<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
--------------------
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999 COMMISSION FILE NO. 0-26967
AXYN Corporation
COLORADO 954754179
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2 GURDWARA ROAD, SUITE 208
NEPEAN, ONTARIO CANADA
K2J 1A2
(613) 727-2996
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[x] YES [ ] NO
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
COMMON STOCK 15,859,033 SHARES OUTSTANDING
$0.0001 PAR VALUE AS OF SEPTEMBER 30, 1999
Transitional Small Business Disclosure Format
(check one): Yes [ ] No [X]
<PAGE> 2
AXYN CORPORATION
Filing Type: 10-QSB
Description: Quarterly Report
Filing Date: November 23, 1999
Period Ending: September 30, 1999
Primary Exchange: National Quotation Bureau "Pink Sheets"
Ticker: AXYN
2
<PAGE> 3
AXYN CORPORATION AND SUBSIDIARIES
QUARTER ENDED SEPTEMBER 30,1999
Table of Contents
<TABLE>
<S> <C>
PART I - FINANCIAL INFORMATION.......................................................4
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS....................................4
CONSOLIDATED BALANCE SHEET (UNAUDITED) AS OF SEPTEMBER 30, 1999...................5
CONSOLIDATED STATEMENT OF LOSS (UNAUDITED) AS OF SEPTEMBER 30, 1999...............6
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
AS OF SEPTEMBER 30, 1999 ............................................7
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) AS OF SEPTEMBER 30, 1999.........8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS ..........................................18
PART II - OTHER INFORMATION.........................................................25
ITEM 1. LEGAL PROCEEDINGS...................................................25
ITEM 2. CHANGES IN SECURITIES...............................................25
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.....................................25
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS.....................25
ITEM 5. OTHER INFORMATION...................................................25
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K....................................25
SIGNATURES.......................................................................26
FINANCIAL DATA SCHEDULE..........................................................27
</TABLE>
3
<PAGE> 4
PART I - FINANCIAL INFORMATION
Item 1. CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited financial statements for the period ended September 30,
1999 are included in response to Item 1 and have been compiled by management.
The financial statements should be read in conjunction with the Management's
Discussion and Analysis or Plan of operations and other financial information
included elsewhere in this Form 10-QSB.
CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars, U.S. GAAP)
AXYN CORPORATION
SEPTEMBER 30, 1999
PREPARED INTERNALLY BY MANAGEMENT
4
<PAGE> 5
AXYN CORPORATION
Consolidated Balance Sheet (unaudited) as of September 30, 1999
CONSOLIDATED BALANCE SHEETS
(U.S. dollars, U.S. GAAP)
<TABLE>
<CAPTION>
As at SEPTEMBER 30, 1999 June 30, 1999
$ $
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents 13,856 0
Accounts receivable [note 2] 1,182,143 1,112,214
Income taxes recoverable 11,212 29,998
Inventories [note 3] 1,080,769 1,076,466
Prepaid expenses 324,474 45,173
- ----------------------------------------------------------------------------------------------------------
2,612,454 2,263,851
Fixed assets [note 4] 227,180 197,086
Intangible assets [note 5] 4,511,822 4,160,760
Deferred charges 1,532 11,483
- ----------------------------------------------------------------------------------------------------------
7,352,988 6,633,180
==========================================================================================================
LIABILITIES
CURRENT LIABILITIES
Bank overdraft 0 43,703
Bank loan [note 7] 253,253 170,882
Accounts payable 1,559,795 1,699,802
Unearned revenue 18,044 29,141
Note payable [note 6] 616,500 616,500
Shareholder loans [note 8] 1,559,139 707,726
Current portion of long term debt 21,962 29,282
- ----------------------------------------------------------------------------------------------------------
4,028,693 3,297,036
- ----------------------------------------------------------------------------------------------------------
Long term debt 6,359 6,359
- ----------------------------------------------------------------------------------------------------------
MINORITY INTEREST [note 6] 50,076 159,430
- ----------------------------------------------------------------------------------------------------------
Commitments and contingencies [note 9]
STOCKHOLDERS' EQUITY
Common shares (September - 15,859,033 shares);
June 1999 - 15,429,033 shares [note 6,12] 1,585 1,542
Series 1 Preference shares (September - 500,000 shares;
June 1999 - 500,000 shares) [note 6,12] 500 500
Additional paid up capital 4,700,099 4,270,142
Accumulated deficit (1,434,324) (1,101,829)
- ----------------------------------------------------------------------------------------------------------
3,267,860 3,170,355
- ----------------------------------------------------------------------------------------------------------
7,352,988 6,633,180
==========================================================================================================
</TABLE>
See accompanying notes
On behalf of the Board:
Director [Signature illegible]
5
<PAGE> 6
AXYN CORPORATION
Consolidated Statement of Loss (unaudited) as of September 30, 1999
CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
(U.S. dollars, U.S. GAAP)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, Year ended
1999 1998 June 30, 1999
$ $ $
<S> <C> <C> <C>
SALES 1,453,730 26,401 465,361
Cost of sales 879,216 0 138,512
- -------------------------------------------------------------------------------------------------------------
Gross profit 574,514 26,401 326,849
=============================================================================================================
OPERATING EXPENSES
Selling, general and administrative 838,801 295,654 1,026,085
Amortization 132,917 0 50,511
Financial expense 10,850 0 20,532
Research and development 35,465 0 52,852
- -------------------------------------------------------------------------------------------------------------
1,018,033 295,654 1,149,980
- -------------------------------------------------------------------------------------------------------------
NET LOSS FOR THE PERIOD (443,519) (269,254) (823,131)
Translation adjustment 1,670 0 5,008
Minority interest 109,354 0 0
=============================================================================================================
COMPREHENSIVE LOSS FOR THE PERIOD (332,495) (269,254) (818,123)
Basic and diluted loss per share [note 1] (0.02) (0.02) (0.05)
- -------------------------------------------------------------------------------------------------------------
Weighted average number of shares
outstanding [note 1] 15,859,033 11,700,000 15,429,033
=============================================================================================================
</TABLE>
See accompanying note
6
<PAGE> 7
AXYN CORPORATION
Consolidated Statement of Changes in Stockholders' Equity (unaudited) as of
September 30, 1999
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
(U.S. dollars, U.S. GAAP)
<TABLE>
<CAPTION>
SERIES 1 PAR VALUE PAID IN CAPITAL
COMMON PREFERRED $ $
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE, FEBRUARY 24, 1998 -- -- --
- ----------------------------------------------------------------------------------------------------------------------
Issuance of shares:
Private placement of shares 8,072,367 -- 807 68,044
