<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2000
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 0-16449
AMERICAN MULTIPLEXER CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
North Carolina 56-2006165
(State of incorporation) (IRS Employer Identification No.)
</TABLE>
575 North Pastoria Avenue, Sunnyvale, California 94086
(Address of principal executive offices)
(408) 730-8200
(Registrant's telephone number)
Check whether the issuer: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
As of November 30, 2000, there were 37,972,866 shares of registrant's Common
Stock, no par value, outstanding.
<PAGE> 2
AMERICAN MULTIPLEXER CORPORATION
(a development stage company)
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Page No.
<S> <C>
Item 1. Financial Statements:
Condensed Balance Sheets -
September 30, 2000 and December 31, 1999 3
Condensed Statements of Operations -
Three and Nine Months ended September 30, 2000 and 1999 and
Cumulative from January 1, 1997 (inception) through
September 30, 2000 4
Condensed Statements of Cash Flows -
Nine Months ended September 30, 2000 and 1999 and Cumulative
From January 1, 1997 (inception) through
September 30, 2000 5
Condensed Statements of Stockholders' Equity Cumulative from
January 1, 1997 (inception) through September 30, 2000 6
Notes to Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 24
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 24
Item 2. Changes in Securities and Use of Proceeds 24
Item 3. Defaults upon Senior Securities 24
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 5. Other Information 24
Item 6. Exhibits and Reports on Form 8-K 25
Signatures 26
</TABLE>
Page 2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN MULTIPLEXER CORPORATION
(a development stage company)
CONDENSED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,415,000 $ 15,306,000
Notes receivable from employees 911,000 --
Prepaid expenses and other assets 267,000 110,000
------------ ------------
Total current assets 2,593,000 15,416,000
------------ ------------
NON-CURRENT ASSETS
Property and equipment, net 11,787,000 2,569,000
Other non-current assets 195,000 57,000
------------ ------------
Total non-current assets 11,982,000 2,626,000
------------ ------------
Total assets $ 14,575,000 $ 18,042,000
============ ============
CURRENT LIABILITIES
Secured note payable, current portion $ 1,168,000 --
Accounts payable 1,333,000 672,000
Accrued liabilities 48,000 39,000
------------ ------------
Total current liabilities 2,549,000 711,000
------------ ------------
Secured note payable, net of current portion 3,765,000 --
------------ ------------
Total liabilities 6,314,000 711,000
------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock 821,000 821,000
Common stock 42,781,000 42,274,000
Accumulated deficit (28,656,000) (19,448,000)
Notes receivable from stockholders (6,685,000) (6,316,000)
------------ ------------
Total stockholders' equity 8,261,000 17,331,000
------------ ------------
Total liabilities and equity $ 14,575,000 $ 18,042,000
============ ============
</TABLE>
See accompanying notes to condensed financial statements.
Page 3
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AMERICAN MULTIPLEXER CORPORATION
(a development stage company)
CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Cumulative from
Three months ended Nine months ended January 1, 1997
September 30, September 30, (inception) to
---------------------------- ---------------------------- September 30,
2000 1999 2000 1999 2000
------------ ------------ ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C>
Net sales $ -- $ -- $ -- $ -- $ --
------------ ------------ ------------ ------------ ------------
Operating expenses
Research and development 4,200,000 1,200,000 7,334,000 3,027,000 14,084,000
General and administrative 809,000 993,000 1,726,000 4,345,000 9,680,000
Sales and marketing 344,000 841,000 1,010,000 2,611,000 6,527,000
------------ ------------ ------------ ------------ ------------
Total operating expenses 5,353,000 3,034,000 10,070,000 9,983,000 30,291,000
------------ ------------ ------------ ------------ ------------
Operating loss (5,353,000) (3,034,000) (10,070,000) (9,983,000) (30,291,000)
Interest and other income 351,000 276,000 862,000 398,000 1,635,000
------------ ------------ ------------ ------------ ------------
Net loss $ (5,002,000) $ (2,758,000) $ (9,208,000) $ (9,585,000) $(28,656,000)
============ ============ ============ ============ ============
Net loss attributable to
common shareholders
Net loss $ (5,002,000) $ (2,758,000) $ (9,208,000) $ (9,585,000) $(28,656,000)
Preferred dividends (100,000) (100,000) (300,000) (200,000) (600,000)
------------ ------------ ------------ ------------ ------------
$ (5,102,000) $ (2,858,000) $ (9,508,000) $ (9,785,000) $(29,256,000)
============ ============ ============ ============ ============
Basic and diluted net loss
per share $ (0.14) $ (0.08) $ (0.25) $ (0.32) $ (1.08)
============ ============ ============ ============ ============
Shares used in calculation
of net loss per share 37,675,635 37,503,875 37,671,317 30,296,893 27,125,416
============ ============ ============ ============ ============
</TABLE>
See accompanying notes to condensed financial statements.
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AMERICAN MULTIPLEXER CORPORATION
(a development stage company)
CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Cumulative from
Nine months ended January 1, 1997
September 30, (inception) to
------------------------------- September 30,
2000 1999 2000
------------ ------------ ---------------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss $ (9,208,000) $ (9,585,000) $(28,656,000)
Adjustments to reconcile net loss to
net cash used in operating activities:
Stock-based compensation -- 7,576,000 10,625,000
Depreciation and amortization 836,000 170,000 1,175,000
Changes in operating items:
Notes receivable from employees (911,000) -- (911,000)
Prepaid expenses and other current assets (157,000) (7,000) (267,000)
Other noncurrent assets (138,000) (24,000) (195,000)
Accounts payable 661,000 (52,000) 1,333,000
Accrued liabilities 9,000 (300,000) 48,000
------------ ------------ ------------
Net cash used in operating (8,908,000) (2,222,000) (16,848,000)
------------ ------------ ------------
Cash flows from investing activities
Purchase of property and equipment (10,054,000) (1,248,000) (12,864,000)
------------ ------------ ------------
Net cash used in investing (10,054,000) (1,248,000) (12,864,000)
------------ ------------ ------------
Cash flows from financing activities
Proceeds from secured note 4,933,000 -- 4,933,000
Advance on shareholders' notes , net (369,000) (3,798,000) (6,685,000)
Proceeds from issuance of common stock 507,000 26,541,000 32,058,000
Proceeds from issuance of preferred stock -- 821,000 821,000
------------ ------------ ------------
Net cash from financing activities 5,071,000 23,564,000 31,127,000
------------ ------------ ------------
Net increase (decrease) in cash (13,891,000) 20,094,000 1,415,000
Cash at beginning of period 15,306,000 6,000 --
------------ ------------ ------------
Cash at end of period $ 1,415,000 $ 20,100,000 $ 1,415,000
============ ============ ============
</TABLE>
See accompanying notes to condensed financial statements.
