<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
(X) Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the Quarterly Period Ended March 31, 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)
Nevada 87-0293479
- ------------------------------ -------------------
(State or Other Jurisdiction (I.R.S. Employer
Incorporation or Organization) Identification No.)
4710 Eisenhower Boulevard, Suite E - 1, Tampa, Florida 33634
------------------------------------------------------------
(Address of Principal Executive Offices)
(813) 290-0911
------------------------------------------------
(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 [ ] No [X]
There were 53,481,960 shares of the registrant's common stock
outstanding at March 31, 2000.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
<PAGE> 2
PART I
FINANCIAL INFORMATION
Item 1. Financial Information
SATX, INC.
CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
March 31,
2000
-----------
<S> <C>
CURRENT ASSETS:
Cash $ 40,655
Accounts receivable, net of allowance for
doubtful accounts of $3610 for 2000 19,410
Inventory 429,053
Note receivable 482,491
Prepaid expenses and other current assets 15,300
-----------
Total Current Assets 986,909
-----------
FIXED ASSETS 47,394
-----------
OTHER ASSETS
Investments 165,000
Other assets 28,871
Total Other Assets 193,871
-----------
TOTAL ASSETS $ 1,228,174
===========
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable, current portion $ 1,120,192
Accounts payable 307,836
Accrued expenses 110,560
-----------
Total Current Liabilities 1,538,588
-----------
NON CURRENT LIABILITIES
Notes payable (Note 6) 1,120,192
Less: Current portion (1,120,192)
-----------
Total Non Current Liabilities -0-
-----------
TOTAL LIABILITIES 1,538,588
-----------
SHAREHOLDERS' EQUITY
Preferred stock, $.001 par value 20,000,000
shares authorized, none issued
Common stock, $.001 par value, 100,000,00
shares authorized, 53,481,960 issued at
March 31, 2000 53,492
Paid in capital 3,937,333
Accumulated deficit (4,301,239)
-----------
Total Shareholders' (Deficit) (310,414)
-----------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 1,228,174
===========
</TABLE>
(See accountant's report and accompanying notes.)
-1-
<PAGE> 3
SATX, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31
-------------------------
2000 1999
---------- ----------
<S> <C> <C>
Revenues $ -0- $ -0-
---------- ----------
Total Revenues -0- -0-
Cost And Expenses
Cost of sales -0- -0-
Selling, general and
administrative expenses 616,579 -0-
Interest expense 20,575 -0-
---------- ----------
637,154 -0-
---------- ----------
LOSS BEFORE PROVISION (CREDIT)
FOR INCOME TAX (637,154) -0-
Provision (credit) for income tax -0- -0-
---------- ----------
Net Loss $ (637,154) $ -0-
========== ==========
Basic & Diluted Loss
Per common share $ (.01) -0-
---------- ----------
Weighted Average
Number of common shares
outstanding 52,758,428 42,737,170
---------- ----------
</TABLE>
(See accountant's report and accompanying notes.)
-2-
<PAGE> 4
SATX, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31
------------------------------
2000 1999
----------- ----------
<S> <C> <C>
Increase (Decrease) In Cash:
Cash Flow From Operating Activities
Net loss for the period $ (637,154) $ -0-
Non-cash expenses
Depreciation and amortization 1,884 -0-
(Increase) in notes receivable (226,000) -0-
Decrease in receivables 10 -0-
(Increase) in inventories (22,660) -0-
Decrease in prepaid expenses
and other assets 90 -0-
Increase (Decrease) in accounts
payable and accrued expenses (173,898) -0-
----------- ----------
Net Cash (Used) In Operations (1,057,728) -0-
----------- ----------
Cash Flow From Investing Activities
Purchase of Property And Equipment (6,223) -0-
----------- ----------
Net Cash (Used) Provided
From Investing Activities (6,223) -0-
----------- ----------
Cash Flow From Financing Activities
Increase in notes payable 46,874 -0-
Increase of common stock for cash 958,906 -0-
----------- ----------
Net Cash (Used) Provided
From Financing 1,005,780 -0-
----------- ----------
Net Increase (Decrease) In Cash (58,171) -0-
Cash, Beginning of Year 98,826 1,008
----------- ----------
Cash, End of Period $ 40,655 $ 1,008
=========== ==========
</TABLE>
(See accountant's report and accompanying notes.)