Issued for services 2,386,366 -- 239 78,876
Acquisition of Monroe Group Inc. 71,267 -- 7 2,370
Reverse take-over 1,170,000 -- 117 (116)
Shares subscriptions received
in advance -- -- -- 190,253
Loss -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1998 11,700,000 -- 1,170 339,427
- ----------------------------------------------------------------------------------------------------------------------
Issuance of shares:
Private placement of shares 612,033 -- 61 728,035
Acquisition of Burlington 225,000 -- 22 365,603
Acquisition of AXYN Tech. 1,000,000 500,000 600 831,746
Acquisition of Syscan 1,300,000 -- 130 1,377,870
Acquisition of Mobitech 282,000 -- 28 298,892
Acquisition of SIQ 110,000 -- 11 116,589
Acquisition of CDI 200,000 -- 20 211,980
Loss -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1999 15,429,033 500,000 2,042 4,270,142
======================================================================================================================
Issuance of shares:
Private placement of shares 430,000 -- 43 429,957
Loss -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 1999 15,859,033 500,000 2,085 4,700,099
======================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED OTHER
DEFICIT COMPREHENSIVE LOSS TOTAL
$ $ $
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE, FEBRUARY 24, 1998 -- -- --
- ------------------------------------------------------------------------------------------------
Issuance of shares:
Private placement of shares -- -- 68,851
Issued for services -- -- 79,115
Acquisition of Monroe Group Inc. -- -- 2,377
Reverse take-over -- -- 1
Shares subscriptions received
in advance -- -- 190,253
Loss (287,011) 3,305 (283,706)
- ------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1998 (287,011) 3,305 56,891
- ------------------------------------------------------------------------------------------------
Issuance of shares:
Private placement of shares -- -- 728,096
Acquisition of Burlington -- -- 365,625
Acquisition of AXYN Tech. -- -- 832,346
Acquisition of Syscan -- -- 1,378,000
Acquisition of Mobitech -- -- 298,920
Acquisition of SIQ -- -- 116,600
Acquisition of CDI -- -- 212,000
Loss (823,131) 5,008 (818,123)
- ------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1999 (1,110,142) 8,313 3,170,355
================================================================================================
Issuance of shares:
Private placement of shares -- -- 430,000
Loss (334,165) 1,670 (332,495)
- ------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 1999 (1,444,307) 9,983 3,267,860
================================================================================================
</TABLE>
See accompanying notes
7
<PAGE> 8
AXYN CORPORATION
Consolidated Statement of Cash Flows (unaudited) as of September 30, 1999
CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. dollars, U.S. GAAP)
<TABLE>
<CAPTION>
JULY 1, 1999 Year ended
TO SEPTEMBER 30, June 30,
1999 1999
$ $
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss (332,495) (823,131)
Non-cash items:
Amortization 132,917 50,511
Shares issued for services 430,000 --
- ----------------------------------------------------------------------------------------------
230,422 (772,620)
Change in non-cash working capital
Increase in accounts receivable (69,929) (278,186)
Increase in other working capital items (22,664) 4,803
Increase in prepaid expenses (279,301) (1,056)
Increase in accounts payable (140,007) 169,343
- ----------------------------------------------------------------------------------------------
CASH USED IN OPERATING ACTIVITIES (281,479) (877,716)
- ----------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Acquisition costs -- (225,000)
Increase in intangible assets (437,976) --
Additions to fixed assets (76,069) (19,679)
- ----------------------------------------------------------------------------------------------
CASH USED IN INVESTING ACTIVITIES (514,045) (244,679)
- ----------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Shareholder loans 851,413 203,413
Issue of common and preference shares -- 728,096
- ----------------------------------------------------------------------------------------------
CASH PROVIDED BY FINANCING ACTIVITIES 851,413 931,509
- ----------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 1,670 5,008
- ----------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents 57,559 (185,878)
Cash and cash equivalents, beginning of period (43,703) 142,175
- ----------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD 13,856 (43,703)
==============================================================================================
</TABLE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: [note 13]
See accompanying notes
8
<PAGE> 9
AXYN CORPORATION
Notes to Consolidated Financial Statements (unaudited) as of September 30, 1999
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(U.S. dollars, U.S. GAAP)
September 30, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
These financial statements are the continuing financial statements of AXYN
Corporation, which was incorporated on February 24, 1998 in the State of
Colorado.
AXYN Corporation and its subsidiaries (see "Basis of Consolidation" below) are
collectively referred to as the "Corporation".
These consolidated financial statements have been prepared by the Corporation in
U.S. dollars and in accordance with accounting principles generally accepted
("GAAP") in the United States of America ("U.S.").
The preparation of these consolidated financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect the
amounts reported in the consolidated financial statements and the accompanying
notes. In the opinion of management, these consolidated financial statements
reflect all adjustments necessary to present fairly the results for the period
presented. Actual results could differ from these estimates.
The functional currency of the Corporation is the Canadian dollar. However, for
reporting purposes, the Corporation has adopted the United States dollar as its
reporting currency. Accordingly, the Canadian dollar balance sheets have been
translated into United States dollars at the rates of exchange at the respective
period ends, while transactions during the periods and share capital amounts
have been translated at the weighted average rates of exchange for the
respective periods and the rate of exchange at the date of the transaction,
respectively. Gains and losses arising from these translation adjustments are
included in comprehensive loss.
GOING CONCERN
The financial statements have been prepared by management in accordance with
U.S. GAAP on a going concern basis. This presumes that funds will be available
to finance ongoing operations and capital expenditures and permit the
realization of assets at their carrying values and the payment of liabilities in
the normal course of operations for the foreseeable future.
9
<PAGE> 10
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(U.S. dollars, U.S. GAAP)
September 30, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
BASIS OF CONSOLIDATION
These consolidated financial statements include the accounts of AXYN Corporation
and its wholly owned subsidiaries AXYN Canada Corporation ("AXYN Canada"),
Burlington Systems Integration Inc. ("Burlington"), AXYN Technologies
Corporation ("AXYN Tech"), Le Group Mobitech Inc. ("Mobitech"), 9016-7230 Quebec
Inc. ("CDI"), S.I.Q. (Service Internet Quebec) Inc. ("SIQ"), AXYN International
Gmbh ("a Swiss company"), UNITRA-AXYN Sp. Z.o.o.("a Polish company") and Syscan
International Ltd. ("Syscan") of which the Corporation owns a controlling
interest of 57%. Intercompany transactions and balances have been eliminated.
