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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 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
TELAXIS COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts 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 April 30, 2003, there were 54,208,312 shares of the registrant's
common stock outstanding.
INDEX
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements .......................................... 2
Condensed Balance Sheets as of March 31, 2003 (unaudited)
and December 31, 2002 ................................... 3
Condensed Statements of Operations for the three months
ended March 31, 2003 and 2002 (unaudited) ............... 4
Condensed Statement of Changes in Stockholders' Equity for
the three months ended March 31, 2003 (unaudited) ....... 5
Condensed Statements of Cash Flows for the three months
ended March 31, 2003 and 2002 (unaudited) ............... 6
Notes to Financial Statements (unaudited) ................. 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ......................................... 10
Item 3. Quantitative and Qualitative Disclosures about Market Risk .... 16
Item 4. Controls and Procedures ....................................... 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ............................................. 17
Item 2. Changes in Securities and Use of Proceeds ..................... 17
Item 5. Other Information ............................................. 18
Item 6. Exhibits and Reports on Form 8-K .............................. 18
SIGNATURES ............................................................. 19
CERTIFICATIONS ......................................................... 20
1
PART I - FINANCIAL INFORMATION
This Quarterly Report on Form 10-Q contains forward-looking
statements as defined by federal securities laws. Forward-looking statements are
predictions that relate to future events or our future performance and are
subject to known and unknown risks, uncertainties, assumptions, and other
factors that may cause actual results, outcomes, levels of activity,
performance, developments, or achievements to be materially different from any
future results, outcomes, levels of activity, performance, developments, or
achievements expressed, anticipated, or implied by these forward-looking
statements. Forward-looking statements should be read in light of the cautionary
statements and important factors described in this Form 10-Q, including Part I,
Item 2 -- Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Safe Harbor for Forward-Looking Statements. We
undertake no obligation to update or revise any forward-looking statement to
reflect events, circumstances, or new information after the date of this Form
10-Q or to reflect the occurrence of unanticipated or any other subsequent
events.
Item 1. Financial Statements.
2
TELAXIS COMMUNICATIONS CORPORATION
CONDENSED BALANCE SHEETS
(in thousands, except share data)
March 31, December 31,
2003 2002
------------- -------------
Assets (unaudited)
Current assets
Cash and cash equivalents .................................................... $ 3,135 $ 7,840
Restricted cash .............................................................. 614 100
Marketable securities ........................................................ 3,672 3,792
Other accounts receivable .................................................... 32 1
Inventories .................................................................. 36 34
Assets held for sale ......................................................... 3 5
Other current assets ......................................................... 373 105
------------- -------------
Total current assets ....................................................... 7,865 11,877
------------- -------------
Property, plant and equipment, net ........................................... 1,955 2,412
Other assets ................................................................. 18 70
------------- -------------
Total assets ............................................................... $ 9,838 $ 14,359
============= =============
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable ............................................................. $ -- $ 311
Accrued expenses ............................................................. 607 1,030
Accrued restructuring costs .................................................. 329 452
Current maturities of long-term debt ......................................... -- 618
Current maturities of capital lease obligations .............................. 148 839
------------- -------------
Total current liabilities .................................................. 1,084 3,250
------------- -------------
Long-term debt ............................................................... -- --
Capital lease obligations .................................................... 82 116
------------- -------------
Total liabilities .......................................................... 1,166 3,366
------------- -------------
Commitments and contingencies
Stockholders' Equity
Preferred stock, $.01 par value; authorized 4,500,000 shares in 2003 and 2002;
none issued ................................................................. -- --
Common stock, $.01 par value; authorized 100,000,000 shares in 2003 and 2002;
issued 16,708,313 shares outstanding in 2003 and 2002, respectively ......... 168 168
Additional paid-in capital ................................................... 124,700 124,700
Accumulated comprehensive (loss) income ...................................... 5 6
Notes receivable ............................................................. -- --
Treasury stock, at cost (112,500 shares) ..................................... (37) (37)
Accumulated deficit .......................................................... (116,164) (113,844)
------------- -------------
Total stockholders' equity ................................................. 8,672 10,993
------------- -------------
Total liabilities and stockholders' equity ................................. $ 9,838 $ 14,359
============= =============
The accompanying notes are an integral part of these financial statements.
3
TELAXIS COMMUNICATIONS CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Three months ended
March 31,
----------------------------
2003 2002
----------- -----------
(unaudited) (unaudited)
Sales ....................................................... $ 5 $ 5
Cost of sales ............................................... 403 798
----------- -----------
Gross margin (loss) ......................................... (398) (793)
Operating expenses
Research and development, net .......................... 663 1,121
Selling, general and administrative .................... 1,310 1,441
----------- -----------
Total operating expenses ............................. 1,973 2,562
----------- -----------
Operating loss .............................................. (2,371) (3,355)
----------- -----------
Other income (expense)
Interest and other expense ............................. (42) (105)
Income from settlement of litigation ................... -- 1,223
Interest and other income .............................. 93 294
----------- -----------
Total other income ................................... 51 1,412
----------- -----------
Loss before income taxes .................................... (2,320) (1,943)
Income taxes ................................................ -- --
----------- -----------
Net loss .................................................... $ (2,320) $ (1,943)
=========== ===========
Basic and diluted net loss per share ........................ $ (0.14) $ (0.12)
=========== ===========
Shares used in computing basic and diluted net loss per share 16,708 16,667
=========== ===========
The accompanying notes are an integral part of these financial statements.
