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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-QSB
(MARK ONE)
<TABLE>
<C> <S>
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE QUARTERLY PERIOD ENDED JULY 31, 2000
COMMISSION FILE NUMBER 0-19705
------------------------
PACKETPORT.COM, INC.
(formerly Linkon Corporation)
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
NEVADA 13-3469932
(State or Other Jurisdiction (I.R.S. Employer Identification Number)
of Incorporation or
Organization)
</TABLE>
587 CONNECTICUT AVENUE
NORWALK, CT 08654
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(203) 831-2220
(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.
NUMBER OF SHARES OUTSTANDING OF THE ISSUER'S COMMON STOCK AS OF AUGUST 25, 2000
WAS 15,215,388.
TRADITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE):
YES [ ] NO [X]
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<PAGE>
PACKETPORT.COM, INC.
(FORMERLY LINKON CORPORATION)
FORM 10-QSB
QUARTERLY REPORT
FOR THE SIX MONTHS ENDED JULY 31, 2000
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Unaudited Financial Statements:
Balance Sheet--July 31, 2000 and January 31, 2000........... 3-4
Statement of Operations--Three Months ended July 31, 2000
and 1999.................................................... 5
Statement of Operations--Six Months ended July 31, 2000 and
1999........................................................ 6
Statements of Cash Flows--Six Months ended July 31, 2000 and
1999........................................................ 7
Notes to Financial Statements............................... 8-9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 10-18
PART II. OTHER INFORMATION.................................................... 19
Item 1. Legal Proceedings........................................... 19
Item 2. Changes in Securities and Use of Proceeds................... 19
Item 3. Defaults Upon Senior Securities............................. 19
Item 6. Exhibits and Reports on Form 8-K............................ 19
Signatures.................................................. 20
</TABLE>
2
<PAGE>
PACKETPORT.COM, INC.
(FORMERLY LINKON CORPORATION)
BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 31, JULY 31,
2000 2000
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets
Cash and equivalents...................................... $1,452,851 $1,749,801
Stock Subscription Receivable............................. 208,000 --
Accounts Receivable (Net of Allowance).................... 156,632 636,177
Inventory................................................. 155,976 147,286
Prepaid Expenses.......................................... 162,493 252,323
---------- ----------
Total Current Assets.................................. 2,135,952 2,785,587
---------- ----------
Machinery & Equipment, at cost
Machinery & Equipment, at cost............................ 574,637 1,162,683
Less: Accumulated Depreciation............................ (332,294) (401,027)
---------- ----------
Net......................................................... 242,343 761,656
---------- ----------
Other Assets
Software (Net of Amortization)............................ 293,473 498,306
Licenses.................................................. -- 85,000
Due from Microphase....................................... -- 8,213
---------- ----------
Total Other Assets.................................... 293,473 591,519
---------- ----------
TOTAL ASSETS.......................................... $2,671,768 $4,138,762
========== ==========
</TABLE>
See notes to financial statements.
3
<PAGE>
PACKETPORT.COM, INC.
(FORMERLY LINKON CORPORATION)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 31, JULY 31,
2000 2000
------------ ------------
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable.......................................... $ 605,538 $ 776,407
Taxes Payable............................................. 1,000 1,000
Deferred Revenue.......................................... 26,330 247,576
Accrued Expenses.......................................... 190,067 596,647
Due to mPhase............................................. -- 11,694
------------ ------------
Total Current Liabilities............................. 822,935 1,633,324
Commitments and Contingencies
Stockholders' Equity
Common Stock, $.003 Par Value, 24,900,000 shares
authorized, 15,458,372 and 18,215,388 shares issued and
outstanding on January 31, 2000 and July 31, 2000
(unaudited), respectively............................... 46,375 54,646
Capital in excess of par value............................ 17,794,310 19,727,257
Stock subscription........................................ (266,929) --
Retained earnings (accumulated deficit)................... (15,724,923) (17,276,465)
------------ ------------
Total Stockholders' Equity............................ 1,848,833 2,505,438
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............ $ 2,671,768 $ 4,138,762
============ ============
</TABLE>
See notes to financial statements.
4
<PAGE>
PACKETPORT.COM, INC.