Acquisitions during the period have been accounted for using the purchase
method.
The financial statements of the parent company and its subsidiaries have been
translated into U.S. dollars in accordance with the Financial Accounting
Standards Board (FASB) Statement No. 52, Foreign Currency Translation. All
balance sheet amounts have been translated using the exchange rates in effect at
the applicable period end. Income statement amounts have been translated using
the weighted average exchange rate for the applicable year.
REVENUE
Revenues are generally recognized, upon shipment when all significant
contractual obligations have been satisfied and collection is reasonably
assured. Consulting and other service revenues are recognized at the time of
performance or proportionately over the term of the contract, as appropriate.
Software license revenues are recognized when delivered in accordance with all
terms and conditions of the customers contracts.
CASH AND CASH EQUIVALENTS
Cash includes cash equivalents, which are investments that are generally held to
maturity and have terms of three months or less at the time of acquisition. Cash
equivalents typically consist of term deposits with major North American banks.
The carrying amounts of cash and cash equivalents are stated at cost, which
approximates their fair value.
INVENTORIES
Inventories are comprised principally of raw and finished goods and are stated
at the lower of cost, on a first in first out basis, or net realizable value.
10
<PAGE> 11
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(U.S. dollars, U.S. GAAP)
September 30, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
FIXED ASSETS
Fixed assets are recorded at cost. Depreciation is calculated using the straight
line method at the following fixed annual rates:
ASSET RATE
Leasehold improvements 20% or the term of
the lease if shorter
Office furniture and equipment 20%
Computer equipment and software 30%
INTANGIBLE ASSETS
Patent costs are recorded at cost. Related amortization is calculated by the
straight-line method over a period of three years.
Software development costs are expensed as incurred unless they meet generally
accepted accounting criteria for deferral and amortization. Software development
costs incurred prior to the establishment of technological feasibility do not
meet these criteria and are expensed as incurred. The Corporation reassesses
whether it has met the relevant criteria for deferral and amortization at each
reporting date. Research costs are expensed as incurred.
Goodwill is recorded at cost. Related amortization is calculated using the
straight-line method over a period of three to ten years. The Corporation
evaluates the expected future net cash flows of the acquired business at each
reporting date, and adjusts goodwill for any impairment.
INCOME TAXES
The liability method is used in accounting for income taxes. Under this method,
deferred tax assets and liabilities are determined based on differences between
financial reporting and income tax bases of assets and liabilities, and are
measured using the enacted tax rates and laws.
NET LOSS PER SHARE
Net loss per common share has been computed on the basis of the weighted average
number of shares outstanding. In accordance with the rules of the Securities and
Exchange Commission, any stock sold at a nominal value, as compared to the
public offering, should be considered outstanding for all periods presented.
11
<PAGE> 12
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(U.S. dollars, U.S. GAAP)
September 30, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
SEGMENT INFORMATION
The Corporation adopted the provisions of Statement of Financial Accounting
Standards No. 131 "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS No. 131"). SFAS No. 131 requires public companies to report
financial and descriptive information about their reportable operating segments.
The Corporation identifies its operating segments based on how management
internally evaluates separate financial information (if available), business
activities and management responsibility. The Corporation believes it operates
in a single business segment and adoption of this standard did not have a
material impact on the Corporation's consolidated financial statements.
Throughout fiscal 1999 and 1998 the Corporation had one reportable segment -
computer software tools which the Corporation sells as part of the Corporation's
consulting services.
Revenue is derived from the licensing of software and the provision of related
services, which include product support, consulting and other services. The
Corporation generally licenses software and provides services subject to terms
and conditions consistent with industry standards. Revenue, expenses, assets and
liabilities are substantially in Canada, with the exception of revenues
generated in Europe by AXYN International, which amounted to $267,718 this
quarter. The following information summarizes the quarterly results by
organization:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
SALES % OF COST OF % OF GROSS % OF SG&A % OF NET INCOME
ORG/SUBSIDIARY USD SALES SALES COGS PROFIT GP EXPENSES EXP. OTHER (LOSS)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AXYN Canada $ 451,550 31% $ 231,214 26% $ 220,336 38% $ 175,378 20% $ 4,818 $ 40,140
Burlington Systems $ 37,376 3% $ 34,196 4% $ 3,180 1% $ 25,740 3% $ 572 $ (23,132)
Mobitech/SIQ/CDI $ 336,072 23% $ 211,254 24% $ 124,818 22% $ 108,345 12% $ 1,390 $ 15,083
Syscan $ 361,013 25% $ 226,969 26% $ 134,044 23% $ 372,636 43% $ (93,634) $ (144,958)
AXYN Technologies $ -- 0% $ -- 0% $ -- 0% $ 8,491 1% $ 296 $ (8,787)
AXYN International $ 267,718 18% $ 175,582 20% $ 92,136 16% $ 16,163 2% $ 120,971 $ 74,922
================================================================================================================================
TOTALS $1,453,729 100% $ 879,215 100% $ 574,514 100% $ 874,253 100% $ 34,413 $ (334,152)
================================================================================================================================
</TABLE>
2. ACCOUNTS RECEIVABLE
Accounts receivable include no allowance for doubtful accounts.
