounted for 37% of cost of goods sold. 15. Acquisition The following describes the acquisition by Young Design of Telaxis completed on April 1, 2003. On April 1, 2003, Young Design merged with a subsidiary of Telaxis. For accounting purposes, Young Design is treated as the acquirer since it was the larger of the two entities and had significantly greater operating revenue, and the assets and liabilities of Telaxis were recorded at fair value under the purchase method of accounting. The condensed financial statements reflect the results of operations of Telaxis from April 1, 2003. The cost of the April 1, 2003 acquisition consisted of 9,792,180 shares of common stock valued at $8.4 million and acquisition costs of approximately $0.2 million. Accounting for the transaction as a reverse merger resulted in an excess of net assets over cost of $4.7 million. The valuation of the stock was based on the average closing price for the five days preceding the acquisition. Unaudited pro forma results of operations for the three and nine months ended September 30, 2003 and 2002 are included below. Such pro forma information assumes that the above acquisition had occurred as of January 1, 2003 and 2002, respectively, and revenue is presented in accordance with our accounting policies. This summary is not necessarily indicative of what our results of operations would have been had if we had been a combined entity during such periods, nor does it purport to represent results of operations for any future periods.
----------------------------------------------------- (unaudited) ----------------------------------------------------- Three Months Ended September 30, Nine Months Ended September 30, ----------------- ---------------------------------- 2002 2003 2002 ----------------- ---------------- --------------- Net operating revenue............... $ 5,179 $ 21,699 $ 15,072 Net income (loss)................... $ (3,861) $ 2,029 $ (9,326) Net income (loss) per common ============== ================ ============== share - basic .................... $ (0.12) $ 0.07 $ (0.46) ============== ================ ============== and diluted ...................... $ (0.12) $ 0.07 $ (0.46) ============== ================ ==============
16. Schedule of Commercial Commitments
Payments due by period (numbers in thousands) --------------------------------------------------------------------------- Total Less than 1 -3 4 - 5 After 5 1 year years years years -------------- ----------- ----------- ----------- ----------- Operating leases - Buildings ............ $ 2,989 $ 785 $ 1,262 $ 609 $ 333 Operating leases - equipment ............ 147 129 18 - - Employment Contracts .................... 980 980 - - - -------------- ----------- ----------- ----------- ----------- Total contractual cash obligations ...... $ 4,116 $ 1,894 $ 1,280 $ 609 $ 333 ============== =========== =========== =========== ===========
17. Contingencies During the period from June 12 to September 13, 2001, four purported securities class action lawsuits were filed against Telaxis 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 16 named one or more of the underwriters in the Telaxis initial public offering and certain of its 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 the Telaxis initial public offering registration statement concerning the underwriters' alleged activities in connection with the underwriting of Telaxis' shares to the public. The amended complaint seeks, among other things, unspecified damages and costs associated with the litigation. These lawsuits have been assigned along with, we understand, approximately 1,000 other lawsuits making substantially similar allegations against approximately 300 other publicly-traded companies and 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. We believe the claims against us are without merit and have defended the litigation vigorously. The litigation process is inherently uncertain, however, and there can be no assurance that the outcome of these claims will be favorable for us. On July 15, 2002, together with the other issuer defendants, Telaxis filed a collective motion to dismiss the consolidated, amended complaints against the issuers on various legal grounds common to all or most of the issuer defendants. The underwriters also filed separate motions to dismiss the claims against them. In October 2002, the court approved a stipulation dismissing without prejudice all claims against the Telaxis directors and officers who had been defendants in the litigation. On February 19, 2003, the court issued its ruling on the separate motions to dismiss filed by the issuer defendants and the underwriter defendants. The court granted in part and denied in part the issuer defendants' motions. The court dismissed, with prejudice, all claims brought against Telaxis under the anti-fraud provisions of the securities laws. The court denied the motion to dismiss the claims brought under the registration provisions of the securities laws (which do not require that intent to defraud be pleaded) as to Telaxis and as to substantially all of the other issuer defendants. The court denied the underwriter defendants' motion to dismiss in all respects. In June 2003, we elected to participate in a proposed settlement agreement with the plaintiffs in this litigation. This decision was made by a special independent committee of our board of directors. We understand that a large majority of the other issuer defendants have also elected to participate in this settlement. If ultimately approved by the court, this proposed settlement would result in a dismissal, with prejudice, of all claims in the litigation against us and against the other issuer defendants who elect to participate in the proposed settlement, together with the current or former officers and directors of participating issuers who were named as individual defendants. The proposed settlement does not provide for the resolution of any claims against the underwriter defendants. The proposed settlement provides that the insurers of the participating issuer defendants will guarantee that the plaintiffs in the cases brought against the participating issuer defendants will recover at least $1 billion. This means there will be no monetary obligation to the plaintiffs if they recover $1 billion or more from the underwriter defendants. In addition, we and the other participating issuer defendants will be required to assign to the plaintiffs certain claims that the participating issuer defendants may have against the underwriters of their IPOs. The proposed settlement contemplates that any amounts necessary to fund the guarantee contained in the settlement or settlement-related expenses would come from participating issuers' directors and officers liability insurance policy proceeds as opposed to funds of the participating issuer defendants themselves. A participating issuer defendant could be required to contribute to the costs of the settlement if that issuer's insurance coverage were insufficient to pay that issuer's allocable share of the settlement costs. Therefore, the potential exposure of each participating issuer defendant should decrease as the number of participating issuer defendants increases. We currently expect that our insurance proceeds will be sufficient for these purposes and that we will not otherwise be required to contribute to the proposed settlement. Consummation of the proposed settlement is conditioned upon, among other things, negotiating, executing, and filing with the court final settlement documents and final approval by the court. If the proposed settlement described above is not consummated, we intend to continue to defend the litigation vigorously. Moreover, if the proposed settlement is not consummated, we believe that the underwriters may have an obligation to indemnify us for the legal fees and other costs of defending these suits. While there can be no assurance as to the ultimate outcome of these proceedings, we currently believe that the final result of these actions will have no material effect on our consolidated financial condition, results of operations, or cash flows. 17 18. Corporate Structural Changes On July 9, 2003, Telaxis effected a reverse 1-for-100 split of its outstanding common stock, a forward 25-for-1 split of its common stock outstanding after the reverse stock split, the reincorporation of Telaxis from Massachusetts to Delaware, and the change of its corporate name to "YDI Wireless, Inc." No fractional shares were issued as a result of the reverse stock split. Fractional shares held by any stockholder with less than 100 shares in its account were cashed out at a price of $0.954 for each share outstanding before the reverse stock split, which is based on the average trading prices of our common stock on the Over-the-Counter Bulletin Board for the 20 trading days ended on July 9, 2003. Due to this fractional share treatment, 39,976 pre-split shares were cancelled for approximately $38,000. The effect of the stock splits has been reflected for all periods presented. No fractional shares were issued as a result of the forward stock split. Any stockholder who was entitled to a fractional share after the forward stock split had that stockholder's holdings rounded up to the next whole share. The Company issued 96 shares to these shareholders in the aggregate. Both the reincorporation into Delaware and the corporate name change were effected through a merger of Telaxis, a Massachusetts corporation, and YDI Wireless, a Delaware corporation formed as a wholly owned subsidiary of Telaxis for the purpose of effecting the reincorporation and name change. YDI Wireless was the surviving corporation in the merger. The merger was effected pursuant to the Agreement and Plan of Merger and Reincorporation, dated as of June 23, 2003, by and between Telaxis and YDI Wireless, which merger agreement was duly approved by the stockholders of Telaxis at their 2003 annual meeting. In connection with the merger and pursuant to the merger agreement, each share of Telaxis' common stock, par value $0.01 per share, outstanding immediately prior to the effective time of the merger was automatically converted into the right to receive one share of YDI Wireless common stock, par value $0.01 per share, with the result that YDI Wireless is now the publicly held corporation and Telaxis has been merged out of existence by operation of law. The stockholders of Telaxis immediately prior to the merger were the stockholders of YDI Wireless immediately after the merger, subject to the effects of the reverse stock split described above. YDI Wireless' common stock will continue to trade on the Over-the-Counter Bulletin Board, but the ticker symbol has been changed to "YDIW." 19. Subsequent Event On October 31, 2003 YDI signed a definitive merger agreement to acquire Phazar Corp. (Nasdaq:ANTP). Under the terms of the agreement, Phazar stockholders will receive 1.2 shares of YDI common stock for each share of Phazar common stock. This exchange ratio will not be adjusted for changes in the price of either YDI common stock or Phazar common stock. Based on shares currently outstanding, YDI stockholders would own approximately 87% of the combined entity and Phazar stockholders would own approximately 13%. One member of Phazar's board of directors will join YDI's board of directors. The agreement is subject to the approval of Phazar shareholders and any unforeseen circumstances. YDI expects to complete the acquisition prior to March 31, 2004. 