<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended OCTOBER 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to _______________
Commission File Number 0-19705
PACKETPORT.COM, INC. (formerly known as Linkon Corporation)
(Exact name of small business issuer as specified in its charter)
Nevada 13-3469932
------ ----------
(State or other jurisdiction of (Internal Revenue Service Employer
incorporation or organization) Identification No.)
587 Connecticut Ave,
Norwalk, Connecticut 06854
--------------------------
(Address of principal executive offices)
(203) 831-2214
--------------
(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
-----
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
Class Outstanding at December 17, 1999
- ----------------------------------------- ------------------------------------
Common Stock, Par Value $.003 Per Share 9,073,178
Transitional Small Business Disclosure Format (Check one): Yes ; No X
----
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PACKETPORT.COM, INC. (Formerly known as Linkon Corporation)
FORM 10-QSB
QUARTERLY REPORT
For the Nine Months Ended October 31, 1999
PAGE TO PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheet - October 31, 1999 and
January 31, 1999 3-4
Consolidated Statements of Operations - Nine Months
Ended October 31, 1999 and 1998 5
Consolidated Statements of Operations - Three months
Ended October 31, 1999 and 1998 7
Consolidated Statements of Cash Flows - Nine Months
Ended October 31, 1999 and 1998 8
Notes to Consolidated Financial Statements 10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-15
Exhibit I - Calculation of Earnings per Share 16
PART II. Other Information 17
Item 1 Legal Proceedings 17
Item 4 Submission of Matters to a Vote of Security Holders 17
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
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PART 1- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PACKETPORT.COM, INC. (Formerly known as Linkon Corporation)
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
A S S E T S
<TABLE>
<CAPTION>
October 31, January 31,
1999 1999
---- ----
<S> <C> <C>
Current Assets
Cash and Cash Equivalents $ 15,896 $ 376,596
Accounts Receivable (Net of Allowance) 6,588 191,358
Notes Receivable -- --
Other Receivables -- --
Inventory 360,766 879,366
Prepaid Expenses 7,085 20,496
----------- -----------
Total Current Assets 390,335 1,467,816
----------- -----------
Machinery & Equipment
Machinery & Equipment, at cost 1,624,967 1,629,018
Less: Accumulated Depreciation (1,380,467) (1,227,467)
----------- -----------
Machinery & Equipment, Net 244,500 401,551
----------- -----------
Other Assets
Software (Net of Amortization) 683,066 894,845
Investments, at cost 25,000 25,000
Prepaid Financing Costs -- 7,843
Security Deposits 17,964 18,563
----------- -----------
Total Other Assets 726,030 946,251
----------- -----------
$ 1,360,865 $ 2,815,618
----------- -----------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this report.
3
<PAGE>
PACKETPORT.COM, INC. (Formerly Known as Linkon Corporation)
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
October 31, January 31,
1999 1999
---- ----
<S> <C> <C>
CURRENT LIABILITIES
Accounts Payable $ 1,362,202 $ 1,341,743
Notes Payable-Current 820,455 559,678
Customer Advance Deposits 21,000 216,128
Accrued Salaries 106,505 --
Taxes Payable 66,558 1,000
Interest Payable 180,964 54,245
Accrued Expenses 237,312 369,495
------------ ------------
Total Current Liabilities 2,794,996 1,783,707
------------ ------------
LONG TERM LIABILITIES
Notes Payable, Net 1,100,000 1,020,094
------------ ------------
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY
Common Stock, $.001 Par Value,
24,900,000 shares authorized,
13,702,716 shares issued and
outstanding 13,703 13,522
Preferred Stock, $.001 Par Value
1,000,000 shares authorized,
none issued and outstanding
Capital in Excess of Par Value 11,887,544 11,717,549
Retained Earnings (Accumulated Deficit) (14,435,378) (12,477,836)
------------ ------------
Total Stockholders' Equity (2,534,131) (746,765)
------------ ------------
$ 1,360,865 $ 2,815,618
------------ ------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this report.
