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UNITED STATES 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 APRIL 30, 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.
THE NUMBER OF SHARES OUTSTANDING OF THE ISSUER'S COMMON STOCK AS OF JUNE 26,
2000 WAS 15,508,389.
TRADITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE)
Yes / / No /X/
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PACKETPORT.COM, INC.
(FORMERLY LINKON CORPORATION)
FORM 10-QSB
QUARTERLY REPORT
FOR THE THREE MONTHS ENDED APRIL 30, 2000
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PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Unaudited Financial Statements:
Balance Sheet--April 30, 2000 and January 31, 2000.......... 3-4
Statement of Operations--Three Months ended April 30, 2000
and 1999.................................................. 5
Statements of Cash Flows--Three Months ended April 30, 2000
and 1999.................................................. 6
Notes to Financial Statements............................... 7-8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 9-15
PART II. OTHER INFORMATION.................................................... 16
Item 1. Legal Proceedings........................................... 16
Item 2. Changes in Securities....................................... 16
Item 3. Defaults Upon Senior Securities............................. 16
Item 6. Exhibits and Reports on Form 8-K............................ 16
Signatures.................................................. 17
</TABLE>
2
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PACKETPORT.COM, INC.
(FORMERLY LINKON CORPORATION)
BALANCE SHEETS
ASSETS
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<CAPTION>
JANUARY 31, APRIL 30,
2000 2000
----------- -----------
(UNAUDITED)
<S> <C> <C>
Current Assets
Cash and equivalents...................................... $1,452,851 $ 420,123
Stock Subscription Receivable............................. 208,000 --
Accounts Receivable (Net of Allowance).................... 156,632 172,890
Inventory................................................. 155,976 191,077
Prepaid Expenses.......................................... 162,493 56,987
---------- ----------
Total Current Assets.................................... 2,135,952 841,077
---------- ----------
Machinery & Equipment, at cost
Machinery & Equipment, at cost............................ 574,637 1,196,688
Less: Accumulated Depreciation............................ (332,294) (364,964)
---------- ----------
Net......................................................... 242,343 831,724
Other Assets
Software (Net of Amortization)............................ 293,473 293,191
Due from Microphase Corporation........................... -- 87,314
Due from Packetport, Inc.................................. -- 85,847
---------- ----------
Total Other Assets...................................... 293,473 466,352
---------- ----------
TOTAL ASSETS............................................ $2,671,768 $2,139,153
========== ==========
</TABLE>
See Notes to Financial Statements.
3
<PAGE>
PACKETPORT.COM, INC.
(FORMERLY LINKON CORPORATION)
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
JANUARY 31, APRIL 30,
2000 2000
----------- -----------
(UNAUDITED)
<S> <C> <C>
Current liabilities
Accounts payable.......................................... $ 605,538 $ 765,369
Taxes payable............................................. 1,000 1,000
Deferred revenue.......................................... 26,330 23,450
Accrued expenses.......................................... 190,067 419,656
----------- -----------
Total current liabilities............................... 822,935 1,209,475
----------- -----------
Commitments and contingencies
Stockholders' equity
Common stock, $.003 Par Value, 24,900,000 shares
authorized, 15,458,372 and 15,508,389 shares issued and
outstanding on January 31, 2000 and April 30, 2000
(unaudited), respectively............................... 46,375 46,525
Capital in excess of par value............................ 17,794,310 17,831,660
Stock subscription........................................ (266,929) (266,929)
Retained earnings (accumulated deficit)................... (15,724,923) (16,681,578)
----------- -----------
Total stockholders' equity.............................. 1,848,833 929,678
----------- -----------
Total Liabilities and Stockholders' Equity.............. $ 2,671,768 $ 2,139,153
=========== ===========
</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
APRIL 30,
--------------------------
1999 2000
----------- ------------
<S> <C> <C>
Gross Revenue............................................... $ 396,101 $ 98,886
---------- -----------
Cost of Goods Sold--Product................................. 288,377 36,270
--Software Amortization.................... 96,120 24,456
---------- -----------
384,497 60,726
---------- -----------
Gross Margin on Sales....................................... 11,604 38,160
---------- -----------
Selling, General and Administrative Expenses................ 785,342 452,109
Research and Development.................................... 97,233 560,570
---------- -----------
882,575 1,012,679
---------- -----------
Operating Income (Loss)..................................... (870,971) (974,519)
---------- -----------
Other Income (Expense)
Interest Income........................................... 279 6,046
Interest Expense.......................................... (75,524) (2,266)
---------- -----------
(75,245) 3,780
---------- -----------
Loss Before Income Taxes.................................... (946,216) (970,739)
Income Taxes................................................ -- --
---------- -----------
Loss Before Extraordinary Item.............................. (946,216) (970,739)
Extraordinary item; gain on settlement of debt.............. -- 14,084
---------- -----------
Net Loss.................................................... $ (946,216) $ (956,655)
========== ===========
Loss per share.............................................. $ (.21) $ (.06)
========== ===========
Average shares outstanding.................................. 4,506,618 15,477,822
========== ===========
</TABLE>
See notes to financial statements.