18 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Overview On April 1, 2003, Telaxis Communications Corporation ("Telaxis") closed a strategic combination transaction with Young Design, Inc., a privately-held Virginia corporation ("Young Design"). In that transaction, Telaxis formed a subsidiary that merged with and into Young Design and each outstanding share of Young Design common stock was converted into the right to receive 2.5 shares of Telaxis common stock. Telaxis was the continuing corporation, Telaxis stockholders continued to hold Telaxis common stock following the transaction, and Young Design became a wholly owned subsidiary of Telaxis. In the transaction, Telaxis issued 37,499,999 shares of its common stock to the two former stockholders of Young Design. Immediately after the closing of the transaction, Telaxis had 54,208,312 shares of common stock outstanding. Telaxis also started doing business as "YDI Wireless" following that combination. The results of operations of Telaxis are included in the consolidated financial statements from April 1, 2003, the closing date of the acquisition. Financial information provided for prior periods is historical financial information of Young Design only, unless otherwise noted to the contrary. The acquisition was accounted for as a purchase, and the excess of net assets over the purchase price was recorded as negative goodwill and immediately recognized into income as required by generally accepted accounting principles. At the annual stockholders meeting on June 24, 2003, the Telaxis stockholders approved a reverse 1-for-100 split of its outstanding common stock, a forward 25-for-1 split of its common stock outstanding after the reverse stock split, the reincorporation of Telaxis from Massachusetts to Delaware, and the change of its name from "Telaxis Communications Corporation" to "YDI Wireless, Inc." These changes became effective July 9, 2003. We are a world leader in providing extended range, license free wireless data equipment. The recent combination brought together Young Design's license-free products that extend the range of IEEE 802.11 wireless local area network systems, point-to-point wireless backhaul products, diverse and broad customer base, and deep market and industry experience with Telaxis' high-frequency millimeter-wave expertise and FiberLeap(TM) and EtherLeap(TM) products. In addition, we are a leading designer of turnkey long distance wireless systems for applications such as wireless Internet, wireless video, wireless local area networks (LANs), wireless wide area networks (WANs), wireless metropolitan area networks (MANs), and wireless virtual private networks. We supply products and systems capable of transmitting data at rates ranging from 19.9 kilobits per second (kbps) to 1 gigabit per second (Gbps). Critical Accounting Policies The preparation of our condensed financial statements in accordance with accounting principles generally accepted in the United States of America requires us 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. We are required to make judgments and estimates about the effect of matters that are inherently uncertain. Actual results could differ from our estimates. The most significant areas involving our judgments and estimates are described below. 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 us 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. 19 Accounts Receivable Valuation We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers were to deteriorate resulting in an impairment of their ability to make payments, additional allowances may be required. Result of Operations The following table provides statements of operations data as a percentage of sales for the periods presented.
Three Months Ended Nine Months Ended September 30, September 30, ----------------------------------------------------- 2003 2002 2003 2002 --------------- ---------- ------------ ---------- Sales ............................................. 100% 100% 100% 100% Cost of sales ..................................... 47 63 61 64 --------------- ---------- ------------ ---------- Gross margin (loss) ............................... 53 37 39 36 Operating expenses Selling ....................................... 9 9 8 7 General and administrative .................... 22 18 26 20 Research and development, net ................. 9 5 6 3 --------------- ---------- ------------ ---------- Total operating expenses ................... 40 32 40 30 --------------- ---------- ------------ ---------- Operating income (loss) ........................... 13 5 (1) 5 Other income (expense) ............................ - (1) 22 (1) --------------- ---------- ------------ ---------- Income before income taxes ........................ 13 4 21 4 Income taxes ...................................... 5 4 1 1 --------------- ---------- ------------ ---------- Net Income ........................................ 8 - 20 3 =============== ========== ============ ==========
Three Months Ended September 30, 2003 and 2002 Sales Sales for the three months ended September 30, 2003 were $8.0 million as compared to $5.1 million for the same period in 2002 for an increase of $2.9 million or 57%. The increase in sales is attributed to the addition of sales and marketing resources, introduction of new products, and the receipt of a relatively large order from one customer during the third quarter of 2003 for one of these new products. Costs of goods sold and gross profit Costs of goods sold and gross profit for the three months ended September 30, 2003 were $3.7 million and $4.3 million, respectively. For the same period in 2002, costs of goods sold and gross profit were $3.2 million and $1.9 million, respectively. Gross margin for the three-month periods ending September 30, 2003 and 2002 were 53% and 37%, respectively. During the third quarter 2003, we introduced several new products to the market place and realized higher than usual margins. As competitive products are introduced to the market (which we expect will happen), we believe that these margins will stabilize closer to historical levels. We also implemented several manufacturing efficiencies and strategies that reduced our costs and increased our gross profit. In addition, we were able to utilize significant component inventory that was valued at below current replacement cost which resulted in a non-recurring improvement in gross margin. In summary, we expect our weighted average cost of goods sold to return to our historical levels despite continued efforts to introduce less costly manufacturing alternative and introduce new products. 20 Sales and marketing Selling and marketing expenses consist primarily of employee salaries and associated costs for selling, marketing, and customer support. Selling and marketing expenses increased to $0.7 million for the three months ended September 30, 2003 from $0.5 million for the three months ended September 30, 2002. The increase in sales and marketing expenses is primarily a result of added personnel to address the growing market for the Company's expanded product line. General and Administrative Expenses General and administrative expenses consist primarily of employee salaries and associated costs for information systems, finance, legal, and administration. General and administrative expenses increased to $1.8 million for the three months ended September 30, 2003 from $0.9 million for the three months ended September 30, 2002. The increase in general and administrative expenses primarily consists of costs associated with a public company as well as the costs of combining Young Design and Telaxis. 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 increased to $0.7 million for the three months ended September 30, 2003 from $0.3 million for the three months ended September 30, 2002. The research and development cost increase is attributable to an increase in engineering personnel and the support of the expanded product line that resulted from the Telaxis combination. Income Taxes Provision for income taxes for the quarter ended September 30, 2003 of $0.4 million relates to an increase in the valuation allowance associated with the deferred tax assets that had been recorded as of December 31, 2002. As of September 30, 2003, we cannot predict when sufficient taxable income will be generated to justify carrying deferred tax assets on our balance sheet without a valuation allowance. Therefore, we have written off these assets on our balance sheet. Had it not been for the write off of the deferred tax assets, we would have had no income tax expense for the quarter ended September 30, 2003. Provision for income taxes for the quarter ending September 30, 2002 in the amount of $0.2 million relates to an estimated effective tax rate of 42%. Nine Months Ended September 30, 2003 and 2002 Sales Sales for the nine-month period ended September 30, 2003 were $21.7 million as compared to $15.0 million for the same period in 2002 for an increase of $6.7 million or 45%. The increase in sales is attributed to the addition of sales and marketing resources, introduction of new products, and the receipt of relatively large orders from one customer during the first nine months of 2003 for one of these new products. Costs of goods sold and gross profit Cost of goods sold and gross profit for the nine months ended September 30, 2003 were $13.1 million and $8.6 million, respectively. For the same period in 2002, costs of goods sold and gross profit were $9.7 million and $5.3 million, respectively. Gross margin for the nine-month periods ending September 30, 2003 and 2002 were 39% and 36%, respectively. During the third quarter 2003, we introduced several new products to the market place and realized higher than usual margins. As competitive products are introduced to the market (which we expect will happen), we believe that these margins will stabilize closer to historical levels. We also implemented several manufacturing efficiencies and strategies that reduced our costs and increased our gross profit. In addition, we were able to utilize significant component inventory that was valued at below current replacement cost which resulted in a non-recurring improvement in gross margin. In summary, we expect our weighted average cost of goods sold to return to our historical levels despite continued efforts to introduce less costly manufacturing alternatives and introduce new products. 