3. INVENTORIES
<TABLE>
<CAPTION>
SEPTEMBER JUNE
1999 1999
$ $
- --------------------------------------------------------------------------------
<S> <C> <C>
Raw materials 444,638 593,756
Work in progress 129,639 41,285
Finished goods 506,492 488,547
Valuation allowance 0 (47,122)
- --------------------------------------------------------------------------------
1,080,769 1,076,466
- --------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 13
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(U.S. dollars, U.S. GAAP)
September 30, 1999
4. FIXED ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 1999 JUNE 1999
------------------------------ ----------------------------
ACCUMULATED ACCUMULATED
COST AMORTIZATION COST AMORTIZATION
$ $ $ $
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Leasehold improvements 17,626 13,238 17,626 12,935
Office furniture and equipment 178,744 107,455 134,703 79,892
Computer equipment and software 442,299 290,796 410,271 272,687
- ------------------------------------------------------------------------------------------------------------
638,669 411,489 562,600 365,514
Accumulated amortization (411,489) (365,514)
- ------------------------------------------------------------------------------------------------------------
227,180 197,086
============================================================================================================
</TABLE>
5. INTANGIBLE ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 1999 JUNE 1999
------------------------------ ---------------------------
ACCUMULATED ACCUMULATED
COST AMORTIZATION COST AMORTIZATION
$ $ $ $
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Goodwill 4,629,861 121,625 4,185,564 28,875
Patents 6054 2,468 6,026 1,955
- ---------------------------------------------------------------------------------------
4,635,915 124,093 4,191,590 30,830
- ---------------------------------------------------------------------------------------
4,511,822 4,160,760
=======================================================================================
</TABLE>
6. ACQUISITIONS
FISCAL 2000 ACQUISITIONS
On July 8, 1999, the Corporation completed the acquisition of 100% of the issued
and outstanding shares of AXYN International GmbH and its wholly owned
subsidiary UNITRA-AXYN Sp. Z.o.o., which provides Year 2000 products and
services. The shareholders of AXYN International received $1 plus an assumption
of their corporate liabilities. The shareholders of International may receive
shares 1,000,000 common shares and 500,000 convertible preferred shares of AXYN
Corp should they meet certain sales requirements by June 30, 2000. These shares
have not been accounted for.
All of the acquisitions have been accounted for using the purchase method. Pro
forma information has been provided for Syscan since the results of its
operations is material. The results of the acquired companies have been
consolidated with those of the Corporation as at their respective dates of
acquisition.
Total consideration, including acquisition costs, was allocated based on fair
values on the acquisition date for all companies.
13
<PAGE> 14
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(U.S. dollars, U.S. GAAP)
September 30, 1999
6. ACQUISITIONS (CONT'D)
<TABLE>
<CAPTION>
AXYN
INTERNATIONAL
$
- -----------------------------------------------
<S> <C>
Assets acquired
Accounts receivable 54,751
Inventories --
Other 39,227
- -----------------------------------------------
93,978
Minority interest --
Liabilities assumed (535,627)
- -----------------------------------------------
Net assets acquired (441,649)
Goodwill 441,650
- -----------------------------------------------
Purchase price 1
- -----------------------------------------------
Consideration
Cash 1
Note payable --
Shares --
- -----------------------------------------------
1
===============================================
</TABLE>
7. BANK LOAN
The bank loan is available to Syscan on an overdraft or short term basis to a
maximum of $220,300. Interest is determined at the time of borrowing based on
the bank's prime plus 0.75%. The loan is secured by Syscan's trade receivables
and inventory.
8. SHAREHOLDER LOANS
Shareholder loans are due upon demand and bear interest at Nation Bank's prime
rate plus 2%. At any time the shareholders have the right to convert such loans
to common stock at a value of $1.50 per share.
9. COMMITMENTS AND CONTINGENCIES
AXYN Corporation has entered into operating leases for premises, vehicles and
computers. Future aggregate minimum payments under these leases are as follows:
<TABLE>
<CAPTION>
$
- -------------------------
<S> <C>
2000 59,326
2001 39,171
2002 32,335
2003 28,800
2004 19,200
</TABLE>
The senior officers of the Corporation have employment agreements which provide
three years of severance upon termination for an aggregate of approximately
$850,000.
14
<PAGE> 15
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(U.S. dollars, U.S. GAAP)
September 30, 1999
10. FINANCIAL INSTRUMENTS
CONCENTRATION OF CREDIT RISK
The Corporation operates internationally in one business segment. The
Corporation provides consulting services along with developing, marketing, and
supporting computer software tools. The Corporation markets and supports these
products both directly and through resellers. Sales to one major customer (the
Canadian Government) comprise 27%, of the quarterly sales.
There is no material concentration of credit risk related to the Corporation's
position in trade accounts receivable due to the Corporation's dispersion of its
customer base. Credit risk, with respect to trade receivables, is minimized
because of the Corporation's large customer base.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of the Corporation's financial instruments, including cash
and cash equivalents, accounts receivable, accounts payable and short term
loans, approximate the fair value due to their short maturities.
11. INCOME TAXES
The reported income tax provision differs from the amount computed by applying
the US rate. The reasons for this difference and the related tax effects are as
follows:
<TABLE>
<CAPTION>
SEPTEMBER JUNE JUNE
1999 1999 1998
$ $ $
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expected tax rate 34.0% 34.0% 34.0%
Expected tax provision (150,000) (425,000) (96,000)
Foreign tax rate differences (150,000) (100,000) (29,000)
Losses not recognized 300,000 525,000 125,000
- ---------------------------------------------------------------------------------------
REPORTED INCOME TAX PROVISION -- -- --
=======================================================================================
</TABLE>
Deferred income taxes result principally from temporary differences in the
financial and tax reporting. Significant components of the Corporation's
deferred tax assets and liabilities as of June 30, 1999 are as follows:
<TABLE>
<CAPTION>
SEPTEMBER JUNE JUNE
1999 1999 1998
$ $ $
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax assets:
Net operating tax loss carryforwards 1,040,000 840,000 125,000
Research and development expense carryforwards 120,000 120,000 --
Fixed assets 20,000 20,000 --
Valuation allowance for deferred tax assets (1,160,000) (960,000) (125,000)
- --------------------------------------------------------------------------------------------------------------
Net deferred tax assets 20,000 20,000 --
==============================================================================================================
</TABLE>
Realization of the net deferred tax assets is dependent on generating sufficient
taxable income in certain legal entities. This estimate could change in the near
term as future taxable income (loss) in the legal entities change.
As of June 30, 1999, the Corporation had tax loss carryforwards of approximately
$2,100,000 available to reduce future years' income for tax purposes. These
losses expire over 2000 to 2006. In addition, the Corporation's subsidiary has
scientific research and experimental development expenditures of $300,000
available to reduce future years income for tax purposes.