(FORMERLY LINKON CORPORATION)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED JULY 31,
--------------------------
1999 2000
----------- ------------
<S> <C> <C>
Gross Revenue............................................... $ 309,405 $ 430,148
----------- ------------
Cost of Goods Sold--Product................................. 159,626 199,996
--Software Amortization.................... 96,120 24,456
----------- ------------
255,746 224,452
----------- ------------
Gross Margin on Sales....................................... 53,659 205,696
----------- ------------
Selling, General and Administrative Expenses................ 424,836 632,138
Research and Development.................................... 81,975 150,201
----------- ------------
506,811 882,339
----------- ------------
Operating Losses............................................ (453,152) (676,643)
----------- ------------
Other Income (Expense)
Interest Income........................................... 101 2,116
Interest Expense.......................................... (48,361) (147)
----------- ------------
(48,260) 1,969
----------- ------------
Loss Before Income Taxes.................................... (501,412) (674,674)
Income Taxes................................................ -- --
----------- ------------
Loss Before Extraordinary Item.............................. (501,412) (674,674)
Extraordinary Item--gain on settlement of debt.............. -- 79,787
----------- ------------
Net Loss.................................................... $ (501,412) $ (594,887)
=========== ============
Loss per share
Continuing operations..................................... $ (.11) $ (.04)
=========== ============
Extraordinary Item........................................ -- $ .01
=========== ============
Net loss per share........................................ $ (.11) $ (.04)
=========== ============
Average shares outstanding.................................. 4,531,240 16,067,088
=========== ============
</TABLE>
See notes to financial statements.
5
<PAGE>
PACKETPORT.COM, INC.
(FORMERLY LINKON CORPORATION)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JULY 31,
-------------------------
1999 2000
----------- -----------
<S> <C> <C>
Gross Revenue............................................... $ 705,506 $ 529,034
----------- -----------
Cost of Goods Sold--Product................................. 448,004 236,982
--Software Amortization.................... 192,240 48,196
----------- -----------
640,244 285,178
----------- -----------
Gross Margin on Sales....................................... 65,262 243,856
----------- -----------
Selling, General and Administrative Expenses................ 1,210,178 1,184,247
Research and Development.................................... 179,206 710,771
----------- -----------
1,389,384 1,895,018
----------- -----------
Operating Loss.............................................. (1,324,122) (1,651,162)
----------- -----------
Other Income (Expense)
Interest Income........................................... 380 8,162
Interest Expense.......................................... (123,886) (2,413)
----------- -----------
(123,506) 5,749
----------- -----------
Loss Before Income Taxes.................................... (1,447,628) (1,645,413)
Income Taxes................................................ -- --
----------- -----------
Net Loss Before Extraordinary Item.......................... (1,447,628) (1,645,413)
Extraordinary Item--gain on settlement of debt.............. -- 93,871
----------- -----------
Net Loss.................................................... $(1,447,628) $(1,551,542)
=========== ===========
Loss per share
Continuing operations..................................... $ (.32) $ (.10)
=========== ===========
Extraordinary Item........................................ -- $ .01
=========== ===========
Net loss per share........................................ $ (.32) $ (.10)
=========== ===========
Average shares outstanding.................................. 4,558,159 15,779,473
=========== ===========
</TABLE>
See notes to financial statements.
6
<PAGE>
PACKETPORT.COM, INC.
(FORMERLY LINKON CORPORATION)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JULY 31,
-------------------------
1999 2000
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss.................................................. $(1,447,628) $(1,551,542)
Add: Adjustments to Reconcile Net Loss to Net Cash Used in
Operating Activities:
Depreciation and Amortization............................... 359,129 116,929
Stock and Warrants issued for services...................... 82,500 --
Disposal of equipment....................................... -- 77,021
Extraordinary item--gain on settlement...................... -- (93,871)
Changes in Assets and Liabilities:
(Increase) Decrease in Accounts Receivable.................. 165,418 (479,545)
(Increase) Decrease in Inventory............................ 491,109 8,690
(Increase) Decrease in Prepaid Expenses..................... (11,034) (89,830)
(Increase) Decrease in Software............................. (76,581) (253,029)
(Increase) Decrease in Prepaid Financing Cost............... 5,229 --
(Increase) Decrease in Other Assets......................... 599 (8,213)
Increase (Decrease) in Accounts Payable..................... (15,548) 264,740
Increase (Decrease) in Accrued Expenses..................... (142,689) 406,580
Increase (Decrease) in Interest Payable..................... 83,297 --
Increase (Decrease) in Other Payables....................... 21,706 11,694
Increase (Decrease) in Customer Deposits.................... (195,128) 221,246
Increase (Decrease) in Taxes Payable........................ (1,365) --
----------- -----------
Net Cash Used in Operating Activities....................... (680,986) (1,369,130)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash Paid to Purchase Equipment............................. (949) (665,067)
Cash Paid to Purchase License............................... -- (85,000)
----------- -----------
Net Cash Provided By (Used In) Investing Activities......... (949) (750,067)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Issuance of Common Stock...................... 80,175 2,416,147
Proceeds from issuance of Note Payable...................... 300,000 --
Principal payments on Notes Payable......................... (62,380) --
----------- -----------
Net Cash Provided By (Used In) Financing Activities......... 317,795 2,416,147
----------- -----------
Net Increase (Decrease) in Cash............................. (364,140) 296,950
Cash and Cash Equivalents at Beginning of Period............ 376,596 1,452,851
----------- -----------
Cash and Cash Equivalents at End of Period.................. $ 12,456 $ 1,749,801
=========== ===========
</TABLE>
See notes to financial statements.