21 Sales and marketing Selling and marketing expenses consist primarily of employee salaries and associated costs for selling, marketing, and customer support. Selling and marketing expenses increased to $1.7 million for the nine months ended September 30, 2003 from $1.1 million for the nine months ended September 30, 2002. The increase in sales and marketing expenses is primarily a result of added personnel to address the growing market for the Company's expanded product line. General and Administrative Expenses General and administrative expenses consist primarily of employee salaries and associated costs for information systems, finance, legal, and administration. General and administrative expenses increased to $5.8 million for the nine months ended September 30, 2003 from $3.0 million for the nine months ended September 30, 2002. The increase was due primarily to the increase in sales volume, costs associated with a public company, and the costs associated with combining Young Design and Telaxis. 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 increased to $1.3 million for the nine months ended September 30, 2003 from $0.5 million for the nine months ended September 30, 2002. The research and development cost increase is attributable to an increase in engineering personnel and the support of the expanded product line that resulted from the Telaxis combination. Other Income The increase in other income was due to a one-time gain from the Telaxis combination. The amount of net assets over costs associated with the Telaxis combination created a $4.7 million gain that was immediately recognized in accordance with SFAS No. 142 at the time of the combination. Income Taxes Provision for income taxes for the nine months ending September 30, 2003 in the amount of $0.2 million relates to (1)an increase in the valuation allowance associated with the deferred tax assets of $0.4 million that had been recorded as of December 31, 2002 offset by (2) the tax benefit from carrying back of existing net operating losses to recover taxes previously paid. As of September 30, 2003, we cannot predict when sufficient taxable income will be generated to justify carrying deferred tax assets on our balance sheet without a valuation allowance. Provision for income taxes for the nine months ending September 30, 2002 in the amount of $0.2 million relates to an estimated effective tax rate of 42%. Liquidity and Capital Resources At September 30, 2003, we had cash and cash equivalents of $6.4 million (including restricted cash of $0.1 million) and marketable securities of $1.1 million. The increase in accounts receivable to $2.4 million at September 30, 2003 from $1.7 million at December 31, 2002 reflects the increase in sales as a result of an expanded customer base and new product introduction while maintaining a consistent DSO (Days Sales Outstanding) of approximately 30 days for both reporting periods. The increase in accounts payable and accrued expenses to $3.4 million at September 30, 2003 from $2.1 million at December 31, 2002 reflects increased payables due to the increase in sales volumes, but primarily was caused by Telaxis' accruals for severances, accrued vacation, reserves for discontinued operations, and related costs of the combination transaction. 22 Cash provided by the operating activities in the nine months ended September 30, 2003 was $1.0 million compared to $0.7 million for the same period in 2002. For the nine months ended September 30, 2003 and 2002, cash provided by operating activities primarily represented our net income. Cash provided by investing activities for the nine months ended September 30, 2003 was $4.9 million compared to cash utilized by investing activities of $0.4 million for the same period in 2002. In the nine months ended September 30, 2003, these amounts related primarily to the purchase of Telaxis by Young Design. As for the nine month period ending September 30, 2002, these amounts related primarily to the purchase of securities for investment and capital expenditures required in support of business growth. Cash used by financing activities in the nine months ended September 30, 2003 was $0.6 million compared to cash provided of $0.5 million for the same period in 2002. The financing activities for the nine months ended September 30, 2003 consisted primarily of payments on capital lease obligations and long-term debt offset by the issuance of notes payable for new product acquisitions and related intellectual property for these products. The financing activities for the nine months ended September 30, 2002 consisted primarily of the issuance of notes payable for the acquisition of a new product line to complement our existing product offerings. Our 2003 and future cash requirements will depend upon a number of factors, including the impact of the Young Design - Telaxis combination, the timing and extent of growth in our product lines, 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. We believe that our cash and marketable securities at September 30, 2003 will provide sufficient capital to fund our operations for at least 12 months. However, our capital needs may be higher or lower depending on a number of factors, primary among them being the results we achieve as a combined company. 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 our operations as well as the costs associated with the acquisitions. There can be no assurance that additional financing will be available to us on favorable terms or at all. Debt, Covenant Compliance and Liquidity YDI Wireless has a $2 million line of credit with Bank of America. We have not used this line of credit as of September 30, 2003. We have the following contractual obligations and commercial commitments as of September 30, 2003:
Payments due by period --------------------------------------------------------------------------- Total Less than 1 -3 years 4 - 5 After 5 1 year years years -------------- ----------- ----------- ----------- ----------- Line of credit .......................... $ - $ - $ - $ - $ - ============== =========== =========== =========== =========== Payments due by period (numbers in thousands) --------------------------------------------------------------------------- Total Less than 1 -3 years 4 - 5 After 5 1 year years years -------------- ----------- ----------- ----------- ----------- Operating leases - Buildings ............ $ 2,989 $ 785 $ 1,262 $ 609 $ 333 Operating leases - equipment ............ 147 129 18 - - Employment Contracts .................... 980 980 - - - -------------- ----------- ----------- ----------- ----------- Total contractual cash obligations ...... $ 4,116 $ 1,894 $ 1,280 $ 609 $ 333 ============== =========== =========== =========== ===========
Subsequent Event On October 31, 2003 YDI signed a definitive merger agreement to acquire Phazar Corp. (Nasdaq:ANTP). Under the terms of the agreement, Phazar stockholders will receive 1.2 shares of YDI common stock for each share of Phazar common stock. This exchange ratio will not be adjusted for changes in the price of either YDI common stock or Phazar common stock. Based on shares currently outstanding, YDI stockholders would own approximately 87% of the combined entity and Phazar stockholders would own approximately 13%. One member of Phazar's board of directors will join YDI's board of directors. The agreement is subject to the approval of Phazar shareholders and any unforeseen circumstances. YDI expects to complete the acquisition prior to March 31, 2004. 23 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, 2003, we had cash and cash equivalents of $6.4 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, 2003, we had marketable securities of $1.1 million which consisted of short-term, interest bearing, investment grade securities or direct or guaranteed obligations of the U.S. government with maturities through March 2004. These investments are exposed to interest rate risk and will decrease in value to the extent that market interest rates increase. We believe a hypothetical increase in market interest rates of up to as much as 10 percent from the September 30, 2003 rates would not cause the fair value of these investments to decline significantly, since our 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. The vast majority of our current sales are made to customers in the United States and any international sales are negotiated and paid-for in United States Dollars, therefore we have minimal foreign currency exchange rate risk. 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 that 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 or any other subsequent events, and we disclaim any such obligation. 