4
<PAGE>
PACKETPORT.COM, INC. (Formerly known as Linkon Corporation)
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended October 31, Ended October 31,
1999 1998
---- ----
<S> <C> <C>
Gross Revenues $ 721,655 $ 3,664,150
Cost of Goods Sold - Product 455,449 2,283,095
- - Software amortization 288,360 288,360
----------- -----------
743,808 2,571,455
----------- -----------
Gross Margin On Sales (22,153) 1,092,695
Selling, General and
Administrative Expenses 1,520,304 2,776,347
Research and Development 235,507 252,915
----------- -----------
1,755,811 3,029,262
----------- -----------
Operating Income (Loss) (1,777,964) (1,936,567)
Other Income (Expense)
Interest Income 385 9,513
Interest Expense (179,962) (114,356)
----------- -----------
(179,577) (104,843)
----------- -----------
Income (Loss) Before Income Taxes (1,957,542) (2,041,810)
Income Taxes -- 1,000
----------- -----------
Income (Loss) Before Extraordinary Item (1,957,542) (2,042,410)
Extraordinary item -
Net gain on pay off of note payable -- 109,914
----------- -----------
Net Income (Loss) $(1,957,542) $ 1,932,496
----------- -----------
</TABLE>
5
<PAGE>
<TABLE>
<S> <C> <C>
Earnings (Loss) per share
Before extraordinary item ($0.14) ($0.16)
Extraordinary Item -- $0.01
----------- -----------
Net Earnings (Loss) ($0.14) ($0.15)
----------- -----------
Average shares outstanding 13,641,314 12,775,276
----------- -----------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this report.
6
<PAGE>
PACKETPORT.COM, INC. (Formerly known as Linkon Corporation)
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months Three months
Eded October 31, Ended October 31,
1999 1998
---- ----
<S> <C> <C>
Gross Revenues $ 16,150 364,521
Cost of Goods Sold - Product 7,445 216,498
- Software amortization 96,120 96,120
------------ ------------
103,565 312,618
------------ ------------
Gross Margin On Sales (87,415) 51,903
Selling, General and
Administrative Expenses 310,126 1,056,983
Research and Development 56,300 87,643
------------ ------------
366,426 1,144,626
------------ ------------
Operating Income (Loss) ( 453,842) (1,092,723)
Other Income (Expense)
Interest Income 5 2,988
Interest Expense ( 56,077) ( 29,008)
------------ ------------
(56,072) (26,020)
------------ ------------
Income (Loss) Before Income Taxes ( 509,913) (1,118,743)
Income Taxes -- --
------------ ------------
Net Income (Loss) $ (509,913) ($ 1,118,743)
------------ ------------
Earnings (Loss) per share
Net Earnings (Loss) ($0.04) ($0.09)
------------ ------------
Average shares outstanding 13,641,314 12,775,276
------------ ------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this report.
7
<PAGE>
PACKETPORT.COM, INC. (Formerly known as Linkon Corporation)
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
Nine Months Ended October 31,
----------------------------
1999 1998
---- ----
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income (Loss)- Before Extraordinary Item $(1,957,542) $(2,042,410)
Add: Adjustments to Reconcile Net Loss to
Net Cash Used in Operating Activities:
Depreciation & Amortization 536,587 483,899
Stock and Warrants issued for services 90,000 12,500
Loss from induced conversion of convertible debt 83,000
Changes in Assets and Liabilities:
(Increase) Decrease in Accounts Receivable 184,770 (380,772)
(Increase) Decrease in Other Receivables -- (3,028)
(Increase) Decrease in Inventory 518,600 (336,675)
(Increase) Decrease in Prepaid Expenses 13,411 (16,519)
(Increase) Decrease in Software 211,779 (245,229)
(Increase) Decrease in Prepaid Financing Cost 7,843 7,483
(Increase) Decrease in Security Deposits 599 (6,093)
Increase (Decrease) in Accounts Payable 20,459 678,214
Increase (Decrease) in Accrued Expenses (132,183) 125,302
Increase (Decrease) in Interest Payable 126,719 (206,371)
Increase (Decrease) in Accrued Salaries 106,505 --
Increase (Decrease) in Customer Deposits (195,128) (87,479)
Increase (Decrease) in Taxes Payable 65,558 (377)
----------- -----------
Net Cash Used in Operating Activities (690,383) (2,184,600)
----------- -----------
Cash Flows From Investing Activities:
Cash Paid to Purchase Equipment 4,051 (187,797)
Investment in Non-Marketable Securities -- (25,000)
----------- -----------
</TABLE>
8
<PAGE>
<TABLE>
<S> <C> <C>
Net Cash Provided by (Used in) Investing Activities 4,051 (212,797)
----------- -----------
Cash Flows from Financing Activities:
Proceeds from Sale of Common Stock 80,175 2,032,076
Proceeds from issuance of Note Payable 307,836 1,100,000
Principal payments on Notes Payable (62,381) (1,100,000)
----------- -----------
Net Cash Provided by (Used in) Financing Activities 325,630 2,032,076
----------- -----------
Net Increase (Decrease) in Cash (360,700) (365,521)
Cash and Cash Equivalents at Beginning of Period 376,596 511,961
----------- -----------
Cash and Cash Equivalents at End of Period $ 15,896 $ 146,440
----------- -----------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this report.