4
TELAXIS COMMUNICATIONS CORPORATION
CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2003
(in thousands, except share data)
(unaudited)
Accumulated
Common Stock Additional Common Other
------------------------ Paid-in Accumulated Notes Stock in Comprehensive
Shares Amount Capital Deficit Receivable Treasury (Loss) Income Total
----------- ----------- ---------- ----------- ----------- ----------- ------------- --------
Balances, January 1, 2003 . 16,708,313 $ 168 $124,700 $ (113,844) $ -- $ (37) $ 6 $ 10,993
Common stock grants ....... -- -- -- -- -- -- -- --
Exercise of common stock
options ................. -- -- -- -- -- -- -- --
Purchase of treasury stock -- -- -- -- -- -- -- --
Other ..................... -- -- -- -- -- -- -- --
Comprehensive loss:
Net loss ................ -- -- -- (2,320) -- -- -- (2,320)
Unrealized loss on
investments ........... -- -- -- -- -- -- (1) (1)
----------- ----------- -------- ----------- ----------- ----------- ----------- --------
Balances, March 31, 2003 .. 16,708,313 $ 168 $124,700 $ (116,164) $ -- $ (37) $ 5 $ 8,672
=========== =========== ======== =========== =========== =========== =========== ========
The accompanying notes are an integral part of these financial statements
5
TELAXIS COMMUNICATIONS CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
Three months ended
March 31,
-------------------------
2003 2002
----------- -----------
(unaudited) (unaudited)
Cash flows from operating activities
Net loss ............................................................. $ (2,320) $ (1,943)
Adjustments to reconcile net loss to net cash utilized by operating
activities:
Depreciation and amortization ...................................... 401 542
Changes in assets and liabilities:
Trade accounts receivable ........................................ -- 432
Other accounts receivable ........................................ (31) 154
Inventories ...................................................... (2) (266)
Other current assets ............................................. (215) (47)
Accounts payable and accrued expenses ............................ (734) 297
Accrued restructuring costs ...................................... (123) (242)
----------- -----------
Net cash utilized by operating activities ........................ (3,024) (1,073)
----------- -----------
Cash flows from investing activities
Purchase of marketable securities .................................... 120 (4,500)
Sale of marketable securities ........................................ -- 3,652
(Additions to) Disposal of property and equipment, net ............... 56 (212)
Repayment of note receivable ......................................... -- 1,000
----------- -----------
Net cash (utilized) provided by investing activities ............. 176 (60)
----------- -----------
Cash flows from financing activities
Transfer of restricted cash .......................................... (514) (848)
Repayments of long-term debt and capital lease obligations ........... (1,343) (623)
Issuance of common stock upon exercise of options and warrants ....... -- 63
----------- -----------
Net cash utilized by financing activities ........................ (1,857) (1,408)
----------- -----------
Net decrease in cash and cash equivalents ............................... (4,705) (2,541)
Cash and cash equivalents at beginning of period ........................ 7,840 15,875
----------- -----------
Cash and cash equivalents at end of period .............................. $ 3,135 $ 13,334
=========== ===========
Supplemental disclosure of cash flow information
Non-cash investing and financing activities:
Unrealized loss on investments ..................................... (1) (10)
The accompanying notes are an integral part of these financial statements.
6
TELAXIS COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Basis of Presentation
The financial information as of March 31, 2003 and for the three
months ended March 31, 2003 and 2002 is unaudited. In the opinion of management,
such interim financial information includes all adjustments, including
additional restructuring charges as well as normal recurring adjustments,
necessary for a fair presentation of the results for such interim periods. The
financial statements do not include all the information and footnotes required
by accounting principles generally accepted in the United States of America for
complete financial statements. The statements should be read in conjunction with
the financial statements and footnotes as of and for the year ended December 31,
2002 included in the Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission. The December 31, 2002 balance sheet data was
derived from audited financial statements, but does not include all disclosures
required by accounting principles generally accepted in the United States of
America. The results of operations for the three months ended Mach 31, 2003 are
not necessarily indicative of the results to be expected for any future period.
Marketable Securities
The Company has invested the proceeds from its February 2000 initial
public offering in accordance with its corporate cash management policy.
Marketable securities are classified as available for sale and are carried at
cost plus accrued interest, which approximates fair value. The Company's
investments consist of short-term, interest bearing, investment grade securities
or direct or guaranteed obligations of the U.S. government. At March 31, 2003,
all of the Company's securities, valued at $3.7 million, mature within twelve
months.
Comprehensive Loss
Comprehensive loss is defined as changes in equity other than from
transactions resulting from investments by owners and distributions to owners.