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AMERICAN MULTIPLEXER CORPORATION
(a development stage company)
CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
(unaudited)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Accumulated Notes from Total
Shares Amount Shares Amount deficit shareholders amount
------- -------- ---------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issued 1/ 7/97 for assets 17,919,800 $ 247,000 $ 247,000
Issued 4/10/97 for services 1,622,000 1,379,000 1,379,000
Issued 5/ 1/97 for cash 800,000 1,000,000 1,000,000
Issued 5/12/97 for cash 2,500 2,000 2,000
Net loss (2,539,000) (2,539,000)
------- -------- ---------- ----------- ------------ ----------- ------------
Balance 12/31/97 20,344,300 2,628,000 (2,539,000) 89,000
Issued 1/12/98 for cash 255,000 359,000 359,000
Issued 3/12/98 for cash 476,666 625,000 625,000
Issued 4/16/98 for cash 251,000 315,000 315,000
Issued 7/16/98 for cash 194,000 275,000 275,000
Issued 7/31/98 for cash 182,000 234,000 234,000
Issued 8/ 3/98 for cash 124,000 154,000 154,000
Stock warrants issued 11/5/98 244,000 244,000
Issued 11/12/98 for cash 674,000 740,000 740,000
Issued 11/30/98 for cash 620,000 720,000 720,000
Net loss (3,549,000) (3,549,000)
------- -------- ---------- ----------- ------------ ----------- ------------
Balance 12/31/98 23,120,966 6,294,000 (6,088,000) 206,000
Issued 3/ 2/99 for cash 100,000 500,000 500,000
Issued 3/10/99 for cash 365,800 367,000 367,000
Issued 3/18/99 for cash 100,000 321,000 179,000 266,000 587,000
Issued 5/ 5/99 for cash 7,513,000 10,118,000 10,118,000
Issued 5/ 5/99 for commissions 400,000 1,800,000 1,800,000
Issued 5/ 5/99 for services 260,000 1,170,000 1,170,000
Issued 6/ 8/99 for cash 5,094,800 10,888,000 10,888,000
Issued 6/ 8/99 for commissions 420,000 2,296,000 2,296,000
Issued 9/ 8/99 for commissions 228,800 1,116,000 1,116,000
Issued 9/ 8/99 for cash 60,500 151,000 151,000
Issued 9/15/99 for cash 1,000 2,000 2,000
Issued 10/31/99 for cash 4,000 10,000 10,000
Stock warrant compensation 7,796,000 7,796,000
Shareholder notes (6,316,000) (6,316,000)
Net loss (13,360,000) (13,360,000)
------- -------- ---------- ----------- ------------ ----------- ------------
Balance 12/31/99 200,000 821,000 37,647,866 42,274,000 (19,448,000) (6,316,000) 17,331,000
Exercise of stock options 25,000 34,000 34,000
Issued 9/29/00 for cash 126,000 473,000 473,000
Shareholder notes (369,000) (369,000)
Net loss (9,208,000) (9,208,000)
------- -------- ---------- ----------- ------------ ----------- ------------
Balance 9/30/00 200,000 $821,000 37,798,866 $42,781,000 $(28,656,000) $(6,685,000) $ 8,261,000
======= ======== ========== =========== ============ =========== ============
</TABLE>
See accompanying notes to condensed financial statements.
Page 6
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AMERICAN MULTIPLEXER CORPORATION
(a development stage company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
NOTE A -- GENERAL
The accompanying unaudited condensed financial statements of American
Multiplexer Corporation (the "Company") have been prepared in accordance with
the rules and regulations of the Securities and Exchange Commission ("SEC"). In
the opinion of management, the accompanying unaudited condensed financial
statements reflect all adjustments, consisting only of normal recurring
adjustments, necessary for the fair presentation of the Company's financial
position, results of operations and cash flows for the periods presented. These
financial statements should be read in conjunction with the financial statements
and notes thereto as of and for the period January 1, 1997 (inception) to
December 31, 1999 and for the years ended December 31, 1999 and 1998 included in
the Company's Report on Form 10-12G/A as filed with the SEC on September 20,
2000.
NOTE B -- RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standard No. 133, Accounting for Derivative Instruments
and Hedging Activities ("SFAS 133"), which, as amended, becomes effective for
the Company in the first quarter of fiscal 2001. SFAS No. 133 establishes
accounting and reporting standards for derivative financial instruments and
hedging activities and requires the Company to recognize all derivatives as
either assets or liabilities on the balance sheet and measure them at fair
value. Gains and losses resulting from changes in fair value would be accounted
for depending on the use of the derivative and whether it is designated and
qualifies for hedge accounting. The adoption of SFAS No. 133, as amended, is not
expected to have a material impact on the Company's financial statements.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101 ("SAB 101"),
Revenue Recognition in Financial Statements, which as amended, becomes effective
for the Company in the fourth quarter of fiscal 2000. SAB 101 provides guidance
on applying generally accepted accounting principles to revenue recognition
issues in financial statements. The implementation of SAB 101 is not expected to
have a material impact on the Company's financial statements.
In March 2000, the FASB issued Interpretation No. 44, Accounting for Certain
Transactions involving Stock Compensation, an interpretation of APB Opinion No.
25. This Interpretation clarifies the application of Opinion 25 for certain
issues including: (a) the definition of employee for purposes of applying
Opinion 25, (b) the criteria for determining whether a plan qualifies as a
non-compensatory plan, (c) the accounting consequence of various modifications
to the terms of a previously fixed stock option or award, and (d) the accounting
for an exchange of stock compensation awards in a business combination. The
Company adopted Interpretation No. 44 in the third quarter of fiscal 2000. The
adoption of this Interpretation did not have a material impact on the Company's
results of operations or financial condition.