9
<PAGE>
PACKETPORT.COM, INC. (Formerly known as Linkon Corporation)
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1999
1) In the opinion of the Company, the accompanying unaudited financial
statements contain all adjustments(consisting of only normal recurring accruals)
necessary to present fairly the financial position as of October 31, 1999 and
1998, and January 31, 1999, and the results of operations for the nine and three
month periods ended October 31, 1999 and 1998 and cash flows for the Nine Month
periods ended October 31, 1999 and 1998.
The accounting policies followed by the Company are set forth in Note 3
to the Company's financial statements in the Linkon Corporation Annual Report on
Form 10-KSB for the fiscal year ended January 31, 1999.
2) ANALYSIS OF STOCKHOLDERS' EQUITY:
<TABLE>
<CAPTION>
Capital
Outstanding In Excess Accumulated
Shares Amount Of Par Value Deficit
--------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Balance January 31, 1999 13,521,578 $13,522 $11,717,549 $(12,477,836)
Issuance of Common Stock, Net of 129,900 $ 130 $ 80,045 --
Expenses
Value assigned to stock and 51,238 51 $ 89,949 --
Warrants issued for services
Loss for Nine Months
Ended October 31, 1998 -- -- -- (1,957,542)
-----------------------------------------------------------------
Balance - October 31, 1999 13,702,716 $13,703 $11,887,543 $(14,435,378)
-----------------------------------------------------------------
</TABLE>
3) FINANCING OF OPERATIONS:
Liens have been placed on the Company's assets and bank accounts. This is
described in detain in Part II, Item 1- Legal Proceedings. See Management's
Discussion and Analysis- Liquidity and Capital Resources as to the Company's
need for additional capital and any plans for the future financing of its
operations.
4) VALUE ASSIGNED TO WARRANTS
See Management's Discussion and Analysis- Liquidity and Capital Resources,
Issuance of Notes Payable/Gain on Payoff of Note Payable, as to issuance of
warrants.
10
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NET INCOME (LOSS)
The Company reported a net loss of $1,957,542 for the first Nine
Months of fiscal 2000 as compared to a net gain of $1,932,496 for the same
period during the prior year. This increase in the net loss reported by the
Company was due to the following factors:
Revenues decreased from $3,664,150 in the first Nine Months of
fiscal 1999 to $721,655 in the same Nine Months of fiscal 2000. This is
discussed more fully under the section entitled "Revenues" below.
Gross Margin, after software amortization, decreased from 30% in the
first Nine Months of fiscal year 1999 to -3% in the same Nine Months of
fiscal year 2000. This is more fully discussed under the section entitled
"Cost of Goods Sold" below.
REVENUES
For the Nine Months ended October 31, 1999 revenues decreased by
$2,942,495 from the Nine Month period ended October 31, 1998, a decrease of
80%. This decrease was due to (a) a lay off of all but one employee on May
11, 1999, including the sales force, and (b) a loss of sales activity from
AT&T and Sequel, which combined provided approximately 69% of the Company's
revenues in Fiscal 1999. The Company's total order backlog as of October 31,
1999 was approximately $237,148, and as of December 9, 1999 was approximately
$244,064. Substantially the entire backlog is for products scheduled to be
shipped during the fourth quarter of fiscal 1999.
COST OF GOODS SOLD
Cost of goods sold for products, consisting of parts, supplies and
manufacturing costs for the Company's hardware and software products, including
software amortization, were $743,808 and $2,571,455, or 103% and 70% of
revenues, for the Nine Months ended October 31, 1999 and 1998, respectively.