-3-
<PAGE> 5
SATX, INC.
NOTES TO INTERIM CONDENSED FINANCIAL STATEMENTS
MARCH 31, 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 Registration Statement on Form 10-SB. Specific reference is made to
said Registration Statement 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 March 31, 2000, and the results of
its operations and cash flows for the three month periods ended March 31, 2000,
and 1999. Our auditors have reviewed the financial statements as of and for the
three month period ended March 31, 2000.
The results of operations for the three month periods ended March 31, 2000, and
1999, are not necessary indicative of the results to be expected for the full
year.
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.
-4-
<PAGE> 6
SATX, INC.
NOTES TO INTERIM CONDENSED FINANCIAL STATEMENTS
MARCH 31, 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, through December 31, 1999.
The following unaudited pro forma data summarizes the results of operations of
the Company for the three months ended March 31, 1999, as if the acquisition 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 be achieved if the
acquisition had occurred on January 1, 1999, or that may be achieved in the
future.
The Three Months Ended
March 31, 1999
Sales $ -0-
Net Loss (47,527)
Basic Net Loss Per Share -0-
NOTE 3 POTENTIAL ACQUISITIONS
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 conditions 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 the April or May payments and is in
default on this promissory note.
-5-
<PAGE> 7
SATX, INC.
NOTES TO INTERIM CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2000
(UNAUDITED)
NOTE 4 NOTES PAYABLE
March 31, 2000
--------------
Notes payable to shareholders due June 12,
2000. Interest accrued at 10% per annum,
is also payable at that date. $ 200,000
Notes payable to shareholders
and affiliates dated May 14, 1999.
Interest is payable at 10% per annum
with bot interest and principle due
January 15, 2001. 160,000
Notes payable to shareholder
affiliates dated June 21, 1999.
Interest is payable at 10% per annum
with both interest and principle due
January 15, 2001. 400,000
Convertible notes payable dated January 7,
2000, due in one year with interest
payable at 8% per annum. The holder
may convert the note into common stock,
prior to the due date at the conversion
rate of 30 cents per share. 100,000
Notes payable to shareholders for moneys
advanced for operating capital. Interest
is payable at 10% per annum and is payable
upon demand. 260,192
----------
1,120,192
Less: Current portion 1,120,192
----------
Non-current notes payable $ -0-
==========
-6-
<PAGE> 8
SATX, INC.
NOTES TO INTERIM CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2000
(UNAUDITED)
NOTE 5 SUBSEQUENT EVENT - ACQUISITION
In early May, 2000, the Company entered into a letter of intent to purchase
3,982,600 shares of ORA Electronics, Inc., which is to represent no less than
56% of the issued and outstanding shares of the stock of ORA. The consideration
to be paid by SATX, Inc., is $150,000 cash, 400,000 shares of SATX, Inc. common
stock and the assumption by SATX, Inc. of a note payable to ORA of
approximately $300,000.
An initial payment of $75,000 has been made with an additional $75,000 to be
paid at closing which is currently scheduled for May 15, 2000.
-7-
<PAGE> 9
REVIEW REPORT ON INTERIM CONDENSED FINANCIAL STATEMENTS
To the Shareholders
SATX, Inc.
We have reviewed the accompanying balance sheet, statement of operations and
statement of cash flows of SATX, Inc., as of March 31, 2000, and for the three
month period then ended. These financial statements are the responsibility of
the company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with generally accepted accounting principles.
/s/ Robert L. White
- ----------------------------
Robert L. White
Certified Public Accountant
Cincinnati, Ohio
May 8, 2000
-8-
<PAGE> 10
ITEM 2. MANAGEMENTS' DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The company has been in existence for several years, but has been in a
developmental stage across all product lines. Since the third quarter of 1999,
the Company has been in the final maturation stages of its prepaid cellular and
GPS/tracking products. A variety of them have been in field testing and in-plant
testing, including resultant modifications, as required, since late 1999.
