<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 12, 2000
REGISTRATION NO. 333-49172
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM SB-2
AMENDMENT NO. 2 TO THE
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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TELYNX, INC.
(NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
DELAWARE 7371 94-3022377
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation Classification Code Number) Identification
or organization) Number)
6006 NORTH MESA STREET, SUITE 600
EL PASO, TEXAS 79912
(915) 581-5828
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
PRINCIPAL EXECUTIVE OFFICES)
ALI AL-DAHWI
CHIEF EXECUTIVE OFFICER
Telynx, INC.
6006 NORTH MESA STREET, SUITE 600
EL PASO, TEXAS 79912
(915) 581-5828
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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Copies of all communications, including all communications sent to the
agent for service, should be sent to:
SHELDON G. NUSSBAUM, ESQ.
FULBRIGHT & JAWORSKI L.L.P.
666 FIFTH AVENUE
NEW YORK, NEW YORK 10103
(212) 318-3000
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Approximate date of proposed sale to the public: From time to time
after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, as amended, other than securities offered only in
connection with dividend or interest reinvestment plans, check the following
box. [X]
<PAGE> 2
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
<TABLE>
<CAPTION>
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CALCULATION OF REGISTRATION FEE
----------------------------------------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED OFFERING PRICE PER SHARE AGGREGATE OFFERING PRICE REGISTRATION FEE
--------------------------- ------------ ------------------------ ------------------------ ----------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par 130,598,040 shares(2) $0.09(1) $11,753,823.60 $3,103.01(3)
value per share
==================================================================================================================================
</TABLE>
(1) The price is estimated in accordance with Rule 457 under the Securities Act
of 1933, as amended, solely for the purpose of calculating the registration fee
and represents the average of the high and the low prices of the Common Stock on
December 4, 2000.
(2) Includes 120,000,000 shares of Common Stock issuable pursuant to the terms
of an equity credit line pursuant to which the registrant can require investors,
under certain conditions, to purchase up to $17,000,000 of Common Stock. Also
registered hereunder, pursuant to Rule 416, are an indeterminate number of
additional shares of Common Stock that may become issuable pursuant to stock
splits, stock dividends or other similar transactions. The number of shares of
Common Stock registered hereunder pursuant to Rule 416, does not include an
increased number of shares issuable under the equity credit line agreement
resulting from decreases in the market price of the Common Stock.
(3) This amount has been previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT SPECIFICALLY STATING THAT THIS REGISTRATION STATEMENT SHALL
THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES
ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
2
<PAGE> 3
The information in this prospectus is not complete and may be changed. The
selling stockholders may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any state where the offer or sale is not
permitted.
PRELIMINARY PROSPECTUS
SUBJECT TO COMPLETION, DATED DECEMBER 12, 2000
TELYNX, INC.
130,598,040 SHARES
COMMON STOCK
Of the shares of common stock being offered, 10,598,040 shares are
being offered by the selling stockholders named in Part A of the "selling
stockholders" table on pages 37 through 40 of this prospectus. We will not
receive any part of the proceeds from the sales of these shares of our common
stock.
The remaining 120,000,000 shares may be sold in the aggregate by The
Keshet Fund L.P., Keshet L.P., Nesher Ltd., Talbiya B. Investments Ltd. and
Esquire Trade & Finance Inc., who may purchase securities from Telynx pursuant
to an equity line extension to Telynx by these entities. The terms of the equity
line are described in detail later in this prospectus. Of these shares, the
Keshet Fund L.P. may purchase up to 20,400,000 shares, Keshet L.P. may purchase
up to 25,800,000 shares, Nesher Ltd. may purchase up to 13,200,000 shares,
Talbiya B. Investments Ltd. may purchase up to 12,600,000 shares and Esquire
Trade & Finance Inc. may purchase up to 48,000,000 shares. We will receive the
proceeds of any securities that we sell through the equity line. The subscribers
under the equity line, who are named in Part B of the "selling stockholders"
table on page 41 of this prospectus, may resell the underlying shares of common
stock pursuant to this prospectus. We did not have any prior relationships with
any of the subscribers under the equity line.