7
<PAGE>
PACKETPORT.COM, INC.
(FORMERLY LINKON CORPORATION)
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2000
(UNAUDITED)
NOTE 1--BASIS OF PRESENTATION
PacketPort.com, Inc. (the "Company") is engaged in the business of
manufacturing and marketing computer peripheral hardware and software products
for the automated voice response, telecommunications, computer and multimedia
communications industries. On December 9, 1999, the Company changed its name
from Linkon Corporation to PacketPort.com, Inc.
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instruction to Form 10-QSB and Article 10 of
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 adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six months ended July 31, 2000 are not
necessarily indicative of the results that may be expected for the year ending
January 31, 2001. For further information refer to the financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-KSB for the
year ended January 31, 2000.
NOTE 2--LOSS PER SHARE
The Company computes earnings per share in accordance with Statements of
Financial Accounting Standards ("SFAS") No. 128. Basic EPS is computed by
dividing income available to common stockholders by the weighted average number
of common shares outstanding for the period, as adjusted for the reverse split
of 3 for 1; effective December 9, 1999. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock that resulted in the issuance of
common stock that then shared in the earnings of the entity. Common equivalent
shares have been excluded from the computation of diluted EPS since their affect
is antidilutive.
NOTE 3--RESEARCH AND DEVELOPMENT
Research and development costs are charged to operations as incurred.
NOTE 4--INCOME TAXES
The Company accounts for income taxes using the asset and liability method
in accordance with "SFAS" No. 109. 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 and operating loss and tax credit
carryforwards. Because of the uncertainty as to their future realizability, net
deferred tax assets, consisting primarily of net operating loss carryforwards,
have been fully reserved for. Accordingly, no income tax benefit for the net
operating loss has been recorded in the accompanying financial statements.
NOTE 5--RELATED PARTY INFORMATION
The Company leases approximately 2,000 square feet from Microphase
Corporation for $7,500 per month on a month to month basis; a company which
concurrently employs the Company's president and vice president. The Company has
$8,213 receivable from Microphase Corporation at July 31, 2000.
8
<PAGE>
PACKETPORT.COM, INC.
(FORMERLY LINKON CORPORATION)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 2000
(UNAUDITED)
NOTE 5--RELATED PARTY INFORMATION (CONTINUED)
The Company's president is the 100% owner of PacketPort, Inc.
During the quarter ended July 31, 2000 the Company recorded compensation of
$200,000 to the president. At July 31, 2000 $109,153 is payable to the president
and is included in accrued expenses.
The Company's vice president received no compensation for the quarter ended
July 31, 2000.
At July 31, 2000, the Company has $11,694 payable for expense reimbursements
to mPhase Technologies, Inc., a company which the Company's president and vice
president are members of the board of directors.
NOTE 6--EQUITY TRANSACTIONS
EXERCISE OF OPTIONS
On March 28, 2000 options to purchase 48,761 shares of common stock at an
exercise price of $5.13 were exercised on a cashless basis. As a result, 33,350
shares of common stock were issued.
Also during the six months ended July 31, 2000 16,667 shares were issued for
$37,500 pursuant to an option outstanding prior to the year ended January 31,
2000.
PRIVATE PLACEMENT
On May 29, the Board of Directors approved a private placement offering of
its common stock to accredited investors pursuant to Rule 505 for up to
2,666,667 units of its securities at $.75 per unit. Each unit consists of one
share of common stock and a warrant to purchase on share of common stock at an
exercise price of $.75. During the quarter ended July 31, 2000 the offering was
over-subscribed, generating gross proceeds to the Company of $2,030,249 for the
issuance of 2,706,999 shares of common stock and 2,706,999 of warrants to
purchase one share of common stock at an exercise price of $.75 through July,
2005, which, net of offering costs of $126,531, generated net proceeds to the
Company of $1,903,718.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is management's discussion and analysis of certain significant
factors which have affected the Company's financial position and operating
results during the periods included in the accompanying consolidated financial
statements, as well as information relating to the plans of the Company's
current management.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JULY 31, 2000 VS. JULY 31, 1999
The Company recorded a net loss of $594,887, on revenues of $430,148, for
the three months ended July 31, 2000 as compared to a net loss of $501,412 on
revenues of $309,405 for the comparable period ended July 31, 1999. This
presents a loss per common share of $(.04) for the period ended July 31, 2000 as
compared to a loss per common share of $(.11) for the three month period ended
July 31, 1999. Research and development expenses were $150,201 in 2000 compared
to $81,974 in 1999 and selling, general and administrative expenses increased to
$632,138 from $424,836 for the comparable quarter in 1999. The increase in
research and development primarily relates to the Company's efforts to expand
its VODSL and VOCABLE capabilities of its products, and the increase in selling,
general and administrative expenses for the current 2000 quarter represent costs
commensurate with the resumption of operations this year compared to reduced
expenses in the prior year due to a layoff of substantially all but one employee
in May of 1999.
