<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
---------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-11616
FRANKLIN TELECOMMUNICATIONS CORP.
(Exact Name of Registrant as Specified in its Charter)
---------------
California 95-3733534
(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification No.)
733 Lakefield Road, Westlake Village, California 91361
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (805) 373-8688
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange
------------------- ---------------------
Common stock, American Stock Exchange
without par value
Securities registered pursuant to Section 12(g) of the Act: None
---------------
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. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's class of
common stock, as of the latest practicable date:
TITLE OF EACH CLASS OF COMMON STOCK OUTSTANDING AT NOVEMBER 9, 2000
----------------------------------- -------------------------------
Common Stock, no par value 39,467,187
<PAGE> 2
Index
Franklin Telecommunications Corp.
<TABLE>
<S> <C>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
September 30, 2000 (Unaudited) and June 30, 2000
Consolidated Statements of Operations (Unaudited) - Three months
ended September 30, 2000 and 1999
Consolidated Statements of Cash Flows (Unaudited) - Three months
ended September 30, 2000 and 1999
Notes to Consolidated Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
</TABLE>
<PAGE> 3
Item 1. Financial Statements
FRANKLIN TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2000 (UNAUDITED) AND JUNE 30, 2000
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
2000 2000
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents .............................................................. $ 1,660,000 $ 1,275,000
Accounts receivable, less allowance for doubtful accounts of $34,000 (unaudited) and
$50,000, respectively ................................................................ 99,000 136,000
Other receivables ...................................................................... 11,000 8,000
Note receivable (a portion due from a related party) ................................... 63,000 64,000
Inventories (Note 2) ................................................................... 2,569,000 2,698,000
Prepaid expenses ....................................................................... 187,000 80,000
------------ ------------
Total current assets ................................................................. 4,589,000 4,261,000
------------ ------------
Property and equipment
Machinery and equipment ................................................................ 1,580,000 1,562,000
Furniture and fixtures ................................................................. 280,000 280,000
Computers and software ................................................................. 1,623,000 1,607,000
------------ ------------
3,483,000 3,449,000
Less accumulated depreciation .......................................................... 1,446,000 1,291,000
------------ ------------
Total property and equipment ......................................................... 2,037,000 2,158,000
------------ ------------
Other assets .............................................................................. 712,000 738,000
------------ ------------
Total assets ......................................................................... $ 7,338,000 $ 7,157,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of capital lease obligations .......................................... $ 30,000 $ 34,000
Accounts payable ...................................................................... 292,000 407,000
Accrued liabilities (Note 3) .......................................................... 939,000 1,028,000
------------ ------------
Total current liabilities ............................................................ 1,261,000 1,469,000
Long-term debt, (majority due to a related party) ......................................... 762,000 762,000
Capital lease obligations, net of current portion ......................................... 15,000 20,000
------------ ------------
Total liabilities .................................................................... 2,038,000 2,251,000
------------ ------------
Contingencies (Note 4)
Shareholders' equity
Preferred stock, no par value 10,000,000 shares authorized , Convertible Series C -0-
(unaudited) and -0- shares issued and outstanding .................................... -0- -0-
Common stock, no par value 90,000,000 shares authorized 38,889,971 (unaudited) and
34,247,013 shares issued and outstanding ............................................. 34,568,000 32,270,000
Common stock committed, no par value 74,716 (unaudited) and 74,716 shares
committed but not yet issued ......................................................... 82,000 82,000
Accumulated deficit .................................................................... (29,350,000) (27,446,000)
------------ ------------
Total shareholders' equity ........................................................... 5,300,000 4,906,000
------------ ------------
Total liabilities and shareholders' equity ........................................... $ 7,338,000 $ 7,157,000
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 4
FRANKLIN TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-------------------------------
2000 1999
------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Sales
Product ..................................... $ 122,000 $ 305,000
Telephone and Internet services ............. 309,000 470,000
------------ ------------
Total sales ........................... 431,000 775,000
------------ ------------
Cost of sales
Product ..................................... 278,000 269,000
Telephone and Internet services ............. 348,000 413,000
------------ ------------
Total cost of sales ................... 626,000 682,000