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NOTE C - NET LOSS PER SHARE
Basic net loss per common share is computed using the weighted average number of
shares of common stock outstanding in each period. Diluted net loss per share
reflects the potential dilution that could occur if dilutive securities were
converted into common shares. The following is a summary of the numerators and
denominators used in the basic and diluted loss per share computations for the
periods presented:
<TABLE>
<CAPTION>
(in thousands except per share amounts)
Three Months Nine Months January 1, 1997
Ended Ended, (inception) to
September 30, September 30, September 30,
2000 1999 2000 1999 2000
--------- --------- --------- --------- ---------------
<S> <C> <C> <C> <C> <C>
Net loss attributable to common
shareholders $ (5,102) $ (2,858) $ (9,508) $ (9,785) $(29,256)
Shares used to compute basic and dilutive
net loss per share -- Weighted average
number of common shares outstanding 37,676 37,504 37,671 30,297 27,125
Basic and diluted net loss per share $ (0.14) $ (0.08) $ (0.25) $ (0.32) $ (1.08)
</TABLE>
Options and warrants to purchase 839,679 shares of common stock, and 200,000
shares of convertible preferred stock were excluded from the Company's dilutive
net loss per share calculations for the three and nine months ended September
30, 1999 because their effect was anti-dilutive. Such options and warrants had a
weighted average exercise price of $3.93 per share. Options and warrants to
purchase 2,338,366 shares of common stock, and 200,000 shares of convertible
preferred stock were excluded from the Company's dilutive net loss per share
calculations for the three and nine months ended September 30, 2000 because
their effect was anti-dilutive. Such options and warrants had a weighted average
exercise price of $3.78 per share. Each share of the preferred stock may be
converted into two shares of the Company's common stock at any time subsequent
to issuance.
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NOTE D -- PROPERTY AND EQUIPMENT
Property and equipment comprise the following:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
----------- ----------
<S> <C> <C>
Automobiles and aircraft $ 5,476,000 $ 5,000
Equipment 6,294,000 2,370,000
Furniture and fixtures 600,000 460,000
Land and building 501,000 --
----------- ----------
12,871,000 2,835,000
Less accumulated depreciation 1,084,000 266,000
----------- ----------
$11,787,000 $2,569,000
=========== ==========
</TABLE>
During the quarter ended September 30, 2000, the Company purchased an aircraft
that was partially financed under a secured note ($4,933,000). The note, which
is secured by the aircraft, accrues interest at an initial rate fixed at 7.75%
for the first year, and variable in subsequent years based on the then
prevailing prime lending rate, and is due in monthly payments through 2013 as
defined in the note agreement.
NOTE E -- COMPREHENSIVE LOSS
Comprehensive loss includes all changes in equity during a period except those
resulting from investments by and distributions to the Company's stockholders.
For the three and nine month periods ended September 30, 2000 and 1999 and for
the period from January 1, 1997 (inception) to September 30, 2000, there were no
significant differences between the Company's comprehensive loss and reported
net loss.
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NOTE F -- NOTES RECEIVABLE FROM EMPLOYEES
The Company has aggregate outstanding notes receivable from employees of
$911,000 as of September 30, 2000. The notes are unsecured and have varying
interest rates ranging from 0% to 4% per annum, and are due either on demand, or
within a period of twelve months from September 30, 2000. Interest is due and
payable in full on due dates of the notes.
NOTE G -- SUBSEQUENT EVENTS
In November 2000, a stock purchase warrant was exercised for the purchase of
300,000 shares of common stock at a purchase price of $1.00 per share. This
warrant was originally issued in November 1998. In addition, during the period
October 1 and November 27, 2000, 589,500 shares of the Company's common stock
were sold for an aggregate price of approximately $2,211,000.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS CONTAINS FORWARD-LOOKING STATEMENTS RELATING TO FUTURE
EVENTS OR THE FUTURE FINANCIAL PERFORMANCE OF AMERICAN MULTIPLEXER CORPORATION,
WHICH INVOLVE RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A
RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH UNDER "RISKS FACTORS," AND
ELSEWHERE IN THIS DOCUMENT AND THOSE RISKS DESCRIBED IN OUR REGISTRATION
STATEMENT ON FORM 10/A FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON
SEPTEMBER 20, 2000. THIS DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION
WITH OUR INTERIM UNAUDITED CONDENSED FINANCIAL STATEMENTS AND RELATED NOTES
INCLUDED HEREIN.
RESULTS OF OPERATIONS
GENERAL -- Operating expenses for the three and nine month periods ended
September 30, 1999 include certain non-cash items which affect the comparability
of expenses for 2000 and 1999. Such non-cash expenses related to warrants issued
to key executives and which vested in 1999 and stock-based fees associated with
professional fund raising activities. Similar costs were not incurred during the
three and nine month periods ended September 30, 2000. For comparison purposes
in the discussion of R&D, G&A and S&M expenses below, 1999 non-cash items have
been excluded as follows:
<TABLE>
<CAPTION>
Cash expenses
Statements of Non-cash Non-cash discussed in
1999 three month period Operations compensation service fees MD&A
--------------------------- ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Research and development $1,200 (681) $ 519
General and administrative $ 993 (681) $ 312
Sales and marketing $ 841 (681) $ 160
1999 nine month period
---------------------------
Research and development $3,027 (1,454) $1,573
General and administrative $4,345 (1,454) (1,170) $1,721
Sales and marketing $2,611 (1,454) $1,157
</TABLE>
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RESEARCH AND DEVELOPMENT EXPENSES -- Research and Development expenses have
increased significantly when comparing the three and nine month periods of year
2000 with the corresponding periods of year 1999. These increases are the result
of an intensive acceleration of development efforts that commenced in the
quarter ended December 31, 1999. The acceleration of efforts included increasing
levels of employment, the retention of consultants to assist in the integration
of the Company's network platform, the initial subscription to satellite
transponder services and initial operational testing of the Company's Network
Operating Center (NOC). Certain costs, such as monthly satellite transponder
fees and operating costs of the NOC, have been and will continue to be
classified as development costs as long as the Company continues to be a
development stage company. Thereafter, such costs will be considered operational
and will be classified as elements of cost of sales. Excluding 1999 non-cash
expenses described above, research and development expenses increased $3,681,000
and $5,761,000, respectively, when comparing the three and nine month periods of
2000 with 1999.