Excluding software amortization, Cost of goods sold for products, consisting of
parts, supplies and manufacturing costs for the Company's hardware and software
products were $455,449 and $2,283,095, or 63% and 62% of revenues, for the
Nine Months ended October 31, 1999 and 1998, respectively.
Management attributes the increase in cost of goods sold, as a
percentage of revenues, to the effect of a fixed amount of software amortization
on a much smaller amount of sales.The cost of goods sold varies with each
product line, with software having less material cost than hardware. The primary
costs incurred by the Company are
11
<PAGE>
for materials and equipment relating to its hardware products. The Company
manufactures and assembles all hardware through contracted third party suppliers
under the direct supervision of the Company's management.
Software amortization costs for the Nine Months ending October 31, 1999
and 1998, were $288,360 and $288,360, respectively. These amounts were 40% and
8% of revenues for the Nine Months ending October 31, 1999 and 1998, and are
included in the Cost of Goods Sold total percentage of 103% and 70% for the
above periods being presented.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, General and Administrative expenses for the Nine
Months ended October 31, 1999 and 1998 were $1,520,304 and $2,776,347,
respectively. This decrease was due to a lay off of all but one employee on May
11, 1999, inc. This constituted approximately 211% and 76% of revenues for the
Nine Months ended October 31, 1999 and 1998, respectively. Selling, General and
Administrative expenses will be increased going forward as the Company is able
to rehire its workforce.
RESEARCH, DEVELOPMENT AND SOFTWARE
The Company incurred total research, development and software costs of
approximately $308,407 and $471,615 for the Nine Months ended October 31, 1999
and 1998, respectively. It is the policy of the Company to capitalize research
and development costs that are incurred subsequent to the establishment of
technological feasibility to produce the finished product. For the periods
ending October 31, 1999 and 1998 the amounts capitalized were $72,900 and
$218,700 respectively. These amounts consist of internal salaries, outside
consulting services, equipment and fixed overhead costs. The decrease in
research and development costs was primarily due to a lay off of all but one
employee on May 11, 1999. Research and Development expenses will be increased
going forward as the Company is able to rehire its personnel.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital requirements to date have been to fund
losses from operations. In addition, from time to time the Company has required
capital to fund increases in inventory of certain products necessary for the
Company to sell such products. The Company has funded its capital requirements
through the receipt of proceeds from private placements of convertible debt and
equity (see below), the exercise of warrants, interest earned from the
investment of such proceeds in interest earning assets, factoring facilities
(see below) and revenues from operations. During the Nine Months ended October
31, 1999 the net cash deficit from operating activities was approximately
$690,383, net cash provided by financing activities was $325,630, and net
cash used for investment activities was approximately $4,000. This resulted
in a net decrease in cash during the Nine Months ended October 31, 1999 of
approximately
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<PAGE>
$360,700, decreasing the Company's cash and cash equivalents from
approximately $377,000 as of January 31, 1999 to approximately $16,000 as of
October 31, 1999. As of October 31, 1999, the Company's working capital
position (current assets minus current liabilities) was negative by
approximately $2,404,661 as compared to January 31, 1999 when it was negative
by approximately $1,074,473. During the period of 8/1/99 thru 10/31/99, the
Company received approximately $7,836 as a short term loan from PacketPort,
Inc. in connection with a proposed debt restructuring whereby PacketPort,
Inc. was to advance funds and securities to resolve certain large debts of
the Corporation owed to RG Capital Fund LLC and Syrinx Speech Systems Pty
Ltd., the details of which were disclosed in proxy materials distributed to
shareholders in connection with a November 26, 1999 shareholders' meeting.
The Company needs to raise cash through financing activities
(presumably through the sale of equity securities and/or convertible debt,
and/or the sale or licensing of its technology) in the very near future in order
to be able to fund operations. The Company does not currently contemplate any
significant capital expenditures during fiscal 2000.