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 24 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, a severe worldwide slowdown in the telecommunications equipment market; the downturn and ongoing uncertainty in the telecommunications industry and larger economy; developments in our relatively new industry and in the larger economy; the intense competition in the telecommunications equipment industry and resulting pressures on our pricing, gross margins, and general financial performance; the impact, availability, pricing, and success of competing technologies and products; difficulties in distinguishing our products from competing technologies and products; difficulties or delays in obtaining customers; dependence on a limited number of significant customers; lack of or delay in market acceptance and demand for our current and contemplated products; difficulties or delays in obtaining raw materials, subassemblies, or other components for our products at the times, in the quantities, and at the prices we desire or expect; our having limited capital; working capital constraints; the expense of defending and the outcome of pending and future stockholder litigation, including without limitation, our possible exposure under the contemplated settlement of that litigation; our recent focus on certain aspects of 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 fluctuation in customer demand and commitments; the expected volatility in our stock price, particularly now that our common stock is traded on the Over-The-Counter Bulletin Board; issues associated with continued listing on the Over-The-Counter Bulletin Board; 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; cancellation of orders without penalties; 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; 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 collection, 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; 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, 2002 filed with the Securities and Exchange Commission. Specific Cautionary Statements Relating to the Contemplated Acquisition of Phazar Corp. On October 30, 2003, YDI Wireless announced a definitive merger agreement to acquire Phazar Corp. There can be no assurance whatsoever that this acquisition or any other combination transaction between YDI and Phazar will be consummated. Risks associated with or arising from this contemplated transaction include risks relating to the companies' ability and desire to satisfy the conditions to closing the transaction set forth in the definitive transaction documentation (including, without limitation, the need to obtain the approval of Phazar's stockholders); the substantial time and costs each company will be expending and incurring relating to a contemplated transaction; the ability to obtain any necessary regulatory approvals and clearances, including federal and state securities registrations, qualifications, approvals, clearances, and/or exemptions, needed to consummate a transaction; the ability of the companies to integrate in a cost-effective, timely manner without material loss of employees, customers, or suppliers; the risk that the expected synergies and other benefits of the transaction will not be realized at all or to the extent expected; the risk that cost savings from the transaction may not be fully realized or may take longer to realize than expected; reactions, either positive or negative, of investors, competitors, customers, suppliers, employees, and others to the transaction; the time and costs required to complete the contemplated transaction and then integrate the companies; management and board interest in and distraction due to the contemplated transaction; the uncertain impact on the trading market, volume, and price of each company's stock; difficulties in predicting the combined company's future business and financial performance; costs and delays in implementing common systems and procedures, including financial accounting systems; and the fact that the registration, issuance, and/or future sale of a large number of shares of our common stock may cause a stagnation or decline in the market price of our common stock. Specific Cautionary Statements Relating to the Strategic Combination of Young Design and Telaxis On April 1, 2003, Young Design and Telaxis closed a strategic combination transaction. There can be no assurance whatsoever that this combination will ultimately be successful or beneficial to our stockholders. Risks associated with or arising from this recent transaction include risks relating to the ability of the companies to integrate in a cost-effective, timely manner without material loss of employees, customers, or suppliers; the time and costs required to integrate the companies; the distraction caused by this integration process; the risk that the expected synergies and other benefits of the combination will not be realized at all or to the extent expected; the risk that the contemplated cost savings from the combination may not be fully realized or may take longer to realize than expected; reactions, either negative or positive, of investors, competitors, customers, suppliers, employees, and others to the combination; management and board interest in and distraction due to this transaction; risks arising from personnel changes since the combination; costs and delays in implementing common systems and procedures, including financial accounting systems; risks associated with Young Design's lack of experience operating as a public company, including the process of periodic financial reporting; risks associated with Young Design's need to adopt and implement in a short period of time a number of additional accounting controls, procedures, policies, and systems to facilitate timely and accurate periodic financial reporting; the possible need for the combined company to hire additional accounting staff, including individuals familiar with periodic financial reporting; and the fact that the 25 issuance and/or future sale of a very large number of shares of common stock may cause a stagnation or decline in the market price of our common stock. 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. Given these uncertainties, investors are cautioned not to place undue reliance on any forward-looking statements. Impact of Recently Issued Accounting Standards In April, 2003, the FASB issued Statement No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." The Statement amends Statement 133 for decisions made by the Derivatives Implementation Group, in particular the meaning of an initial net investment, the meaning of underlying and the characteristics of a derivative that contains financing components. Presently, we have no derivative financial instruments and, therefore, believe that adoption of the Statement will have no effect on our financial statements. In May 2003, the FASB issued Statement No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." The Statement requires that the issuer classify certain instruments as liabilities, rather than equity, or so-called mezzanine equity. Presently, we have no financial instruments that come under the scope of the Statement and, therefore, believe that adoption of the new Statement will have no impact on our financial statements. Item 3. Quantitative and Qualitative Disclosures about Market Risk. We have sales in various regions of the world. Additionally, we may export and import to and from other countries. Our sales may therefore be subject to volatility because of changes in political and economic conditions in these countries. We presently do not use any derivative financial instruments to hedge our exposure to adverse fluctuations in interest rates, foreign exchange rates, fluctuations in commodity prices or other market risks; nor do we invest in speculative financial instruments. Due to the nature of our borrowings and our short-term investments, we have concluded that there is no material market risk exposure and, therefore, no quantitative tabular disclosures are required. Item 4. Controls and Procedures. Disclosure controls and procedures Our Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of September 30, 2003, have concluded that as of such date our disclosure controls and procedures were adequate and effective. Internal controls There has not been any change in our internal controls over financial reporting that occurred during the fiscal quarter covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting. 26 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 Telaxis 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 the Telaxis initial public offering and certain of its 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 the Telaxis initial public offering registration statement concerning the underwriters' alleged activities in connection with the underwriting of Telaxis' shares to the public. The amended complaint seeks, among other things, unspecified damages and costs associated with the litigation. These lawsuits have been assigned along with, we understand, approximately 1,000 other lawsuits making substantially similar allegations against approximately 300 other publicly-traded companies and 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. We believe the claims against us are without merit and have defended the litigation vigorously. The litigation process is inherently uncertain, however, and there can be no assurance that the outcome of these claims will be favorable for us. On July 15, 2002, together with the other issuer defendants, Telaxis filed a collective motion to dismiss the consolidated, amended complaints against the issuers on various legal grounds common to all or most of the issuer defendants. The underwriters also filed separate motions to dismiss the claims against them. In October 2002, the court approved a stipulation dismissing without prejudice all claims against the Telaxis directors and officers who had been defendants in the litigation. On February 19, 2003, the court issued its ruling on the separate motions to dismiss filed by the issuer defendants and the underwriter defendants. The court granted in part and denied in part the issuer defendants' motions. The court dismissed, with prejudice, all claims brought against Telaxis under the anti-fraud provisions of the securities laws. The court denied the motion to dismiss the claims brought under the registration provisions of the securities laws (which do not require that intent to defraud be pleaded) as to Telaxis and as to substantially all of the other issuer defendants. The court denied the underwriter defendants' motion to dismiss in all respects. In June 2003, we elected to participate in a proposed settlement agreement with the plaintiffs in this litigation. This decision was made by a special independent committee of our board of directors. We understand that a large majority of the other issuer defendants have also elected to participate in this settlement. If ultimately approved by the court, this proposed settlement would result in a dismissal, with prejudice, of all claims in the litigation against us and against the other issuer defendants who elect to participate in the proposed settlement, together with the current or former officers and directors of participating issuers who were named as individual defendants. The proposed settlement does not provide for the resolution of any claims against the underwriter defendants. The proposed settlement provides that the insurers of the participating issuer defendants will guarantee that the plaintiffs in the cases brought against the participating issuer defendants will recover at least $1 billion. This means there will be no monetary obligation to the plaintiffs if they recover $1 billion or more from the underwriter defendants. In addition, we and the other participating issuer defendants will be required to assign to the plaintiffs certain claims that the participating issuer defendants may have against the underwriters of their IPOs. The proposed settlement contemplates that any amounts necessary to fund the guarantee contained in the settlement or settlement-related expenses would come from participating issuers' directors and officers liability insurance policy proceeds as opposed to funds of the participating issuer defendants themselves. A participating issuer defendant could be required to contribute to the costs of the settlement if that issuer's insurance coverage were insufficient to pay that issuer's allocable share of the settlement costs. Therefore, the potential exposure of each participating issuer defendant should decrease as the number of participating issuer defendants increases. We currently expect that our insurance proceeds will be sufficient for these purposes and that we will not otherwise be required to contribute to the proposed settlement. 