<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 DECEMBER 31, 1999 COMMISSION FILE NO.
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.
CLASS A COMMON STOCK 16,425,533 SHARES OUTSTANDING
$0.0001 PAR VALUE AS OF DECEMBER 31, 1999
<PAGE> 2
AXYN CORPORATION
Filing Type: 10-QSB
Description: Quarterly Report
Filing Date: February 21, 2000
Period Ending: December 31, 1999
Primary Exchange: National Quotation Bureau "Pink Sheets"
Ticker: AXYN
2
<PAGE> 3
AXYN CORPORATION AND SUBSIDIARIES
QUARTER ENDED DECEMBER 31, 1999
Table of Contents
<TABLE>
<S> <C>
PART I - FINANCIAL INFORMATION...........................................................4
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS..............................................4
CONSOLIDATED BALANCE SHEET (UNAUDITED) AS OF DECEMBER 31, 1999.........................5
CONSOLIDATED STATEMENT OF LOSS (UNAUDITED) AS OF DECEMBER 31, 1999.....................6
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) AS OF
DECEMBER 31, 1999......................................................................7
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) AS OF DECEMBER 31,1999................8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................................................................17
OVERVIEW..............................................................................17
THE COMPANY DID NOT EXPERIENCE ANY ADVERSE RESULTS FROM Y2K FAILURES TO DATE............22
PART II - OTHER INFORMATION.............................................................23
ITEM 1. LEGAL PROCEEDINGS.............................................................23
ITEM 2. CHANGES IN SECURITIES.........................................................23
ITEM 3. DEFAULTS UPON SENIOR SECURITIES...............................................23
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS...............................23
ITEM 5. OTHER INFORMATION.............................................................23
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K..............................................23
SIGNATURES............................................................................24
FINANCIAL DATA SCHEDULE...............................................................25
</TABLE>
3
<PAGE> 4
PART I - FINANCIAL INFORMATION
Item 1. CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited financial statements for the period ended December 31,
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
DECEMBER 31, 1999
PREPARED INTERNALLY BY MANAGEMENT
4
<PAGE> 5
AXYN CORPORATION
Consolidated Balance Sheet (unaudited) as of December 31, 1999
CONSOLIDATED BALANCE SHEETS
(U.S. dollars, U.S. GAAP)
<TABLE>
<CAPTION>
As at DECEMBER 31, 1999 June 30, 1999
$ $
- ----------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents 446,967 0
Accounts receivable [note 2] 1,705,805 1,112,214
Income taxes recoverable 13,239 29,998
Inventories [note 3] 808,419 1,076,466
Prepaid expenses 189,068 45,173
- ----------------------------------------------------------------------------------
3,163,498 2,263,851
Fixed assets [note 4] 213,007 197,086
Intangible assets [note 5] 4,394,916 4,160,760
- ----------------------------------------------------------------------------------
Deferred charges 0 11,483
7,771,421 6,633,180
==================================================================================
LIABILITIES
CURRENT LIABILITIES
Bank overdraft 0 43,703
Bank loan [note 7] 220,439 170,882
Accounts payable 1,868,914 1,699,802
Unearned revenue 113,917 29,141
Note payable [note 6] 0 616,500
Shareholder loans [note 8] 1,383,954 707,726
Current portion of long term debt 0 29,282
- ----------------------------------------------------------------------------------
3,587,224 3,297,036
- ----------------------------------------------------------------------------------
Long term debt 6,359 6,359
- ----------------------------------------------------------------------------------
MINORITY INTEREST [note 1] 64,339 159,430
- ----------------------------------------------------------------------------------
Commitments and contingencies [note 9]
STOCKHOLDERS' EQUITY
Common shares (December 1999 - 16,425,533 shares);
June 1999 - 15,429,033 shares [note 6, 12] 1,636 1,542
Series 1 Preference shares (December 1999 -
500,000 shares; June 1999 - 500,000 shares)
[note 6,12] 500 500
Additional paid up capital 5,199,948 4,270,142
Accumulated deficit (1,088,585) (1,101,829)
- ----------------------------------------------------------------------------------
4,113,499 3,170,355
- ----------------------------------------------------------------------------------
7,771,421 6,633,180
==================================================================================