Customer Service and support systems continue to evolve and mature to ensure the
highest level of reliability and maximum functionality in the marketplace.
Concurrently, the marketing and sales strategies are being reviewed, tested and
enhanced to also ensure that implemented methods are competitive and effective.
The stabilization process of the products systems and methods has taken longer
than earlier anticipated, but all are expected to be complete by mid-year 2000.
Sales should begin to escalate during the second quarter.
Due to the nature of the Company's core businesses, and the Company's reliance
upon technology, the Research & Development efforts will continue at nominal
levels for the foreseeable future. It is imperative that such efforts are
maintained due to the rapid changes being experienced in the communications
technology fields. The funded research project continues in the development of
specifications to support prepaid cellular across the variety of digital
protocols. Initial software has been written and is in test in support of a
next-generation prepaid cellular handset. The Company also continues to
investigate and evolve the array of functionality possible through the
application of sensor data transmission via two-way paging to control remote
products. Core applications still include cars, trains, trucks and cargo
containers, but other possibilities involve the management of such activities as
remotely reading meters or tripping switches or other similar functions where
paging signals can initiate electronic functions and report results back to a
base station.
Moving into a sales-oriented element of the Company's evolution, and also
continuing Engineering development will still require constant evolution of
facilities, equipment and headcount. Each will be defined based upon scalable
requirements of the operation. Such activity will continue to need make-buy
decisions and sourcing decisions based upon investment returns and business
issues. The Company's business remains very scalable, very much outside purchase
through contract manufacturing, and results in very little pressure upon
facilities or equipment. The sales and service orientation of the company
provides manpower demands in direct proportions to business levels and
affordability. It remains the position of the Company management that the plan
can be executed within previously defined limits of 100 employees and One
Million Dollars of expansion capital.
The Company strategy and direction remains the pursuit of technology, expanded
capability and new markets, all generally associated with the communications
industry. Opportunities are being pursued domestically and internationally at
the present time. To meet the current and future demands of the Company for
operating funds, the Company is pursuing both line-of-credit and equity funding.
-9-
<PAGE> 11
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
The Company filed a Registration Statement on Form 10 (Registration
Statement No. 000-29755) that was declared effective by the Securities and
Exchange Commission on March 31, 2000.
Prior to the effectiveness of the Registration Statement, the Company's
Common Stock was quoted on the OTC Electronic Bulletin Board and was traded
under the symbol "SATXE." After the effectiveness of the Registration Statement,
the trading symbol was changed to "SATX."
In early May, 2000, the Company entered into a letter of intent with a
principal shareholder ("Seller") of ORA Electronics, Inc., ("ORA") to purchase
3,982,600 shares of ORA's outstanding common stock (approximately a 56% interest
in ORA), for $150,000 cash, 400,000 shares of the Company's Common Stock, and
the assumption by the Company of Seller's $300,000 note payable to ORA (the "ORA
Stock Purchase Transaction"). The Company made an initial $75,000 payment to
Seller. The ORA Stock Purchase Transaction is presently scheduled to close on
May 15, 2000.