15
<PAGE> 16
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(U.S. dollars, U.S. GAAP)
September 30, 1999
12. CAPITAL STOCK
<TABLE>
<CAPTION>
SEPTEMBER June
1999 1999
$ $
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Authorized
30,000,000 common shares par value of $0.0001 per share, voting on the basis
of one vote per share
1,000,000 Series 1 preference shares par value of $0.001 per share, voting on
the basis of three votes per share, convertible at anytime after December
31, 2003 into common shares on the basis of three common shares for each
preference shares
Issued and outstanding
Common shares 1,585 1,542
Series 1 Preferred shares 500 500
- ------------------------------------------------------------------------------------------------------------
2,085 2,042
============================================================================================================
</TABLE>
Shares issued for services have been valued at the fair value of the services
provided unless that value cannot be reasonably determined in which case the
trading price of the shares is used.
16
<PAGE> 17
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(U.S. dollars, U.S. GAAP)
September 30, 1999
13. CONSOLIDATED STATEMENTS OF CASH FLOWS
SUPPLEMENTAL DISCLOSURE OF CASH INFORMATION
<TABLE>
<CAPTION>
SEPTEMBER June
1999 1999
$ $
- ---------------------------------------------------------------------------
<S> <C> <C>
Interest -- --
Taxes -- --
Shares issued for services 430,000 --
Shares issued for acquisitions -- 2,316,083
- ---------------------------------------------------------------------------
</TABLE>
ACQUISITIONS
<TABLE>
<CAPTION>
FIRST QUARTER Total
2000 1999
$ $
- ----------------------------------------------------------------------------
<S> <C> <C>
Cash acquired 21,909 11,012
Total net assets acquired other than cash (21,908) 4,058,979
Total purchase price 1 4,069,991
Less: cash acquired (21,909) (11,012)
Less: non-cash consideration paid 21,908 (3,844,991)
- ----------------------------------------------------------------------------
Cash paid net of cash acquired 21,909 213,988
============================================================================
</TABLE>
14. NEW ACCOUNTING PRONOUNCEMENTS
In October 1997, the AICPA issued Statement of Position 97-2, "Software Revenue
Recognition" ("SOP 97-2"). SOP 97-2 provides guidance on when revenue should be
recognized and in what amounts for licensing, selling, leasing or otherwise
marketing computer software. SOP 97-2 is effective for financial statements for
fiscal years beginning after December 15, 1997. During March 1998, the AICPA
issued Statement of Position 98-4, "Deferral of the Effective Date of a
Provision of SOP 97-2, Software Revenue Recognition", ("SOP 98-4"). SOP 98-4
defers for one year the limitation of what is considered vendor-specific
objective evidence of the fair value of the various elements in a
multiple-element arrangement, a requirement to recognize revenue for elements
delivered early in the arrangement. Effective June 1, 1998, the Corporation has
adopted SOP 97-2 and the adoption is not expected to have a material impact on
the Corporation's consolidated results of operations, financial position or cash
flows.
In June 1998, the FASB issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities which establishes accounting and reporting
standards for derivative instruments and hedging activities. It requires that
all derivatives be recognized as either assets or liabilities on the balance
sheet and be measured at fair value. This Statement is effective for fiscal
years beginning after June 15, 2000, which is the year beginning July 1, 2000
for the Corporation. Prior periods should not be restated. The Corporation does
not expect the adoption of this Statement to have a material impact on its
results of operations or financial position.
15. COMPARATIVE FIGURES
Certain of the comparative figures have been reclassified to conform with the
presentation adopted in fiscal 2000.
17
<PAGE> 18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of the results of operations and financial
condition of the Company should be read in conjunction with the consolidated
financial statements and notes thereto included elsewhere in this report.
Forward Looking Statements:
Statements in this Quarterly Report on Form 10-QSB, including those concerning
the Company's expectations of future sales revenues, gross profits, technology
development, sales and marketing, and administrative expenses, product
introductions, cash requirements and Year 2000 compliance, include certain
forward-looking statements. As such, actual results may vary materially from
such expectations. Factors which could cause actual results to differ from
expectations include variations in the level of orders which can be affected by
general economic conditions and in the markets served by the Company's
customers, the international economic and political climates, difficulties or
delays in product functionality or performance, the timing of future product
releases, failure to respond adequately to either changes in technology or
customer preferences, changes in pricing by the Company or its competitors,
ability to manage growth, risk of nonpayment of accounts receivable, changes in
budgeted costs, ability to evaluate, identify and correct date recognition
problems in software used by the Company, its customers or suppliers, all of
which constitute significant risks, There can be no assurance that the Company's
results of operations will not be adversely affected by one or more of these
factors.
Overview
AXYN Corporation ("AXYN") is a Colorado corporation which owns 100% of the
outstanding shares of AXYN Canada Corporation ("ACC"), a Canadian corporation,
AXYN Technologies Corporation ("ATC"), a Delaware corporation, UNITRA-AXYN Sp.
z.o.o. ("Unitra"), a Polish corporation, and AXYN International GmbH ("AI"), a
Swiss company which are engaged in the development, marketing, sales and
delivery of services for information, technology and communications solutions
developed for the mobile communications and computing sector, public safety and
security, logistics, sales of Y2K products and services in Canada, Europe and
the United States. AXYN, ACC, ATC, Unitra and AI are hereafter referred to
collectively as the "Company".
The Company's Common Stock currently trades on the National Quotation Bureau
"Pink Sheets." under the symbol "AXYN". The Company's corporate mailing address
is AXYN Corporation, 2 Gurdwara Road, Suite 208, Nepean, Ontario, Canada K2E
1A2. Its telephone number is (613) 727-2996 and its fax number is (613)
727-3481.
AXYN operates as a solutions company that brings core technology (Intellectual
Property or "IP") that it owns or controls and information technology,
engineering and management services together to provide a comprehensive solution
to customer requirements. The solutions company that AXYN is building is based
on its intellectual property and the establishment of the capability to market,
sell and deliver comprehensive solutions to clients around the world with its IP
at the core of each solution. With this model AXYN is positioned in its selected
markets to establish relationships with clients. Resellers, integrators and
consultants are used to extend AXYN's reach and supplement its capability.
Results of operations for the three months ended September 30, 1999
All figures reported in the enclosed September 30, 1999 first quarter report are
stated in US dollars. AXYN prepares its consolidated financial statements in
accordance with generally accepted accounting principles in the United States.