SIX MONTHS ENDED JULY 31, 2000 VS. JULY 31, 1999
The Company recorded a net loss of $1,551,542, on revenues of $529,034, for
the six months ended July 31, 2000 as compared to a net loss of $1,447,628 on
revenues of $705,506 for the comparable period ended July 31, 1999. This
represents a loss per common share of $(.10) for the period ended July 31, 2000
as compared to a loss per common share of $(.32) for the six month period ended
July 31, 1999. Research and development expenses were $710,771 in 2000 compared
to $179,207 in 1999 and selling, general and administrative expenses declined to
$1,184,247 from $1,210,178 for the comparable quarter in 1999. The increase in
research and development primarily relates to the Company's efforts to expand
its VODSL and VOCABLE capabilities of its products.
PLAN OF OPERATIONS
THE MARKET FOR IP TELEPHONY
Deregulation and the Internet are beginning to revolutionize the 100-year
old public telephone network worldwide. Deregulation has fueled intense
competition among service providers and is driving them to reduce their costs
and establish new revenue sources. Up and coming next generation service
providers are beginning to drive global encompassing territorial stake in the
telecom terrain. The dramatic rise in Internet use and accompanying growth in
data traffic has led service providers to make major investments in
high-capacity, packet-based networks based on consumer demand. Building and
maintaining these packet-based networks in parallel and traditional
circuit-switched telephone networks is complex and expensive, driving the demand
for a new public network that integrates both voice and data. Synergy Research
Group projects that the market for voice infrastructure products to enable just
two applications for the new public network, voice over Internet protocol and
Internet offload will grow dramatically to $19 billion in 2003. IP Telephony has
rapidly gained the potential to transform the $62 billion telecommunications
business. The stage is now set for a direct assault on the world's most
lucrative existing and developing telecom market.
10
<PAGE>
TECHNOLOGY OVERVIEW
PacketPort.com provides IP Telephony solutions and services for a wide range
of telephony applications for the Internet, telecom and other data networking
industries, based on the flexible packet gateway architecture. PacketPort.com
has launched a complete line of Voice-Over-Broadband products. Extending the
capabilities of DSL, cable, wireless, T1, E1 and SS7/C7 service, PacketPort.com
enables a variety of bundled services, including multiple lines of Voice and
Fax-over IP, in addition to high-speed Internet access.
Our hardware includes DataCrate and VoicePak. The DataCrate is based on
hardware computing platforms utilizing UNIX operation environments in the PCI
and cPCI backplane bus variants. The VoicePak is an Integrated Access Device
utilizing a LINUX operating environment with the capability of flash memory
download. These systems offer scalable flexible packet gateway Voice over
Broadband solutions for a variety of customer applications.
PACKETPORT.COM, INC. TECHNOLOGY-BASED PRODUCTS
PacketPort.com, Inc. currently has the following distinct product lines: The
LinkNet-TM- Gateway System, the Escape-TM- System; and LinkNet-TM- SS7 Server.
DATACRATE SS7
PacketPort.com has been providing proven, carrier-class SS7 products for
over three years as the Company announces its SOFT SS7 SERVER, the DATACRATE
SS7, which is the signaling network that controls calls over long distance
circuit-switched networks. The Soft SS7/C7 server takes call information from
the IP network and converts it to ISUP/SS7 signaling to complete calls
originating from MGCPIADs and the Voice-Over-IP network. The server handles the
control and routing of all calls and it checks for and reports on network
failures.
DYNAMIC SOFT CENTRAL OFFICE: DATACRATE SCO
PacketPort.com's Dynamic Soft Central Office, DATACRATE SCO, is a large
scale intelligent call agent. DATACRATE SCO receives local voice traffic from
all IP subscribers in packet format and it determines how the call needs to be
routed, for example, to another IAD or to the PSTN. PacketPort.com offers two
models of its Soft Central Office. The first model includes a soft SS7/C7 server
that connects to the PSTN, enabling local voice traffic to be converted to
standard TDM format for efficient integration into the PSTN. DATACRATE SCO with
the soft SS7/C7 server eliminates the need for a Class 5 switch. The second
model provides only the intelligent call agent, that receives local voice
traffic from IADs and it terminates these calls to other IADs in the IP network.