GENERAL AND ADMINISTRATIVE EXPENSES -- Excluding 1999 non-cash expenses
described above, General and Administrative expenses increased $497,000, from
$312,000 in 1999 to $809,000 in the quarter ended September 30, 2000 and
remained relatively unchanged ($5,000 increase from 1999) when comparing the
nine month periods. Significant cost increases incurred during the September
2000 quarter include increased payroll and payroll related expenses incurred in
conjunction with additional administrative personnel needed to administer the
increased development activities described above and increased legal and
accounting fees associated with the Company's Form 10 Registration process
completed in September 2000. The comparative consistency of nine month expenses
were the result of expenses for administrative personnel and services incurred
in connection with the Company's change in business. These expenses, which were
incurred during the first six months of 1999, were not incurred during 2000.
SALES AND MARKETING EXPENSES -- Excluding 1999 non-cash expenses described
above, Sales and Marketing expenses increased $184,000 from $160,000 in the
quarter ended September 30, 1999 to $344,000 in the quarter ended September 30,
2000. This increase is attributable to the hiring of additional sales and
marketing personnel coupled with costs associated with the printing of marketing
and other collateral materials. When comparing the nine month periods, Sales and
Marketing costs decreased $147,000 from $1,157,000 in 1999 to $1,010,000 in
2000. This decrease is attributable to expenses for sales and marketing expenses
associated with the Company's change in business. These expenses, which were
incurred during the first six months of 1999, were not incurred during 2000.
INTEREST AND OTHER INCOME -- Primarily consisting of interest income, increases
of $75,000 (27%) and $464,000 (117%) were experienced when comparing the three
and nine month periods, respectively, of 2000 with 1999. These comparative
increases are attributable to interest earned from increased levels of invested
cash received from common stock issuances during 1999 and interest earned on
notes receivable.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES - Cash resources consumed in operating activities increased
$6.7 million from $2.2 million to $8.9 million when comparing the nine months
ended September 30, 2000 with the similar period of 1999. This increase is
attributable to the significant acceleration of research and developments
activities. The Company has stockholder notes receivable amounting to $6.7
million as of September 30, 2000. These notes become due and payable in full on
December 15, 2000.
INVESTING ACTIVITIES -- Cash resources consumed in investing activities, $10.1
million in 2000 compared with $1.2 million in 1999, relate to capital
expenditures and in 2000 were partially mitigated by borrowings. During the nine
months ended September 30, 2000; the company purchased approximately
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$4.1 million of capital assets primarily devoted to its commercial and
developmental Network Operating Centers, a $5.5 million - private aircraft and a
$.5 million facility to house out-of area consultants and employees visiting the
Company's headquarters facility. The aircraft was financed with a secured
installment note and is essential in deploying systems components to remote
customer locations.
FINANCING ACTIVITIES - Cash resources provided by financing activities totaled
$5.1 million during the nine months ended September 30, 2000. Installment
borrowings described above provided approximately $4.9 million and $.5 million
was provided by cash received from common stock option and common stock purchase
warrant exercises coupled with the private sale of common stock to qualified
investors. The Company has $6.7 million in notes and accrued interest receivable
from stockholders.
We currently expect revenues in 2001 together with cash reserves to be
insufficient to meet budgeted needs for cash in 2001 and we recognize that we
will require additional financing to meet our budgeted needs for the first
quarter of 2001. In the event we do not secure adequate financing, our ability
to meet our working capital needs would be impaired. We are currently seeking
outside sources of financing.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK -- The Company's exposure to interest rate risk relates to
the $4.9 million secured note issued by the Company as security for the purchase
of an airplane in September, 2000. The note is due in 2013, and bears interest
at a rate based on the prime lending rate, which is subject to fluctuation.
FOREIGN CURRENCY RATE RISK -- Because the Company does not currently conduct any
business that is non- U.S. currency denominated, foreign currency exposure is
not a present factor.
RISK FACTORS
This Form 10-Q contains forward-looking statements concerning our future
products, expenses, revenue, liquidity and cash needs as well as our plans and
strategies. These forward-looking statements are based on current expectations
and we assume no obligation to update this information. Numerous factors could
cause our actual results to differ significantly from the results described in
these forward-looking statements, including the following risk factors.
Our Quarterly Operating Results May Fluctuate Significantly.
Our quarterly results of operations may vary significantly in the future for a
variety of reasons, including the following:
- acceptance of our products;
- timing of new products and services by us or by our competition;
- our ability to attain and maintain quality levels for our
products and services.
Each of the above factors is difficult to forecast and thus could harm our
business, financial condition and results of operations.
We have a limited operating history
Because we recently began operations, it is difficult to evaluate our business
and our prospects. Our revenue and income potential is unproven and our business
model is still emerging. We were incorporated on April 8, 1996 and did not begin
any activity until January 1, 1997 (inception) and have a limited
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operating history. Furthermore, our prospects must be evaluated in light of the
risks, uncertainties, expenses and difficulties frequently encountered by
companies in the early stage of their development. We may not be successful in
addressing these risks and our business strategy may not be successful.
These risks include our ability to:
- develop new product services equal to or superior to those of
our competitors;
- attract customers and maintain strong relationships with them;
- execute our sales and marketing strategy;
- expand our market share;
- expand our domestic and international operations;
- reduce our costs of equipment used to provide services;
- respond to competitive pressures; and
- continue to attract, retain and motivate highly qualified
personnel, particularly in the areas of engineering, sales and
marketing.
We have a history of losses and expect future losses
We have incurred losses since we commenced operations. We incurred net losses of
$2,539,000 in 1997, $3,549,000 in 1998, $13,360,000 in 1999 and $9,208,000 for
the nine months ended September 30, 2000. As of September 30, 2000 we had an
accumulated deficit of $28,656,000. We have not yet generated any revenue or
achieved profitability and we cannot be certain that we will realize sufficient
revenue to achieve profitability in the future. Even if we do achieve
profitability, we cannot make any assurances that we can sustain or increase
profitability on a quarterly or annual basis in the future. If future revenues
fail to materialize or grows slower than we anticipate, if gross margins are not
generated in the future or if operating expenditures exceed our expectations or
cannot adjust accordingly, we may continue to experience significant losses on a
quarterly basis. Accordingly, we are dependent upon the successful completion of
future capital infusions to continue operations. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
We expect to continue to experience negative cash flow from operations and may
be unable to meet our future capital requirements through the issuance of
additional securities.
Since inception, we have experienced negative cash flow from operations and we
expect to continue to experience negative cash flow from operations for the
foreseeable future. Therefore, we have relied primarily on issuances of equity
securities to fund our operations to date.