</TABLE>
See accompanying notes
On behalf of the Board:
Director /s/ SCOTT FEAGAN
------------------------------
5
<PAGE> 6
AXYN CORPORATION
Consolidated Statement of Loss (unaudited) as of December 31, 1999
CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)
(U.S. dollars, U.S. GAAP)
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31, SIX MONTHS ENDED DECEMBER 31,
1999 1998 1999 1998
$ $ $ $
<S> <C> <C> <C> <C>
SALES 2,849,024 68,601 4,302,754 95,002
Cost of sales 1,318,926 0 2,198,142 0
- --------------------------------------------------------------------------------------------------------------------------
Gross profit 1,530,098 68,601 2,104,612 95,002
- --------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Selling, general and administrative 1,116,771 79,633 1,955,572 375,287
Amortization 134,898 0 267,815 0
Financial expense 10,974 0 21,824 0
Research and development 42,287 0 77,752 0
- --------------------------------------------------------------------------------------------------------------------------
1,304,930 79,633 2,322,963 375,287
- --------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) BEFORE MINORITY INTEREST 225,168 (11,032) (218,351) (280,285)
- --------------------------------------------------------------------------------------------------------------------------
Minority interest (14,263) 0 95,091 0
- --------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) FOR THE PERIOD 210,905 (11,032) (123,260) (280,285)
- --------------------------------------------------------------------------------------------------------------------------
Translation adjustment 83,151 0 84,821 0
Gain on sale of securities 51,683 0 51,683 0
- --------------------------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME (LOSS) FOR THE PERIOD 345,739 (11,032) 13,244 (280,285)
- --------------------------------------------------------------------------------------------------------------------------
Basic and diluted income (loss) per share 0.02 (0.001) 0.001 (0.02)
Weighted average number of shares
outstanding [note 1] 16,425,533 12,185,532 16,425,533 12,185,532
</TABLE>
See accompanying note
6
<PAGE> 7
AXYN CORPORATION
Consolidated Statement of Changes in Stockholders' Equity (unaudited) as of
December 31, 1999
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
(U.S. dollars, U.S. GAAP)
<TABLE>
<CAPTION>
ACCUMULATED OTHER
SERIES 1 PAR VALUE PAID IN CAPITAL DEFICIT COMPREHENSIVE LOSS TOTAL
COMMON PREFERRED $ $ $ $ $
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE, FEBRUARY 24, 1998 -- -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Issuance of shares:
Private placement of shares 8,072,367 -- 807 68,044 -- -- 68,851
Issued for services 2,386,366 -- 239 78,876 -- -- 79,115
Acquisition of Monroe Group
Inc. 71,267 -- 7 2,370 -- -- 2,377
Reverse take-over 1,170,000 -- 117 (116) -- -- 1
Shares subscriptions received
in advance -- -- -- 190,253 -- -- 190,253
Loss -- -- -- -- (287,011) 3,305 (283,706)
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1998 11,700,000 -- 1,170 339,427 (287,011) 3,305 56,891
- ----------------------------------------------------------------------------------------------------------------------------------
Issuance of shares:
Private placement of shares 612,033 -- 61 728,035 -- -- 728,096
Acquisition of Burlington 225,000 -- 22 365,603 -- -- 365,625
Acquisition of AXYN Tech. 1,000,000 500,000 600 831,746 -- -- 832,346
Acquisition of Syscan 1,300,000 -- 130 1,377,870 -- -- 1,378,000
Acquisition of Mobitech 282,000 -- 28 298,892 -- -- 298,920
Acquisition of SIQ 110,000 -- 11 116,589 -- -- 116,600
Acquisition of CDI 200,000 -- 20 211,980 -- -- 212,000
Loss -- -- -- -- (823,131) 5,008 (818,123)
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1999 15,429,033 500,000 2,042 4,270,142 (1,110,142) 8,313 3,170,355
- ----------------------------------------------------------------------------------------------------------------------------------
Issuance of shares:
Private placement of shares 430,000 -- 43 429,957 -- -- 430,000
Loss -- -- -- -- (334,165) 1,670 (332,495)
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 1999 15,859,033 500,000 2,085 4,700,099 (1,444,307) 9,983 3,267,860
- ----------------------------------------------------------------------------------------------------------------------------------
Issuance of shares:
Private placement of shares 616,500 -- 62 616,438 -- -- 616,500
Retirement of shares
Retirement of SIQ shares (50,000) -- (11) (116,589) -- -- (116,600)
Profit -- -- -- -- 210,905 134,834 345,739
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 16,425,533 500,000 2,136 5,199,948 (1,233,402) 144,817 4,113,499
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying note
7
<PAGE> 8