18
<PAGE> 19
FINANCIAL RESULTS:
SELECTED FINANCIAL DATA
For the first quarter ending September 30, 1999 the Company incurred a loss of
$332,495 or $0.02 per share as compared to a loss of $269,254 or $0.02 per share
for the quarter ended September 30, 1998. The loss for Q1 Fiscal 2000 is a
result of start-up costs for equipment, furniture and space associated with
hiring additional staff to complete Year 2000 contract work and additional costs
associated with the initial start-up and redirection of recent acquisitions. The
company is continuing to invest in such costs in anticipation of additional
contracts and changing our business model to other non-year 2000 related
businesses. Quarter-over-quarter the Company has had significant fluctuations in
assets and liabilities as a result of the acquisitions completed on June 30,
1999 and reflected in the first quarter results reported herein.
Set forth below are selected financial data for the Company.
<TABLE>
<CAPTION>
3 Months Ended Year Ended
Sept. 30, 1999 June 30, 1999
<S> <C> <C>
Net Sales $ 1,453,730 $ 465,361
Income (loss) from operations ($ 332,495) ($ 818,123)
Loss per share (0.02) (0.05)
Total Assets $ 7,352,988 $ 6,633,180
Total Current Assets $ 2,612,454 $ 2,263,851
Long Term Liabilities $ 6,359 $ 6,359
Cash Dividends $ 0 $ 0
</TABLE>
RESULTS OF OPERATIONS
Set forth below are key financial data on the Company's operations showing
consolidated results for the first quarter of fiscal 1999 and 1998 respectively.
<TABLE>
<CAPTION>
3 Months Ended 3 Months Ended Year Ended
Sept. 30, 1999 Sept. 30, 1998 June 30, 1999
<S> <C> <C> <C>
Revenue $ 1,453,730 $ 26,401 $ 465,361
Cost of Sales $ 879,216 $ 0 $ 138,512
Gross Profit $ 574,514 $ 26,401 $ 326,849
Selling, G&A and Other expenses $ 838,801 $ 295,654 $ 1,026,085
Net Loss (Basic and Diluted) ($ 332,495) ($ 269,254) ($ 823,131)
Loss per share (0.02) (0.02) (0.05)
</TABLE>
REVENUES
Revenues increased to $1,453,730, including the effects of all acquisitions for
the period, over sales of $26,401 during the previous period. Revenues during
the three month period ended September 30, 1999 included $410,000 from services
provided in the delivery of contingency reports on mission critical buildings of
the Canadian government, coast-to-coast under the "Standing Offer" supply
contract with the Canadian Government, Syscan contributed $240,000 in revenue
from the sale of ruggedized mobile
19
<PAGE> 20
printers, sales of $295,000 of video conferencing products in North Quebec and
$276,500 in services provided by Unitra-AXYN in support of their Year 2000
clients. In 1998, revenues were generated from AXYN Technologies Y2K embedded
services contract with the World Bank and reflected that the company was
primarily focused on the development of products for the Year 2000 at that time.
COST OF SALES
Cost of sales during the period were $879,216, which included $222,159 for
Syscan. The consolidated cost of sales increased from $0 in 1998 as a result
sales from the Company's year 2000 efforts during the period. The cost of sales
includes direct costs associated with selling Y2K software items and direct
costs of labor to deliver Y2K embedded systems consulting services. In the case
of Syscan the cost of sales reflects a gross margin of 37.1 % on sales of mobile
solutions and mobile printers.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, General and Administrative expenses consist primarily of costs
associated with the accounting and human resources needs, professional expenses,
leasing of facilities, insurance, legal, depreciation expenses, and payroll. The
General and Administrative expenses for the first quarter were $838,801 over
$295,654 in the previous period ending September 30. 1998. The Company was in
start-up mode in fiscal 1998 and the results reflect costs for its initial
operations. In the current quarter costs increased as a result of the Company
having additional staff from recent acquisitions, the associated increase in
benefits, hiring additional staff in pursuit new contracts, additional costs for
equipment, space and increased demand for supplies and other operating costs
items to support the growth. AXYN Canada has incurred increased costs associated
with the hiring, start-up and training costs to prepare staff working on the
delivery of contingency reports on mission critical buildings for the Canadian
government supply contract.
Sales and Marketing expenses consist primarily of hiring sales staff, web site
development, marketing materials, e.g., brochure development and printing costs,
and hiring marketing staff.
RESEARCH AND DEVELOPMENT
The Company has reduced its research and development projects in Fiscal 2000 and
is supporting Syscan International's efforts to develop new mobile communication
products and enhancements to the ZFP family of mobile printers. During the first
quarter, Syscan successfully demonstrated the ZFP-3 product which includes
superior print speeds, fast data transfer rates and improved electronics. It is
expected that the ZFP-3 Series of printers will be ready for market in Q3 of
Fiscal 2000. Syscan incurred R&D costs of $35,465 during the first quarter.
Software development costs are expensed as incurred unless they meet generally
accepted accounting criteria for deferral and amortization. Software development
costs incurred prior to the establishment of technological feasibility do not
meet these criteria and are expensed as incurred. Research costs are expensed as
incurred. The Company reassesses whether it has met relevant criteria for
deferral and amortization at each reporting date.
GOODWILL
The Company incurred additional Goodwill of $441,649 during the period
associated with the acquisition of AXYN International GmbH and Unitra-AXYN Sp.
z.o.o. Goodwill is the difference between the price the Company paid for each
acquisition less the fair value of the identified assets purchased. In
determining the basis of valuation the Company has determined that no
proprietary technology has been
20
<PAGE> 21
acquired for AXYN International. Goodwill arising from acquisitions will be
amortized over a 3 to 10 year period.
CAPITAL RESOURCES
In the first quarter of fiscal 2000, the Company used $281,479 in its operations
and invested $514,045 in acquisitions and the purchase of fixed assets. The
Company had an opening cash position of ($43,703) and raised $851,413 from
additional shareholder loans. At September 30, 1999 the Company had a cash
balance of $13,856. As noted earlier the Company has funded its operations
primarily through sales of Year 2000 products and services, systems integration
product and services sales, mobile printer sales, private sales of equity
securities, and loans from shareholders.
LIQUIDITY
The Company has principal liquid resources, comprising cash, receivables and
inventory of $2,276,768 as of September 30, 1999.
Depending on the amount and timing of future sales and receipts, the Company
will seek to raise additional capital during FY2000. The Company will be seeking
a listing on the NASDAQ Bulletin Board market when it satisfies all requirements
of The NASDAQ Stock Market, Inc.