5
<PAGE>
PACKETPORT.COM, INC.
(FORMERLY LINKON CORPORATION)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
APRIL 30,
---------------------------
1999 2000
----------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss)......................................... $(946,216) $ (956,655)
Add: Adjustments to Reconcile Net Loss to
Net Cash Used in Operating Activities:
Depreciation and Amortization............................... 179,565 57,126
Stock and Warrants issued for services...................... 75,000 --
Extraordinary item-gain on settlement....................... -- (14,084)
Changes in Assets and Liabilities:
(Increase) Decrease in Accounts Receivable.................. 161,087 (16,258)
(Increase) Decrease in Inventory............................ 265,014 (35,101)
(Increase) Decrease in Prepaid Expenses..................... 11,527 105,506
(Increase) Decrease in Software............................. (76,581) (24,174)
(Increase) Decrease in Prepaid Financing Cost............... 2,615 --
(Increase) Decrease in Other Assets......................... -- (173,161)
Increase (Decrease) in Accounts Payable..................... 16,662 173,915
Increase (Decrease) in Accrued Expenses..................... (150,985) 229,589
Increase (Decrease) in Interest Payable..................... 36,354 --
Increase (Decrease) in Customer Deposits.................... (195,128) (2,880)
Increase (Decrease) in Taxes Payable........................ (1,000) --
--------- -----------
Net Cash Used in Operating Activities....................... (622,086) (656,177)
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash Paid to Purchase Equipment............................. (949) (622,051)
--------- -----------
Net Cash Provided By (Used In) Investing Activities......... (949) (622,051)
--------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Sale of Common Stock.......................... 80,175 245,500
Proceeds from issuance of Note Payable...................... 300,000 --
Principal payments on Notes Payable......................... (50,000) --
--------- -----------
Net Cash Provided By (Used In) Financing Activities......... 330,175 245,500
--------- -----------
Net Increase (Decrease) in Cash............................. (292,860) (1,032,728)
Cash and Cash Equivalents at Beginning of Period............ 376,596 1,452,851
--------- -----------
Cash and Cash Equivalents at End of Period.................. $ 83,736 $ 420,123
========= ===========
</TABLE>
See notes to financial statements.
6
<PAGE>
PACKETPORT.COM, INC.
(FORMERLY LINKON CORPORATION)
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 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 instructions 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 three months ended April 30, 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. 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 or 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.
7
<PAGE>
PACKETPORT.COM, INC.
(FORMERLY LINKON CORPORATION)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2000
(UNAUDITED)
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
$87,314 receivable from Microphase Corporation at April 30, 2000.
The Company's president is the 100% owner of PacketPort, Inc. The Company
has $85,847 receivable from PacketPort, Inc. at April 30, 2000.
The Company's president and vice president received no compensation for the
quarter ended April 30, 2000.