AXYN CORPORATION
Consolidated Statement of Cash Flows (unaudited) as of December 31,1999
CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. dollars, U.S. GAAP)
<TABLE>
<CAPTION>
JULY 1, 1999 JULY 1, 1998
TO DECEMBER 31, TO DECEMBER 31,
1999 1998
$ $
- ------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss 13,244 (280,285)
Non-cash items:
Amortization 267,815 --
Shares issued for services 430,000 --
- ------------------------------------------------------------------------------------
Change in non-cash working capital 711,059 (280,285)
Increase in accounts receivable (593,591) (311,099)
Increase in other working capital items (310,251) --
Increase in prepaid expenses (143,895) (2,677)
Increase in accounts payable 169,112 132,272
- ------------------------------------------------------------------------------------
CASH USED IN OPERATING ACTIVITIES (167,566) (461,789)
- ------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Acquisition costs -- --
Increase in intangible assets (430,582) --
Additions to fixed assets (87,310) (19,499)
- ------------------------------------------------------------------------------------
CASH USED IN INVESTING ACTIVITIES (517,892) (19,499)
- ------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Shareholder loans 676,228 106,633
Issue of common and preference shares 499,900 272,048
- ------------------------------------------------------------------------------------
CASH PROVIDED BY FINANCING ACTIVITIES 1,176,128 378,681
- ------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 84,821 --
- ------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents 490,670 (102,607)
Cash and cash equivalents, beginning of period (43,703) 142,175
- ------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD 446,967 39,568
- ------------------------------------------------------------------------------------
</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 December 31, 1999
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(U.S. dollars, U.S. GAAP)
December 31, 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 Denver, 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. The corporation's
ability to continue as a going concern is in substantial doubt and is dependant
upon its ability to achieve sufficient revenues to cover expenses, or to obtain
appropriate levels of financing on a timely basis, the outcome of which cannot
be predicted at this time. Management of the Corporation has undertaken steps as
part of a plan to improve operations with the goal of sustaining Corporate
operations for the next twelve months and beyond. These steps include (i)
focusing sales and marketing on mobile communications and computing; (ii)
obtaining bank financing to support the Corporation's working capital needs.
These financial statements do not give effect to any adjustments to the amounts
and classifications of assets and liabilities which might be necessary should
the corporation be unable to continue its operations as a going concern.
9
<PAGE> 10
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(U.S. dollars, U.S. GAAP)
December 31, 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"), 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. 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.
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%
10
<PAGE> 11
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(U.S. dollars, U.S. GAAP)
December 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
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 INCOME (LOSS) PER SHARE
Net income (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)
December 31, 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, expenses, assets and liabilities are substantially in Canada, with the
exception of revenues generated in Europe by AXYN International, which amounted
to $228,148 this quarter. The following information summarizes the second
quarter 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 $1,640,923 58% $ 536,960 41% $1,103,963 72% $ 556,161 50% $18,254 $529,548
Syscan $ 979,953 34% $ 610,442 46% $ 369,511 24% $ 242,647 22% $18,595 $108,269
AXYN Technologies $ -- 0% $ -- 0% $ -- 0% $ 14,445 1% $ 260 $(14,705)
AXYN International $ 228,148 8% $ 171,524 13% $ 56,624 4% $ 83,523 7% $15,103 $(42,002)
- ----------------------------------------------------------------------------------------------------------------------------------
TOTALS $2,849,024 100% $1,318,926 100% $1,530,098 100% $1,116,771 100% $67,588 $345,739
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 13
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(U.S. dollars, U.S. GAAP)
December 31, 1999
2. ACCOUNTS RECEIVABLE
Accounts receivable include no allowance for doubtful accounts.