SUBSEQUENT EVENTS
At a shareholders' meeting held on November 26, 1999, the officers of
the Company were authorized to settle outstanding debts of the Company owed to
RG Capital Fund LLC and Syrinx Speech Systems Pty Ltd based on a capital
infusion by PacketPort, Inc., a company controlled by Ronald A. Durando who is
also an officer of Microphase Corporation with officers located at 587
Connecticut Avenue, Norwalk, Connecticut 06854. As part of the debt
restructuring plan proposed by PacketPort, Inc., the shareholders approved a
reverse split on a three share for one share basis, increase in par value from
$.001 to $.003 and the issuance of 4,500,000 post reverse split shares to
PacketPort, Inc. at a cost of $0.5 a share.
Also at that Shareholders' meeting, authorization was given to change
the name of the Corporation from Linkon Corporation to PacketPort.com, Inc. In
accordance with this authorization, the name of the Corporation was changed
effective December 9, 1999 and the reverse split was also made effective
December 9, 1999.
In anticipation of approval by the shareholders of the debt
restructuring arrangements described in proxy materials, during the month of
November 1999, the administrative functions as well as equipment owned by
Linkon Corporation and seven person consisting of its essential operating
personnel were moved from the Company's former location at 140 Sherman Road,
Fairfield, Connecticut 06430 to the facilities of Microphase Corporation
located at 580 Connecticut Avenue, Norwalk, Connecticut 06854.
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YEAR 2000 ISSUES
The "Year 2000 Issue" results from computer programs being written
using two digits, instead of four, to define a given year. Programs running
time-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000, which could result in disruptions to various
activities and operations, miscalculations and even system failures.
The Company believes, after investigation, that all software and
hardware products that it is currently in the process of manufacturing (directly
or through vendors) are Year 2000 compliant. However, the Company usually sells
such products "bundled" with hardware and software components obtained from
third party vendors. Due to the lay-off of personnel, the Company is not
currently able to continue its investigation and written inquiry of its
suppliers as to whether all of these bundled components are Year 2000 compliant,
and that all such components are Year 2000 compliant, or will after modification
be compliant, during the first half of fiscal 2000. The Company believes, after
investigation, that its own software operating systems are Year 2000 compliant.
Funds for such costs have not been reserved for, and therefore as expended, will
have a direct negative impact on the Company's future income.
If, however, the Company, its suppliers and other third parties with
whom the Company maintains business relations are unable to resolve any arising
Year 2000 problems in a timely manner, risk to the Company's financial condition
could result. In addition, in the event that the economy as a whole is
materially and adversely effected by widespread interruptions, or by failures of
of key infrastructure providers (such as banks and utilities), or in the event
that the computer and software industry are disrupted generally by Year 2000
problems, it is likely that the Company's financial condition and results of
operations would be materially adversely effected.
Based upon preliminary data currently in its possession, the Company
does not expect the costs of Year 2000 compliance to have a material adverse
effect on the Company or its results of operation, financial condition or future
cash flows. Nonetheless, in the event that the company is able to recommence its
operations, employee hours that could otherwise be utilized for other purposes
will have to be spent resolving Year 2000 issues and making bundled products
Year 2000 compliant.
FORWARD LOOKING INFORMATION
The statements in this Annual Report on Form 10-KSB that are not statements
of historical fact constitute "forward-looking statements." Said forward-
looking statements involve risks and uncertainties which may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performances or achievements, expressly predicted or
implied by such forward-looking statements. These forward-looking statements are
identified by their use of forms of such terms and phrases as "expects,"
"intends," "goals," "estimates," "projects," "plans," "anticipates," "should,"
"future," "believes," and "scheduled."
14
<PAGE>
The important factors which may cause actual results to differ from the
forward-looking statements contained herein include, but are not limited to,
the following: general economic and business conditions; competition; success
of operating initiatives; operating costs; advertising and promotional
efforts; the existence or absence of adverse publicity; changes in business
strategy or development plans; the ability to retain key management;
availability, terms and deployment of capital; business abilities and
judgment of personnel; availability of qualified personnel; labor and
employee benefit costs; availability and costs of raw materials and supplies;
and changes in, or failure to comply with, government regulations. Although
the Company believes that the assumptions underlying the forward-looking
statements contained herein are reasonable, any of the assumptions could be
inaccurate, and therefore, there can be no assurance that the forward-looking
statements included in this filing will prove to be accurate. In light of the
significant uncertainties inherent in the forward-looking statements included
herein, the inclusion of such information should not be regarded as a
representation by the Company or any other person that the objectives and
expectations of the Company will be achieved.
