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 June 30, 2000
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
Commission File Number 000-29755
SATX, INC.
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(Exact Name of Small Business Issuer as Specified in Its Charter)
Nevada 87-0293479
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(State or Other Jurisdiction (I.R.S. Employer
Incorporation or Organization) Identification No.)
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 [ ]
There were 66,126,703 shares of the registrant's common stock
outstanding at June 30, 2000.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
<PAGE>
SATX, INC.
INDEX
PAGE(S)
PART 1: Financial Information
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets - June 30, 2000
(unaudited) and December 31, 1999 3
Condensed Consolidated Statements of Operations - Three
and Six Months Ended June 30, 2000 and 1999 (unaudited) 4
Condensed Consolidated Statements of Cash Flows - Six
Months Ended June 30, 2000 and 1999 (unaudited) 5
Notes to Interim Condensed Consolidated Financial Statements 6 - 8
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 9 - 11
PART II Other Information 12
SIGNATURES 12
EXHIBITS:
Exhibit 27 - Financial Data Schedule 13
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
SATX, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------ ------------
(unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash $ 212,097 $ 98,826
Accounts receivable, net of allowance for
doubtful accounts of $403,792 for 2000,
AND 1,110 for 1999, respectively 57,530 19,420
Inventory 622,253 406,393
Notes receivable 482,491 256,491
Prepaid expenses and other current assets 1,281,248 44,261
------------ ------------
Total Current Assets 2,655,619 825,391
------------ ------------
FIXED ASSETS 5,811.962 43,055
------------ ------------
OTHER ASSETS
Cost in excess of assets acquired, net 3,068,207 --
Investments 165,000 165,000
Other assets 313,168 --
------------ ------------
Total Other Assets 3,546,375 165,000
------------ ------------
TOTAL ASSETS $ 12,013,956 $ 1,033,446
============ ============
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable, current portion $ 1,191,533 $ 513,318
Accounts payable and accrued expenses 5,926,603 592,294
------------ ------------
Total Current Liabilities 7,118,136 1,105,612
------------ ------------
NON CURRENT LIABILITIES
Notes payable 6,950,222 1,073,318
Less: Current portion 1,191,533 (513,318)
------------ ------------
Total Non Current Liabilities 5,758,689 560,000
------------ ------------
TOTAL LIABILITIES 12,876,825 1,665,612
------------ ------------
SHAREHOLDERS' EQUITY
Preferred stock, $.001 par value 20,000,000
shares authorized, none issued
Common stock, $.001 par value, 100,000,00
shares authorized, 66,126,703 and 53,481,960
issued for 2000 and 1999 respectively 66,127 52,008
Paid in capital 6,246,601 2,979,911
Accumulated deficit (5,186,650) (3,664,085)
------------ ------------
1,126,078 (632,166)
Minority interests in Subsidiary (1,988,947) --
------------ ------------
Total Shareholders' (Deficit) (862,869) (632,166)
------------ ------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 12,013,956 $ 1,033,446
============ ============
</TABLE>
(See accompanying notes.)
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SATX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Six Months
Ended June 30 Ended June 30
---------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ -- $ -- $ 40,365 $ --
Cost of goods sold -- -- 20,850 --
------------ ------------ ------------ ------------
Gross Profit -- -- 19,515 --
Operating expenses:
Selling, general and
administrative expenses 616,579 117,846 1,669,284 117,846
------------ ------------ ------------ ------------
Operating loss (616,579) (117,846) (1,649,769) (117,846)
Other income (expenses)
Other income -- -- 16,777 --
Interest expense (20,575) -- (67,227) --
------------ ------------ ------------ ------------
(637,154) (117,846) (1,700,219) (117,846)
Minority interest in Subsidiary
Company's loss -- -- 177,654 --
------------ ------------ ------------ ------------
Loss before income taxes (637,154) (117,846) (1,522,565) (117,846)
Provision (credit) for income tax -- -- -- --
------------ ------------ ------------ ------------
Net Loss $ (637,154) $ (117,846) $ (1,522,565) $ (117,846)
============ ============ ============ ============
Basic & Diluted Loss
Per share $ (.01) $ (.00) $ (.02) $ (.00)
------------ ------------ ------------ ------------
Weighted Average
shares outstanding 61,936,823 42,737,170 57,709,395 42,737,170
============ ============ ============ ============
</TABLE>
(See accompanying notes.)