3. INVENTORIES
<TABLE>
<CAPTION>
DECEMBER JUNE
1999 1999
$ $
- ---------------------------------------------------------------------
<S> <C> <C>
Raw materials 343,184 593,756
Work in progress 10,317 41,285
Finished goods 454,918 488,547
Valuation allowance 0 (47,122)
- ---------------------------------------------------------------------
808,419 1,076,466
- ---------------------------------------------------------------------
</TABLE>
4. FIXED ASSETS
<TABLE>
<CAPTION>
DECEMBER 1999 JUNE 1999
----------------------- ---------------------
ACCUMULATED ACCUMULATED
COST AMORTIZATION COST AMORTIZATION
$ $ $ $
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Leasehold improvements 17,820 13,568 17,626 12,935
Office furniture and equipment 179,967 118,239 134,703 79,892
Computer equipment and software 452,123 305,096 410,271 272,687
- ----------------------------------------------------------------------------------------
649,910 436,903 562,600 365,514
Accumulated amortization (436,903) (365,514)
- ----------------------------------------------------------------------------------------
213,007 197,086
- ----------------------------------------------------------------------------------------
</TABLE>
5. INTANGIBLE ASSETS
<TABLE>
<CAPTION>
DECEMBER 1999 JUNE 1999
----------------------- --------------------------
ACCUMULATED ACCUMULATED
COST AMORTIZATION COST AMORTIZATION
$ $ $ $
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Goodwill 4,638,543 258,754 4,185,564 28,875
Patents 6,142 3,015 6,026 1,955
Use of trade mark `Unitra' 12,000 0 0 0
- ----------------------------------------------------------------------------------------
4,656,685 261,769 4,191,590 30,830
- ----------------------------------------------------------------------------------------
4,394,916 4,160,760
- ----------------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 14
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(U.S. dollars, U.S. GAAP)
December 31, 1999
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.
<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>
During the quarter, the company divested itself of its investment in SIQ in
exchange for the return of shares of AXYN Corporation.
7. BANK LOAN
The bank loan is available to Syscan on an overdraft or short term basis.
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.
14
<PAGE> 15
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(U.S. dollars, U.S. GAAP)
December 31, 1999
9. FINANCIAL INSTRUMENTS
CONCENTRATION OF CREDIT RISK
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.
10. INCOME TAXES
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.
11. CAPITAL STOCK
<TABLE>
<CAPTION>
DECEMBER 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 1,636 1,542
Series 1 Preferred shares 500 500
- --------------------------------------------------------------------------------
2,136 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.
15
<PAGE> 16
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(U.S. dollars, U.S. GAAP)
December 31, 1999
12. CONSOLIDATED STATEMENTS OF CASH FLOWS
SUPPLEMENTAL DISCLOSURE OF CASH INFORMATION
<TABLE>
<CAPTION>
DECEMBER JUNE
1999 1999
$ $
- ---------------------------------------------------------------------------
<S> <C> <C>
Interest -- --
Taxes -- --
Shares issued for services 430,000 --
Shares issued for acquisitions -- 2,316,083
- ---------------------------------------------------------------------------
ACQUISITIONS
FIRST HALF Total
2000 1999
$ $
- ---------------------------------------------------------------------------
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>
13. COMPARATIVE FIGURES
Certain of the comparative figures have been reclassified to conform with the
presentation adopted in fiscal 2000.
16
<PAGE> 17
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 and AXYN
International GmbH ("AI"), a Swiss company. AXYN Corporation is a global
supplier of technology solutions. AXYN's primary businesses include: Mobile
Communications and Computing (MC&C) solutions to the logistics, public safety,
healthcare, and distance education market sectors; Control Centers; Internet
Solutions; Y2K products and services; and Systems Integration. AXYN, ACC, ATC
and AI are hereafter referred to collectively as the "Company".
The Company's Common Stock continues to trade on the National Quotation Bureau
"Pink Sheets." under the symbol "AXYN". AXYN Corporation is a public reporting
company having filed a Form 10-SB with the Securities and Exchange Commission
(SEC) and will be seeking a listing on the Smallcap market when it satisfies all
requirements of the NASDAQ. 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's vision is to significantly expand its operations in wireless technology
companies such that our shareholders can participate in a wide portfolio of
mobile communication and computing related companies. We see the need for
wireless products, software applications, specialized communications
infrastructure and we will accomplish this through acquisitions and strategic
partnerships such as those we have established through Syscan.
17
<PAGE> 18
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 1999
All figures reported in the enclosed December 31, 1999 second quarter report are
stated in US dollars. AXYN prepares its consolidated financial statements in
accordance with generally accepted accounting principles in the United States.
FINANCIAL RESULTS:
SELECTED FINANCIAL DATA
For the second quarter ending December 31, 1999 the Company recorded a profit of
$345,739 or $0.02 per share as compared to a loss of $11,032 or ($0.001) per
share for the quarter ended December 31, 1998. The profit for Q2 Fiscal 2000 is
a result of Year 2000 contract work that peaked just prior to the millennium
rollover and from increased sales of wireless products and mobile printers at
Syscan International for the quarter. Quarter over quarter growth in sales was
195% from $1.454M to $2.849 M and for the six-month period ending December 31,
1999 sales grew 4,529% year-over-year from $0.095M to $4.302M. The company is
continuing to invest in changing its business model to other non-year 2000
related businesses with specific concentration on the Mobile Communications and
Computing (MC&C) market. During the quarter no new acquisitions were undertaken
and management's focus was on the delivery of services associated with its Year
2000 contracts and on establishing strong management and business plans for each
of its acquisitions and investments announced earlier in the year.