INTEGRATED ACCESS DEVICE: VOICEPAK
PacketPort.com's IAD, VOICEPAK, resides at each subscriber's premise to
provide standard local telephone service. This is accomplished via connection to
the subscriber's internal local area network. This provides toll-grade voice and
fax capabilities via standard telephone ports. VOICEPAK enables voice traffic to
merge with data traffic over a single copper pair DSL connection.
RESEARCH AND DEVELOPMENT
Research and development is mandatory in the Voice Over Broadband industries
to ensure competitiveness. The Company incurred research and development of
approximately $710,771 and $179,207 for the six months ended July 31, 2000 and
1999, respectively. The Company's research and development activities seek to
maintain market competitiveness by designing and developing advanced products
(communications hardware) and more efficient software products to operate them.
11
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Our business and product strategy calls for an open architecture design.
This permits partners, developers and end-users to interface with existing UNIX
hardware platforms and permits PacketPort.com to market software replacements
and upgrades as new products are developed. This plan also assists in attracting
best of class working strategic partners that can assist us in advancing the
technology of our products.
The Company's R&D strategy is to have strong in-house design and engineering
capability, but also to utilize state-of-the-art technology houses to develop
long lead-time leading edge technology. Some examples are arrangements with
Designer Labs for SS7 signaling solutions and GTRI for MGCPIAD development.
TECHNOLOGY RELATIONSHIPS
The Company's strong technology and quality products design have led to
several technology relationships over the last few years. The more significant
relationships are outlined below.
GEORGIA TECHNICAL RESEARCH INSTITUTE
Georgia Technical Research Institute (GTRI), based in Atlanta, Georgia, is a
research arm of the University of Georgia. Offering rapid design, prototype and
development services to the general industry they have access to some of the
brightest young minds in both hardware and software from the collegiate level.
Their experience and expertise in the fields of software and hardware
development have led to the successful development of DSP based in Multiport
LINUX devices for the MGCP IAD requirements placed before them. The developing
market requirements and acceptance of this product in meeting projected as well
current functionality will be facilitated by the flexible design structure they
have provided.
NATURAL MICROSYSTEMS
Natural MicroSystems (NASDAQ; NMSS), based in Framingham, Massachusetts, is
the technology leader enabling the world's premier networking and communication
equipment suppliers to create and accelerate New Network infrastructure and
services. The company designs, develops and supplies network-quality hardware
and software components and provides design and customization services.
As IP telephony gains increasing market acceptance, the requirement emerges
for a new class of platform. New VoIP protocols such as the Media Gateway
Control Protocol (MGCP) and the Session Initiation Protocol (SIP) help define a
standard environment for applications such as VoIP gateways and IP media
servers, which demand connectivity, flexibility, and performance.
Fusion/Convergence Generation-TM- (CG) 6000C is a scalable, high-performance
development platform for IP telephony solutions. This product has been developed
from the ground up to address packet-intensive, convergence applications and is
integrated as an important building block of the PacketPort.com gateway.
AUDIOCODES LTD.
AudioCodes designs, develops and markets enabling technologies and products
for voice over packet networks. Audio Codes' product line includes a selection
of signal processors, VoIP communication boards, communications software and
custom models for OEM customers. AudioCodes is a voice compression leader and
the key originator of the ITU G.723.1 standard for IP Telephony.
PacketPort.com utilizes the AudioCodes' TP200 which provides VoIP packet
streaming for 60 independent ports in a single PCI slot. The TP200 supports
industry standard algorithms for voice
12
<PAGE>
compression, silence suppression, echo cancellation, fax relay, modem relay,
tone relay and jitter buffer management.
Standard TDM has interfaces, such as MVIP or SCSA are available for
integration with other CTI Products. An on-board NIC interfaces the IP network
based on standard RTP/RTCP media streaming protocol. An optional dual E1/T1
interface can be used to connect to the PSTN, with on-board signaling support.