Item 6. Exhibits
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
2.1 Supplemental Agreement by SATX, Inc. and Paradigm
Manufacturing, Inc. dated March 3, 2000. *
3.1 Articles of Incorporation, as amended *
3.2 By-laws *
4.1 See Exhibits 3.1 and 3.2 for provisions of the Articles of
Incorporation and Bylaws of the Company defining right of
holders of the Company's Common Stock *
4.2 Specimen of Stock Certificate *
10.1 Lease Agreement dated June 19, 1998, by and between ARA
Properties No. 1, Ltd., doing business as Eisenhower Technology
Park, as Lessor, and DebitFone International, Inc., as Lessee,
and Addendum to Lease dated January 29, 1999 *
10.2 Employment Agreement dated May 28, 1999, between DebitFone
International, Inc., Satellite Control Technologies, Inc., and
Merritt W. Jesson *
10.3 Employment Agreement dated June 1, 1999, between DebitFone
International, Inc., Satellite Control Technologies, Inc., and
Robert Ellis *
10.4 Employment Agreement dated June 1, 1999, between DebitFone
International, Inc., Satellite Control Technologies, Inc., and
Larry Bisgrove *
10.5 Employment Agreement dated October 1, 1999, between DebitFone
International, Inc., Satellite Control Technologies, Inc., and
Donna Skell *
10.6 Employment Agreement dated October 1, 1999, between DebitFone
International, Inc., Satellite Control Technologies, Inc., and
Anton Skell *
10.7 Term Sheet dated March, 2000 for Restatement of Promissory Note
dated June 21, 1997 by and between Komar Investments, LLC and
SATX, Inc. *
10.8 Secured Promissory Note dated May 14, 1999, by and between
Komar Investments, LLC and Satellite Control Technologies,
Inc., as amended *
10.9 Term Sheet dated March, 2000 for Restatement of Promissory Note
dated June 20, 1997, by and between SATX, Inc. and the
Shirvanian Family Investment Trust *
10.10 Term Sheet dated March, 2000 for Restatement of Promissory Note
dated June 20, 1997 by and between SATX, Inc. and John
Hartunian *
23.1 Consent of Independent Auditor
27.1 Financial Data Schedule (for SEC use only)
99.1 Cautionary Statements for Purposes of the "Safe Harbor"
Provisions of the Private Securities Litigation Reform Act of
1995
--------
* Incorporated by reference to the Company's Registration
Statement on Form 10-SB/A (Registration Statement No.
000-29755), filed with the Commission on March 30, 2000.
-10-
<PAGE> 12
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: May 12, 2000 SATX, Inc.
By: /s/ Merritt Jesson
----------------------------------
Merritt Jesson
President and Principal
Accounting Officer
-11-
<PAGE> 13
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
2.1 Supplemental Agreement by SATX, Inc. and Paradigm
Manufacturing, Inc. dated March 3, 2000. *
3.1 Articles of Incorporation, as amended *
3.2 By-laws *
4.1 See Exhibits 3.1 and 3.2 for provisions of the Articles of
Incorporation and Bylaws of the Company defining right of
holders of the Company's Common Stock *
4.2 Specimen of Stock Certificate *
10.1 Lease Agreement dated June 19, 1998, by and between ARA
Properties No. 1, Ltd., doing business as Eisenhower Technology
Park, as Lessor, and DebitFone International, Inc., as Lessee,
and Addendum to Lease dated January 29, 1999 *
10.2 Employment Agreement dated May 28, 1999, between DebitFone
International, Inc., Satellite Control Technologies, Inc., and
Merritt W. Jesson *
10.3 Employment Agreement dated June 1, 1999, between DebitFone
International, Inc., Satellite Control Technologies, Inc., and
Robert Ellis *
10.4 Employment Agreement dated June 1, 1999, between DebitFone
International, Inc., Satellite Control Technologies, Inc., and
Larry Bisgrove *
10.5 Employment Agreement dated October 1, 1999, between DebitFone
International, Inc., Satellite Control Technologies, Inc., and
Donna Skell *
10.6 Employment Agreement dated October 1, 1999, between DebitFone
International, Inc., Satellite Control Technologies, Inc., and
Anton Skell *
10.7 Term Sheet dated March, 2000 for Restatement of Promissory Note
dated June 21, 1997 by and between Komar Investments, LLC and
SATX, Inc. *
10.8 Secured Promissory Note dated May 14, 1999, by and between
Komar Investments, LLC and Satellite Control Technologies,
Inc., as amended *
10.9 Term Sheet dated March, 2000 for Restatement of Promissory Note
dated June 20, 1997, by and between SATX, Inc. and the
Shirvanian Family Investment Trust *
10.10 Term Sheet dated March, 2000 for Restatement of Promissory Note
dated June 20, 1997 by and between SATX, Inc. and John
Hartunian *
23.1 Consent of Independent Auditor
27.1 Financial Data Schedule (for SEC use only)
99.1 Cautionary Statements for Purposes of the "Safe Harbor"
Provisions of the Private Securities Litigation Reform Act of
1995
--------
* Incorporated by reference to the Company's Registration
Statement on Form 10-SB/A (Registration Statement No.