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<PAGE>
SATX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months
Ended June 30
----------------------------
2000 1999
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Increase (Decrease) In Cash:
<S> <C> <C>
Cash Flow From Operating Activities
Net loss for the period $ (1,522,565) $ (117,846)
Non-cash expenses
Depreciation and amortization 22,820 --
Common stock for services 1,536,000 --
(Increase) in notes receivable (226,000) --
(Increase) in receivables (38,810) --
(Increase) in inventories (215,860) (24,400)
(Increase) in prepaid expenses
and other assets (1,550,155) --
Increase (Decrease) in accounts
payable and accrued expenses 5,334,309 65,206
------------ ------------
Net Cash (Used) In Operations 3,339,739 (77,040)
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Cash Flow From Investing Activities
Investments -- (375,000)
Purchase of Property And Equipment (5,791,027) (24,458)
Cost in excess of assets acquired (3,068,207) --
Minority interest in subsidiary (1,988,947) --
------------ ------------
Net Cash (Used) Provided
From Investing Activities (10,848,181) (399,458)
------------ ------------
Cash Flow From Financing Activities
Increase in notes payable 5,876,904 486,128
Increase of common stock for cash 1,744,809 --
------------ ------------
Net Cash (Used) Provided
From Financing 7,621,713 486,128
------------ ------------
Net Increase (Decrease) In Cash 113,271 9,630
Cash, Beginning of Year 98,826 1,008
------------ ------------
Cash, End of Period $ 212,097 $ 10,638
============ ============
</TABLE>
(See accompanying notes.)
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<PAGE>
SATX, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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 June 30, 2000, and the results of
its operations and cash flows for the six month and three month periods ended
June 30, 2000, and 1999.
The results of operations for the three month periods ended June 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 --
-----------
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.
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SATX, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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, through December 31, 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:
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
-7-
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SATX, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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 six months ended June 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.
For the Six Months Ended June 30
--------------------------------
2000 1999
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Sales $ 1,116,592 $ 1,823,287
Net Loss 3,123,476 2,255,429
Basic Net Loss Per Share $ (.05) $ (.05)
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 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.
NOTE 4 NOTES PAYABLE
There were no substantial change to notes payable during the period other than
the consolidated notes and mortgage payable of the subsidiary company, ORA
Electronics, Inc. Refer to SATX, Inc.'s 10K filed March 15, 2000, and ORA's 10K
filed June 15, 2000.
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<PAGE>
ITEM 2. - MANAGEMENTS DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTENTIONS:
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 second quarter and well into the third quarter the Company's primary
focus is the maturation of products, services and markets 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 rapidly 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 during the
Third Quarter of this year. Some 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.
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
before yearend. Near-term opportunities exist and are being pursued in both
arenas.
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.
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<PAGE>
ITEM 2. - MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONT'D)
INTENTIONS:
(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.
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 is 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 readily available given the tremendous opportunities
that exist for the Company.
RESULTS OF OPERATIONS:
As the Company continues to prepare for the market opportunity described above,
it continues to incur losses. Its loss for the six months ended June 30, 2000 of
$1,522,565 was considerably larger than the six months ended June 30, 1999. This
is due primarily to increased overhead and personnel necessary to implement the
plan. Additionally, it incurred substantial legal and accounting costs to
implement the market plan as well as complete acquisition. In the coming month,
significant cash flow will be needed to continue to 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.
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<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 after-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.
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<PAGE>
PART II - OTHER INFORMATION
Item 1. - Legal Proceedings
None
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
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: /s/ MERRITT JESSON
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Merritt Jesson
President and Principal
Accounting Officer
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