We anticipate, based on current proposed plans and assumptions relating to
operations and scheduled development activities, that current cash reserves
coupled with investor funds that are currently being sought, will enable us to
continue development activities and commence revenue generating activities
sufficient to support operations through the end of 2000. We currently expect
revenues in 2001 together with cash reserves to be insufficient to meet budgeted
needs for cash in 2001 and we recognize that we will require additional
financing to meet our budgeted needs for the first quarter of 2001. There can be
no assurance; however, that investor funds or sufficient revenue generating
activities will materialize. We may need to raise additional funds if our
estimates of revenue, working capital and/or capital expenditure requirements
change or prove inaccurate or in order for us to respond to unforeseen
technological or marketing hurdles or to take advantage of unanticipated
opportunities. We cannot be certain that additional financing, through the
issuance of equity securities or otherwise, will be available to us on favorable
terms when required, or at all. Furthermore, if we raise additional funds
through the issuance of equity, equity-related or debt securities, such
securities may have rights, preferences or privileges senior to those of the
rights of our common and preferred stock and our stockholders may experience
additional
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dilution. If adequate funds are not available, or are not available on
acceptable terms, we may not be able to take advantage of market opportunities,
develop new product services or otherwise respond to competitive pressures which
could adversely affect our ability to achieve and sustain positive cash flow and
profitability in the future.
Our financial results from period to period may fluctuate as a result of several
factors, any of which could adversely affect our stock price.
It is possible that in some future periods our operating results may be below
the expectations of investors. In this event, the price of our common stock may
fall. Once we begin to generate revenue, our revenue and operating results may
vary significantly from period to period due to a number of factors, many of
which are not in our control. These factors include:
- continued market acceptance of our product services;
- fluctuations in demand for our product services;
- variations in the timing of orders;
- the timing of new product and service introductions by us or our
competitors;
- the mix of product services sold and the mix of distribution
channels through which they are sold;
- our ability to obtain sufficient supplies of sole or limited
source components for our product services;
- unfavorable changes in the prices of the components we purchase;
- our ability to attain and maintain quality levels for our
product services; and
- our ability to integrate new technologies we develop or acquire
into our product services.
We cannot assure you that we will be able to generate initial revenues or to
sustain or improve our financial results in the future. As a result, we may
experience substantial period to period fluctuations in future operating results
and adversely affected financial results. A variety of factors may affect our
financial results, including the following:
- the type of distribution channel through which we sell our
product services;
- the volume of product services offered and sold;
- our product service sales mix; and
- the average selling prices of our product services.
We also anticipate that orders for our product services may vary significantly
from period to period for various reasons, including the success of our sales
and marketing efforts. As a result, operating expenditures and inventory levels
in any given period could be disproportionately high. In some circumstances,
customers may delay purchasing our current product services in favor of
next-generation product services, which could affect our operating results in
any given period.
The market in which we sell our product services is intensely competitive and
our business would be adversely affected if we fail to develop or retain market
share or otherwise fail to successfully compete in this market.
We compete with many other companies. We will face competition from numerous
sources, including terrestrial and satellite-based online and Internet service
providers and others with the technical capabilities and expertise which would
encourage them to develop and commercialize competitive product services. Many
of our competitors are substantially larger than we are and have significantly
greater financial, sales and marketing, technical, manufacturing and other
resources and more established distribution channels. These competitors may be
able to respond more rapidly to new or emerging
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technologies and changes in customer requirements or devote greater resources to
the development, promotion and sale of their product services than we can.
Furthermore, some of our competitors may make strategic acquisitions or
establish cooperative relationships among themselves or with other third parties
to increase their ability to gain market share rapidly by addressing the needs
of our prospective customers. These competitors may enter our existing or future
markets with solutions that may be less expensive, provide higher performance or
additional features or be introduced earlier than our solutions. Given the
opportunity in our market, we also expect that other companies may enter our
market with better product services and technologies. If any technology that is
competing with ours is more reliable, faster, less expensive or has other
advantages over our technology, the demand for our product services would
decrease, which would seriously harm our business.
We expect our competitors to continue to improve the performance of their
current product services and introduce new product services or new technologies
as industry standards and customer requirements evolve that may supplant or
provide lower cost alternatives to our product services. Successful new product
service introductions or enhancements by our competitors could reduce the sales
or market acceptance of our product services, perpetuate intense price
competition or make our product services obsolete. To be competitive, we must
continue to invest significant resources in research and development, sales and
marketing and customer support. We cannot be sure that we will have sufficient
resources to make such investments or that we will be able to make the
technological advances necessary to be competitive. As a result, we may not be
able to compete effectively against our competitors. Our failure to maintain and
enhance our competitive position within the market may seriously harm our
business.
Increased competition is likely to result in price reductions, longer sales
cycles and loss of market share, any of which would seriously harm our business
and results of operations once we begin to generate revenue. We cannot be
certain that we will be able to compete successfully against current or future
competitors or that competitive pressures will not seriously harm our business.
If we fail to enhance our existing product services or develop and introduce new
product services and features in a timely manner to meet changing customer
requirements and emerging industry standards, our ability to grow our business
will suffer.
The markets in which we compete is characterized by rapidly changing
technologies and short product life cycles. Our future success will depend in
large part upon our ability to:
- identify and respond to emerging technological trends in the
market;
- develop and maintain competitive product services;
- enhance our product services by adding innovative features that
differentiate our product services from those of our
competitors;
- bring product services to market on a timely basis at
competitive prices;
- respond effectively to new technological changes or new product
service announcements by others; and
- respond to emerging broadband access technologies such as DSL,
wireless and cable modems.
We will not be competitive unless we continually introduce new product services
and product service enhancements that meet these emerging standards. In the
future we may not be able to effectively address the compatibility and
interoperability issues that arise as a result of technological changes and
evolving industry standards.
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The technical innovations required for us to remain competitive are inherently
complex and require long development cycles. We will be required to continue to
invest in research and development in order to attempt to maintain and enhance
our existing technologies and product services, but we may not have the funds
available to do so. Even if we have sufficient funds, these investments may not
serve the needs of customers or be compatible with changing technological
requirements or standards. Most development expenses must be incurred before the
technical feasibility or commercial viability of new or enhanced product
services can be ascertained. Revenue from future product services or product
service enhancements may not be sufficient to recover the associated development
costs.
We depend on our key personnel who may not continue to work for us.