The Company's comprehensive loss of approximately $(1,000) for the three months
ended March 31, 2003 and $(10,000) for the three months ended March 31, 2002
consisted of its reported net losses attributable to common shareholders and
unrealized losses on marketable securities.
The components of comprehensive loss were as follows (in thousands):
Three months ended
March 31,
(unaudited)
------------------
2003 2002
------- --------
Net loss ............................ $ 2,320 $ 1,943
======= =======
Unrealized gain (loss) on investments (1) (10)
======= =======
Comprehensive loss .................. $ 2,321 $ 1,953
======= =======
2. Restructuring Charges
In July 2001, the Company's Board of Directors approved the
Company's plan to exit its point-to-multipoint outdoor unit product line. In
connection with this decision, the Company recorded an $11.6 million
restructuring charge for the year ended, December 31, 2001. Of the $11.6 million
in restructuring costs, $9.4 million related to non-cash writedowns to net
realizable value of the Company's inventories, fixed assets and other assets and
$2.2 million related to cash paid or to be paid for workforce reductions, excess
facility costs and contract costs. Approximately $123,000 was paid for such
costs in the three months ended March 31, 2003. Remaining
7
accrued restructuring costs at March 31, 2003 consist of approximately $297,000
for facility consolidations, and $32,000 for workforce reduction charges.
In the three months ended March 31, 2003, the Company recorded no
additional restructuring charges. The Company reduced its estimates of accrued
restructuring costs by $123,000 resulting from payments made on the termination
of a lease on a research and development facility in Texas for less than the
remaining obligation and payment and settlement of a Marconi contract.
3. Restricted Cash
At March 31, 2003, the Company has $614,000 of restricted cash
classified as a current asset. These funds are restricted by the terms of
letters of credit which satisfy certain financial obligations of the Company.
4. Inventories
Inventories are stated at the lower of cost or market and consist of
the following (in thousands):
March 31, December 31,
2003 2002
------------- -------------
(unaudited)
Parts and subassemblies ................... $ 36 $ 34
Work-in process ........................... -- --
------------- -------------
$ 36 $ 34
============= =============
5. Property, Plant and Equipment
Property, plant and equipment consist of the following (in
thousands):
March 31, December 31,
2003 2002
------------- -------------
(unaudited)
Machinery and equipment ........................ $ 10,210 $ 10,303
Furniture and fixtures ......................... 723 723
Leasehold improvements ......................... 1,199 1,199
Equipment under capital leases ................. 3,029 3,029
------------- -------------
15,161 15,254
Less accumulated depreciation and amortization . (13,206) (12,842)
------------- -------------
$ 1,955 $ 2,412
============= =============
The net book value of equipment under capital leases was
approximately $378,000 and $1,172,000 at March 31, 2003 and December 31, 2002,
respectively.
Depreciation expense for the three months ended March 31, 2003 and
2002 was approximately $401,000 and $542,000 respectively.
6. Earnings Per Share
Earnings per share has been computed by dividing the net loss by the
weighted average common shares outstanding. No effect has been given to the
future exercise of common stock options and stock warrants, since the effect
would be antidilutive for all reporting periods.
8
Three months ended
March 31,
(unaudited)
----------------------------
2003 2002
------------- -------------
Historical: (in thousands, except per share data)
Net loss .......................................... $ (2,320) $ (1,943)
============= =============
Weighted average shares of common stock outstanding 16,708 16,667
============= =============
Basic and diluted net loss per share .............. $ (0.14) $ (0.12)
============= =============
7. Accrued Expenses
Accrued expenses consist of the following (in thousands):
March 31, December 31,
2003 2002
------------- -------------
(unaudited)
Accrued payroll, commissions and related expenses .... $ 407 $ 577
Accrued warranty expense ............................. -- 25
Other accrued expenses ............................... 190 176
------------- -------------
$ 607 $ 778
============= =============
8. Stock-Based Compensation
The Company has stock option plans that provide for the granting of
options to officers, employees, directors, and consultants. The Company applies
APB Opinion 25, "Accounting for Stock Issued to Employees," and related
interpretations in accounting for its stock option plans. The exercise price of
stock options, set at the time of grant, is not less than the fair market value
per share at the date of grant. Options have a term of ten years and generally
vest after four years. Had compensation cost for the Company's stock option
plans been determined under SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company's pro forma net loss and net loss per share would
have been as follows:
Three Months Ended March 31,
(unaudited)
-------------------------------
2003 2002
-------------------------------
(in thousands, except per
share data)
Net loss:
As reported........................................ $ (2,320) $ (1,943)
Add: Stock-based employee compensation
expense included in net loss................. -- --
Less: Total stock-based employee
compensation expense determined
under the minimum value pricing model........ (445) (437)
------------- -------------
Pro forma.......................................... $ (2,765) $ (2,380)
============= =============
Net loss per share
As reported........................................ $ (0.14) $ (0.12)
============= =============
Pro forma.......................................... $ (0.16) $ (0.14)
============== =============
9. Schedule of Future Contractual Commitments, Obligations and Contracts
The Company has the following contractual obligations and commercial
commitments as of March 31, 2003:
Schedule of contractual obligations:
Payments Due By Period
-----------------------------------------------------------------
Less than 1
Total year 1-3 years 4-5 years After 5 years
----------- ----------- ----------- ----------- -------------
Operating leases - buildings $ 867,261 $ 318,058 $ 549,203 $ -- $ --
Operating leases - equipment 230,139 147,779 82,360 -- --
Employee contracts ......... 660,447 660,447 -- -- --
----------- ----------- ----------- ----------- -------------
Total contractual cash
obligations ................ $ 1,757,847 $ 1,126,284 $ 631,563 $ -- $ --
=========== =========== =========== =========== =============
The Company believes that current levels of cash and cash
equivalents $3.1 million at March 31, 2003 together with cash from operations
and funds available from marketable securities will be sufficient to meet its
capital requirements for the next 12 months.