15
<PAGE>
EXHIBIT I
PACKETPORT.COM, INC. (Formerly known as Linkon Corporation)
CALCULATION OF EARNINGS PER SHARE
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
October 31, 1999 October 31, 1998
---------------- -----------------
<S> <C> <C>
Loss for the Period $ (1,957,542) $ (1,932,496)
------------ ------------
Weighted Number of Shares Outstanding 13,641,314 12,775,276
------------ ------------
Loss Per Share: $ (.14) $ (.15)
------------ ------------
</TABLE>
16
<PAGE>
PACKETPORT.COM, INC. (Formerly known as Linkon Corporation)
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Syrinx Speech Systems Pty Ltd., holds a judgment and lien on assets
against Linkon in the amount of $802,500, PacketPort, Inc. has agreed to pay
$100,00 cash upon the ratification of the restructuring of the Company's debt
and a second $100,000 and to tender 65,000 mPhase shares to discharge this debt.
These shares are to be donated to Mr.Durando, president of PacketPort, Inc., or
his associates, and to be tendered as set-out above.
In addition, lawsuits were filed in the State of Connecticut on behalf
of the Monroe Group, Devendra Bhagat, Trinity Design and Staffing, Graphic
Express, Russo Associates, Boise Cascade and the Monroe Group in the amounts of
$21,202, $13,464, $5,557, $2,440, $2,500, and $1,432, respectively. There have
also been numerous other threats of legal action by collection agencies, as well
as direct contacts by attorneys. The newly re-structured Company is currently
working with outstanding creditors to resolve its obligations.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On November 26, 1999, the Company held an Annual Meeting of its
stockholders. The stockholders subsequently approved the following restructuring
of the Company:
1. PacketPort, Inc., the acquiring company, has entered into a
commitment effective immediately to loan to the Company $250,000 on a one year
note with simple annual interest payable at 12% per annum. Charles A. Castelli
and James Linley, two of the present principal shareholders in the Company, have
concurrently agreed to sell one million of their pre-split shares in Linkon to
Packetport, Inc. at ten cents ($0.10) per share. Mr. Castelli holds
approximately 1.8 million pre-split shares and Mr. Linley approximately 600,000
pre-split shares. While such conveyance was a necessary term of the proposed
restructuring, the Board deems that the decision and actions of Messrs. Castelli
and Linley were as individual shareholders and independent of the actions of the
Company.
2. The Company has agreed to a three-to-one (3:1) reverse stock split
of its common stock effective as implemented by a Board of Directors'
resolution.
3. The four former directors of the Company, Messrs. Charles A.
Castelli, Lee W. Hill, Daniel Zwiren and Joao Carvalho have resigned. Messrs.
Ronald A. Durando, Gustave T. Dotoli and Robert H. Jaffe, Esq.were nominated and
elected to the
17
<PAGE>
board. The biographical information for these replacement nominee directors is
more particularly set out in the Proxy statement.
4. PacketPort, Inc. will acquire 4,500,000 reverse split shares of
Linkon at a cost of $.05 a share and will also be granted an option to acquire
an additional 1,500,000 reverse split shares at $.10 per share in consideration
for making the loan required to discharge certain creditor obligations of the
Company as outlined below.
5. PacketPort, Inc. has agreed to discharge the principal creditor
outstanding obligations of Linkon, as part of the restructuring arrangements set
forth in this Proxy Statement, based upon the following negotiated settlement
terms:
a. As to RG Capital Fund, LLC, PacketPort, Inc. has negotiated
a commitment to discharge $1,900,000 of debt by paying $190,000. $95,000 will be
paid with the balance of $95,000 payable in four equal monthly installments.
PacketPort, Inc. will also tender to this creditor 250,000 shares which it holds
in a publicly traded company known as mPhase Technologies, Inc. (XDSL). These
shares will be donated to PacketPort, Inc. by Mr. Durando, or associates, as
part of the restructuring and to be tendered as set-out above.
b. The second major creditor Syrinx Speech Systems Pty, Ltd.,
holds a Judgment against Linkon in the amount of $802,500. PacketPort, Inc. has
agreed to pay $100,000 cash upon the ratification of the restructuring of the
Company's debt and a second $100,000 and to tender 65,000 mPhase shares to
discharge this debt. These shares are to be donated to PacketPort, Inc. by Mr.