Our future success depends in large part upon the continued services of our key
technical, sales and senior management personnel, none of whom is bound by an
employment agreement. The loss of any of our senior management or other key
research, development, sales and marketing personnel, particularly if lost to
competitors, could harm our business. In particular, the services of Edward Tan,
President and Chief Executive Officer, Ronald Everoski, Chief Technical Officer
and Vice President of Research and Development and Douglas Hanson, Vice
President of Sales and Marketing, would be difficult to replace. We do not
maintain "key person" life insurance for any of our personnel. See "Directors
and Executive Officers" for more detailed information on our key personnel.
If we are not successful in expanding our business in international markets, our
growth will suffer.
We intend to expand our operations domestically and internationally, and will
seek to expand the range of our product services and penetrate new geographic
markets; however, we have no experience in effectuating rapid expansion or in
managing operations which are geographically dispersed. Although we believe we
have an adequate infrastructure, there can be no assurance that our current
management, personnel and other corporate infrastructure will be adequate to
manage our growth.
As part of our strategy to address the global needs of our customers we plan to
develop international sales and support channels in advance of revenue. We
cannot assure you that our efforts to develop international sales and support
channels will be successful. Moreover, international sales are subject to a
number of risks, including changes in foreign government regulations and
communications standards, export license requirements, tariffs and taxes, other
trade barriers, difficulty in collecting accounts receivable, difficulty in
managing foreign operations, and political and economic instability. To the
extent our customers may be impacted by currency devaluations or general
economic crises, the ability of these customers to purchase our services could
be adversely affected. Payment cycles for international customers are typically
longer than those for customers in the United States. We cannot assure you that
foreign markets for our product services will not develop more slowly than
currently anticipated, if at all. In addition, if the relative value of the U.S.
dollar in comparison to the currency of our foreign customers should increase,
the resulting effective price increase of our product services to these foreign
customers could result in decreased sales.
We anticipate that our foreign sales will generally be invoiced in U.S. dollars
and, accordingly, we do not currently plan to engage in foreign currency hedging
transactions. However, as we expand our international operations, we may allow
payment in foreign currencies and exposure to losses in foreign currency
transactions may increase. We may choose to limit any currency exposure through
the purchase of forward foreign exchange contracts or other hedging strategies.
We cannot assure you that any currency hedging strategy we may adopt would be
successful in avoiding exchange-related losses.
Our product services must comply with complex government regulations that may
prevent us from generating our revenue or achieving profitability.
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In the United States, our services must comply with various regulations and
standards defined by the Federal Communications Commission and Underwriters
Laboratories. Internationally, product services that we develop may be required
to comply with standards established by telecommunications authorities in
various countries as well as with recommendations of the International
Telecommunications Union. If we fail to obtain timely domestic or foreign
regulatory approvals or certificates, we would not be able to sell our product
services where these regulations apply, which may prevent us from generating our
revenue or achieving profitability.
We have obtained and are required to maintain a licenses from the FCC for our
existing Network Operating Center. This license should be renewed by the FCC in
the normal course as long as we are in compliance with the FCC rules and
regulations. However, we cannot guarantee that additional licenses will be
granted by the FCC when our existing license expires, nor are we assured that
the FCC will not adopt new or modified technical requirements that will require
us to incur expenditures to modify or upgrade our equipment as a condition of
retaining our license.
Regulatory schemes in countries in which we may seek to provide our services,
including Argentina, where we currently offering our services for future
deployment, and in other countries in South America and in Europe and Asia,
where we propose to offer services in the future, may impose impediments on our
operations. At this stage in our development, however, we are only offering our
services in the United States and South America (for future deployment). Until
we are able to identify the additional jurisdictions in which we will offer our
services (which depends on the several factors described in this registration
statement), we can not accurately identify all applicable foreign laws, rules
and regulations. We are aware, however, that many of the South American,
European and Asian countries in which we intend to operate have
telecommunications laws and regulations that do not currently contemplate
technical advances in telecommunications technology like Internet/intranet
transmission by satellite. We cannot assure you that the present regulatory
environment in any of those countries will not be changed in a manner which may
have a material adverse impact on our business. Either we or our local partners
typically must obtain authorization for each country in which we provide our
satellite-delivered data communications services. The regulatory schemes in each
country are different, and thus there may be instances of noncompliance of which
we are not aware. We cannot assure you that our licenses and approvals are or
will remain sufficient in the view of foreign regulatory authorities, or that
necessary licenses and approvals will be granted on a timely basis in all
jurisdictions in which we wish to offer our products and services or that
applicable restrictions will not be unduly burdensome.
Laws and regulations effecting the internet may have an adverse effect on our
business or operations.
Due to the increasing popularity and use of the Internet it is possible that a
number of laws and regulations may be adopted at the local, national or
international level with respect to the Internet, covering issues including user
privacy and expression, pricing of products and services, taxation, advertising,
intellectual property rights, information security or the convergence of
traditional communication services with Internet communications. It is
anticipated that a substantial portion of our Internet operations will be
carried out in countries which may impose greater regulation of the content of
information coming into the country than that which is generally applicable in
the United States, for example, privacy regulations in Europe and content
restrictions in countries like the Republic of China.
To the extent that we provide content as a part of our Internet services, it
will be subject to laws regulating content. Moreover, the adoption of laws or
regulations may decrease the growth of the Internet, which could in turn
decrease the demand for our Internet services or increase our cost of doing
business or in some other manner have a material adverse effect on our business,
operating results and financial condition. In addition, the applicability to the
Internet of existing laws governing issues including
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property ownership, copyrights and other intellectual property issues, taxation,
libel and personal privacy is uncertain. The vast majority of these laws were
adopted prior to the advent of the Internet and related technologies and, as a
result, do not contemplate or address the unique issues of the Internet and
related technologies. Changes to these laws intended to address these issues,
including some recently proposed changes, could create uncertainty in the
marketplace which could reduce demand for our products and services, could
increase our cost of doing business as a result of costs of litigation or
increased product development costs, or could in some other manner have a
material adverse effect on our business, financial condition and results of
operations.
Our services may be subject to new and increased telecommunications taxation,
support requirements and access charges, any of which could have an adverse
effect on our business or operations.