10. Subsequent Events
On March 17, 2003, the Company entered into a definitive strategic
combination agreement with Young Design, Inc. ("YDI"), a privately held Virginia
company. That transaction closed on April 1, 2003. Telaxis is the continuing
corporation and YDI is now a wholly-owned subsidiary of Telaxis. YDI
stockholders received 2.5 shares of Telaxis common stock for each share of YDI
common stock.
9
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Overview
On April 1, 2003, we closed a strategic combination transaction with
Young Design, Inc., a privately-held Virginia corporation ("YDI"). In that
transaction, we formed a subsidiary that merged with and into YDI and each
outstanding share of YDI common stock was converted into the right to receive
2.5 shares of our common stock. We are the continuing corporation, our
stockholders continued to hold our common stock following the transaction, and
YDI is now our wholly-owned subsidiary. In the transaction, we issued 37,499,999
shares of our common stock to the two former stockholders of YDI. Immediately
after the closing of the transaction, we had 54,208,312 shares of our common
stock outstanding.
Since the transaction was completed in the second quarter, the
financial results described in this Quarterly Report on Form 10-Q are the
financial results for Telaxis standalone prior to the transaction. Financial
information of YDI, including its first quarter 2003 financial results, will be
filed with the Securities and Exchange Commission in a Form 8-K related to the
transaction no later than June 16, 2003.
Therefore, the following management's discussion and analysis
addresses our business and operations as in effect in the first quarter of 2003.
It does not address impacts of the second quarter transaction with YDI. Our
business, operations, and management have changed substantially as a result of
the transaction.
Our business in the first quarter 2003 focused on the development
and marketing of our FiberLeap(TM) and EtherLeap(TM) products. Our FiberLeap(TM)
2006 product is a compact, easily deployed product that enables fiberless
transmission of data, voice and video communication at fiber rates that are
variable from an OC-3 rate of 155 Mbps to an OC-12 rate of 622 Mbps. We also
have a Gigabit Ethernet version of FiberLeap(TM) which enables native Gigabit
Ethernet traffic at 1.25 Gbps. We announced in September 2002 that we have
demonstrated technical feasibility of our new EtherLeap(TM) product.
EtherLeap(TM) is an 802.11-based Ethernet Local Area Network, or LAN, radio
operating at millimeter-wave frequencies that can operate in point-to-point,
point-to-multipoint, and mesh architectures. The initial EtherLeap(TM) models
developed by us, which are based specifically on an 802.11(b) system providing
wireless connectivity at up to 11 megabits per second (Mbps), operate at 24 GHz
and at 28 GHz. We sold and delivered our first EtherLeap(TM) product in the
third quarter of 2002. From July 2001 until this announcement relating to
EtherLeap(TM), our business was focused on our FiberLeap(TM) products.
We commenced operations in 1982 and, prior to 1999, derived the
significant majority of our sales from our millimeter-wave products business
segment. Millimeter waves are electromagnetic waves having wavelengths between
one and ten millimeters and frequencies from 30 GHz to 300 GHz. In August 1999,
we adopted a plan to focus all of our resources on our broadband connectivity
business (then focused on point-to-multipoint outdoor units) and to dispose of
the millimeter-wave products segment. We decided to dispose of this segment
because it would have required us to reallocate financial and management
resources from the broadband point-to-multipoint outdoor unit business. The
segment was sold on February 8, 2000. The following management's discussion and
analysis addresses our broadband connectivity business.
Due to changing market conditions, we made the decision to exit the
point-to-multipoint outdoor unit business in July 2001 and to focus all of our
resources on closing the connectivity gap in fiber networks. We curtailed
certain research and development activities and modified our production
activities through facility consolidations, capital equipment reductions, and
workforce reductions of approximately 58 employees in 2001. FiberLeap(TM) trial
and Beta units have been developed and tested, a new marketing program has been
initiated, and limited production has begun.