DESIGNER LABS
Designer Labs is a telecommunications software company based in New
Hampshire that specializes in intelligent network, or Signaling System 7
("SS7"), solutions for switched circuit and IP-based services. SS7 is
essentially a data network that runs parallel to the network of switches that
carry voice traffic over the public switched telephony network. The SS7 network
provides for a "signaling layer" that carries information about line and phone
status conditions (busy, out of service, etc.) between switches in the network
thereby helping to make the network more efficient and intelligent. SS7 also
uses specialized databases that contain call routing information, making it
possible, for example, for a telephone switch to route a call to a secondary
phone number if the primary number is unavailable. Designer Labs has partnered
with us to develop SS7 signaling services that allow SS7 to be harnessed as a
signaling mechanism for the transport of voice over IP networks. This allows our
DataCrate Gateway to offer the same intelligent network services for IP
Telephony network applications.
OPUS/MOCKINGBIRD
PacketPort.com, Inc. and Opus/Mockingbird Networks signed a joint agreement
to merge their technologies and is in tentative agreement on the second
technology phase of development of a next-generation high density hybrid
IP/telephony platform technology for the carrier market. The relationship
provides for the ability to significantly improve enhanced messaging services
and increasing port densities, to expanding system scalability and lowering
costs. It also provides an upgrade strategy for existing Mockingbird customers.
This technology will be brought to the marketplace via an OEM model.
MARKETING
To date the Company has marketed its products via sales to independent
distributors, original equipment manufacturers ("OEMs") and valued added
resellers ("VAR"). In addition, the Company's marketing program consists of
exhibiting at trade shows, speaking engagements and presentations by
PacketPort.com personnel at leading industry conferences and seminars,
demonstrations of our technology with companies who are key prospects for
strategic relationships, and direct mail campaigns.
During this period we have developed the tagline "Enabling Bundled Services
Over Broadband" which echoes our flexible packet architecture vision in the long
term capabilities of our product in addressing market needs.
Our objective is to capitalize on our early technology and build a premier
franchise in voice infrastructure solutions. The following are key elements of
our strategy:
-- Leverage our technology to achieve key service provider design wins;
-- Expand and broaden our customer base by targeting specific market
segments;
-- Expand our Global Sales, marketing support and distribution capabilities;
-- Grow our base of software applications and development partners;
-- Leverage our technology platform from the core of the network out to the
access edge.
13
<PAGE>
Although the Company's products have received wide recognition, as the
market for systems has become more competitive, and differentiation is
increasingly feature based, demand is rapidly rising for high port count and
multi-feature systems which the Company's product lines addresses.
SALES
Through the Company's sales force, and its analysis of the sales volume,
market specialization and financial status of potential customers, the Company
predetermines potential customers deemed qualified for its products and makes
direct telephone or written contact with the appropriate representatives
thereof. The Company is directly targeting appropriate markets here (ISPs,
CLECs, market for sales of the DataCrate platform. The primary sales targets for
the Company's products are VARs, System Integrators ("SI"), OEMs, Next
generation Networks and telephone companies.
CUSTOMER SUPPORT AND WARRANTY
The Company offers a two year warranty on all products and services.
Customers are entitled to receive telephone hotline access, field support and
periodic software updates. Customers return defective product for repair to us.
Costs incurred as a result of "In Warranty" repairs and returns have not been
material in the past.
COMPETITION
The Company's markets are extremely competitive. Competitors of the
Company's various product lines include:
For the Date Crate Flexible Packet gateway (including SCO and SS7/C7
products: Lucent, Nu-Era, TollBridge, CopperCom, Vocaltec, Sonus, Cisco, Netrix,
Inter-Tel, Vienna Systems and other companies as well as several proprietary
products companies have built competing IP Telephony gateway products that
utilize components from one or more of the companies listed above.
For the VoicePak IAD device: TollBridge, Jetstream and CopperCom have
introduced competing hardware/software devices.
For the Maestro-TM- System products, Dialogic Corporation, Rhetorex, a
division of the Octel Division of Lucent, Brooktrout Technology, Inc. and
Natural Microsystems, Inc., among others, are substantial hardware competitors
of the Company.
For the Escape-TM- Platform products, Conversant, a division of Lucent
Technologies, Brite Voice, Intervoice, Periphonics and Syntellect manufacture
IVR systems.
For the LinkNet Flexible Packet Gateway (server) products: Lucent, Nu-Era,
Vocaltec, Sonus, Cisco, Netrix, Inter-Tel, Vienna Systems and other companies as
well as several proprietary products companies have built competing IP Telephony
gateway products that utilize components from one or more of the companies
listed above.
For the Internet Appliances: TollBridge, Jetstream and CoperCom have
introduced competing hardware/software devices.