All telecommunications carriers providing domestic services in the United States
are required to contribute a portion of their gross revenues for the support of
universal telecommunications services; and some telecommunications services are
subject to special taxation and to contribution requirements to support services
to special groups, like persons with disabilities. Our services may be subject
to new or increased taxes and contribution requirements that could affect our
profitability, particularly if we are not able to pass them through to customers
for either competitive or regulatory reasons.
Internet services are currently exempt from charges that long distance telephone
companies pay for access to the networks of local telephone companies in the
United States. Efforts have been made from time to time, and may be made again
in the future, to eliminate this exemption. If these access charges are imposed
on telephone lines used to reach Internet service providers, and/or if flat rate
telephone services for Internet access are eliminated or curtailed, the cost to
customers who access our satellite facilities using telephone company-provided
facilities could increase to an extent that could discourage the demand for our
services. Likewise, the demand for our services in other countries may be
affected by the availability and cost of local telephone or other
telecommunications facilities to reach our facilities.
Regulations related to the export of telecommunications equipment could hinder
our ability to provide services in jurisdictions outside of the United States.
The sale of our communications services outside the United States is subject to
compliance with the regulations of the United States Export Administration
Regulations. The absence of comparable restrictions on competitors in other
countries may adversely affect our competitive position. In addition, in order
to ship our products into other countries, the products must satisfy the
technical requirements of that particular country. If we were unable to comply
with these requirements with respect to a significant quantity of our products,
our sales in those countries could be restricted, which could have a material
adverse effect on our business, financial condition and results of operations.
If internet usage declines or the internet infrastructure is not adequately
maintained and expanded, demand for our product services may decline.
The Internet has recently begun to develop and is rapidly evolving. As a result,
the commercial market for product services designed to enable high-speed access
to the Internet has only recently begun to develop. Our success will depend in
large part on increased use of the Internet and other networks based on Internet
protocol by corporate telecommuters and small offices. Critical issues
concerning the commercial use of the Internet remain unresolved and are likely
to affect the development of the market for our product services. These issues
include security, reliability, cost, ease of access, government regulation and
quality of service. The adoption of the Internet for commerce and
communications, particularly by enterprises that have historically relied upon
alternative means of commerce and communications, generally requires the
acceptance of a new method of conducting business and exchanging information.
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The recent growth in the use of the Internet has caused frequent periods of
performance degradation that have prompted efforts to upgrade the Internet
infrastructure. Any perceived degradation in the performance of the Internet as
a whole could undermine the benefits of our product services. Potentially
increased performance and other benefits provided by our product services and
the product services of others are ultimately limited by, and are reliant upon,
the speed and reliability of the Internet backbone itself. Consequently, the
emergence and growth of the market for our product services will depend on
improvements being made to the entire Internet infrastructure to alleviate
overloading and congestion.
If we are unable to adequately protect our intellectual property rights other
companies may use our intellectual property to develop competitive product
services that may reduce demand for our product services.
We currently rely on a combination of copyright, trademark and trade secret laws
and restrictions on disclosure to protect our intellectual property rights. We
have two pending U.S. trademark applications for trademarks relating to our
system hardware and product services.
We also enter into confidentiality or license agreements with our employees,
consultants and corporate partners, and control access to and distribution of
our software, documentation and other proprietary information. Despite our
efforts to protect our proprietary rights, unauthorized parties may attempt to
copy or otherwise obtain and use our product services or technology. We cannot
assure you that these precautions will prevent misappropriation or infringement
of our intellectual property. Monitoring unauthorized use of our product
services is difficult, and we cannot assure you that the steps we have taken
will prevent misappropriation of our technology, particularly in foreign
countries where the laws may not protect our proprietary rights as fully as in
the United States.
We may be subject to intellectual property infringement claims that are costly
to defend and could limit our ability to use certain technologies in the future.
Our industry is characterized by the existence of a large number of patents and
frequent claims and related litigation regarding patent and other intellectual
property rights. In particular, leading companies in the data communications and
networking markets have extensive patent portfolios with respect to modem and
networking technology. We cannot be sure that the products, services,
technologies, and advertising we employ in our business do not or will not
infringe valid patents, trademarks, copyrights or other intellectual property
rights held by third parties. We may be subject to legal proceedings and claims
from time to time relating to the intellectual property of others in the
ordinary course of our business. We may incur substantial expenses in defending
against these third-party claims, regardless of their merit. Successful
infringement claims against us may result in substantial monetary liability
and/or may materially disrupt the conduct of, or necessitate the cessation of,
our business. We expect that we may increasingly be subject to infringement
claims as the numbers of product services and competitors in the small office
market for shared Internet access solutions grow and the functionality of
product services overlaps.
We may in the future initiate claims or litigation against third parties for
infringement of our proprietary rights to determine the scope and validity of
our proprietary rights. Any such claims, with or without merit, could be
time-consuming, result in costly litigation and diversion of technical and
management personnel, or require us to develop non-infringing technology or
enter into royalty or licensing agreements. Such royalty or licensing
agreements, if required, may not be available on acceptable terms, if at all. In
the event of a successful claim of infringement and our failure or inability to
develop non-infringing technology or license the proprietary rights on a timely
basis, our business would be harmed.
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Insiders have substantial control over the company that could delay or prevent a
change in our corporate control.
Our executive officers, and directors and their affiliates will, in the
aggregate, own approximately 24% of our outstanding common stock. As a result,
our officers, directors and affiliates will have the ability to influence the
election of our board of directors and the outcome of corporate actions
requiring stockholder approval. This concentration of ownership may have the
effect of delaying or preventing a change in our corporate control. We do not
have cumulative voting in the election of directors; and the minority
shareholders will not be able to elect any director to our Board of Directors.
We face obstacles relating to market acceptance and distribution.
We are at an early stage of development and our earnings growth depends
primarily upon market acceptance of our product services. There can be no
assurance that our product service development efforts will progress further
with respect to any potential new product services or that they will be
successfully completed. In addition, there can be no assurance that our
potential new product services will be capable of being produced in commercial
quantities at reasonable costs or that these potential product services, if
introduced, will be successfully marketed or will achieve customer acceptance.
We do not have sufficient experience in marketing our product services to
determine the optimum distribution methods. Accordingly, we might be in a
position requiring change in our sales, distribution, and marketing strategies
and implementation.
We will be dependent on new products and product enhancement introductions,
product delays may negatively affect our business.
