U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
(Mark One)
(X) Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the Quarterly Period Ended September 30, 2000
( ) Transition report under Section 13 or 15(d) of the Exchange Act
Commission File Number 000-29755
SATX, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
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Nevada 87-0293479
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(State or Other Jurisdiction (I.R.S. Employer
Incorporation or Organization) Identification No.)
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4710 Eisenhower Boulevard, Suite B - 2, Tampa, Florida 33634
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(Address of Principal Executive Offices)
(813) 290-0911
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(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the 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 filing requirements for the past 90 days.
Yes X No
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There were 72,242,492 shares of the registrant's common stock
outstanding at September 30, 2000.
Transitional Small Business Disclosure Format (check one):
Yes No X
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SATX, INC.
INDEX
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Page(s)
PART 1: Financial Information
Item 1 - Financial Statements
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Condensed Consolidated Balance Sheets - September 30, 2000 (unaudited)
and December 31, 1999 3
Condensed Consolidated Statements of Operations - Three and Nine Months Ended
September 30, 2000 and 1999 (unaudited) 4
Condensed Consolidated Statements of Cash Flows - Nine Months Ended
September 30, 2000 and 1999 (unaudited) 5
Notes to Interim Condensed Consolidated Financial Statements 6 - 9
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations 10 - 12
PART II Other Information 13
SIGNATURES 14
EXHIBITS:
Exhibit 27 - Financial Data Schedule 15
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<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
SATX, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
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ASSETS
September 30, 2000 December 31, 1999
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CURRENT ASSETS: (unaudited)
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Cash ......................................................................... $ 79,662 $ 98,826
Accounts receivable, net of allowance for
doubtful accounts of $283,631 for 2000,
and 1,110 for 1999, respectively ........................................... 53,137 19,420
Inventory .................................................................... 585,256 406,393
Notes receivable ............................................................. -0- 256,491
Prepaid expenses and other current assets .................................... 2,586,155 44,261
------------ ------------
Total Current Assets .............................................................. 3,304,170 825,391
------------ ------------
FIXED ASSETS ...................................................................... 5,759,048 43,055
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OTHER ASSETS
Cost in excess of assets acquired, net ....................................... 3,037,421 -0-
Investments .................................................................. 165,000 165,000
Notes receivable ............................................................. 311,477 -0-
Other assets ................................................................. 388,830 -0-
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Total Other Assets ................................................................ 3,902,728 165,000
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TOTAL ASSETS ...................................................................... $12,965,946 $ 1,033,446
============ =============
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable, current portion ............................................... $ 614,625 $ 513,318
Accounts payable and accrued expenses ........................................ 6,127,042 592,294
------------ ------------
Total Current Liabilities ......................................................... 7,118,136 1,105,612
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NON CURRENT LIABILITIES
Notes payable ................................................................ 7,283,375 1,073,318
Less: Current portion ........................................................ ( 614,625) ( 513,318)
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Total Non Current Liabilities ..................................................... 6,668,750 560,000
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TOTAL LIABILITIES ................................................................. 13,410,417 1,665,612
------------ ------------
MINORITY INTERESTS IN SUBSIDIARY (Note 3).......................................... -0- -0-
------------ ------------
SHAREHOLDERS' EQUITY
Preferred stock, $.001 par value 20,000,000
shares authorized, none issued
Common stock, $.001 par value, 100,000,00
shares authorized, 72,242,492 and 53,481,960
issued for 2000 and 1999 respectively ...................................... 72,242 52,008
Paid in capital .............................................................. 8,861,592 2,979,911
Accumulated deficit .......................................................... (9,378,305) (3,664,085)
------------ ------------
Total Shareholders' (Deficit) ..................................................... ( 444,471) ( 632,166)
------------ ------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY .......................................... $12,965,946 $ 1,033,446
============ =============
(See accompanying notes.)