27 Consummation of the proposed settlement is conditioned upon, among other things, negotiating, executing, and filing with the court final settlement documents and final approval by the court. If the proposed settlement described above is not consummated, we intend to continue to defend the litigation vigorously. Moreover, if the proposed settlement is not consummated, we believe that the underwriters may have an obligation to indemnify us for the legal fees and other costs of defending these suits. While there can be no assurance as to the ultimate outcome of these proceedings, we currently believe that the final result of these actions will have no material effect on our consolidated financial condition, results of operations, or cash flows. Item 2. Changes in Securities and Use of Proceeds. Recent Sales of Unregistered Securities We issued 13,892 shares of common stock at $2.08 per share in June 2003 to a warrant holder upon the exercise of warrants on a cashless basis (we withheld 14,743 shares of common stock as payment for the aggregate exercise price of the warrants). We received no cash proceeds from the issuance of these shares. The issuance was completed without registration under the Securities Act in reliance upon the exemptions contained in Section 4(2) of the Securities Act and/or Rule 506 of Regulation D promulgated under the Securities Act for transactions not involving a public offering. This issuance of common stock by us did not involve the use of an underwriter, and no commissions were paid in connection with this issuance. Corporate Structural Changes On July 9, 2003, Telaxis effected a reverse 1-for-100 split of its outstanding common stock, a forward 25-for-1 split of its common stock outstanding after the reverse stock split, the reincorporation of Telaxis from Massachusetts to Delaware, and the change of its corporate name to "YDI Wireless, Inc." No fractional shares were issued as a result of the reverse stock split. Fractional shares held by any stockholder with less than 100 shares in its account will be cashed out at a price of $0.954 for each share outstanding before the reverse stock split, which is based on the average trading prices of our common stock on the Over-the-Counter Bulletin Board for the 20 trading days ending on July 9, 2003. Due to this fractional share treatment, 39,976 pre-split shares were cancelled for approximately $38,000. No fractional shares were issued as a result of the forward stock split. Any stockholder who was entitled to a fractional share after the forward stock split had that stockholder's holdings rounded up to the next whole share. The Company issued 96 shares to these shareholders in the aggregate. Both the reincorporation into Delaware and the corporate name change were effected through a merger of Telaxis, a Massachusetts corporation, and YDI Wireless, a Delaware corporation formed as a wholly owned subsidiary of Telaxis for the purpose of effecting the reincorporation and name change. YDI Wireless was the surviving corporation in the merger. The merger was effected pursuant to the Agreement and Plan of Merger and Reincorporation, dated as of June 23, 2003, by and between Telaxis and YDI Wireless, which merger agreement was duly approved by the stockholders of Telaxis at their 2003 annual meeting. In connection with the merger and pursuant to the merger agreement, each share of Telaxis' common stock, par value $0.01 per share, outstanding immediately prior to the effective time of the merger was automatically converted into the right to receive one share of YDI Wireless common stock, par value $0.01 per share, with the result that YDI Wireless is now the publicly held corporation and Telaxis has been merged out of existence by operation of law. The stockholders of Telaxis immediately prior to the merger were the stockholders of YDI Wireless immediately after the merger, subject to the effects of the reverse stock split described above. YDI Wireless' common stock will continue to trade on the Over-the-Counter Bulletin Board, but the ticker symbol has been changed to "YDIW." 28 Termination of Stockholder Rights Plan On May 15, 2003, Telaxis and Registrar and Transfer Company, as rights agent, entered into an amendment to Telaxis' stockholder rights plan. The purpose of this amendment was to terminate the substantive effect of the rights plan immediately before Telaxis reincorporated into Delaware. The May 15, 2003 amendment amended the rights plan by shortening the period of time within which the stock purchase rights issued or issuable under the plan are exercisable. The rights plan previously provided that the rights would be exercisable until the earlier of (i) ten years after the rights plan was originally executed or (ii) the date that the rights are redeemed in accordance with the plan. The amendment revised those provisions to provide that the rights are exercisable until the earliest of (i) ten years after the rights plan was originally executed, (ii) the date that the rights are redeemed in accordance with the plan, and (iii) one minute before the effectiveness of the reincorporation merger of Telaxis and YDI Wireless. Accordingly, because our stockholders did approve and we did implement the reincorporation merger, none of the rights are exercisable any longer. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits See Exhibit Index. (b) Reports on Form 8-K On July 16, 2003, we filed a report on Form 8-K to report that, on July 9, 2003, we effected a reverse 1-for-100 split of our outstanding common stock, a forward 25-for-1 split of our common stock outstanding after the reverse stock split, the reincorporation of the company from Massachusetts to Delaware, and the change of our corporate name to "YDI Wireless, Inc." On July 21, 2003, we filed a report on Form 8-K to report that YDI Wireless had assumed the Telaxis stock option plans and stock options and was adopting the registration statements relating to those stock option plans and stock options.. On August 1, 2003, we filed a report on Form 8-K to report a press release relating to the earnings announcement for the second quarter ending June 30, 2003. SIGNATURE 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. YDI Wireless, Inc. Date: November 10, 2003 By: /s/ Patrick L. Milton -------------------------------------------- Patrick L. Milton, Chief Financial Officer and Treasurer (principal financial and accounting officer) 29 EXHIBIT INDEX Exhibit Number Description 2.1 Agreement and Plan of Merger and Reincorporation by and between Telaxis Communications Corporation and YDI Wireless, Inc. dated as of June 23, 2003.* 3.1 Certificate of Incorporation of YDI Wireless, Inc. as filed with the Delaware Secretary of State on May 5, 2003.** 3.2 Certificate of Merger of YDI Wireless, Inc. and Telaxis Communications Corporation as filed with the Delaware Secretary of State on May 7, 2003.** 3.3 By-laws of YDI Wireless, Inc.** 3.4 Articles of Amendment to Restated Articles of Organization of Telaxis Communications Corporation, as filed with the Massachusetts Secretary of State on July 8, 2003 effecting a reverse stock split.** 3.5 Articles of Amendment to Restated Articles of Organization of Telaxis Communications Corporation, as filed with the Massachusetts Secretary of State on July 8, 2003 effecting a forward stock split.** 3.6 Articles of Merger of YDI Wireless, Inc. and Telaxis Communications Corporation, as filed with the Massachusetts Secretary of State on July 8, 2003.** 4.1 Form of certificate evidencing ownership of Common Stock of YDI Wireless, Inc.** 4.2 Amendment No. 3 to Rights Agreement by and between Telaxis Communications Corporation and Registrar and Transfer Company, as Rights Agent dated as of May 15, 2003.** 10.1 Separation Agreement and General Release by and between YDI Wireless, Inc. and Dennis C. Stempel dated September 15, 2003. 10.2 Separation Agreement and General Release by and between YDI Wireless, Inc. and John L. Youngblood dated October 1, 2003. 31.1 Certification of Chief Executive Officer Pursuant to Rule 13a-14(a). 31.2 Certification of Chief Financial Officer Pursuant to Rule 13a-14(a). 32.1 Certification Pursuant to Rule 13a-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350 of Chapter 63 of Title 18 of the United States Code). ________ All non-marked exhibits listed above are filed herewith. * Incorporated herein by reference to the exhibits to Form 8-K filed with the SEC on July 16, 2003. ** Incorporated herein by reference to the same-numbered exhibit to Form 10-Q filed with the SEC on August 14, 2003. EX-10.1 3 exhibit10-1.txt SEPARATION AGREEMENT AND GENERAL RELEASE ---------------------------------------- This Separation Agreement and General Release (hereinafter "Separation Agreement") is entered into by and between Dennis C. Stempel (hereinafter "MR. STEMPEL"), and YDI Wireless, Inc., formerly known as Telaxis Communications Corporation, (hereinafter "YDI"). In this Separation Agreement, YDI shall at all times include any and all related entities, corporations, partnerships and subsidiaries, as well as their respective current and former directors, officers, trustees, partners, employees, predecessors in interest, successors in interest, representatives and agents, both in their representative and individual capacities, but excluding MR. STEMPEL in any capacity. WHEREAS, MR. STEMPEL's employment with YDI ended on April 8, 2003; WHEREAS, MR. STEMPEL and YDI disagree on whether he is entitled to certain severance benefits under the terms of his employment agreement; and, WHEREAS, the parties desire that their relationship end in a professional manner, and to avoid litigation; NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, it is agreed by the parties as follows: FIRST: SEPARATION ----------------- MR. STEMPEL's employment by YDI ceased on April 8, 2003. Nothing in this agreement shall be construed as extending MR. STEMPEL's employment beyond April 8, 2003. SECOND: COMPENSATION -------------------- MR. STEMPEL has already received salary up through and including April 8, 2003, as well as certain FTO payments. In exchange for MR. STEMPEL's execution of this Separation Agreement and Release, YDI agrees to pay MR. STEMPEL and his counsel One Hundred Fifteen Thousand and 00/100 ($115,000.00) Dollars, less all applicable taxes and appropriate withholdingsPayment shall be no later than October 10, 2003MR. STEMPEL is obligated to inform YDI of his desired withholdings on this amount upon entering into this Separation Agreement. Said amount represents any and all moneys that shall be paid to MR. STEMPEL for settlement of all his claims for damages relating to his employment by YDI, and the termination of said employment, including any and all claims for severance benefits under the terms of his contract of employment, as well as his attorney's fees, and all other costs associated with those claims. Page 1 of 6 RF___ DS ______ SEPERATION AGREEMENT BETWEEN DENNIS C. STEMPEL AND YDI WIRELESS, INC. THIRD: COMPLETE RELEASE ----------------------- In exchange for the mutual promises contained herein and the payment made to MR. STEMPEL on the disputed claim, MR. STEMPEL, on behalf of himself, his heirs and assigns, irrevocably and unconditionally releases YDI from all claims, controversies, liabilities, demands, causes of action, debts, obligations, promises, acts, agreements, , and damages of whatever kind or nature, whether known or unknown, suspected or unsuspected, foreseen or unforeseen, liquidated or contingent, actual or potential, jointly and individually, that he has had or may have as of the execution of this Agreement, based on any and all aspects of MR. STEMPEL's employment with YDI or his separation from that employment, including, but not limited to, any and all claims for breach of express or implied contract or covenant of good faith and fair dealing (whether written or oral), all claims for retaliation or violation of public policy, breach of promise, detrimental reliance or tort (e.g., intentional infliction of emotional distress, defamation, assault, battery, false imprisonment, wrongful termination, interference with contractual or advantageous relationship, etc.), whether based on common law or otherwise; all claims arising under the Massachusetts Fair Employment Practices Act; the Massachusetts Equal Rights Law; Title VII of the Civil Rights Act of 1964, as amended; the Age Discrimination in Employment Act; the Americans with Disabilities Act; claims for emotional distress, mental anguish, personal injury, loss of consortium; any and all claims that may be asserted on MR. STEMPEL's behalf by others; the Employee Retirement Income Security Act of 1974 ("ERISA"); or any other federal, state or local laws or regulations relating to employment or benefits associated with employment. The foregoing list is meant to be illustrative rather than inclusive. Notwithstanding the above, it is understood that MR. STEMPEL does not waive any rights he may have to vested benefits under any retirement or employee welfare plan that may be due him upon his separation from the company, that MR. STEMPEL does not relinquish any rights to exercise his current stock options and that the Indemnification Agreement dated September 18, 2000 between MR. STEMPEL and Telaxis Communications Corporation shall remain in full force and effect. YDI releases MR. STEMPEL from any claim based upon his separation from YDI and the benefits he received as a result. FOURTH: NO LAWSUITS OR CLAIMS ----------------------------- MR. STEMPEL specifically represents that he has not instituted a lawsuit against YDI and that it is not his intention to do so and that he will not institute any lawsuit or other proceeding against YDI based on any claims or rights that are released by MR. STEMPEL in Paragraph Third above. YDI represents that it has not instituted a lawsuit against MR. STEMPEL, and that it is not its intention to do so and that it will not institute any lawsuit or other proceeding against MR. STEMPEL based on any claims or rights that are released by YDI in Paragraph Third above. Page 2 of 6 RF___ DS ______ SEPERATION AGREEMENT BETWEEN DENNIS C. STEMPEL AND YDI WIRELESS, INC. MR. STEMPEL specifically acknowledges that this waiver and release releases YDI from liability for any alleged discrimination that could be the subject matter of any charge MR. STEMPEL may subsequently file with the Equal Employment Opportunity Commission ("EEOC"), the Massachusetts Commission Against Discrimination ("MCAD") or any other agency. MR. STEMPEL further acknowledges and agrees that, with respect to the rights and claims he is waiving, he is waiving not only his right to recover in any action he might commence, but also his right to recover in any action brought on his behalf by any other party, including, but not limited to, the U.S. Equal Employment Opportunity Commission ("EEOC"), the MCAD, or any other federal, state or local governmental agency or department. FIFTH: ADEQUATE CONSIDERATION ----------------------------- MR. STEMPEL agrees that the payment set forth herein constitutes adequate and ample consideration for the rights and claims he is waiving under this Separation Agreement. MR. STEMPEL further agrees that such consideration shall be in lieu of any other compensation or benefits to which MR. STEMPEL may be entitled, or may claim to be entitled. SIXTH: RESIGNATION ACCEPTED --------------------------- MR. STEMPEL has voluntarily resigned from his position as an employee, and YDI accepts his resignation effective on April 8, 2003. Any documents in MR. STEMPEL's personnel files and other records, including the records of the Board of Directors or any of its subcommittees, that are inconsistent with this tender and acceptance of his resignation will be purged from said file or revised. MR. STEMPEL and YDI agree that MR. STEMPEL will not in the future be employed by YDI. SEVENTH: NON-DISPARAGEMENT COVENANT ----------------------------------- MR. STEMPEL and YDI both agree that they will engage in no conduct which is either intended to or could reasonably be expected to harm the other's business pursuits or the other's professional reputation. EIGHTH: CONFIDENTIALITY ----------------------- YDI and MR. STEMPEL recognize and acknowledge that YDI will need to make this document and its contents public as a matter of securities laws and regulations. MR. STEMPEL and YDI both understand that they will not voluntarily provide testimony about MR. STEMPEL's employment, separation, or this Agreement, except to the extent required by law. NINTH: REVIEW AND CONSIDERATION PERIOD; REVOCATION -------------------------------------------------- Page 3 of 6 RF___ DS ______ SEPERATION AGREEMENT BETWEEN DENNIS C. STEMPEL AND YDI WIRELESS, INC. MR. STEMPEL hereby acknowledges that he has been informed that he has twenty-one (21) days to review and consider this Separation Agreement and also acknowledges that he hereby has been encouraged to obtain the advice of an attorney about the terms of this Separation Agreement and that he has indeed obtained such advice. MR. STEMPEL understands that he may revoke this Separation Agreement within seven (7) days of signing it by providing written notice of such revocation to the Chief Executive Officer of YDI. MR. STEMPEL further understands and agrees revocation shall only be effective upon the receipt of a written notice to YDI within seven (7) days after MR. STEMPEL signs this Separation Agreement. TENTH: CONSEQUENCES OF BREACH; PROCEDURES ----------------------------------------- In the event that either party institutes legal proceedings to enforce the terms of this Separation Agreement, it is specifically understood and agreed that such a claim shall be submitted to final and binding arbitration pursuant to the rules of the American Arbitration Association, and that the prevailing party shall recover its costs and reasonable attorney's fees incurred in such arbitration proceeding. Nothing in this provision precludes a party from seeking equitable relief in the Superior Court, whether in addition to or in lieu of a court proceeding, to prevent a violation of this Agreement. ELEVENTH: NON-ADMISSION OF LIABILITY ------------------------------------ Each party acknowledges that each party expressly denies that it has done anything wrong and that by entering into this Separation Agreement voluntarily neither party admits that it has done anything wrong to the other. TWELTH: MISCELLANEOUS --------------------- If any provision of this Separation Agreement, or any part of any provision of this Separation Agreement, is found to be invalid by a court of competent jurisdiction, such shall not affect the validity of any other provision, or part thereof, of this Separation Agreement. YDI and MR. STEMPEL agree that this Separation Agreement constitutes their entire final understanding and agreement with respect to the subject matter hereof and supersedes all prior or contemporaneous negotiations, promises, covenants, agreements, or representations concerning all matters directly, indirectly, or collaterally related to the subject matter of this Separation Agreement except that Section 7 of Amendment I to the Employment Agreement dated August 29, 2002 entered into by MR. STEMPEL and Telaxis Communications Corporation, and the Indemnification Agreement dated September 18, 2000 entered into by MR. STEMPEL and Telaxis Communications Corporation shall remain in full force and effect and shall be considered a part of and incorporated into this Agreement. MR. STEMPEL and YDI agree that this Separation Agreement cannot be amended or modified except by a writing executed by both of the parties hereto or their respective administrators, trustees, personal representatives, and successors. The parties further agree that this Page 4 of 6 RF___ DS ______ SEPERATION AGREEMENT BETWEEN DENNIS C. STEMPEL AND YDI WIRELESS, INC. Separation Agreement is governed by the laws of the Commonwealth of Massachusetts. THIRTEENTH: MUTUAL PREPARATION ------------------------------ YDI and MR. STEMPEL agree that no single party shall be deemed to have drafted this Separation Agreement or any portion thereof. This Separation Agreement is the product of the collaborative effort of YDI and MR. STEMPEL and their counsel and therefore the rule of contract interpretation of construing ambiguities against the drafter shall have no application to this Separation Agreement. FOURTEENTH: PROPERTY OF YDI --------------------------- MR. STEMPEL agrees and acknowledges that he has returned to YDI all property of YDI. For purposes of this paragraph, "property of YDI" includes, but is not limited to, products and prototypes, keys, corporate