Durando, or his associates, and to be tendered as set-out above.
6. Assuming acquisition by PacketPort, Inc. of 2,400,000 pre-split
shares from existing Linkon Corporation shareholders and creditors of the
Company, and assuming the exercise of the options described above, PacketPort
Inc. would then hold approximately 6,800,000 shares or sixty (60%) percent of
all reverse split shares in the Company.
7. Finally, the proposed restructuring calls for the employment or
consultancy of certain prior officers/directors of Linkon by PacketPort, Inc.
to insure an orderly transition and continuing technical expertise. In
essential terms, Mr. Lee W. Hill, the prior Chief Executive Officer,
President and member of the Board of Directors of Linkon will be paid a total
of $50,000 by the Company in consideration of the execution of a Consultant
Agreement and agreement of Mr. Hill to release all claims he has for accrued
compensation, etc. Mr. Thomas Cerabona, former Senior Vice President and
Secretary, has agreed to enter into a consultancy agreement with PacketPort,
Inc. for a minimum one year term at $50,000 and to release all claims he has
for accrued compensation, options, etc. Mr. James Linley, the prior Vice
President of Engineering at Linkon, will be employed as a technical engineer
for $75,000/year plus benefits by PacketPort, Inc. for a minimum one year
term and has agreed to release all claims he has
18
<PAGE>
for accrued compensation, options, etc. Finally, Mr. Charles A. Castelli, the
prior Chairman and Chief Technology Officer at Linkon, will be employed for a
minimum one year term by PacketPort, Inc. as an engineer at $84,000 per year,
plus benefits and has agreed to release all claims he has for accrued
compensation, etc.
It is believed by management that the foregoing arrangement will allow
Linkon to recommence present business activities without the necessity of filing
a bankruptcy petition or otherwise remaining insolvent. It is anticipated that
PacketPort, Inc. may supply additional capital, as necessary, to insure ongoing
operations of the Company, though no assurance or warranty of this fact can be
made.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
EXHIBIT NO. DESCRIPTION OF DOCUMENT
27 Financial Data Schedule for the period ended
October 31, 1999
(filed separately herewith)
REPORTS ON FORM 8-K
On December 16, 1999, a Form 8-K was filed disclosing the change of name from
Linkon Corporation to PacketPort.com, Inc. and other related information.
19
<PAGE>
PACKETPORT.COM, INC. (Formerly known as Linkon Corporation)
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
PACKETPORT.COM, INC.
(Formerly known as Linkon Corporation)
Registrant
DATED: December 20, 1999 /s/ GUSTAVE T. DOTOLI
-------------------------------
By: Gustave T. Dotoli
Vice President
DATED: December 20, 1999 /s/ JOHN RANDAZZO
-------------------------------
By: John Randazzo
Principal Accounting Officer
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF DOCUMENT
- --------------- -----------------------------------
27 Financial Data Schedule for the period ended
October 31, 1999(1)
- ------------
(1) Submitted separately, electronically.
20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEET DATED AS OF OCTOBER 31, 1999 AND THE
COMPANY'S CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED OCTOBER
31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS AND THE NOTES THERETO.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-END> OCT-31-1999
<CASH> 15,896
<SECURITIES> 0
<RECEIVABLES> 23,588
<ALLOWANCES> 17,000
<INVENTORY> 360,766
<CURRENT-ASSETS> 390,335
<PP&E> 1,624,967
<DEPRECIATION> 1,380,467
<TOTAL-ASSETS> 1,360,865
<CURRENT-LIABILITIES> 2,794,996
<BONDS> 1,100,000
13,703
0
<COMMON> 0
<OTHER-SE> (2,534,131)
<TOTAL-LIABILITY-AND-EQUITY> 1,360,865
<SALES> 721,655
<TOTAL-REVENUES> 721,655
<CGS> 743,808
<TOTAL-COSTS> 743,808
<OTHER-EXPENSES> 1,755,811
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 179,962
<INCOME-PRETAX> (1,957,542)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,957,542)
<EPS-BASIC> (0.14)
<EPS-DILUTED> (0.14)
</TABLE>