The selling stockholders may offer shares of our common stock on the
OTC Bulletin Board in negotiated transactions or otherwise, or by a combination
of these methods. The selling stockholders may sell the shares through
broker-dealers who may receive compensation from the selling stockholders in the
form of discounts and commissions. The Keshet Fund L.P., Keshet L.P., Nesher
Ltd., Talbiya B. Investments Ltd. and Esquire Trade & Finance, Inc. are
"underwriters" within the meaning of the Securities Act of 1933, as amended, in
connection with its sales. We will pay the costs of registering the shares under
this prospectus, including legal fees.
Our common stock trades on the OTC Bulletin Board under the symbol
"TLYX." On November 30, 2000, the closing sale price of our common stock was
$0.10 per share. On November 28, 2000 our stockholders approved a change in our
name from Cambio, Inc. to Telynx, Inc.
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Our principal executive offices are located at Telynx, Inc., 6006 North
Mesa Street, Suite 600, El Paso, Texas 79912 and our telephone number is (915)
581-5828.
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YOU ARE URGED TO CAREFULLY READ THE "RISK FACTORS" SECTION BEGINNING ON PAGE 8
OF THIS PROSPECTUS.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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TABLE OF CONTENTS
<TABLE>
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Page
----
<S> <C>
Summary..................................................................................................6
Risk Factors.............................................................................................9
Forward-Looking Statements..............................................................................14
Use Of Proceeds.........................................................................................14
Dividend Policy.........................................................................................14
Capitalization..........................................................................................15
Market For Common Equity And Related Stockholder Matters................................................16
Changes In And Disagreements With Accountants On Accounting And Financial Disclosure....................17
Selected Consolidated Financial Data....................................................................18
Management's Discussion And Analysis Of Financial Condition And Results Of Operations...................19
Business................................................................................................27
Management..............................................................................................32
Principal Stockholders................................................................................. 35
Related Party Transactions..............................................................................37
Description Of Capital Stock............................................................................38
Selling Stockholders................................................................................... 39
Plan of Distribution................................................................................... 43
Legal Matters.......................................................................................... 44
Experts................................................................................................ 44
Where You Can Find More Information.................................................................... 45
Disclosure Of Commission Position On Indemnification................................................... 45
</TABLE>
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SUMMARY
The information below is only a summary of more detailed information
included in other sections of this prospectus. The other information is
important, so please read this entire prospectus carefully.
TELYNX (formerly known as Cambio)
We deliver significant value to our customers by designing and
maintaining accurate models which allow visual tracking of each customer's
unique network, resources and bandwidth capacity. This added value addresses the
mission-critical needs of telecommunication and wireless communication networks
by reducing our customer's time to service and cost of operation, while in the
process improving quality of service. Our products and services are custom
designed to enhance network operating support by reducing network related costs
associated with a variety of business needs including network changes,
relocations, mergers, acquisitions and network outsourcing including backup and
disaster recovery planning. Network documentation is an essential business
information system allowing network support professionals the ability to create,
maintain and access a centralized graphic blueprint of the entire network
operation including all technical components and their relationships. We also
provide our customers a broad range of network integration, consulting, training
and implementation services.
We were incorporated in Delaware as Meadowbrook Rehabilitation Group,
Inc. in 1986. In October 1998, we changed our name to Cambio, Inc. and in
November 2000, we changed our name to Telynx, Inc. Our principal office is
located at 6006 North Mesa, Suite 600, El Paso, Texas 79912, and our telephone
number is (915) 581-5828.
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by Telynx.............................. No shares(1)
Common stock offered by subscribers under our equity line... 120,000,000 shares
Common stock offered by other selling stockholders.......... 10,598,040 shares
Common stock to be outstanding after this offering.......... 170,052,678 shares(2)
Use of proceeds............................................. We will not receive any part of the proceeds from
the sales of these shares of our common stock. We
will receive, however, the net sale price of any
convertible notes or warrants that are issued to
the subscribers under the equity line agreement
if, and to the extent, we elect to put such
securities to these entities. All such proceeds
will be used by us for general corporate purposes.
OTC Trading Symbol.......................................... TLYX
</TABLE>
(1) We are not directly selling any shares under this prospectus. However, with
respect to the 120,000,000 shares registered on behalf of the subscribers under
the equity line agreement, the resale of these shares are viewed as an indirect
primary distribution of our securities by us.