The overall economic climate in the United States has declined since
we decided to focus on our FiberLeap(TM) and EtherLeap(TM) products. In
particular, telecommunication markets have experienced a severe downturn, which
has been highlighted by the bankruptcy filings of several former prominent
telecommunications companies. Telecommunication markets remain depressed, and we
cannot predict how long they will take to recover or the extent of any recovery.
This uncertainty in the telecommunications industry and in the larger economy
has made it very difficult to successfully launch our FiberLeap(TM) and
EtherLeap(TM) products and to build a business based on those products. We
consolidated our production and development facility in September 2002
10
resulting in a reduction of approximately 50% of our facility space and
associated costs, and elimination of manufacturing personnel and equipment or
their reallocation to research and development activities. While we continue to
talk with potential purchasers of our FiberLeap(TM) and EtherLeap(TM) products,
we do not have any significant customers for those products and we cannot
predict when (or if) we will obtain significant customers. Our current financial
position may be inadequate to enable us to continue to pursue our efforts to
build our FiberLeap(TM) and EtherLeap(TM) business until more favorable market
conditions return.
In light of these factors, our board decided that we should explore
a wide variety of strategic opportunities and alternatives. This exploration
resulted in the strategic combination transaction with YDI described above.
For the three months ended March 31, 2003 and March 31, 2002, all of
our sales were to customers located in the United States. Sales to customers
located outside the United States may represent a significant portion of our
total sales in the future.
Critical Accounting Policies
The preparation of the Company's consolidated financial statements
in accordance with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions that affect:
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements; and the reported
amounts of revenues and expenses during the reporting periods. Note 1 of the
"Notes to Consolidated Financial Statements" in the Company's Annual Report on
Form 10-K for the year ended December 31, 2002 describes the significant
accounting policies used in the preparation of the consolidated financial
statements. The Company's management is required to make judgments and estimates
about the effect of matters that are inherently uncertain. Actual results could
differ from management's estimates. The most significant areas involving
management judgments and estimates are described below.
Assets Held for Sale
The Company has identified certain equipment as being surplus to the
ongoing operations of the business as it has exited certain product lines and
restructured certain of its operations. The Company has continued to assess the
net realizable value of these assets and, in the future, additional surplus
assets may be identified and adjustments to their net realizable value made.
Income Taxes
The Company records a valuation allowance to reduce deferred tax
assets to the amount that is more likely than not to be realized. There were no
net deferred tax assets at March 31, 2003 and at December 31, 2002,
respectively.
Inventory Valuation
Inventory is stated at the lower of cost or market, cost being
determined on a first-in, first-out basis. Provisions are made to reduce excess
or obsolete inventory to its estimated net realizable value. The process for
evaluating the value of excess and obsolete inventory often requires the Company
to make subjective judgments and estimates concerning future sales levels,
quantities and prices at which such inventory will be able to be sold in the
normal course of business. Accelerating the disposal process or incorrect
estimates of future sales potential may necessitate future adjustments to these
provisions.
Result of Operations
The following table provides statements of operations data as a
percentage of sales for the periods presented. The percentages may not add due
to rounding.
11
Three Months Ended
March 31,
(unaudited)
-------------------------
2003 2002
---------- ----------
Sales ................................. 100.0% 100.0%
Cost of sales ......................... 8,060.0 15,960.0
---------- ----------
Gross margin (loss) ................... (7,960.0) (15,860.0)
Operating expenses
Research and development, net ..... 13,260.0 22,420.0
Selling, general and administrative 26,200.0 28,820.0
---------- ----------
Total operating expenses ....... 39,460.0 51,240.0
---------- ----------
Operating loss ........................ (47,420.0) (67,100.0)
Other income (expense) ................ 1,020.0 28,240.0
---------- ----------
Loss before income taxes .............. (46,400.0) (38,860.0)
Income taxes .......................... (0.0) (0.0)
---------- ----------
Net loss .............................. (46,400.0)% (38,860.0)%
========== ==========
Three Months Ended March 31, 2003
Sales
Sales leveled at $5,000 for the three months ended March 31, 2003
and March 31, 2002, respectively. These decreased sales reflect lack of any
significant demand for our FiberLeap(TM) and EtherLeap(TM) products to date,
resulting in part from a general industry decline.
Cost of Sales
Cost of sales consists of component and material costs, direct labor
costs, warranty costs, overhead related to manufacturing our products, and
customer support costs. Cost of sales decreased $400,000 to $403,000 for the
three months ended March 31, 2003 from $0.8 million for the three months ended
March 31, 2002. Gross margins were negative 7,960% in the three months ended
March 31, 2003 and negative 15,860% for the three months ended March 31, 2002.
The decrease in cost of sales and in gross margin as a percentage of sales were
attributable primarily to decreased manufacturing costs due to personnel and
cost reduction initiatives.