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SATX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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For the Three Months Nine Months
Ended September 30 Ended September 30
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2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Revenues $ 567,364 $ 22,208 $ 624,506 $ 22,208
Cost of goods sold 478,992 15,881 499,842 15,881
-------------- --------------- -------------- ---------------
Gross Profit 88,372 6,327 124,664 6,327
Operating expenses:
Selling, general and
administrative expenses 2,338,605 454,239 4,007,889 572,085
------------- -------------- ------------- --------------
Operating loss ( 2,250,233) ( 447,912) ( 3,883,225) ( 565,758)
Other income (expenses)
Interest expense ( 264,913) -0- ( 332,140) -0-
------------- -------------- ------------- --------------
( 2,515,146) ( 447,912) ( 4,215,365) ( 565,758)
Minority interest in Subsidiary
Company's loss (Note 3) -0- -0- -0- -0-
------------- -------------- ------------- --------------
Loss before income taxes ( 2,515,146) ( 447,912) ( 4,215,365) ( 565,758)
Provision (credit) for income tax -0- -0- -0- -0-
------------- -------------- ------------- --------------
Net Loss $( 2,515,146) $( 447,912) $(4,215,365) $( 565,758)
============ =============== ============== ===============
Basic & Diluted Loss
Per share $( .04) $( .01) $( .07) $( .01)
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Weighted Average
shares outstanding 69,178,598 50,323,120 59,492,342 49,823,070
============ =============== ============== ===============
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(See accompanying notes.)
-4-
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SATX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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Nine Months
Ended September 30
2000 1999
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Increase (Decrease) In Cash:
Cash Flow From Operating Activities
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Net loss for the period $( 4,215,365) $( 565,758)
Non-cash expenses
Depreciation and amortization 297,579 8,423-
Common stock for services 3,507,106 -0-
(Increase) in notes receivable ( 311,477) -0-
(Increase) in receivables ( 33,717) ( 33,208)
(Increase) in inventories ( 178,863) ( 262,542)
(Increase) in prepaid expenses
and other assets ( 2,930,724) ( 99,765)
Increase (Decrease) in accounts
payable and accrued expenses 5,534,748 97,702
-------------------- ----------------------
Net Cash (Used) In Operations 1,669,287 ( 855,148)
-------------------- ----------------------
Cash Flow From Investing Activities
Investments -0- ( 400,000)
Purchase of Property And Equipment ( 5,715,993) ( 217,195)
Cost in excess of assets acquired ( 3,078,469) -0-
Minority interest in net assets acquired ( 1,498,855) -0-
-------------------- ----------------------
Net Cash (Used) Provided
From Investing Activities ( 10,293,317) ( 617,195)
-------------------- ----------------------
Cash Flow From Financing Activities
Increase in notes payable 6,210,057 918,020
Increase of common stock for cash 2,394,809 600,316
-------------------- ----------------------
Net Cash (Used) Provided
From Financing 8,604,866 1,518,336
-------------------- ----------------------
Net Increase (Decrease) In Cash ( 19,164) 45,993
Cash, Beginning of Year 98,826 1,008
-------------------- ----------------------
Cash, End of Period $ 79,662 $ 47,001
=================== ====================
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(See accompanying notes.)
-5-
<PAGE>
SATX, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED)
NOTE 1 DESCRIPTION OF COMPANY
SATX, Inc., the "Company" and its Subsidiary, DebitFone International,
Inc., are in the communications technology business. The Company was
incorporated June 28, 1972, in the State of Utah, under the name Growth, Inc.
After several subsequent changes in corporate structure, the Company amended its
Articles of Incorporation to change its name to SATX, Inc. and changed its
domicile to Nevada.
The Company currently markets, both domestically and internationally,
prepaid cellular phones and global tracking devices.
The accounting policies followed by the Company are set forth in Note 2 to
the Company's annual report filed on Form 10-KSB for the year ended December 31,
1999. Specific reference is made to this report for a description of the
Company's securities and the notes to the financial statements included therein.
In the opinion of management, the accompanying unaudited interim condensed
financial statements of SATX, Inc., contain all adjustments necessary to present
fairly the Company's financial position as of September 30, 2000, and the
results of its operations and cash flows for the nine month and three month
periods ended September 30, 2000, and 1999.
The results of operations for the nine month and three month periods ended
September 30, 2000, and 1999, are not necessary indicative of the results to be
expected for the full year.
The Company currently has insufficient funds available for operations and
would be required to seek additional financing to supplement cash generated from
operations. The Company is currently negotiating substantial debt financing as
well as additional capital. There can be no assurance that additional funds will
be available to the Company. In the event the Company is unable to raise
additional funds, the Company could be required to either substantially reduce
or terminate its operations.