000-29755), filed with the Commission on March 30, 2000.
<PAGE> 1
Exhibit 23.1
ROBERT L. WHITE & ASSOCIATES
CERTIFIED PUBLIC ACCOUNTANT
988 OHIO PIKE, SUITE #2
CINCINNATI, OHIO 45245
- --------------------------------------------------------------------------------
PHONE (513) 943-1040
FAX (513) 943-7760
CONSENT OF INDEPENDENT AUDITOR
I hereby consent to the use in the Form 10-QSB of my Review Report dated May 8,
2000.
/s/ Robert L. White
- ---------------------------
Robert L. White
Certified Public Accountant
Cincinnati, Ohio
May 12, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2000, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAY-31-2000
<CASH> 40,655
<SECURITIES> 0
<RECEIVABLES> 505,511
<ALLOWANCES> 3,610
<INVENTORY> 429,053
<CURRENT-ASSETS> 986,909
<PP&E> 49,278
<DEPRECIATION> 1,884
<TOTAL-ASSETS> 1,228,174
<CURRENT-LIABILITIES> 1,538,588
<BONDS> 0
0
0
<COMMON> 53,492
<OTHER-SE> (363,906)
<TOTAL-LIABILITY-AND-EQUITY> 1,228,174
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 616,579
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,575
<INCOME-PRETAX> (637,154)
<INCOME-TAX> 0
<INCOME-CONTINUING> (637,154)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (637,154)
<EPS-BASIC> (.01)
<EPS-DILUTED> (.01)
</TABLE>
<PAGE> 1
EXHIBIT 99.1
CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Private Securities Litigation Reform Act of 1995 (the "Act")
provides a "safe harbor" for "forward-looking statements" to encourage companies
to provide prospective information, so long as such information is identified as
forward-looking and is accompanied by meaningful cautionary statements
identifying important factors that could cause actual results to differ
materially from those discussed in the forward-looking statement(s). SATX, Inc.
(the "Company" or "SATX") desires to take advantage of the safe harbor
provisions of the Act.
Except for historical information, the Company's Form 10-SB, to which
this exhibit is appended, may contain forward-looking statements within the
meaning of the Act. In addition, representatives of the Company, from time to
time, participate in speeches and calls with market analysts, conferences with
investors and potential investors in the Company's securities, and other
meetings and conferences. Some of the information presented in such speeches,
calls, meetings and conferences may be forward-looking within the meaning of the
Act.
It is not reasonably possible to itemize all of the many factors and
specific events that could affect the Company and/or the industries in which the
Company operates. In some cases, information regarding certain important factors
that could cause actual results to differ materially from those projected,
forecasted, estimated, budgeted or otherwise expressed in forward-looking
statements made by or on behalf of the Company may appear or be otherwise
conveyed together with such statements. The following additional factors (in
addition to other possible factors not listed) could affect the Company's actual
results and cause such results to differ materially from those projected,
forecasted, estimated, budgeted or otherwise expressed in forward-looking
statements made by or on behalf of the Company:
SHORT COMPANY HISTORY
Both SATX and DebitFone business elements have essentially been in a
developmental stage, and are now in a position to emerge into product marketing.
The AlphaTrak locating and tracking portion of the business had been primarily
in a stagnate mode for more than a year until the Summer of 1999 due to lack of
final product development and needed functionality improvement. New Management
and funding sources since that time have re-activated the maturation process in
order to reenter the marketplace. DebitFone has been marketing only limited
numbers of product while developing a next-generation prepaid intelligent cell
phone and enhancing the management and control system that is the heart of the
process to ensure customer support and service. As such, today's company lacks a
history of proven product performance.