credit cards, identification cards, equipment, books, supplies, personal digital assistants, pagers, cellular telephones, computers, computer programs, computer files, computer disks, pictures, components, originals and copies of all corporate documents, including financial records and information, and any other materials, whether prepared by you or by others, but excludes anything owned by you individually. FIFTEENTH: ACKNOWLEDGMENT THE PARTIES HERETO ACKNOWLEDGE THAT THEY HAVE CAREFULLY READ AND UNDERSTAND THIS SEPARATION AGREEMENT AND AGREE THAT NEITHER PARTY HAS MADE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED HEREIN. MR. STEMPEL AND YDI ALSO ACKNOWLEDGE THAT THEY ENTER INTO THIS SEPARATION AGREEMENT VOLUNTARILY, WITH FULL KNOWLEDGE OF ITS SIGNIFICANCE, AND WITHOUT PRESSURE OR COERCION. MR. STEMPEL FURTHER ACKNOWLEDGES THAT HE HAS HAD SUFFICIENT TIME TO CONSIDER THIS AGREEMENT AND CONSULT WITH AN ATTORNEY OF HIS CHOOSING PRIOR TO EXECUTING THIS AGREEMENT. IN WITNESS WHEREOF, YDI and MR. STEMPEL have executed this Separation Agreement and General Release in duplicate. Page 5 of 6 RF___ DS ______ SEPERATION AGREEMENT BETWEEN DENNIS C. STEMPEL AND YDI WIRELESS, INC. YDI Wireless, Inc. By:/s/ Robert Fitzgerald /s/ Dennis C. Stempel ------------------------------------------ ----------------------------- Robert Fitzgerald, Chief Executive Officer Dennis C. Stempel Dated: Dated: September 15, 2003 Witness: Witness: ------------------------------------ -------------------- Page 6 of 6 RF___ DS ______ EX-10.2 4 exhibit10-2.txt SEPARATION AGREEMENT AND GENERAL RELEASE ---------------------------------------- This Separation Agreement and General Release (hereinafter "Separation Agreement") is entered into by and between John Youngblood (hereinafter "MR. YOUNGBLOOD"), and YDI Wireless, Inc. (hereinafter "YDI"). In this Separation Agreement, YDI shall at all times include any and all related entities, corporations, partnerships and subsidiaries, as well as their respective current and former directors, partnerships and subsidiaries, as well as their respective current and former directors, officers, trustees, partners, employees, predecessors in interest, successors in interest, representatives and agents, both in their representative and individual capacities, but shall not include MR. YOUNGBLOOD in any capacity. WHEREAS, MR. YOUNGBLOOD and YDI disagree on whether, in light of his resignation MR. YOUNGBLOOD is entitled to certain severance benefits under the terms of his employment agreement; and WHEREAS, the parties desire that their relationship end in a professional manner, and to avoid litigation; NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, it is agreed by the parties as follows: FIRST: SEPARATION ----------------- For purposes of this Separation Agreement, the parties hereby agree that MR. YOUNGBLOOD's employment by YDI ceased on April 3, 2003. Nothing in this Separation Agreement shall be construed as extending MR. YOUNGBLOOD's employment beyond April 3, 2003. SECOND: COMPENSATION -------------------- MR. YOUNGBLOOD has already received FTO payments. In exchange for MR. YOUNGBLOOD's execution of this Separation Agreement, YDI will waive any claim relating to the FTO payments and further agrees to pay MR. YOUNGBLOOD and his counsel One Hundred Fifty Thousand and 00/100 ($150,000.00) Dollars, minus appropriate taxes, in a check made payable to "JOHN YOUNGBLOOD AND CHOATE, HALL & STEWART, HIS ATTORNEYS." Payment shall be made no later than seven days following the expiration of the Rescission period described below. Said amount represents any and all moneys that shall be paid to MR. YOUNGBLOOD. It represents settlement of all his claims for damages relating to his employment by YDI, and the termination of said employment, including any and all claims for severance benefits under the terms of his contract of employment, as well as his attorney's fees, and other costs. Page 1 of 7 RF _____ JY_____ SEPARATION AGREEMENT BETWEEN JOHN L. YOUNGBLOOD AND YDI WIRELESS, INC. ---------------------------------------------------------------------- THIRD: STOCK OPTIONS AND WARRANTS --------------------------------- MR. YOUNGBLOOD'S YDI stock options and warrants shall be governed by the Incentive Stock Option and Non-Qualified Stock Option Agreements between the parties, as amended by the parties' January 24, 2003 Amendment to Option Agreements, and by Warrants W-12, W-25, W-99-11 and W-99-22 as adjusted for the merger between YDI and Telaxis Communications Corporation, which shall remain in full force and effect in accordance with their terms. FOURTH: COMPLETE RELEASE BY MR. YOUNGBLOOD ------------------------------------------ In exchange for the mutual promises contained herein and the payment made to MR. YOUNGBLOOD on the disputed claim, MR. YOUNGBLOOD, on behalf of himself, his heirs and assigns, irrevocably and unconditionally releases YDI from all claims, controversies, liabilities, demands, causes of action, debts, obligations, promises, acts, agreements, rights of contribution, insurance, and/or indemnification, and damages of whatever kind or nature, whether known or unknown, suspected or unsuspected, foreseen or unforeseen, liquidated or contingent, actual or potential, jointly and individually, that he has had or may have as of the execution of this Agreement, based on any and all aspects of MR. YOUNGBLOOD's employment with YDI or his separation from that employment or his service as a member of the board of directors of YDI's predecessor, including, but not limited to, any and all claims for breach of express or implied contract or covenant of good faith and fair dealing (whether written or oral), all claims for retaliation or violation of public policy, breach of promise, detrimental reliance or tort (e.g., intentional infliction of emotional distress, defamation, assault, battery, false imprisonment, wrongful termination, interference with contractual or advantageous relationship, etc.), whether based on common law or otherwise; all claims arising under the Massachusetts Fair Employment Practices Act, the Massachusetts Equal Rights Law; Title VII of the Civil Rights Act of 1964, as amended, the Age Discrimination in Employment Act, the Americans with Disabilities Act; claims for emotional distress, mental anguish, personal injury, loss of consortium; any and all claims that may be asserted on MR. YOUNGBLOOD's behalf by others; the Employee Retirement Income Security Act of 1974 ("ERISA"); or any other federal, state or local laws or regulations relating to employment or benefits associated with employment. The foregoing list is meant to be illustrative rather than inclusive. Notwithstanding the above, it is understood that MR YOUNGBLOOD does not waive any rights he may have to vested benefits under any retirement or employee welfare plan that may be due him upon his separation from the company and MR. YOUNGBLOOD does not relinquish any rights to exercise his current stock options. This release shall not be construed to impair MR. YOUNGBLOOD's right to enforce the terms of this Separation Agreement. FIFTH: RELEASE BY YDI --------------------- In exchange for the mutual promises contained herein, YDI irrevocably and unconditionally releases MR. YOUNGBLOOD and his administrators, executors, successors, heirs, attorneys, representatives, agents and assigns from all claims, controversies, liabilities, Page 2 of 7 RF _____ JY_____ SEPARATION AGREEMENT BETWEEN JOHN L. YOUNGBLOOD AND YDI WIRELESS, INC. ---------------------------------------------------------------------- demands, causes of action, debts, obligations, promises, acts, agreements, rights of contribution, insurance, and/or indemnification, and damages of whatever kind or nature, whether known or unknown, suspected or unsuspected, foreseen or unforeseen, liquidated or contingent, actual or potential, jointly and individually, that it has had or may have as of the execution of this Agreement, based on MR. YOUNGBLOOD's separation from employment with YDI and the benefits that he received as a result of such separation, including any claim that MR. YOUNGBLOOD received FTO payments in excess of that which he was entitled to receive. This Release shall not be construed to impair YDI's right to enforce the terms of this Agreement. YDI acknowledges and represents that, as of the date of this Agreement, including but not limited to information held by the officers of YDI and facts learned by YDI through the due diligence performed in connection with the merger between YDI and Telaxis Communications Corporation, it has no knowledge of any facts that would give rise to any cause of action by YDI against MR. YOUNGBLOOD. YDI further acknowledges and represents that it has no current plans to pursue any cause of action against MR. YOUNGBLOOD. SIXTH: NO LAWSUITS OR CLAIMS ---------------------------- MR. YOUNGBLOOD represents that he has not, and will not institute a lawsuit against YDI based on any claims or rights that are released by him in Paragraph Four above. MR. YOUNGBLOOD specifically acknowledges that this waiver and release releases YDI from liability for any alleged discrimination that could be the subject matter of any charge MR. YOUNGBLOOD may subsequently file with the Equal Employment Opportunity Commission ("EEOC"), the Massachusetts Commission Against Discrimination ("MCAD") or any other agency. MR. YOUNGBLOOD further acknowledges and agrees that, with respect to the rights and claims he is waiving, he is waiving not only his right to recover in any action he might commence, but also his right to recover in any action brought on his behalf by any other party, including, but not limited to, the U.S. Equal Employment Opportunity Commission ("EEOC"), the MCAD, or any other federal, state or local governmental agency or department. SEVENTH: ADEQUATE CONSIDERATION ------------------------------- MR. YOUNGBLOOD agrees that the compensation and benefits set forth herein constitute adequate and ample consideration for the rights and claims he is waiving under this Separation Agreement. MR. YOUNGBLOOD further agrees that such consideration shall be in lieu of any other compensation or benefits to which MR. YOUNGBLOOD may be entitled, or may claim to be entitled. Page 3 of 7 RF _____ JY_____ SEPARATION AGREEMENT BETWEEN JOHN L. YOUNGBLOOD AND YDI WIRELESS, INC. ---------------------------------------------------------------------- EIGHTH: RESIGNATION ACCEPTED ---------------------------- For purposes of this Separation Agreement, the parties hereby agree that MR. YOUNGBLOOD resigned from his position as a YDI employee effective April 3, 2003, and YDI accepts his resignation effective on said