NOTE 2 BUSINESS COMBINATION
In May, 1999, SATX, Inc. completed the acquisition of all of the stock of
its wholly-owned Subsidiary, DebitFone International, Inc. It traded 2,900,000
shares of Company stock for all of DebitFone's stock, valued at fair market
value of approximately $.04 per share of the Company's common stock. The Company
has recorded the acquisition using the purchase method of accounting as follows:
Assets acquired $ 116,000
Liabilities assumed -0-
--------------
Acquisition price of assets $ 116,000
==============
The assets purchased included $92,353 of software development costs which
were subsequently expensed as period costs during the remainder of 1999.
-6-
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SATX, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED)
NOTE 2 BUSINESS COMBINATION (CONT'D)
The operations of DebitFone International, Inc. have been reflected herein
on a consolidated basis for the period since acquisition, which includes the
period of June 1, 1999.
Effective May 23, 2000, registrant completed an acquisition (the
"Acquisition") of 3,982,600 shares (the "ORA Shares") or approximately fifty-six
percent (56%) of the common stock of ORA Electronics, Inc., a Delaware
corporation ("ORA"), from Ruth Cooper as an individual and trustee of the cooper
Living Trust (the "Trust"). ORA is an electronic company engaged in the business
of developing and marketing a wide range of cellular accessories and related
communication products. Prior to the Acquisition, the Trust was the holder of
4,982,600 of the issued and outstanding shares of common stock of ORA.
Registrant purchased 3,982,600 of the ORA Shares from the Trust, and the
remaining 1,000,000 shares were retained by the Trust.
As consideration for the sale of the 3,982,600 ORA Shares, registrant
provided the Trust, on or before closing date of the Acquisition, with the
available funds; (ii) Four Hundred Thousand (400,000) shares of registrant's
common stock; and (iii) a promissory note in the amount of $23,185.83 (the
"Purchase Note"). As additional consideration, registrant shall assume and shall
pay: (i) within forty-five (45) calendar days following the closing of the
acquisition, all indebtedness now or hereafter accrued, including interest and
penalties, currently aggregating approximately Three Hundred Thousand Dollars
($300,000), payable to ORA pursuant to a promissory note dated March 31, 1996,
as amended, restated and extended to March 31, 2000; and (ii) when due, all
liabilities and obligations arising out of or under a continuing guaranty dated
February 1, 1989, given by Ruth Cooper and Gershon Cooper to a third party to
guaranty the repayment of a secured loan to ORA (the "Mortgage Guaranty").
Registrant's obligation to pay the Purchase Note and to perform its obligations
under the ORA Agreement and related agreements is secured by a pledge of the ORA
Shares acquired in the Acquisition.
The Company has recorded the acquisition using the purchase method of
accounting as follows:
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Assets acquired 6,632,290
Liabilities 10,748,877
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Deficit ( 4,116,576)
Percent acquired (56%) ( 2,305,283)
Acquisition Price 773,186
Goodwill 3,078,469
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-7-
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SATX, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED)
NOTE 2 BUSINESS COMBINATION (CONT'D)
The following unaudited pro forma data summarizes the results of operations
of the Company for the three and nine months ended September 30, 2000 and 1999,
as if the above acquisitions had been completed on January 1, 1999. The pro
forma data gives effect to the actual operating results prior to acquisition.
The pro forma results do not purport to be indicative of the results that would
have actually been achieved if the acquisition had occurred on January 1, 1999,
or that may be achieved in the future.
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For The Nine Months Ended September 30
2000 1999
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Sales $ 1,683,956 $ 1,845,495
Net Loss ( 5,217,825) ( 2,656,014)
Basic Net Loss Per Share $ ( .08) $( .05)
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NOTE 3 MINORITY INTERESTS
Minority Interests represents approximately forty-four percent of the
common stock of ORA. However, the losses were limited to the extent of their
equity capital and the excess losses are charged against majority income.
Subsequently, when the losses reverse, the majority interests will be credited
with the amount of minority interest losses previously absorbed before credit is
made to the majority interests. This is in accordance with ARB 51, par. 15.
NOTE 4 POTENTIAL ACQUISITIONS
Shared Technologies Cellular, Inc.:
Subsequent to the balance sheet date, the Company entered into an agreement
with Shared Technologies Cellular, Inc. (An OTBB Company) wherein both the
Company and Shared Technologies will merge into a single entity with SATX, Inc.
contributing four shares of its stock for each share of Shared Technologies
Cellular, Inc. stock.
The completion of the transaction requires raising thirty million dollars
($30,000,000) in funding for the ongoing operations and approval of both boards
of directors. The target date for completion of the merger is February, 2001.