Research and Development Expenses
Research and development expenses consist primarily of personnel and
related costs associated with our product development efforts. These include
costs for development of products and components, test equipment and related
facilities. Gross research and development expenses decreased by $458,000 to
$0.7 million for the three months ended March 31, 2003 from $1.1 million for the
three months ended March 31, 2002. The research and development cost decline is
attributable to reductions in the size of our research and development staff,
development material, capital equipment, and related facilities and support
costs
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of
employee salaries and associated costs for selling, marketing, customer support,
information systems, finance, legal, and administration. Selling, general and
administrative expenses decreased 9.1% to $1.3 million for the three months
ended March 31, 2003 from $1.4 million for the three months ended March 31,
2002. The decrease was due primarily to a decrease in the number of personnel in
these areas and from decreases in related spending as we reduced the
administrative structure of the Company to correspond to the decrease in sales
and production volumes.
12
Other Income (Expense)
Other income (expense) consists of interest and dividends earned on
cash and marketable securities and other non-operating income offset by interest
expense on debt and capital lease obligations and miscellaneous non-operating
expenses. Total other income (expense) decreased to $51,000 in income for the
three months ended March 31, 2003 from $1.4 million in income for the three
months ended March 31, 2002. Income from settlement of litigation of $1.2
million for the three months ended March 31, 2002 resulted from the settlement
of the litigation against Alcatel that was a one-time transaction only in 2002.
Interest expense decreased to $42,000 for the three months ended March 31, 2003
from $105,000 for the three months ended March 31, 2002. Interest and other
income decreased to $93,000 for the three months ended March 31, 2003 from
$294,000 for the same period in 2002 primarily due to reductions in the balances
of cash and marketable securities.
Liquidity and Capital Resources
Since 1997, we have financed our operations primarily through the
sale of redeemable preferred stock, from proceeds of our initial public offering
in February 2000 and, to a much lesser extent, from cash generated by our
discontinued operations. We have also issued subordinated notes and used
equipment lease financing and bank lines of credit to provide cash.
On February 7, 2000 we completed an initial public offering of
4,600,000 shares of our common stock at $17.00 per share. We received net
proceeds from our initial public offering of $71.1 million, after underwriting
discounts and commission and offering costs, to be used primarily for general
corporate purposes.
At March 31, 2003, we had cash and cash equivalents of $3.7 million
(including restricted cash of $614,000 - see Note 3 to Financial Statements) and
marketable securities of $3.7 million.
The increase in other accounts receivable to $32,000 at March 31,
2003 from $1,000 at December 31, 2002 reflects the sale of test equipment
assets. The increase in other assets from $373,000 at March 31, 2003 from
$105,000 at March 31, 2002 was primarily a result of prepayment for April 2003
of certain of our accounts payable and future commitments. The decrease in
accrued expenses to $607,000 at March 31, 2003 from $1.3 million at December 31,
2002 principally reflects payment of employee severance, unused vacation, and
accrued payable and medical, legal, and accounting amounts at March 31, 2003.
At March 31, 2003, we paid off all short and long-term debt, in
order to release our property that had been security for the debt. This was done
to allow potential sale of excess equipment in the future.
At March 31, 2003, we had approximately $230,000 in capital lease
obligations, which are due through January 2005.
Cash utilized in operating activities in the three months ended
March 31, 2003 was $3.0 million compared to $1.1 million for the same period in
2002. For the three months ended March 31, 2003, cash used in operating
activities primarily represented funding of our net losses, payment of accounts
payable and prepayment of April 2003 expenses. For the same period in 2002,
funding of net losses was $1.9 million.
Cash provided by investing activities for the three months ended
March 31, 2003 was $176,000 compared to cash utilized by investing activities of
$60,000 for the same period in 2002. In the three months ended March 31, 2003
and March 31, 2002, these amounts related primarily to the purchase and sale of
marketable securities.
Cash utilized by financing activities in the three months ended
March 31, 2003 was $1.9 million compared to $1.4 million for the same period in
2002. The financing activities for the three months ended March 31, 2003
consisted primarily of payments on capital lease obligations and long term debt
and transfers to restricted cash. The financing activities for the three months
ended March 31, 2002 consisted primarily of the repayments of long-term debt and
capital lease obligations and a transfer to restricted cash. The amounts were
partially offset by the proceeds from equipment lease financing.
13
Our 2003 and future cash requirements will depend upon a number of
factors, including the impact of our recent transaction with YDI, the timing and
extent of growth in our FiberLeap(TM) and EtherLeap(TM) and other 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 balances at March 31, 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 with YDI. 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
and the acquisitions. There can be no assurance that additional financing will
be available to us on favorable terms or at all.
Disclosures About Market Risk
The following discusses our exposure to market risk related to
changes in interest rates, equity prices and foreign currency exchange rates.
This discussion contains forward-looking statements that are exposed to risks
and uncertainties, many of which are out of our control. Actual results could
vary materially as a result of a number of factors, including those discussed
above under "Part I - Financial Information" and below under "Safe Harbor for
Forward-Looking Statements."
As of March 31, 2003, we had cash and cash equivalents of $3.7
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 March 31, 2003, we had marketable securities of $3.7 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 if market interest rates increase. We believe a hypothetical increase in
market interest rates of up to as much as 10 percent from the March 31, 2003
rates would not cause the fair value of these investments to decline
significantly, since the Company's investments mature within twelve months.