<PAGE> 2
MARKET UNCERTAINTY
The decision has been made to market the cellular handset primarily
through vending machines custom designed for the product. That sales tool has
been created and is in initial production. However, none of the core product has
a history of performance in marketplace; thus, there is no proven acceptance by
the consumer at this time. Significant market research and feedback suggest that
the defined Company programs for all products are created consistent with
consumer demand, but there is no absolute market acceptance to prove that SATX
and DebitFone are correct.
ECONOMICS
The goods and services that the Company provides, and intends to
provide, are not economic essentials to the buyer. They represent discretionary
purchases and, as such, their utilization is more sensitive to economic and
market conditions. Since the Company has no control over such conditions, a
significant downtown would likely affect resultant revenues during such a
period.
COMPETITION
Prepaid Cellular
The SATX offerings must offset the carrier-based switched solutions
currently in the market and accompanied by the massive market exposure and
pressure that the carriers can exert. However, it is generally accepted within
the prepaid cellular industry that the switch-based phones in these offerings
are much less desired by the end-user. Typically, they are limited to calls
placed within the phone's home area (i.e., no reaming), and much of the time the
cost of calls is higher. In addition, there are presently three-to-five
reasonably effective competitors in the "intelligent phone" market where
DebitFone competes. No one has a dominant share of the market today, all tend to
work reasonably well, and, clearly, the available market is so large that all
should be able to attain a satisfactory market share, even without considering
the vast potential international market in developing countries. It is estimated
that in the USA the market for prepaid cellular exceeds thirty million potential
subscribers at this time, and it is also estimated by various industry groups
that prepaid segments represent the largest portion in cellular during the next
two or three years.
Tracking Systems
Some products, although less functional and less flexible than those
being created by SATX, are already in the marketplace for vehicle and cargo
"tracking," and one product specializing in stolen auto recovery is very well
known as has a sizable user base in selected regions of introduction. However,
none have a strong market penetration, and none can offer the breadth of
functionality of SATX products. Vehicle and cargo solutions available use
satellite, or cellular, or paging signals for communications between the source
and the unit being located. In the case of paging solutions, the one deemed most
affordable and flexible, the Company has existing patents covering one and
two-way paging. Because of major problems around the world with auto theft and
2
<PAGE> 3
cargo theft or spoilage, the market for solutions is considered massive. The
technical solution now existent for two-way paging should make it the ideal
economic solution for most applications, and SATX does currently hold a US
Patent on that process.
THIRD-PARTY PROVIDERS
At least initially the Company must rely upon third-party service
providers for both cellular phone and tracking system elements. The basic access
and time renewal service for cell phones comes from independent companies which
DebitFone then resells. The paging service used in tracking systems comes from
the independent paging companies. Even though contracts exist, a service
provider termination or default would require immediate development of new
sources and contracts in order to continue uninterrupted service to users.
TECHNOLOGY
The technologies associated with the telecommunications industry are
very rapidly changing, and product adaptation requires constant assessment and
preparation for a new directions and new offerings for both product lines.
Company solutions must stay consistent with the leading-edge technology and with
the offerings of the leading competitors. Although the Company has planned for
possible future events and products, the array of possibilities within the
industry leaves much to change. Reaction and realignment will be initiated, if ,
and when, a need arises.
BUSINESS DEVELOPMENT
The Company intends to continue to pursue an aggressive growth
strategy, which will include significant marketing, advertising, promotional
programs and public relations activities, which will require significant
expenditures. These expenditures may not result in a sufficient increase in
revenues to cover such advertising and promotions expenses.
RISKS ASSOCIATED WITH ACQUISITIONS
In addition to the recent acquisition of DebitFone, the Company intends
to seek investments in complementary companies, products or technologies. If we
buy a company, we could have difficulty in assimilating that company's personnel
and operations. In addition, the key personnel of an acquired company may decide
not to work for us. If we make other types of acquisitions, we could have
difficulty in assimilating the acquired technology or products into our
operations. These difficulties could disrupt our ongoing business, distract our
management and employees and increase our expenses. In addition, future
acquisitions could have a negative impact on our business, financial condition
and results of operations. Furthermore, we may have to incur debt or issue
equity securities to pay for any future acquisition, the issuance of which would
be dilutive to our existing stockholders.
3