Paradigm Manufacturing Inc.:
In October, 1999, SATX, Inc. entered into a stock purchase agreement with
Paradigm Manufacturing, Inc., which called for SATX, Inc. to acquire all the
shares of Paradigm. Although this agreement was signed by both parties, there
were still condition to be met before becoming final.
In an agreement, dated March 3, 2000, and a supplemental agreement, dated
March 3, 2000, the parties mutually agreed to rescind the stock purchase
agreement and consider it null and void. The agreement also outlined the parties
concurrence to finish the development and tooling of a prepaid phone for SATX,
Inc.
As part of the original agreement, SATX, Inc. loaned Paradigm
Manufacturing, Inc. $256,491. The supplemental agreement includes a promissory
note that calls for period repayment beginning April 1, 2000, with the final
payment by November 1, 2000. Interest is payable at 10% per annum.
As of the report date, Paradigm has not made any of the above payments and
is in default on this promissory note.
-8-
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SATX, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED)
NOTE 5 NOTES PAYABLE
During the nine months ended September 30, 2000, the Company borrowed
$550,000 in short term demand notes due various individuals and bearing interest
at approximately 8%. Additionally, you may refer to SATX, Inc.'s 10K filed March
15, 2000, and ORA's 10K filed August 15, 2000.
-9-
<PAGE>
Item 2. - Management's Discussion & Analysis of Financial
Condition and Results of Operations
Introduction:
Although the Company's seed existence dates back to 1972, the essence of the
current company became viable in late 1995 with the assignment of the one and
two-way paging Patent rights for remote signaling. However, from 1996 until the
merger with DebitFone International in 1999 there was little company activity.
Since that time the corporation has been in a development stage of operation.
Through the third quarter the Company's primary focus is the maturation of
products, services and market opportunities for the prepaid cellular and
GPS/Tracking business units.
In the debit phone unit the Company's strategic plan has been, and is, to sell
into the expanding prepaid portion of the cellular industry, initially
concentrating on USA requirements. This very large market niche continues to
evolve as handsets, protocols and infrastructures change technologically. The
Company's intent is to compete primarily by selling product and time-renewal
through strategically located vending machines and through agent channels.
Locking into specific solutions and maturing the products and services required
has taken significantly more time than management previously estimated. The
complexity continued to grow and the competitive cellular offerings continued to
demand additional evaluation and solutions in Company product and in the
delivery of support services. It is now anticipated that the Company can enter a
broad market with competitive, creative solutions by year end. Several
directional changes will have been incorporated, and development of both
applicable handsets and customer service centers will continue, but the baseline
offering will be stabilized. Alternative solutions for future introduction into
the marketplace continue to be investigated and evaluated. The Company currently
has funded a development project for the technical specifications for prepaid
software in digital protocols. It is clear that such offerings will be mandatory
in the future in order to maintain a competitive posture. In fact, a major
factor in schedule delays has been the efforts surrounding digital prepaid
unique requirements.
The AlphaTrak business unit has extended its product evaluation and development
cycle at the expense of short-term device sales, but to benefit medium and
long-term effectiveness and competitiveness in the user markets available.
Cost-effective and functionally complete solutions for GPS location and
follow-up tracking have been virtually non- existent in the past. Market
research demonstrates a tremendous international market, presently in its
infancy, but the Company realizes that it is imperative to enter each of the
various niche markets with the proper product and system-management tools.
Additional time is being utilized at the front end of the process to test and
evaluate alternative solutions, and also to finish development of a
new-generation Company tracker offering. The new product should be deployable in
the USA markets and in Asia after year end. Near-term opportunities exist and
are being pursued in both arenas, in addition to a search for strategic partners
to enhance performance and time to market.
The Company's Patents covering paging signals sent to remotely engage switches
and communicate responses clearly involve applications well beyond vehicle
disabling and tracking. These broad market applications integrating the
Company's technology with desired train, truck and cargo container functionality
are still being reviewed for future implementations.
-10-
<PAGE>
Item 2. - Management's Discussion & Analysis of Financial
Condition and Results of Operations
(Cont'd)
Introduction:
(Cont'd)
During the Second Quarter the Company completed the acquisition of a majority of
the outstanding common stock of ORA Electronics in Chatsworth, California. Their
prominent participation in the cellular accessory market and related
"intelligent" electronic communications systems provides significant synergism
with existing Company applications. The ORA Engineering capability also adds a
strong presence to Company development efforts. It is anticipated that
co-dependent and co-development tasks will continue to be defined. Most of the
third quarter was spent evaluating ORA's strategic focus and future
concentrations.