------------ ------------
Gross profit (loss) ............................... (195,000) 93,000
------------ ------------
Operating expenses
Research and development expenses ........... 442,000 474,000
Selling, general, and administrative
Expenses ................................. 1,269,000 2,639,000
------------ ------------
Total operating expenses .............. 1,711,000 3,113,000
------------ ------------
Loss from operations .............................. (1,906,000) (3,020,000)
------------ ------------
Other income (expense)
Interest income ............................. 7,000 8,000
Interest expense ............................ (1,000) (1,000)
Loss on disposal of property and equipment .. -- (24,000)
Other income (expense) ...................... (11,000) 2,000
------------ ------------
Total other income (expense) .......... (5,000) (15,000)
------------ ------------
Net loss........................................... $ (1,911,000) $ (3,035,000)
============ ============
Basic and diluted loss per common share ........... $ (.05) $ (.12)
============ ============
Weighted average common shares
outstanding used to compute basic and diluted
net income (loss) per common share ............. 35,182,447 26,503,814
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 5
FRANKLIN TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
2000 1999
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ............................................ $(1,911,000) $(3,035,000)
Adjustments to reconcile net loss to net cash
Used in operating activities
Depreciation and amortization ................. 187,000 203,000
Provision for loss on obsolete inventory ...... 96,000 --
Provision for loss on doubtful accounts ....... 22,000 --
Stock issued for services rendered ............ 146,000 82,000
Loss on disposal of property and equipment .... -- 24,000
(Increase) decrease in
Accounts receivable ........................... 15,000 1,181,000
Other receivables ............................. (2,000) 49,000
Inventories ................................... 33,000 (65,000)
Prepaid expenses .............................. (28,000) (13,000)
Increase (decrease) in
Accounts payable .............................. (108,000) (468,000)
Accrued liabilities ........................... (89,000) (171,000)
----------- -----------
Net cash used in operating activities ............... (1,639,000) (2,213,000)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment ................. (33,000) (178,000)
Disposal of property and equipment .................. -- 16,000
Other assets ........................................ (7,000) (108,000)
----------- -----------
Net cash used in investing activities ............... (40,000) (270,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options and
warrants .......................................... 1,000 87,000
Proceeds from sale of Company stock ................. 2,072,000 1,891,000
Payments on capital lease obligations ............... (9,000) --
Proceeds from sale of minority stock in
consolidated subsidiary ........................... -- 53,000
----------- -----------
Net cash provided by financing activities ........... 2,064,000 2,031,000
----------- -----------
Net increase (decrease) in cash ..................... 385,000 (452,000)
Cash and cash equivalents, beginning of the period .. 1,275,000 1,637,000
----------- -----------
Cash and cash equivalents, end of the period ........ $ 1,660,000 $ 1,185,000
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
2000 1999
----------- -----------
(UNAUDITED) (UNAUDITED)
Interest paid ....................................... $ 1,300 $ --
=========== ===========
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
During the three months ended September 30, 2000, the Company issued 200,000
shares (unaudited) of common stock for services valued at $146,000 (unaudited)
and for the prepayment of services to be rendered valued at $79,000 (unaudited).
The accompanying notes are an integral part of these financial statements.
<PAGE> 6
FRANKLIN TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 1--GENERAL AND SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Business and Organization
Franklin Telecommunications Corp. ("Franklin") and its subsidiaries
(collectively the "Company") manufacture and distribute data and telephony
communications, access and connectivity products for IP Telephony networks, T-1
and X.25 wide-area networks and provide IP Telephony and Internet services
through its majority-owned subsidiary, FNet Corp. ("FNet"). The Company's
customers are located predominantly in the United States, Canada, Australia,
South America and parts of Europe in a wide range of industries including
financial services, government, telephone services and manufacturing.
Basis of Presentation
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all normal, recurring adjustments considered
necessary for a fair presentation have been included. The financial statements
should be read in conjunction with the audited financial statements included in
the Company's annual report on Form 10-K for the fiscal year ended June 30,
2000. The results of operations for the three months ended September 30, 2000
are not necessarily indicative of the results that may be expected for the
fiscal year ending June 30, 2001.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Franklin Telecommunications Corp. and its wholly-owned or majority owned
subsidiaries. All significant intercompany balances and transactions have been
eliminated.
Impairment of Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used is measured by
a comparison of the carrying amount of the assets to future net cash flows
expected to be generated by the assets. If the assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount exceeds the fair value of the assets. During the three months
ended September 30, 2000, the Company determined that no assets were impaired.