Set forth below are selected financial data for the Company.
<TABLE>
<CAPTION>
3 MONTHS ENDED 3 MONTHS ENDED
DEC. 31, 1999 DEC. 31, 1998
<S> <C> <C>
Net Sales $2,849,024 $68,601
Comprehensive Income (loss) $345,739 ($11,032)
Profit (loss) per share 0.02 (0.001)
Total Assets $7,771,421 $393,503
Total Current Assets $3,163,498 $365,889
Long Term Liabilities $6,359 $0
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 second quarter of fiscal 2000 and 1999
respectively.
<TABLE>
<CAPTION>
3 Months Ended 3 Months Ended Year Ended
Dec. 31, 1999 Dec. 31, 1998 June 30, 1999
<S> <C> <C> <C>
Revenue $2,849,024 $ 68,601 $ 465,361
Cost of Sales $1,318,926 $ 0 $ 138,512
Gross Profit $1,530,098 $ 68,601 $ 326,849
Selling, G&A and Other expenses $1,304,930 $ 79,633 $1,149,980
Net Profit (Loss) (Basic and Diluted) $ 345,739 $(11,032) $ (881,123)
Profit (Loss) per share 0.02 (0.001) (0.07)
</TABLE>
18
<PAGE> 19
REVENUES
Q2 revenues increased to $2,849,024 over sales of $1,453,730 in Q1 FY2000 and
$26,401 during the previous period. Quarter over quarter growth in sales was
195% from $1.454M to $2.849 M and for the six-month period ending December 31,
1999 sales grew 4,529% year-over-year from $0.095M to $4.302M. Revenues during
the three month period ended December 31, 1999 included $1,604,247 from services
provided in the delivery of Year 2000 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 $979,953 in
revenue from the sale of ruggedized mobile printers and $228,148 in services was
provided by Unitra-AXYN in support of their Year 2000 clients.
COST OF SALES
Cost of sales during the period were $1,318,926, that included $610,442 for
Syscan primarily derived from the manufacture of rugged printers and $536,960
from the delivery of Year 2000 related services. The cost of sales includes
direct costs associated with the delivery of services that were direct costs of
labor to deliver Y2K embedded systems consulting services. In the case of Syscan
the cost of sales reflects a gross profit of 24 % from the manufacture of mobile
printers. Overall AXYN gross margins increased from 48.6% in Q1 to 69.2% in Q2.
This was mainly a result of better margins received on the delivery of Y2K
services by AXYN Canada during the period.
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 second quarter were $1,116,771 over
$79,633 in the previous period ending December 31, 1998. Q1 FY2000 expenses were
recorded at $1,018,033 or 70.0 % of sales compared to Q2 expenses of $1,304,930
or 45.8 % of sales a reduction of 24.2% quarter over quarter. In the current
quarter costs increased marginally as a result of additional new hires to
support its year-end Year 2000 services contracts.
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.
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.
INTANGIBLE ASSETS
Intangible assets generated during the period was $12,000 associated with the
use of the "UNITRA" trade name by AXYN International. Goodwill for the first six
months of Fiscal Y2000 was $452,679 as a result of the acquisition of AXYN
International and Unitra-AXYN less related purchase adjustments for SIQ.
19
<PAGE> 20
CAPITAL RESOURCES
In the second quarter of fiscal 2000, the Company used $167,566 in its
operations and invested $517,892 in acquisitions during the first six (6) months
of FY2000 and the purchase of fixed assets. The Company had an opening bank
overdraft position of $43,703 and raised $676,228 from additional shareholder
loans and $499,900 from the issuance of shares. At December 31, 1999 the Company
had a cash balance of $446,967. 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,
prepaid expenses and inventory of $3,150,259 as of December 31, 1999. Depending
on the amount and timing of future sales and receipts, the Company will seek to
raise additional capital during FY2000. The Company has filed a Form 10-SB with
the SEC and will be seeking a listing on the Smallcap market when it satisfies
all requirements of the NASDAQ.
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.
AXYN acquired a 57.6% controlling interest in Syscan International in June 1999.