Although an immediate increase in interest rates would not have a material
effect on our financial condition or results of operations, declines in interest
rates over time will reduce our interest income.
We do not own any material equity investments. Therefore, we do not
currently have any direct equity price risk. In the past three years, all sales
to international customers were denominated in United States dollars and,
accordingly, we were not exposed to foreign currency exchange rate risks.
Recent Accounting Pronouncements
In June 2002, SFAS No. 146, "Accounting for Costs Associated with
Exit or Disposal Activities," was issued. This statement provides guidance on
the recognition and measurement of liabilities associated with exit or disposal
activities and requires that such liabilities be recognized when incurred. This
statement is effective for exit or disposal activities that are initiated after
December 31, 2002 and does not impact the Company's existing restructuring
accruals. Adoption of this standard may impact the timing of recognition of
costs associated with future exit and disposal activities.
Safe Harbor for Forward-Looking Statements
General Overview
This Quarterly Report on Form 10-Q contains forward-looking
statements as defined by federal securities laws which are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements include statements concerning plans, objectives,
goals, strategies, expectations, intentions, projections, developments, future
events, performance or products, underlying assumptions, and other statements
which are other than statements of historical facts. In some cases, you can
identify forward-looking statements by terminology such as "may," "will,"
"should," "expects," "intends," "plans," "anticipates," "contemplates,"
"believes," "estimates," "predicts," "projects," "potential," "continue," and
other similar
14
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 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; our having limited capital; working capital
constraints; the expense of defending and the outcome of pending and future
stockholder 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 (including
our stockholder rights plan); and risks associated with any acquisitions or
investments in which we may be involved. Many of these and other risks and
uncertainties are described in more detail in our annual report on Form 10-K for
the year ended December 31, 2002 filed with the Securities and Exchange
Commission.
15
Specific Cautionary Statements Relating to Recent Strategic Combination
with Young Design, Inc.
On April 1, 2003, we closed a strategic combination transaction with
Young Design, Inc. ("YDI"). 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 YDI's lack of
experience operating as a public company, including the process of periodic
financial reporting; risks associated with YDI'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 expected need for the combined company to hire additional
accounting staff, including individuals familiar with periodic financial
reporting; the fact that the 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, and the possible need or desire for a reverse split of our
common stock given the larger number of shares outstanding.
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.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
See Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations, - Disclosures about Market Risk.
Item 4. Controls and Procedures.
(a) Disclosure controls and procedures. Within 90 days before filing
this report, we evaluated the effectiveness of the design and operation of our
disclosure controls and procedures. Our disclosure controls and procedures are
the controls and other procedures that we designed to ensure that we record,
process, summarize and report in a timely manner the information we must
disclose in reports that we file with or submit to the SEC. Our disclosure
controls and procedures include a significant portion of our internal accounting
controls. Robert E. Fitzgerald, our Chief Executive Officer, and Patrick L.
Milton, our Chief Financial Officer and Treasurer, supervised and participated
in this evaluation. Based on this evaluation, Messrs. Fitzgerald and Milton
concluded that, as of the date of their evaluation, our disclosure controls and
procedures were effective.
(b) Internal controls. Since the date of the evaluation described
above, there have not been any significant changes in our internal accounting
controls or in other factors that could significantly affect those controls.
16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
During the period from June 12 to September 13, 2001, four purported
securities class action lawsuits were filed against us in the U.S. District
Court for the Southern District of New York, Katz v. Telaxis Communications
Corporation et al., Kucera v. Telaxis Communications Corporation et al.,
Paquette v. Telaxis Communications Corporation et al., and Inglis v. Telaxis
Communications Corporation et al. The lawsuits also named one or more of the
underwriters in our initial public offering and certain of our officers and
directors. On April 19, 2002, the plaintiffs filed a single consolidated amended
complaint which supersedes the individual complaints originally filed. The
amended complaint alleges, among other things, violations of the registration
and antifraud provisions of the federal securities laws due to alleged
statements in and omissions from our initial public offering registration
statement concerning the underwriters' alleged activities in connection with the
underwriting of our shares to the public. The amended complaint seeks, among
other things, unspecified damages and costs associated with the litigation.
These lawsuits against us have been assigned along with, we understand,
approximately 1,000 other lawsuits making substantially similar allegations
against approximately 300 other publicly-traded companies and their public
offering underwriters to a single federal judge in the U.S. District Court for
the Southern District of New York for consolidated pre-trial purposes. On July
15, 2002, we, together with the other issuers named as defendants in these
coordinated proceedings, filed a collective motion to dismiss the consolidated
amended complaints on various legal grounds common to all or most of the issuer
defendants. In October 2002, all claims against our directors and officers who
had been parties to these lawsuits were dismissed without prejudice. In February
2003, the judge granted in part and denied in part our motion to dismiss the
consolidated amended complaints. The fraud claims against us were dismissed with
prejudice. The non-fraud claims were not dismissed. We deny any liability and
intend to vigorously defend the allegations against us.