<PAGE> 7
Loss Per Common Share
The Company calculates loss per common share in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share." Basic
loss per share is computed by dividing the loss available to common shareholders
by the weighted-average number of common shares outstanding. Diluted loss per
share is computed similar to basic loss per share, except that the denominator
is increased to include the number of additional common shares that would have
been outstanding if the potential common shares had been issued and if the
additional common shares were dilutive. The following potential common shares
have been excluded from the computation of diluted net loss per share for all
periods presented because the effect would have been anti-dilutive:
<TABLE>
<CAPTION>
For the Three Months Ended
September 30,
------------------------
2000 1999
--------- ---------
(unaudited) (unaudited)
<S> <C> <C>
Options outstanding under the Company's stock
option plans 2,240,250 2,163,250
Options granted outside the Company's stock
option plans 2,950,000 1,112,500
Convertible notes payable 200,000 --
Warrants issued in conjunction with convertible
notes payable 1,000,000 --
Warrants issued in conjunction with various private
placements 5,800,267 500,000
Warrants issued as offering costs for convertible
notes payable 100,000 --
</TABLE>
Income Taxes
The Company accounts for income taxes under the asset and liability
method. Under this method, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. A valuation
allowance is required when it is less likely than not that the Company will be
able to realize all or a portion of its deferred tax assets.
NOTE 2--INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
2000 2000
------------- ----------
(UNAUDITED)
<S> <C> <C>
Raw materials ...... $1,319,000 $1,314,000
Work in process .... 197,000 222,000
Finished goods ..... 1,053,000 1,162,000
---------- ----------
Total ........ $2,569,000 $2,698,000
========== ==========
</TABLE>
<PAGE> 8
NOTE 3--ACCRUED LIABILITIES
Accrued liabilities consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
2000 2000
------------- ----------
(UNAUDITED)
<S> <C> <C>
Salaries and related expense ... $632,000 $ 690,000
Customer deposits .............. 122,000 80,000
License payable ................ 100,000 100,000
Other accrued liabilities ...... 85,000 158,000
-------- ----------
Total .............. $939,000 $1,028,000
======== ==========
</TABLE>
NOTE 4--COMMITMENTS AND CONTINGENCIES
Service Agreement
During the three months ended September 30, 2000, FNet entered into a
five-year service agreement with a satellite service provider to operate uplink
and downlink earth stations between the United States and the Balkan region. The
estimated fee for the project is $1,236,000.
Litigation
The Company is involved in certain legal proceedings and claims which
arise in the normal course of business. Management does not believe that the
outcome of these matters will have a material adverse effect on the Company's
consolidated financial position or results of operations.
During June 2000, two shareholders who acquired their shares in a
private placement in March 2000, filed a lawsuit against the Company and
officer-directors Frank W. Peters and Thomas L. Russell. The lawsuit sought to
postpone the June 28, 2000 annual stockholders meeting, based upon alleged
deficiencies in the proxy materials pertaining to the meeting. At a Court
hearing held on June 28, 2000, the Court denied plaintiffs' request to enjoin
the meeting. Thereafter, plaintiffs amended the lawsuit and ultimately added new
claims pertaining to the private placement and alleging securities law
violations. The Company petitioned the Court to dismiss plaintiffs' new claims
and, at a Court hearing held on October 16, 2000, the Court granted the
Company's petition and dismissed plaintiffs' claims. Thereafter, on November 7,
2000, the plaintiffs and the Company reached an amicable settlement.
NOTE 5--RECENT SALE OF EQUITY SECURITIES
During the three months ended September 30, 2000, the Company granted
options to purchase 2,000,000 shares of common stock to its new Chief Executive
Officer. One million options vest over a period of two years, and the remaining
1,000,000 options vest when specific performance targets have been met. The
exercise price was set at $0.69 per share, the fair value of the underlying
shares. The options expire at the earlier of seven years from the date of grant
or 90 days after termination of employment.
During the three months ended September 30, 2000, the Company completed
the following significant common stock transactions of previously unissued
common shares:
Issued 200,000 shares of common stock for services valued at $146,000,
and $ 79,000 of prepayment for services to be rendered.
Issued 295,858 shares of common stock to its Chief Financial Officer in
connection with a cashless exercise of options that were processed by the
Company. No expense was recorded in connection with the transaction because the
Chief Financial Officer had owned the shares that were used to pay for the
cashless exercise for more than six months prior to the transaction.