date. MR. YOUNGBLOOD does not now, and agrees that he will not in the future, seek re-employment with YDI. MR. YOUNGBLOOD acknowledges and recognizes that he is not now and will not ever in the future be eligible for such employment and that this is appropriate under the circumstances. It is understood and agreed that having voluntarily agreed, MR. YOUNGBLOOD is not entitled to unemployment compensation insurance in addition to the benefits contained herein. NINTH: COOPERATION ------------------ In exchange for the consideration MR. YOUNGBLOOD shall receive under this Separation Agreement, MR. YOUNGBLOOD specifically agrees to fully cooperate with YDI concerning business or operational issues that may arise following the execution of this Separation Agreement. TENTH: NON-DISPARAGEMENT ------------------------ MR. YOUNGBLOOD agrees that he will engage in no conduct which is either intended to or could reasonably be expected to harm YDI in the operation of its business. MR. YOUNGBLOOD further agrees he will not take any action, legal or otherwise, which might embarrass, harass or adversely affect YDI or which might in any way work to the detriment whether directly or indirectly of YDI. In particular and by way of illustration not limitation, MR. YOUNGBLOOD agrees that he will not directly or indirectly contact members of the Board of Directors, the press or media, any federal, state or local governmental agency, YDI's stockholders, officers, managers or employees, customers or any entity that has a business relationship with YDI in order to disparage the good morale or business reputation or business practices of YDI or any of its current and former officers, directors, manages or employees. While nothing in this paragraph precludes MR. YOUNGBLOOD from providing truthful testimony in a legal proceeding in which he is called to testify, MR. YOUNGBLOOD agrees to provide YDI with advance notification if he is called to testify in any judicial or legal proceeding. YDI agrees not to make any written or oral disparaging statement about MR. YOUNGBLOOD or to refer negatively to YDI's association with MR. YOUNGBLOOD. YDI further agrees it will take no action which might embarrass MR. YOUNGBLOOD. In particular and by way of illustration not limitation, YDI agrees that it will not directly or indirectly contact MR. YOUNGBLOOD' employers, the press or media, any federal, state or local governmental agency, YDI's stockholders, officers, managers or employees, customers or any entity that has a business relationship with MR. YOUNGBLOOD in order to disparage the good morale or business reputation or business practices of MR. YOUNGBLOOD. While nothing in this paragraph precludes YDI from providing truthful testimony in a legal proceeding in which he is called to testify, YDI agrees to provide MR. YOUNGBLOOD with advance notification if he is called to testify in any judicial or legal proceeding. Page 4 of 7 RF _____ JY_____ SEPARATION AGREEMENT BETWEEN JOHN L. YOUNGBLOOD AND YDI WIRELESS, INC. ---------------------------------------------------------------------- ELEVENTH: CONFIDENTIALITY ------------------------- YDI and MR. YOUNGBLOOD recognize and acknowledge that YDI will need to make this document and its contents public as a matter of securities laws and regulations. TWELFTH: REVIEW AND CONSIDERATION PERIOD; REVOCATION ---------------------------------------------------- MR. YOUNGBLOOD hereby acknowledges that he has been informed that he has twenty-one (21) days to review and consider this Separation Agreement and also acknowledges that he hereby has been encouraged to obtain the advice of an attorney about the terms of this Separation Agreement and that he has indeed obtained that advice. MR. YOUNGBLOOD understands that he may revoke this Separation Agreement within seven (7) days of signing it by providing written notice of such revocation to the Chief Executive Officer of YDI. MR. YOUNGBLOOD further understands and agrees revocation shall only be effective upon the receipt of a written notice to YDI within seven (7) days after MR. YOUNGBLOOD signs this Separation Agreement. THIRTEENTH: CONSEQUENCES OF BREACH; PROCEDURES ---------------------------------------------- In the event that either party institutes legal proceedings to enforce the terms of this Separation Agreement, it is specifically understood and agreed that such a claim shall be submitted to final and binding arbitration pursuant to the rules of the American Arbitration Association, and that the prevailing party shall recover its costs and reasonable attorney's fees incurred in such arbitration proceeding. Nothing in this provision precludes a party from seeking equitable relief in the Massachusetts Superior Court, whether in addition to or in lieu of a court proceeding, to prevent a violation of this Agreement. FOURTEENTH: NON-ADMISSION OF LIABILITY -------------------------------------- Each party acknowledges that each party expressly denies that it has done anything wrong and that by entering into this Separation Agreement voluntarily, neither party admits that it has done anything wrong to the other. FIFTEENTH: MISCELLANEOUS ------------------------ If any provision of this Separation Agreement, or any part of any provision of this Separation Agreement, is found to be invalid by a court of competent jurisdiction, such shall not affect the validity of any other provision, or part thereof, of this Separation Agreement. With the exception of the Incentive Stock Option and Non-Qualified Stock Option Agreements (as amended) referenced in Paragraph Three herein, the Warrants referenced in Paragraph Three herein, and the September 18, 2000 Indemnification Agreement between YDI and MR. YOUNGBLOOD, each of which shall remain in full force and effect in accordance with their terms, YDI and MR. YOUNGBLOOD agree that this Separation Agreement constitutes their entire final understanding and agreement with respect to the subject matter hereof and supersedes Page 5 of 7 RF _____ JY_____ SEPARATION AGREEMENT BETWEEN JOHN L. YOUNGBLOOD AND YDI WIRELESS, INC. ---------------------------------------------------------------------- all prior or contemporaneous negotiations, promises, covenants, agreements, or representations concerning all matters directly, indirectly, or collaterally related to the subject matter of this Separation Agreement. MR. YOUNGBLOOD and YDI agree that this Separation Agreement cannot be amended or modified except by a writing executed by both of the parties hereto or their respective administrators, trustees, personal representatives, and successors. The parties further agree that this Separation Agreement is governed by the laws of the Commonwealth of Massachusetts. SIXTEENTH: MUTUAL PREPARATION ----------------------------- YDI and MR. YOUNGBLOOD agree that no single party shall be deemed to have drafted this Separation Agreement or any portion thereof. This Separation Agreement is the product of the collaborative effort of YDI and MR. YOUNGBLOOD and their counsel and therefore the rule of contract interpretation of construing ambiguities against the drafter shall have no application to this Separation Agreement. SEVENTEENTH: PROPERTY OF YDI ---------------------------- The parties agree and acknowledge that MR. YOUNGBLOOD has returned to YDI all property of YDI. For purposes of this paragraph, "property of YDI" includes, but is not limited to, products and prototypes, keys, corporate credit cards, identification cards, equipment, books, supplies, personal digital assistants, pagers, cellular telephones, computers, computer programs, computer files, computer disks, pictures, components, originals and copies of all corporate documents, including financial records and information, and any other materials, whether prepared by MR. YOUNGBLOOD or by others, but excludes anything owned by MR. YOUNGBLOOD individually. EIGHTEENTH: ACKNOWLEDGMENT -------------------------- THE PARTIES HERETO ACKNOWLEDGE THAT THEY HAVE CAREFULLY READ AND UNDERSTAND THIS SEPARATION AGREEMENT AND AGREE THAT NEITHER PARTY HAS MADE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED HEREIN. MR. YOUNGBLOOD AND YDI ALSO ACKNOWLEDGE THAT THEY ENTER INTO THIS SEPARATION AGREEMENT VOLUNTARILY, WITH FULL KNOWLEDGE OF ITS SIGNIFICANCE, AND WITHOUT PRESSURE OR COERCION. MR YOUNGBLOOD FURTHER ACKNOWLEGES THAT HE HAS HAD SUFFICIENT TIME TO CONSIDER THIS AGREEMENT AND CONSULT WITH AN ATTORNEY OF HIS CHOOSING PRIOR TO EXECUTING THIS AGREEMENT. Page 6 of 7 RF _____ JY_____ SEPARATION AGREEMENT BETWEEN JOHN L. YOUNGBLOOD AND YDI WIRELESS, INC. ---------------------------------------------------------------------- IN WITNESS WHEREOF, YDI and MR. YOUNGBLOOD have executed this Separation Agreement and General Release. YDI Wireless, Inc. By: /s/ Robert Fitzgerald /s/ John L.Youngblood ------------------------------------------ ------------------------ Robert Fitzgerald, Chief Executive Officer John L.Youngblood Dated:October 1, 2003 Dated:September 23, 2003 Witness: Witness: ---------------------------------------- ----------------- Page 7 of 7 RF _____ JY_____ EX-31.1 5 exhibit31-1.txt SECTION 302 CERTIFICATION I, Robert E. Fitzgerald, Chief Executive Officer of YDI Wireless, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of YDI Wireless, Inc.; 2. Based on my knowledge, this 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 10, 2003 /s/ Robert E. Fitzgerald ------------------------- Robert E. Fitzgerald Chief Executive Officer EX-31.2 6 exhibit31-2.txt SECTION 302 CERTIFICATION I, Patrick L. Milton, Chief Financial Officer and Treasurer of YDI Wireless, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of YDI Wireless, Inc.; 2. Based on my knowledge, this 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 10, 2003 /s/ Patrick L. Milton ------------------------------------- Patrick L. Milton Chief Financial Officer and Treasurer EX-32.1 7 exhibit32-1.txt CERTIFICATION PURSUANT TO 18 U.S.C. ss.1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report on Form 10-Q of YDI Wireless, Inc. (the "Company") for the quarter ended September 30, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), each of the undersigned Robert E. Fitzgerald, Chief Executive Officer, and Patrick L. Milton, Chief Financial Officer and Treasurer, of the Company certifies, to the best knowledge and belief of the signatory, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Robert E. Fitzgerald /s/ Patrick L. Milton - ------------------------- -------------------------------------- Robert E. Fitzgerald Patrick L. Milton Chief Executive Officer Chief Financial Officer and Treasurer Date: November 10, 2003 Date: November 10, 2003 -----END PRIVACY-ENHANCED MESSAGE-----