During the quarter AXYN converted a short-term loan, advanced to Syscan during
the transition period, for equity that resulted in AXYN increasing its holdings
in Syscan to 60.4% with voting control of 67.6%. On December 30, 1999 AXYN
entered into a second private placement agreement with Syscan to raise an
additional $C720,000 during AXYN's Q3 period. Management does not expect that
AXYN's holdings will materially change as a result of the completion of this
placement. Since AXYN's participation, the stock of Syscan (CDN:SYSN) moved from
$C0.18 to $C0.50, increasing the value of AXYN's holdings in Syscan. These
holdings represent AXYN's investment in Syscan, at fair market value. We believe
continued growth in share price will provide Syscan with flexibility to generate
additional financing through the equity markets and look to Syscan to be
self-financing in the near future.
IMPACT OF ACQUISITIONS
No acquisitions occurred during the quarter. The Company expects to continue to
seek out acquisitions that complement its existing lines of business. Specific
acquisitions will also be targeted that allow the company to gain better entry
into existing and new markets. The Company has identified both the US and
European markets as targets for future acquisitions. To fund these acquisitions,
the Company anticipates that it will raise capital through the sale of
securities and through debt financing.
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.
20
<PAGE> 21
DESCRIPTION OF SECURITIES
COMMON STOCK
The Company is authorized to issue up to 30,000,000 shares of Common Stock,
$0.0001 par value. The Common Stock is subject to any Preferred Stock issued by
the Company. The terms of the Preferred Stock are described below. As of
December 31, 1999, the Company had issued and outstanding 16,425,533 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 Company has issued 500,000 shares Series 1 of
Preferred Stock associated with the purchase of AXYN Technologies Corporation.
The shares of Series 1 Preferred Stock are not convertible prior to December 31,
2003.
The Company acquired AXYN International GmbH effective July 7, 1999. Under the
terms of the acquisition agreement, which included certain contingencies, the
Company anticipates issuing 500,000 additional Series 1 of Preferred shares
associated with the purchase of AXYN International GmbH upon satisfactory
delivery of the contingencies.
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." On October 4, 1999 the company
became a reporting issuer and is currently awaiting the SEC to complete its
review of our FORM 10-SB submission. The NASD has stated that it will make every
effort to get the Company back trading as soon as the SEC complete their review.
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
Oct'99 Dec'99 1.125 0.187 240,900
</TABLE>
On December 31, 1999, the last reported bid and asked prices for the Common
Stock were $0.437 and $0.437, 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.
21
<PAGE> 22
YEAR 2000 COMPLIANCE
The Company established a formal program to address any potential Y2K compliance
issues relating to its internal operating systems, products, distributors,
resellers and vendors. The Company reviewed all of its major internal operating
systems and monitored 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 reviewed the status of its distributors, resellers and vendors with
regards to Y2K compliance. The cost of the Company's Y2K compliance program did
not have a material effect on the Company's results of operations or liquidity.
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 have been
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
would have been that customers refused to pay for the Company's services and
products and the Company would have suffered a decline in revenues. Costs would
have gone up as the Company would seek to mitigate its problems. The Company
could have lost its goodwill, reputation for reliability, and some or its entire
customer base.
The Company did not experience any adverse results from Y2K failures to date.
22
<PAGE> 23
PART II - OTHER INFORMATION
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
None.
23
<PAGE> 24
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: February 19, 2000
AXYN Corporation
(Registrant)
/s/ SCOTT FEAGAN
- ---------------------------
Scott Feagan, President
24
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-END> DEC-31-1999
<CASH> 446,967
<SECURITIES> 0
<RECEIVABLES> 1,705,805
<ALLOWANCES> 0
<INVENTORY> 808,419
<CURRENT-ASSETS> 3,163,498
<PP&E> 649,910
<DEPRECIATION> 436,903
<TOTAL-ASSETS> 7,771,421
<CURRENT-LIABILITIES> 3,587,224
<BONDS> 0
0
500
<COMMON> 1,636
<OTHER-SE> 5,199,948
<TOTAL-LIABILITY-AND-EQUITY> 7,771,421
<SALES> 4,302,754
<TOTAL-REVENUES> 4,302,754
<CGS> 2,198,142
<TOTAL-COSTS> 1,955,572
<OTHER-EXPENSES> 367,391
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 13,244
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,244
<EPS-BASIC> .001
<EPS-DILUTED> .001
</TABLE>