The Company will address the issue of funding for the various business units
acquired in subsequent business plans. Different and varied approaches will be
adopted as needs vary and the nature of the business units will vary.
Syscan has an established line of credit and the Company has set a number of
short-term objectives for Syscan. These include the hiring of a new President
and CEO, hiring a Chief Operations Officer, additional sales staff and an
upgrade to internal reporting systems. Syscan has a good order backlog in excess
of $1,500,000 and will establish contract and inventory financing programs to
fund operations.
IMPACT OF ACQUISITIONS
On July 8, 1999, the Corporation completed the acquisition of 100% of the issued
and outstanding shares of AXYN International GmbH and its wholly owned
subsidiary UNITRA-AXYN Sp. z.o.o., which provides Year 2000 products and
services to clients throughout Poland. The shareholders of AXYN International
received $1 plus an assumption of their corporate liabilities. The shareholders
of International may receive 1,000,000 common shares and 500,000 convertible
preferred shares of AXYN Corporation should they meet certain sales requirements
by March 31, 2000. These shares have not been accounted for. The operating
results for AXYN International GmbH and UNITRA-AXYN Sp. z.o.o.have been included
in the consolidated financial statements.
U.S. GAAP VERSUS CANADIAN GAAP RELATING TO SYSCAN INTERNATIONAL
The acquisition of Syscan International, a Canadian manufacturing, research and
development company resulted in the Company reporting Syscan results under US
GAAP accounting rules. In Canada, some costs associated with R&D can be
capitalized as Deferred Charges on the Balance Sheet showing as an asset on the
financial statements and expensed over a period of time. Under US GAAP, these
costs are expensed immediately thus materially changing the interpretation of
the Syscan results depending on which country's GAAP rules are being applied.
The net effect is that approximately $35,465 of R&D was expensed resulting in an
increase in the net loss reported for Syscan under US GAAP.
DESCRIPTION OF SECURITIES
21
<PAGE> 22
COMMON STOCK
The Company is authorized to issue up to 30,000,000 shares of Common Stock,
$0.0001 par value. Each share of Common Stock is entitled to share pro rata in
dividends and distributions, if any, with respect to the Common Stock when, as
and if declared by the Board of Directors from funds legally available
therefore, subject to the preferential rights of holders of shares of any series
of outstanding Preferred Stock. The Company has never paid any dividends on its
Common Stock and does not intend to do so in the foreseeable future. No holder
of Common Stock has any preemptive right to subscribe for any securities of the
Company. Upon liquidation, dissolution or winding up of the Company, each share
of the Common Stock is entitled to share ratably in the amount available for
distribution to holders of Common Stock. All shares of Common Stock presently
outstanding are fully paid and nonassessable.
Each holder of Common Stock is entitled to one vote per share with respect to
all matters that are required by law to be submitted to shareholders.
Shareholders are not entitled to cumulative voting in the election of directors.
Accordingly, the holders of more than 50% of the shares voting for the election
of directors can elect 100% of the directors if they choose to do so; and, in
such event, the holders of the remaining shares voting for the election of the
directors will be unable to elect any person to the Board of Directors.
The Common Stock is subject to any Preferred Stock issued by the Company. The
terms of the Preferred Stock are described below. As of September 30, 1999, the
Company had issued and outstanding 15,859,033 shares of Common Stock.
PREFERRED STOCK
The Company is authorized to issue up to 1,000,000 shares of Preferred Stock,
par value $.001 per share. The Board of Directors is authorized to divide the
Preferred Shares into series and to fix and determine the relative rights and
preferences of the series. These rights and preferences include the rate,
preference, and cumulative nature of dividends, terms and conditions of
redemption, if any, amounts payable upon voluntary and involuntary liquidation,
sinking funds, if any, conversion rights, if any, voting rights, if any, and
other rights and preferences. The shares of common stock are subject to the
rights and preferences of the preferred stock.
The Company has authorized 1,000,000 shares of Series 1 Preferred Stock and has
issued 500,000 shares Series 1 of Preferred Stock associated with the purchase
of AXYN Technologies Corporation. The Company has reserved 1,500,000 shares of
Common Stock for the conversion of the Series 1 Preferred Stock. Each share of
preferred stock is convertible into three shares of Common Stock of the Company.
The Preferred Shares are entitled to receive dividends on the same basis as
shares of Common Stock on an as, if, and when declared basis, except that each
share of Preferred Stock shall received three times the amount of each share of
Common Stock. Upon liquidation, the Preferred Shares are entitled to receive
distributions on the same basis as shares of Common Stock, except that each
share of Preferred Stock shall receive three times the amount of each share of
Common Stock. The Preferred Stock shall have the same voting rights as the
Common Stock, except that each share of Preferred Stock shall have three votes.
The shares of Series 1 Preferred Stock are not convertible prior to December 31,
2003.
MARKET PRICE OF COMMON EQUITY
The Company's Common Stock, par value $.0001 per share, is not eligible for
listing on the NASDAQ system; however, the Company's Common Stock is traded on
the National Quotation Bureau "Pink Sheets." Subsequently, on October 5, 1999
the Company's Form 10-SB became effective, and the Company became subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended. The
Company continues to prepare additional responses to comments raised by the SEC
on the Company's Form 10-SB.
22
<PAGE> 23
Once these comments have been cleared, the Company will apply for trading on the
NASDAQ Bulletin Board.
The following table sets forth the high and low bid prices for the Company's
Common Stock since the beginning of the fiscal year 1998. The quotations reflect
inter-dealer prices, with no retail mark-up, markdown or commissions, and may
not represent actual transactions. The information presented has been derived
from National Quotation Bureau, Inc.
<TABLE>
<CAPTION>
From To High Sales Price Low Sales Price Volume
$ $
<S> <C> <C> <C> <C>
Jan'98 Mar'98 N/A N/A N/A
Apr'98 Jun'98 N/A N/A N/A
July'98 Sept'98 2.750 0.375 47,500
Oct'98 Dec'98 2.625 1.125 780,900
Jan'99 Mar'99 2.625 0.875 810,100
Apr'99 Jun'99 1.625 0.750 482,200
Jul'99 Sept'99 1.25 0.25 351,700
</TABLE>
On September 30, 1999, the last reported bid and asked prices for the Common
Stock were $0.25 and $0.25, respectively.