Issued 2,500 shares of common stock in connection with the exercise of
stock options for cash of $1,100.
In connection with a private placement, the Company issued 4,144,600
shares for gross proceeds of $2,071,692, less $397,882 for the value of the
4,144,600 warrants issued as part of the private placement. The Company paid
fees of $304 in connection with the private placement. For each share
purchased, the investors received warrants to purchase one common share at an
exercise price of $3.00. The warrants are immediately exercisable and expire on
August 22, 2003.
<PAGE> 9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
OVERVIEW
Franklin Telecommunications Corp. ("Company") designs, manufactures and sells
Internet Telephony equipment, also called Voice Over Internet Protocol equipment
("VOIP") and other high speed communications products and subsystems. Our
products are marketed through Original Equipment Manufacturers ("OEMs") and
distributors, as well as directly to end users. In addition, through our
majority-owned subsidiary, FNet Corp. ("FNet"), we provide traditional switched
network and Internet Protocol telephony services, and Internet access to
businesses and individuals. The Company's customers are located throughout the
world in a wide range of industries including financial services, government,
telephone services and manufacturing.
The Company offers a suite of Internet Telephony solutions that enable business
communications over data networks. From the small office home office (SOHO) to
the branch office and headquarters operations of medium to large scale
corporations, the Company offers a cost-effective call handling solution. From
the enterprise to the carrier market, the Company offers converged network
solutions; managing the connectivity and integration of voice, data, fax and
video. Where ever possible, the Company offers a turnkey solution that can be
"owned" by its customers. When equipment sales are not in the best interest of a
particular customer's business communications solution, the Company plans to
provide that solution as a "service" that can be leased. The Company aims to be
a leading edge supplier of Internet Telephony solutions as a result of its
flexibility in providing on net and off net business communication solutions as
customer owned equipment or Franklin provided services on a global basis. The
Company's products and services enable connectivity and e-commerce.
The Company is both an equipment supplier and a service provider, offering
turn-key business communications solutions to both the carrier and enterprise
segments of the Internet Telephony market. The Company produces gateways,
gatekeepers and edge servers that provide advanced packet switching solutions
that significantly reduce the infrastructure costs associated with
communications networks. The Company's products are designed, developed and
manufactured by the Company.
In addition to manufactured solutions, the Company maintains a Network
Operations Center that provides both "on-net" and "off-net" connectivity for
the Company's equipment customers. The Network Operations Center interconnects
the Company's customers on a global basis. The Network Operations Center
includes Internet access facilities and a Class 4 circuit switch. The center
interconnects with three International Record Carriers and is capable of
completing a voice call to any phone in the world. The Company's equipment and
services customers are offered the opportunity to access the circuit switched
facilities and to interconnect with each other, using the Company to enable
"settlement" between the networks. This interconnection can be either "free"
through the Internet, or delivered through private leased lines.
In addition to the Company's circuit switched capabilities at its headquarters
facility in Westlake Village, California , the Company provides a combination of
satellite and VOIP solutions to enable telephone communications for NATO forces
throughout the Bosnia region. Some 21 earth station transponders are connected
to "telephone calling booths" linked via satellite to the US where they are
interconnected via VOIP circuits to the circuit switch in the Company's
headquarters. NATO soldiers, using FNET calling cards, are able to make calls
all over the world through FNET facilities.
As a result of the Company's expertise in network operations, the Company is
also able to provide additional assistance to its customers by offering design,
installation and network management services. The company believes that this
strategy of combining network operations and equipment design is a significant
product differentiation strategy, uniquely positioning the Company. Many of the
Company's customers elect to interconnect with the Network Operations center.
Much like the Internet, the Company is growing with each additional gateway
sale.
Forward-looking statements in this Management's Discussion and Analysis of
Financial Condition and Results of Operations, including statements regarding
the Company's entrance into the Telephone and Internet business, newly
introduced products, development of "VOIP" service capabilities over the
Internet, net sales, gross profit, operating expenses, other income and
expenses, liquidity and cash needs and the Company's plans and strategies are
all based on current expectations, and the Company assumes no obligation to
update this information. Numerous factors could cause actual results to differ
from those described in the forward-looking statements.