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(2) This information is based on 50,052,678 shares outstanding at October 20,
2000. This information excludes 3,235,000 shares subject to options outstanding
at October 20, 2000.
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SUMMARY FINANCIAL DATA
The following summary financial information is derived from and should
be read together with our financial statements and the related notes included
elsewhere in this prospectus. Please also read Use of Proceeds, Capitalization
and Management's Discussion and Analysis of Financial Condition and Results of
Operations.
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
YEAR ENDED ENDED
YEAR ENDED YEAR ENDED ENDED SEPTEMBER 30, SEPTEMBER 30,
JUNE 30, 1998 JUNE 30, 1999 JUNE 30, 2000 1999 2000
------------- ------------- ------------- ------------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue ................... -- $ 823,000 $ 983,000 $ 228,000 $ 120,000
Gross profit .................... -- 537,000 719,000 115,000 116,000
Loss from operations ............ $ (1,207,000) (4,114,000) (5,311,000) (1,192,000) (1,266,000)
Loss from discontinued
operations ...................... (1,798,000) (1,013,000) -- -- --
Basic and diluted net loss
per common share ................ (1.00) (2.80) (0.38) (.30) (.03)
Weighted average shares
outstanding ..................... 2,851,893 3,574,460 14,190,965 3,968,961 43,428,492
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000
------------------
(unaudited)
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................. $ 514,000
Working capital....................................... (2,739,000)
Total assets.......................................... 1,000,000
Total stockholders' deficit........................... (3,549,000)
</TABLE>
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RISK FACTORS
An investment in our common stock involves a high degree of risk. You
should consider carefully the following risk factors, as well as the other
information included in this prospectus, in deciding whether to invest in our
common stock.
WE HAVE A LIMITED AMOUNT OF CASH AND ARE LIKELY TO REQUIRE ADDITIONAL CAPITAL TO
CONTINUE OUR OPERATIONS.
We have a limited amount of available cash and we will likely require
additional capital. We may not be able to raise additional capital in the future
on terms acceptable to us or at all. If we are unable to raise additional
capital in the future, we may not be able to continue as a going concern. In
addition, we cannot be certain that the subscribers under the equity line
agreement will have the ability to purchase our convertible notes and warrants
put to it, pursuant to our equity line of credit. Also, our ability to require
securities to be purchased under our equity line is contingent on several
factors, including the underlying common stock being included on an effective
registration statement and that no material adverse change has occurred in our
business. Accordingly, we may not be able to raise necessary capital in the
manner we expect pursuant to the equity line of credit.
WE RECENTLY ISSUED SHARES AT SIGNIFICANTLY BELOW THE MARKET PRICE AND WE CANNOT
ASSURE YOU THAT WE WILL NOT DO SO IN THE FUTURE.
In 2000, we completed various financings pursuant to which we issued
shares of common stock at significantly below the market value of our common
stock. We cannot assure you that we will not issue shares in the future at a
price per share which is less than the then current market price.
BECAUSE THE AMOUNT OF SECURITIES TO BE ISSUED TO THE SUBSCRIBERS UNDER
THE EQUITY LINE AGREEMENT IS BASED ON A FLOATING CONVERSION RATE, ISSUANCE OF
SOME OR ALL OF THE SECURITIES UNDER THE SUBSCRIPTION AGREEMENT COULD RESULT IN
SIGNIFICANT DILUTION OF THE PER SHARE VALUE OF OUR COMMON STOCK HELD BY CURRENT
STOCKHOLDERS.
Because the amount of securities to be issued to the subscribers under
the equity line agreement is based on a floating conversion rate that is tied to
the average market price of our securities just prior to the time of drawdown,
issuance of some or all of the securities allowed under the subscription
agreement could result in significant dilution of the per share value of our
common stock held by current investors.