We are subject to potential liability under contractual and other
matters and various claims and legal actions which may be asserted. These
matters may arise in the ordinary course and conduct of our business. While the
outcome of the potential claims and legal actions against us cannot be forecast
with certainty, we believe that such matters should not result in any liability
which would have a material adverse effect on our business.
Item 2. Changes in Securities and Use of Proceeds.
Recent Sales of Unregistered Securities
On April 1, 2003, we issued 37,499,999 shares of our common stock
that were not registered under the Securities Act of 1933, as amended (the
"Securities Act"). These shares were issued in connection with our strategic
combination transaction with Young Design, Inc., which was a privately-held
Virginia corporation ("YDI").
On that day, we completed a stock-for-stock strategic combination
transaction (the "combination") with YDI pursuant to a definitive strategic
combination agreement dated as of March 17, 2003. Pursuant to the terms of that
agreement, we formed a subsidiary, WFWL Acquisition Corporation, that merged
with and into YDI and we issued new shares of our common stock to the
stockholders of YDI. We are the continuing corporation, and our stockholders
continued to hold our common stock following the transaction.
In connection with the combination, each outstanding share of YDI
common stock was converted into the right to receive 2.5 shares of our common
stock. This exchange ratio was determined through arms-length negotiation
between YDI and us. As a result, we issued 37,499,999 shares of our common stock
to the two former stockholders of YDI. 20,663,267 shares were issued to Concorde
Equity, LLC, and 16,836,732 shares were issued to Michael F. Young. Robert E.
Fitzgerald, former Chief Executive Officer of YDI and our current Chief
Executive Officer, owns over fifty percent of the equity interests of Concorde
Equity and is President and Managing Member of that entity. Immediately after
the closing of the transaction, we had 54,208,312 shares of our common stock
outstanding, and YDI is now our wholly-owned subsidiary.
As indicated above, we received no cash proceeds from the issuance
of these shares.
17
The issuance described above was completed without registration
under the Securities Act in reliance upon the exemptions contained in Section
4(2) and/or 4(6) of the Securities Act and/or Rule 506 of Regulation D
promulgated under the Securities Act for transactions not involving a public
offering. This reliance was based in part on representations and warranties made
to us by both Concorde Equity and Mr. Young in connection with the combination.
We engaged the investment banking firm Ferris, Baker Watts,
Incorporated in connection with our overall consideration and investigation of
strategic alternatives available to us. Ferris, Baker provided typical
investment banking advice and services in connection with this process,
including the selection of the transaction with YDI and rendering a fairness
opinion relating to the transaction with YDI. We paid Ferris, Baker typical fees
for this overall engagement. No fees were paid specifically as commissions for
the issuance of our stock described above. The issuance of common stock by us
described above did not involve the use of an underwriter.
Use of Proceeds from Registered Offerings
On February 1, 2000, the Securities and Exchange Commission declared
effective our registration statement on Form S-1 (File No. 333-87885) filed in
connection with the initial public offering of 4,600,000 shares of our common
stock.
We received approximately $71.1 million of net proceeds from the
offering. Those net proceeds are being used for working capital and general
corporate purposes. Pending such uses, the net proceeds have been invested in
short-term, interest-bearing, investment grade securities or direct or
guaranteed obligations of the U.S. government. From the time of receipt through
March 31, 2003, we have applied approximately $68.4 million of the net proceeds
from the offering toward working capital, financing capital expenditures, and
funding operating losses.
Item 5. Other Information.
Certification Under Sarbanes-Oxley Act
Our chief executive officer and chief financial officer have
furnished to the Securities and Exchange Commission the certification with
respect to this report that is required by Section 906 of the Sarbanes-Oxley Act
of 2002.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
None.
(b) Reports on Form 8-K
On January 9, 2003, we filed a report on Form 8-K to report that we
had terminated the merger agreement among us, P-Com, Inc., and a subsidiary of
P-Com, Inc.
On March 20, 2003, we filed a report on Form 8-K to report that we
had signed a definitive strategic combination agreement with Young Design, Inc.
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Telaxis Communications Corporation
Date: May 15, 2003 By: /s/ Patrick L. Milton
--------------------------------------------
Patrick L. Milton,
Chief Financial Officer and Treasurer
(principal financial and accounting officer)
19
CERTIFICATIONS
I, Robert E. Fitzgerald, Chief Executive Officer of Telaxis
Communications Corporation, certify that:
1. I have reviewed this quarterly report on Form 10-Q of
Telaxis Communications Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this quarterly
report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and
have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated
in this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 15, 2003 /s/ Robert E. Fitzgerald
---------------------------------------
Robert E. Fitzgerald
Chief Executive Officer
20
I, Patrick L. Milton, Chief Financial Officer and Treasurer of
Telaxis Communications Corporation, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Telaxis
Communications Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this quarterly
report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and
have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated
in this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 15, 2003 /s/ Patrick L. Milton
---------------------------------------------
Patrick L. Milton
Chief Financial Officer and Treasurer
21