The Company has never declared a dividend on its Common Stock, and it is
anticipated that any earnings, which might be available for distribution as
Common Stock dividends, will be retained for the Company's operations for the
foreseeable future. The transfer agent for the Company's Common Stock is
Corporate Stock Transfer located at Republic Plaza, 370 17th Street, Suite 2350,
Denver, Colorado 80202-4614, USA Ph: (303) 595-3300 Fax: (303) 592-8821.
YEAR 2000 COMPLIANCE
The Company has established a formal program to address any potential Y2K
compliance issues relating to its internal operating systems, products,
distributors, resellers and vendors. The Company is currently reviewing all of
its major internal operating systems and is continuing to monitor any new
additions to its internal operating systems for Y2K compliance. Substantially
all of the Company's internally developed products have been designed and tested
to satisfy the Company's Y2K specifications.
The Company is currently reviewing the status of its distributors, resellers and
vendors with regards to Y2K compliance. The cost of the Company's Y2K compliance
program is not expected to have a material effect on the Company's results of
operations or liquidity. However, there can be no assurance that the Company
will not experience material adverse consequences in the event that the
Company's Y2K compliance program is not successful, or its distributors,
resellers or vendors are unable to resolve their Y2K compliance issues in a
timely manner.
The Company has purchased or procured its essential equipment, software,
systems, and inventory within the past 18 months. The Company has sought and
received confirmation from its key third-party suppliers and vendors that the
hardware, software, products, and services furnished by these vendors are Y2K
compliant. In addition, the vendors of the Company's own internal network,
computers, accounting, and other systems have assured the Company that their
products are Y2K compliant.
The worst case for the Company with respect to Y2K compliance would be the
failure of common services such as electrical supply, water supply, data or
voice communications or other common services that may disrupt the Company's
ability to provide services and products. For the Company, the consequences
could be that customers will refuse to pay for the Company's services and
products and the Company will suffer a
23
<PAGE> 24
decline in revenues. Costs would go up as the Company would seek to mitigate its
problems. The Company could lose its goodwill, reputation for reliability, and
some or its entire customer base.
24
<PAGE> 25
PART II - OTHER INFORMATION
<TABLE>
<S> <C>
Item 1. Legal Proceedings
N/A
Item 2. Changes in Securities
N/A
Item 3. Defaults Upon Senior Securities
N/A
Item 4. Submission of matters to a Vote of Shareholders
N/A
Item 5. Other Information
N/A
Item 6. Exhibits and Reports on Form 8-K
</TABLE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Description Page
- ------ ----------- ----
<S> <C> <C> <C>
(2) None
(3)(i) a. Articles of Incorporation, incorporated by reference from Form
10-SB filed on August 6, 1999
b. Amendment one to Articles of Incorporation, incorporated by
reference from Form 10-SB filed on August 6, 1999
c. Amendment two to Articles of Incorporation, incorporated by
reference from Form 10-SB filed on August 6, 1999
d. Amendment three to Articles of Incorporation, incorporated by
reference from Form 10-SB filed on August 6, 1999
(3)(ii) a. Bylaws, incorporated by reference from Form 10-SB filed on
August 6, 1999
(10) a. LE GROUPE MOBITECH INC. Share Purchase Agreement, incorporated
by reference from Form 10-SB filed on August 6, 1999
b. PROFIL CDI MULTIMEDIA INC. Share Purchase Agreement,
incorporated by reference from Form 10-SB filed on August 6,
1999
c. S.I.Q. (SERVICE INTERNET QUEBEC) INC. Share Purchase
Agreement, incorporated by reference from Form 10-SB filed on
August 6, 1999
d. Department of Public Works and Government Services (DPWGS) -
Standard Terms and Conditions, incorporated by reference
from Form 10-SB filed on August 6, 1999
e. Department of Public Works and Government Services -
Standing Offer and Call-up Authority, incorporated by
reference from Form 10-SB filed on August 6, 1999
f. Scott Feagan Employment Agreement, incorporated by reference
from Form 10-SB filed on August 6, 1999
g. Robert Bell Employment Agreement, incorporated by reference
from Form 10-SB filed on August 6, 1999
h. Form of promissory note in favor of certain directors,
incorporated by reference from Form 10-SB filed on August 6,
1999
i. MPT MILLENNIUM PATENT TECHNOLOGIES CORPORATION LIMITED
Distribution Agreement, incorporated by reference from Form
10-SB filed on August 6, 1999
j. MPT MILLENNIUM PATENT TECHNOLOGIES CORPORATION LIMITED
License Agreement, incorporated by reference from Amendment
No. One to Form 10-SB filed on September 7, 1999
k. Burlington Systems Integration Inc. Share Purchase
Agreement, incorporated by reference from Form 10-SB filed
on August 6, 1999
l. Syscan International Inc. Share Purchase Agreement,
incorporated by reference from Form 10-SB filed on August 6,
1999
m. Axyn Technologies Corporation Share Purchase Agreement,
incorporated by reference from Form 10-SB filed on August 6,
1999
n. Valuation of shares of Axyn Technologies Corporation,
incorporated by reference from Form 10-SB filed on August 6,
1999
(11) None
(15) None
(18) None
(19) None
(22) None
(23) None
(24) None
(27) a. Financial Data Schedule
(99) None
</TABLE>
25
<PAGE> 26
Signatures
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: November 22, 1999
AXYN Corporation
(Registrant)
/s/ SCOTT FEAGAN
- ---------------------------
Scott Feagan, President
26
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 13,856
<SECURITIES> 0
<RECEIVABLES> 1,182,143
<ALLOWANCES> 0
<INVENTORY> 1,080,769
<CURRENT-ASSETS> 2,612,454
<PP&E> 638,669
<DEPRECIATION> 411,489
<TOTAL-ASSETS> 7,352,988
<CURRENT-LIABILITIES> 4,028,693
<BONDS> 616,500
0
500
<COMMON> 1,585
<OTHER-SE> 4,700,099
<TOTAL-LIABILITY-AND-EQUITY> 7,352,988
<SALES> 1,453,730
<TOTAL-REVENUES> 1,453,730
<CGS> 879,216
<TOTAL-COSTS> 838,801
<OTHER-EXPENSES> 179,232
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (443,519)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (332,495)
<EPS-BASIC> (.02)
<EPS-DILUTED> (.02)
</TABLE>