Management believes that its products possess certain competitive
advantages. The Company's products are able to run all functionality on a single
board, compared to multiple boards for the Company's competitors. The Company's
products can run compression software in conjunction with other modalities. The
Company's software is scalable to a high density. In addition, the Company's
LinkNet-TM- product is at present the only Sun Microsystems's SPARC and
Solaris-based IP Telephony Gateway on the market--a factor that provides the
Company with a distinct competitive advantage in the telecommunication and
Internet services marketplace. However, given the competitive nature of the
industry, no assurance can be given that the Company can achieve a commercially
successful market for
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its products or that its competitors will not develop similar or better products
than the Company's present line in the future. The Company does not presently
possess a meaningful market share in the voice processing industry and many of
the Company's competitors have greater financial and other resources and more
substantial marketing capabilities than the Company.
PATENTS, TRADEMARKS & COPYRIGHTS
The Company's computer board design and code are proprietary and a trade
secret. The Company has obtained no patents or registered any copyrights for any
of its products.
The Company has obtained a registration for its TERAVOX trademark from the
U.S. Patent and Trademark Office and intends to seek source code copyright
protection on its future operating systems and utilities.
On February 10, 1998, the Company entered into a TXG-NX Field Deployable
Software License Agreement, TXG-NX Deployable Software License Agreement and USP
Library Software License Agreement with Designer Labs, LLC. Each of such license
agreements are non-exclusive and permit the Company to use and sell certain
computer software in connection with the development and sale of the Company's
products. The terms of the licenses vary from approximately one year to
perpetual unless terminated by the Company or, in the event of a breach by the
Company of any of the terms of the applicable license agreement, by Designer
Labs, LLC.
The Company has also entered into a world-wide, non-exclusive license
agreement to use or incorporate in products sold by the Company certain computer
software, patents, trademarks and copyrights owned by Aumtech Limited related to
applications generation and service creation for use in voice processing
systems. This license is for a two-year term ending December 1999 and is
renewable for successive one-year terms upon mutual written consent of the
parties.
LIQUIDITY AND CAPITAL RESOURCES
At July 31, 2000 the Company had working capital of $1,152,263, as compared
to $1,313,017 at January 31, 2000.
The overall improvement in the Company's working capital this year primarily
results from the restructuring which occurred during the fourth fiscal quarter
for the year ended January 31, 2000, and resulted in an over $3,300,000 increase
in equity, less losses since the restructuring and the private placement of
stock to accredited investors during the quarter ended July 31, 2000.
During the year ended January 31, 2000 we raised additional capital of
approximately $2,376,819 through the issuance of common stock and the exercise
of options and warrants which were outstanding from the preceding year as well
as the issuance of restricted shares to sophisticated investors in transactions
exempt from registration pursuant to Rule 505 of Regulation D promulgated by the
Securities and Exchange Commission under the Securities Act of 1933. We also
raised approximately $1,903,700 in a private offering of our stock during this
quarter. As a result of these private offerings, we anticipate having sufficient
working capital through the end of the current fiscal year. We do expect that,
in connection with the anticipated growth of the Company's products, we will
raise significant additional funds through a public or private offering of our
common stock or otherwise. However, there can be no assurance that the Company's
efforts to attain profitability, that the Company will generate sufficient
revenue to provide positive cash flows from operations or that sufficient
capital will be available, when required, to permit the Company to realize its
plans.
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RISK FACTORS WHICH MAY EFFECT OUR BUSINESS
WE EXPECT TO INCUR SUBSTANTIAL NET LOSSES FOR THE FORESEEABLE FUTURE.
We expect operating losses and negative cash flow for the foreseeable future
as we must invest in marketing and promotional activities, acquisitions,
technology and operating systems. We cannot be certain when and if we will
achieve sufficient revenues in relation to expenses to become profitable. We
believe that increasing our revenues will depend in large part on our ability
to:
-- offer programs and products that are attractive to telephonic consumers;
-- increase consumer awareness of our product utility and develop effective
marketing and other promotional activities to drive our volume to
profitable levels;
-- provide our customers with superior VODSL & VOCABLE experiences; and
-- develop strategic relationships.
Our future profitability depends on generating sustaining high revenue
growth while maintaining reasonable expense levels. Slower revenue growth than
we anticipate or operating expenses that exceed our expectations would harm our
business. If we achieve profitability, we cannot be certain that we would be
able to sustain or increase profitability in the future.
WE MAY NEED ADDITIONAL CAPITAL TO CONTINUE OUR BUSINESS IF WE DO NOT GENERATE
ENOUGH REVENUE.
We require substantial working capital to fund our business and may need
more in the future. We will likely experience negative cash flow from operations
in the foreseeable future. If we need to raise additional funds through the
issuance of equity, equity-related or debt securities, your rights may be
subordinate to other investors and your stock ownership percentage may be
diluted. We cannot be certain that additional financing will be available to us.
OUR OPERATING RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS.
Our revenue and operating results may vary significantly from quarter to
quarter due to a number or ability to produce quality programming of factors.