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 in during the quarter ended April 30, 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 one share of common stock at an
exercise price of $.75. As of June 26, 2000, no units were sold. Included in
prepaid expenses at April 30, 2000 is $25,000 of deferred offering costs paid to
the company's placement agent.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION, RESULTS OF
OPERATIONS AND PLAN 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 APRIL 30, 2000 VS. APRIL 30, 1999
The Company recorded a net loss of $956,655, on revenues of $98,886, for the
three months ended April 30, 2000 as compared to a net loss of $946,216 on
revenues of $396,101 for the comparable period ended April 30, 1999. This
represents a loss per common share of $(.06) for the period ended April 30, 2000
as compared to a loss per common share of $(.21) for the three month period
ended April 30, 1999. Research and development expenses were $560,570 in 2000
compared to $97,233 in 1999 and selling, general and administrative expenses
declined to $452,109 from $785,342 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. The reduction in
selling, general and administrative expenses represents the reduced level of
overhead since the restructuring, yet is expected to grow commensurate with the
Company's efforts to revitalize sales of its current and future products.
PLAN OF OPERATIONS
THE MARKET FOR IP TELEPHONY
IP Telephony has rapidly gained the potential to transform the $62 billion
international telecommunications business. During 1996, the industry reached
consensus on important interoperability standards and gained the strong backing
of major computer vendors. The remaining technical limitations are quickly being
addressed, and the stage is now set for a direct assault on the world's most
lucrative telecom markets, According to Action Information Services, a
Washington DC-based market research firm, the IP telephony industry will impact
Public Switched Telephone Network revenues by more than $8 billion from 1998
through 2001. According to Frost and Sullivan, the market for IP Telephony
Gateways will rise from a projected $200 million in 1998 to $1.7 billion in
2001, which translates into a compounded annual growth rate of 229%. The growth
in revenues is being driven mainly by toll-bypass and toll reduction
capabilities, rapid product quality improvements, the growth of the Internet and
intranets, the desire or need to conduct multimedia communications, and the
integration of voice and data into a single network.
TECHNOLOGY OVERVIEW
Our hardware includes the Maestro-TM- System, a modular and scalable
DSPbased platform for processing voice, fax, voice compression, modem, speech
recognition and synthesis. The Maestro-TM- System also provides public switched
telephone network connectivity, echo cancellation for IP
Telephony applications, and computer bus and computer telephony bus
connectivity.
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.
9
<PAGE>
RESEARCH AND DEVELOPMENT
The nature of the computer hardware and software industries is such that
research and development is deemed mandatory by management in order to ensure
competitiveness. The Company incurred research, development of approximately
$560,570 and $97,233 for the quarters ended April 30, 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.
Our product strategy calls for products with an "OPEN" architecture design.
This permits them to interface with all existing competitive hardware and
software and permits PacketPort.com to market software replacement and upgrades
as new products are developed.
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.
TECHNOLOGY RELATIONSHIPS
The Company's strong technology and quality product design have led to
several technology relationships over the last few years. The more significant
relationships are outlined below. Given its limited size and resources,
PacketPort.com has relied upon these and other third parties to develop
technology necessary for the Company's products.
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. AudioCodes' product line includes a selection of
signal processors, VoIP communication boards, communications software and custom
modules 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 compression, silence suppression, echo
cancellation, fax relay, modem relay, tone relay and jitter buffer management.
Standard TDM hus 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 El/Tl
interface can he used to connect to the PSTN, with on-board signalling support.
10
<PAGE>
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
LinkNet 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 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.
MARKETING
To date the Company has marketed its products via sales to independent
distributors, original equipment manufacturers ("OEM") and value added resellers
("VAR"). In addition, the Company's marketing program consists of advertising in
the trade press, 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.