<PAGE> 10
As with any line of business, there can be no assurance that the DVG VOIP
products will gain widespread market acceptance or be profitable. In addition,
there can be no assurance that new hardware products and services developed by
others will not render the Company's hardware products and services
noncompetitive or obsolete.
RESULTS OF OPERATIONS
Three Months Ended September 30, 2000 Compared To Three Months Ended
September 30, 1999
Net Sales. Net sales decreased by $344,000, or 44%, from $775,000 in the
three months ended September 30, 1999 to $431,000 in the three months ended
September 30, 2000. The decrease is due both to a reduction of DVG hardware
systems sales and reduced service revenue, primarily from the Balkan operation.
The revenue mix for the three months ended September 30, 2000 consisted of 72%
Telephone and Internet services revenue and 28% hardware product sales.
Gross Profit. Gross profit decreased as a percentage of net sales to a
loss of 45% for the three months ended September 30, 2000, from a gross profit
of 12% of net sales for the corresponding period of 1999. The gross profit
percentage decrease can be attributed to fixed hardware and service overhead
expenses spread over a smaller sales base.
Operating Expenses. Operating expenses decreased by $1,402,000, or 45%,
from $3,113,000 in the three months ended September 30, 1999 to $1,711,000 in
the three months ended September 30, 2000. The decrease was primarily
attributable to a one time bad debt expense of $1,284,000 occurring in the three
month period ending September 30, 1999.
Other Income (Expense). Interest income decreased by $1,000 , or 13%, from
$8,000 in the three months ended September 30, 1999 to $7,000 in the three
months ended September 30, 2000, due to reduced cash balances available to earn
interest. Interest expense remained constant at $1,000 for both the three months
ended September 30, 1999 and 2000. Other components of other income (expense)
were immaterial and were due to various non operating items.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents and net working capital totaled $1,660,000 and
$3,328,000, respectively, as of September 30, 2000. The primary source of cash
has been net proceeds generated from equity and debt financings. The Company has
relied on sales of new shares, loan proceeds and the exercise of warrants and
options to fund operations for an extended period of time. The Company received
$10,589,000 and $2,073,000 in equity financing for the year ended June 30, 2000,
and the three months ended September 30, 2000, respectively. Its subsidiary,
FNet, raised $53,000 for the year ended June 30, 2000 and $-0- for the three
months ended September 30, 2000. The Company and its subsidiary FNet have
continued to experience losses due to low sales results.
The Company anticipates that its primary uses of working capital in future
periods will be for increases in product development, expansion of its marketing
plan, funding of FNet's operations and funding of increases in accounts
receivable.
The Company believes that existing cash and cash equivalents, cash flow
from operations and cash raised through future anticipated private placements
will be sufficient to meet the Company's presently anticipated working capital
needs for at least the next twelve months and the foreseeable future. To the
extent the Company uses its cash resources for acquisitions, the Company may be
required to obtain additional funds, if available, through borrowings or equity
financings. There can be no assurance that such capital will be available on
acceptable terms. If the Company is unable to obtain sufficient financing, it
may be unable to fully implement its growth strategy.
<PAGE> 11
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
During June 2000, two shareholders who acquired their shares in a private
placement in March 2000, filed a lawsuit against the Company and
officer-directors Frank W. Peters and Thomas L. Russell. The lawsuit sought to
postpone the June 28, 2000 annual stockholders meeting, based upon alleged
deficiencies in the proxy materials pertaining to the meeting. At a Court
hearing held on June 28, 2000, the Court denied plaintiffs' request to enjoin
the meeting. Thereafter, plaintiffs amended the lawsuit and ultimately added new
claims pertaining to the private placement and alleging securities law
violations. The Company petitioned the Court to dismiss plaintiffs' new claims
and, at a Court hearing held on October 16, 2000, the Court granted the
Company's petition and dismissed plaintiffs' claims. Thereafter, on November 7,
2000, the plaintiffs and the Company reached an amicable settlement.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934. The
registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FRANKLIN TELECOMMUNICATIONS CORP.
By /s/ ROBERT STEWART
-----------------------------------
Robert Stewart
Chief Executive Officer
By /s/ THOMAS L. RUSSELL
-----------------------------------
Thomas L. Russell
Chief Financial Officer
Dated: November 13, 2000
<PAGE> 13
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
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<S> <C>
27.1 Financial Data Schedule
</TABLE>