Many of these factors are outside our control and include:
-- our ability to produce quality products with competitive features;
-- fluctuations in consumer purchasing patterns and advertising spending;
-- changes in the growth rate of Internet usage and online user traffic
levels including IP Telephony;
-- actions of our competitors;
-- the timing and amount of costs relating to the expansion of our
operations and acquisitions of technology or businesses; and
-- general economic and market conditions.
Because we have a limited operating history, our future revenues are
difficult to forecast. A shortfall in revenues will damage our business and
would likely affect the market price of our common stock. Our limited operating
history and the new and rapidly evolving Internet market make it difficult to
ascertain the effects of seasonality on our business. If seasonal and cyclical
patterns emerge in Internet purchasing, our results of operations from quarter
to quarter may vary greatly and may cause our business to suffer.
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WE NEED TO EFFECTIVELY MANAGE GROWTH OF OUR OPERATIONS.
Our success depends upon effective planning and growth management. At
July 31, 2000 we had a total of 13 employees. We intend to continue to increase
the scope of our operations and the number of our employees. We also face
challenges associated with upgrading and maintaining our information systems and
internal controls, particularly those related to our purchase and receipt of
inventory. If we do not successfully implement and integrate these new systems
or fail to scale these systems with our growth, we may not have adequate,
accurate and timely forecasting and financial information.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES COULD BURDEN OUR BUSINESS.
The adoption or modification of laws or regulations applicable to the
Internet could harm our business. The U.S. Congress recently passed laws
regarding online children's privacy, copyrights and taxation. The law governing
the Internet, however, remains largely unsettled. New laws may impose burdens on
companies conducting business over the Internet. It may take years to determine
whether and how existing laws governing intellectual property, privacy, libel
and taxation apply to the Internet and online advertising. In addition, the
growth and development of online commerce may prompt calls for more stringent
consumer protection laws, both in the United States and aborad. We also may be
subject to regulation not specifically related to the Internet, including laws
affecting direct marketers.
OUR STOCK PRICE COULD BE EXTREMELY VOLATILE, AS IS TYPICAL OF TELEPHONIC AND
INTERNET-RELATED COMPANIES.
Our stock price has been volatile and is likely to continue to be volatile.
The stock market has experienced significant price and volume fluctuations, and
the market prices of securities of technology companies, particularly
Internet-related companies, have been highly volatile.
The market price for PacketPort.com common stock is likely to be highly
volatile and subject to wide fluctuations in response to the following factors.
-- actual or anticipated variations in our quarterly operating results;
-- announcements of technological innovations or new products or services by
us or our competitors;
-- changes in financial estimated by securities analysts;
-- conditions or trends in telephonic and e-commerce;
-- announcements by us or our competitors of significant acquisitions,
strategic partnership, joint ventures or capital commitments;
-- additions or departures of key personnel;
-- release of lock-up or other transfer restrictions on our outstanding
shares of common stock or sales of additional shares of common stock; and
-- potential litigation.
FORWARD-LOOKING INFORMATION
The statements in this Report on Form 10-QSB that are not statements of
historical fact constitute "forward-looking statements." Said forward-looking
statement 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 "schedules."
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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 judgement 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 statement 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.
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PACKETPORT.COM, INC.
(FORMERLY LINKON CORPORATION)
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In April, 2000 the Securities and Exchange Commission initiated an
investigation relating to fluctuations in the price of the Company's common
stock subsequent to the change in name from Linkon Corporation to
PacketPort.com, Inc. on December 9, 1999. The Company intends on providing full
cooperation to the Commission.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
NONE.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
NONE.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. EXB 27 pursuant to ART.5
b. Reports on Form 8-K
TWO NOTICES OF OTHER EVENTS; DATED DECEMBER 9, 1999 AND DATED MARY 26, 2000.
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PACKETPORT.COM, INC.
(FORMERLY LINKON CORPORATION)
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
executed on this 21st day of September, 2000.
<TABLE>
<S> <C> <C>
PACKETPORT.COM, INC.
BY: /s/ RONALD A. DURANDO
-----------------------------------------
Ronald A. Durando
CHAIRMAN, CHIEF EXECUTIVE OFFICER,
PRESIDENT
</TABLE>
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ RONALD A. DURANDO
------------------------------------------- Chairman, Chief Executive September 21, 2000
Ronald A. Durando Officer, President
/s/ GUSTAVE T. DOTOLI
------------------------------------------- Director, Chief Operating September 21, 2000
Gustave T. Dotoli Officer
/s/ ROBERT H. JAFFE
------------------------------------------- Interim Director September 21, 2000
Robert H. Jaffe
</TABLE>
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