Although the Company's products have received wide recognition, commercial
success with previous generations has been moderate because of the high price
point (on a per port basis) for voice-only applications. Pricing issues have
been addressed with the Maestro-TM- System series products. The Company's
product design and feature set were ahead of the market trend towards more
complex multimedia applications and larger systems. 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 line 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 the Call Center market for sales of
the ESCAPE-TM- IVR platform. The primary sales targets for the Company's
component level products are VARs. Systems Integrators ("SI"), OEMs 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.
11
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COMPETITION
The Company's markets are extremely competitive. Competitors to the
Company's various product lines include:
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
introducted 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 Linkon
with a distinct competitive advantage in the telecommunications 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 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-Registered Trademark- 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 Lab Deployable Software License Agreement and
a 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.
12
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LIQUIDITY AND CAPITAL RESOURCES
At April 30, 2000 the Company had working capital deficit of $368,398 as
compared to a deficit of $1,776,187 at April 30, 1999.
The overall improvement in the Company's working capital primarily results
from the restructuring which occurred during the fourth fiscal quarter for the
year ended, and resulted in an over $3,300,000 increase in equity, less losses
since the restructuring.
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 last 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
plan on raising approximately $2,000,000 in private offering in our second
fiscal 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.
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 and 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
for 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.
13
<PAGE>
OUR OPERATING RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS.
Our revenues 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.
WE NEED TO EFFECTIVELY MANAGE GROWTH OF OUR OPERATIONS.
Our success depends upon effective planning and growth management. At
April 30, 2000 we had a total of 8 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 abroad. 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;
14
<PAGE>
- 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-OSB 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 "schedules."
The important factors which may cause actual results to differ form 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 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>
PACKETPORT.COM, INC.
(FORMERLY LINKON CORPORATION)
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
By complaint dated January 4, 1999, Syrinx Speech Systems Pty. Limited
commenced a civil action against Linkon in the Connecticut Superior Court,
Syrinx Speech Systems Pty. Ltd. v. Linkon Corp., CV-99-0358989-S, alleging
payment due and owing on invoices for services performed. In conjunction with
and based upon the complaint, Syrinx applied for a prejudgement attachment
against Linkon in the amount of $1 million. Following negotiations, including
with respect to the quality and nature of services performed and to be performed
by Syrinx, Linkon and Syrinx entered into a settlement agreement dated April 5,
1999. Under the terms of the settlement agreement, Linkon agreed to have
judgement entered against it in the amount of $802,500.00, and judgement in that
amount has been entered against Linkon. As part of the settlement agreement,
Syrinx agreed that it would not execute upon the judgement until June 1, 1999,
provided that Linkon remains in compliance with the conditions of the settlement
agreement, which include that Linkon make an installment payment of $30,000 by
May 1, 1999 (which was paid) and pay to Syrinx an adjustable percentage of new
equity investment toward satisfaction of the judgement. Pursuant to the plan of
restructuring, as approved by the shareholders on November 26, 1999; this
judgement was assumed by PacketPort, Inc. and satisfied prior to January 31,
2000.
In a separate matter, Linkon had entered into a settlement agreement with
Devendra Bhagat ("Bhagat"). In response to a demand for payment on a Convertible
Subordinated Debenture previously issued to Bhagat by Linkon in the amount of
$100,000.00, Linkon agreed to make payment on the debenture. By agreement dated
December 22, 1998, Linkon agreed to pay Bhagat $106,335.62 in principal and
interest in four (4) installments the last installment to be paid no later than
May 17, 1999. Linkon had paid the first three (3) installments in the aggregate
amount of $78,616.44, leaving a balance of $25,219.18. Subsequent to the
restructuring, the Company satisfied this obligation in full.
The Securities and Exchange Commission has 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
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 MAY 26, 2000.
16
<PAGE>
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 28th day of June, 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 June 28, 2000
Ronald A. Durando Officer, President
/s/ GUSTAVE T. DOTOLI
------------------------------------------- Director, Chief Operating June 28, 2000
Gustave T. Dotoli Officer
/s/ ROBERT H. JAFFE
------------------------------------------- Interim Director June 28, 2000
Robert H. Jaffe
</TABLE>
17