Some of the specific factors that may contribute to the dilution in the
value of our common stock include the following:
o the lower the average trading price of our securities at the
time of the drawdown, the greater the number of securities
that can be issued to the subscribers under the equity line
agreement;
o the lower effective purchase price per share of common stock
under the equity line could result in additional shares being
issuable under our outstanding convertible preferred stock;
o the perceived risk of dilution may cause the subscribers under
the equity line agreement as well as our other stockholders to
sell their shares, which would contribute to the downward
movement in the price of our common stock; and
o the significant downward pressure on the trading price of our
common stock could encourage our stockholders to engage in
short sales, which would further contribute to the price
decline of our common stock.
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WE HAVE EXPERIENCED AND CONTINUE TO EXPERIENCE OPERATING LOSSES, AND OUR FUTURE
PROFITABILITY IS UNCERTAIN.
We do not know whether or when our business will ever be profitable. We
have generated some revenue to date, but we have experienced operating losses
since our inception. As of September 30, 2000, our accumulated deficit was
approximately $31,249,000. As a result of these factors, our audit report for
the year ended June 30, 2000 contains an explanatory paragraph regarding our
ability to continue as a going concern.
OUR REVENUES AND PROFITABILITY HAVE FLUCTUATED AND COULD FLUCTUATE SIGNIFICANTLY
IN THE FUTURE, WHICH MAY LIMIT YOUR ABILITY TO PREDICT OUR FUTURE PERFORMANCE.
Our revenues and profitability may vary significantly from fiscal
quarter to fiscal quarter as well as in comparison to the corresponding fiscal
quarter of the preceding year. Period-to-period comparisons of our results of
operations may not be meaningful, and you should not rely upon them as
indications of our future performance.
Some of the factors that may contribute to future fluctuations in our
quarterly and annual operating results include:
o development and introduction of new operating systems and new product
development expenses;
o our introduction or enhancement of our products;
o changes in our pricing policies or those of our competitors;
o technological changes in computer systems and environments;
o market readiness to deploy systems management products for distributed
computing environments; and
o customer order deferrals in anticipation of new products and product
enhancements.
THE HIGH LEVEL OF COMPETITION WE FACE IN THE TELECOMMUNICATIONS INDUSTRY FROM
COMPETITORS WHO OFTEN HAVE GREATER RESOURCES THAN WE DO MAY ADVERSELY AFFECT OUR
PROFITABILITY.
The markets in which we operate are competitive, highly fragmented and
rapidly changing. In order to compete effectively, our strategy is to enhance
our current products, enhance the operability of our products with one another,
develop new products and introduce them in the market in a timely fashion for
customer response. We anticipate continued growth of competition in the
telecommunications industry and consequently, the entrance of new competitors
into the software systems market in the future.
The principal competitive factors in our market are quality,
performance, price, customer support and training, business reputation and
product attributes such as scalability, compatibility, functionality and
acceptance. In addition, we compete with a number of companies that have
substantially greater financial, technical, sales, marketing and other resources
as well as greater name recognition. As a result, our competitors may be able to
adapt more quickly to new or emerging technologies and changes in customer's
requirements, or be able to devote greater resources to the promotion and sale
of their products and services.
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OUR INDUSTRY IS RAPIDLY EVOLVING AND WE MAY NOT BE ABLE TO KEEP PACE WITH
TECHNOLOGICAL CHANGES, WHICH COULD RESULT IN A LOSS OF REVENUES.
Our success depends on our ability to continue to enhance existing
products, respond to changing customer requirements and develop and introduce in
a timely manner new products that keep pace with technological developments.
During fiscal year 2000, we enhanced netRunner in a very aggressive manner and
delivered timely. Development included major rewrites of the product as well as
adding capabilities that the customers and potential customers were asking us to
provide. We can not be sure that we will meet all our customer's expectations
and that we will be successful in our efforts.
WE RELY ON STRATEGIC PARTNERS FOR OUR SALES STRATEGY AND IF THOSE ALLIANCES
TERMINATE, OUR SALES STRATEGY WOULD SUFFER.
Our sales strategy is primarily focused on sales made through our
alliances with Hewlett Packard and with Oracle. Under our agreement with Hewlett
Packard, we jointly market our software and services. We have a similar
arrangement with Oracle. Our sales efforts would be significantly damaged if
these alliances were terminated.
WE DEPEND ON A SMALL CUSTOMER BASE AND THE LOSS OF ANY ONE OF OUR CUSTOMERS
COULD HAVE A DISPROPORTIONATE IMPACT ON OUR REVENUES.