Our success in our business depends on, among other things, the timely
introduction of successful new product services or enhancements of existing
product services to replace declining revenues from product services at the
latter stage of a product service cycle. Consumer preferences for product
services are difficult to predict, and few product services achieve sustained
market acceptance. If revenues from new product services or enhancements do not
replace declining revenues from existing product services, our business,
operating results and financial condition could be materially adversely
affected. The process of developing broadband services is extremely complex and
is expected to become more complex. A significant delay in the introduction of
one or more new product services or enhancements could have a material adverse
effect on our ultimate success of such product services and on our business,
operating results and financial condition.
We are participating in a developing market, new entrants may dominate the
market segment.
The markets in which we compete are rapidly evolving and is characterized by an
increasing number of market entrants who have introduced or developed product
services. Although we currently believe that the diverse segments of the market
will provide opportunities for more than one supplier of product services
similar to ours, it is possible that a single supplier may dominate one or more
market segment.
If the satellite communications industry fails to continue to develop or new
technology makes it obsolete, our business and financial condition will be
harmed.
Our business is dependent on the continued success and development of satellite
communications technology, which competes with terrestrial communications
transport technologies like terrestrial microwave, coaxial cable and fiber optic
communications systems. If the satellite communications industry fails to
continue to develop, or any technological development significantly improves the
cost or
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efficiency of competing terrestrial systems relative to satellite systems, then
our business and financial condition would be materially harmed.
We may rely on relationships with resellers in developing countries with
emerging markets for sales of our products and services.
We intend to provide our products and services in developing countries where we
have little or no market experience. We may rely on resellers in those markets
to provide their expertise and knowledge of the local regulatory environment in
order to make access to customers in emerging markets easier. If we are unable
to maintain these relationships, or develop new ones in other emerging markets,
our ability to enter into and compete successfully in developing countries would
be adversely affected.
Our inability to effectively manage our growth and expansion could seriously
harm our ability to effectively run our business.
Since our inception, we have continued to increase the scope of our operations.
This growth has placed, and our anticipated growth will continue to place, a
significant strain on our personnel, management, financial and other resources.
Any failure to manage our growth effectively could seriously harm our ability to
respond to customers, monitor the quality of our products and services and
maintain the overall efficiency of our operations. In order to continue to
pursue the opportunities presented by our satellite-based communications
services, we plan to continue to hire a significant number of key officers and
other employees and to increase our operating expenses by broadening our
customer support capabilities, expanding our sales and marketing operations and
improving our operating and financial systems. If we fail to manage any future
growth in an efficient manner, and at a pace consistent with our business, our
revenues, financial condition and business will be harmed.
We may be unable to lease transponder space on satellites, which could limit our
ability to provide our services to our customers.
We lease transponder space on satellites in order to provide our multicasting
services to our customers. The supply of transponder space serving a geographic
region on earth is limited by the number of satellites that are in orbit above
that geographic region. If companies that own and deploy satellites in orbit
underestimate the demand for transponder space in a given geographic area or
they are simply unable to build and launch enough satellites to keep up with
increasing demand, the price for leasing transponder space could rise,
increasing our cost of operations, or we simply may not be able to lease enough
transponder space to meet the demands of our customers.
We currently rely on Satmex for our main supply of transponder space on
satellites.
We currently depend on SatMex for our transponder space on satellites. If SatMex
is unable to develop its business or if we are unable to continue to rely on
their supply for transponder space, then we will have to find alternative
suppliers. If we are unable to find another supplier of transponder space or if
we are unable to find one on terms favorable to us, then our business may be
harmed.
Our network may experience security breaches which could disrupt our services.
Our network infrastructure may be vulnerable to computer viruses, break-ins,
denial of service attacks and similar disruptive problems caused by our
customers or other Internet users. Computer viruses, break-ins, denial of
service attacks or other problems caused by third parties could lead to
interruptions, delays or cessation in service to our customers. There currently
is no existing technology that provides absolute security, and the cost of
minimizing these security breaches could be prohibitively expensive. We may
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face liability to customers for such security breaches. Furthermore, these
incidents could deter potential customers and adversely affect existing customer
relationships.
Satellites upon which we rely may be damaged or lost, or malfunction.
The damage, loss or malfunction of any of the satellites used by us, or a
temporary or permanent malfunction of any of the satellites upon which we rely,
would likely result in the interruption of our satellite-based communications
services. This interruption would have a material adverse effect on our
business, results of operations and financial condition.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Quantitative and Qualitative Disclosures About Market Risk.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the quarter ended September 30, 2000, 126,000 shares of the Company's
common stock were sold for an aggregate purchase price of $472,500. Between
October 1, 2000 and November 27, 2000, an additional 589,500 shares were sold
for an aggregate purchase price of $2,210,625. In addition, subsequent to
September 30, 2000, 300,000 shares were sold for an aggregate purchase price of
$300,000 pursuant to the exercise of a stock purchase warrant that was issued in
November 1998. The issuance of the shares was made in reliance on Section 4(2)
of the Securities Act of 1933, as amended. No such sales involved the use of an
underwriter and no commissions were paid in connection with the sale of any
securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
During the quarter ended September 30, 2000, Douglas Hanson and Louk Wilem
Jurgens resigned from the Board of Directors and the Company appointed 3 new
directors to fill the two vacancies on the Board of Directors created thereby
and to fill an additional third vacancy on the Board. The three new directors
are John Andreini, principal owner of Andreini Insurance Company; Karl
Schleicher, a German Industrialist; and Barbara Stinnett, Director of Worldwide
Sales, E-services Infrastructure, Hewlett-Packard Company. The three new
directors along with Edward Tan, the Company's Chairman and CEO, constitute the
entire Board of Directors.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27.1 Financial Data Schedule
(b) A change in the Company's auditors is described in greater detail in Current
Reports on Form 8-K filed with the Commission on September 28, 2000 and November
21, 2000. An additional Current Report on Form 8-K was filed on November 21,
2000 describing the Registrant's intention to file the Quarterly Report of Form
10Q after the due date hereof.
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SIGNATURES
In accordance with the Exchange Act, the registrant caused this report
to be signed on its behalf by the undersigned thereunto duly authorized.
Date: December 13, 2000
AMERICAN MULTIPLEXER CORPORATION
(Registrant)
/s/ EDWARD TAN
-----------------------------------------
Edward Tan, President and Chief
Executive Officer
/s/ NED CHAPMAN
-----------------------------------------
Ned Chapman, Chief Financial Officer and
Principal Accounting Officer
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