Technology remains the core Company focus in Communications applications. Market
opportunities exist in broad arenas on an international basis. More effort has
been expended in R&D activities and in systemic solutions than previously
estimated, but the Company remains very confident in the long-term benefits and
paybacks. Line-of- Credit and Equity financing will continue to be exploited to
solve the short-term development and longer-term growth requirements. Sources
for funding continue to be available given the tremendous opportunities that
exist for the Company, and they are presently being compared for Company
advantages.
Results of Operations:
As the Company continues to prepare for the market opportunity described above,
as anticipated, it continues to incur losses. Its loss for the nine months ended
September 30, 2000 of $3,616,914 was considerably larger than the loss of
$(447,912) for the nine months ended September 30, 1999. This is due primarily
to increased overhead and personnel necessary to implement the plan, including
increased consulting fees, personnel and legal and accounting fees of
approximately $1,290,000.. Additionally, the loss increased due to acquisition
of ORA in the amount of $761,665. Because of the increased borrowing the
interest expense for the nine months ended September 30, 2000 has increased by
over $332,000 compared to the same period in 1999. Of this, approximately
$278,000 is attributable to ORA. In the coming months, significant cash flow
will be needed to continue to fine-tune, develop and implement the plan
including that of its recently acquired subsidiary. Management continues to work
on both debt financing and capital raising activities to solve these needs.
Risks Associated With Year 2000 Problem:
Computer systems and software used by many companies were required to be
upgraded to accept four digit entries to distinguish 21st century dates from
20th century dates. Like most other companies using computers in their
operations, we ensured that our operations were not adversely impacted by
software or system failures related to the Year 2000 problem. We reviewed our
internal computer and related information and operational systems to ensure Year
2000 compliance and have experienced no consequences due to untimely resolution
of the Year 2000 problem. However, if our internal systems were not materially
affected by the Year 2000 problem, our business, financial condition and results
of operations could be materially adversely affected if the businesses with
which we interact are disrupted by Year 2000 problems. We have discussed this
matter with those businesses upon which we are most dependent and have been
assured that no material disruptions were experienced.
-11-
<PAGE>
Item 2. - Management's Discussion & Analysis of Financial
Condition and Results of Operations
(Cont'd)
Other:
Except for historical information contained herein, the matters set forth above
are forward-looking statements that involve certain risks and uncertainties that
could cause actual results to differ from those in the forward-looking
statements. Potential risks and uncertainties include such factors as the level
of business and consumer spending, the amount of sales of the Company's
products, the competitive environment within the automotive afer-market
industry, the ability of the Company to continue to expand its operations, the
level of costs incurred in connection with the Company's expansion efforts,
economic conditions and the financial strength of the Company's customers and
suppliers. Investors are directed to consider other risks and uncertainties
discussed in documents filed by the company with the Securities and Exchange
Commission.
-12-
<PAGE>
PART II - OTHER INFORMATION
Item 1. - Legal Proceedings
The Company is a Defendant in a lawsuit styled NIGRO v.
SATELLITE CONTROL TECHNOLOGIES, INC., ET AL., which is now
pending in the Los Angeles County Superior Court. This is a
class action lawsuit filed by Nigro on behalf of himself and
others who owned SATX stock between September 26, 1996, and
October 7, 1997. Plaintiffs seek to recover damages for
depreciation of their stock due to alleged intentional and
negligent misrepresentation of certain former officers and
directors of the Company. The alleged misrepresentations are
(i) the Company had substantial purchase orders for its
AlphaTrak product line and (ii) the AlphaTrak product line was
viable and would be available on the market in the first or
second quarter of 1997. The case is currently in the very
early stages of discovery. Based on the documentary evidence
currently in the possession of the Company and interviews with
former officers, directors, employees, and outside engineers,
it appears that the allegations are incorrect. Based on the
facts presently available to counsel, substantial recovery by
Plaintiffs appear unlikely.
Item 2. - Changes in Securities and Use of Proceeds
None
Item 3. - Defaults Upon Senior Securities
N/A
Item 4. - Submission of Matters to a Vote of Security Holders
None
Item 5. - Other Information
None
Item 6. - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None
-13-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused the Report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: August 21, 2000 SATX, Inc.
By: Merritt Jesson
President and Principal
Accounting Officer
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