Our market segment consists mainly of telecommunication service
providers. While this segment is dynamic and growing in a rapid way, it does
represent a limited number of installed customer bases. This concentration of
customers can cause our revenues and earnings to fluctuate from quarter to
quarter based on these customers' requirements and the timing of their orders.
None of our major customers has any obligation to purchase additional products
or services, and these customers generally have acquired fully paid licenses to
their installed systems. Therefore, there can be no assurance that any of our
major customers will continue to purchase new systems, systems enhancements and
services in amounts similar to previous years. A reduction, delay or
cancellation in orders from any of our major customers would lower our revenues.
In addition, the acquisition by a third party of one of our major customers
could result in the loss of that customer and could disrupt a significant source
of revenue.
WE RELY ON OUR INTERNATIONAL OPERATIONS AND IF WE DO NOT SUCCESSFULLY ADDRESS
ISSUES RELATED TO INTERNATIONAL SALES, OUR REVENUES MAY DECREASE.
Our customer base consists of telecommunications service providers
around the world. Telecommunications and the requirement for related services
are ever increasing around the world especially due to the increased demand on
wireless and internet services. International sales, however also involve
possible longer account receivable payment cycles and unexpected changes in
regulatory requirements, including royalty and withholding taxes. Also due to
any possible world event, cancellation of orders, delay of orders or possible
restriction of import/export by governments may negatively impact us and may
lead to loss of revenue.
WE ARE DEPENDENT ON A SMALL NUMBER OF PRODUCTS TO GENERATE REVENUES TO FUND OUR
BUSINESS AND OPERATIONS.
Because we have limited resources, we must restrict our product
development efforts to a relatively small number of products and operating
systems. These efforts may not be successful or, even if successful, any
resulting products or operating systems may not achieve market
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acceptance. As a result, if we misjudge the market for or are delayed in the
production of a particular product, we will see a decrease in our revenues.
Additionally, we can not guarantee the success of any newly introduced
product. Therefore, we may be forced to absorb the cost of developing that
product without a return. Though we have limited resources our strategy is to
achieve market acceptance on our current products, and diversify into other
complementary products which will meet customer expectations and enhance return
for our current stockholders.
WE MAY NOT BE ABLE TO PROTECT AND ENFORCE OUR INTELLECTUAL PROPERTY RIGHTS.
We rely on a combination of copyright, trademark and trade secret laws,
confidentiality procedures and licensing arrangements to establish and protect
our proprietary rights. Presently, we have no patents, no patent applications on
file, and have no intent to file patent applications in the near future. As part
of our confidentiality procedures, we generally enter into non-disclosure
agreements with our employees, distributors and corporate partners, and license
agreements with respect to our software, documentation and other proprietary
information. Despite these precautions, it may be possible for a third party to
copy or otherwise obtain and use our products or technology without
authorization, or to develop similar technology independently. Policing
unauthorized use of our products is difficult and, although we are unable to
determine the extent to which piracy of our software products exists, software
piracy can be expected to be a persistent problem.
In selling our products, we rely on both signed license agreements and
"shrink wrap" licenses that are not signed by licensees and which, therefore,
may be unenforceable under the laws of some jurisdictions. In addition,
effective protection of intellectual property rights is unavailable or limited
in certain foreign countries. The protection of our proprietary rights may not
be adequate and our competitors may independently develop similar technology,
duplicate our products or design around any of our intellectual property rights.
We are not aware that any of our products infringe the proprietary
rights of third parties. However, third parties may claim such infringement by
us with respect to current or future products. We expect that software product
developers will increasingly be subject to such claims as the number of products
and competitors in our industry segment grows and the functionality of products
in the industry segment overlaps.
RIGHTS OF VARIOUS HOLDERS OF OUR EQUITY TO ACQUIRE SHARES OF COMMON STOCK MAY
DILUTE THE FUTURE VALUE OF THE COMMON STOCK.
As of October 19, 2000, there were outstanding a total of 500 shares of
our Series B convertible preferred stock. These shares presently are
convertible, at any time at the option of their holders, into an aggregate of
250,000 shares of our common stock. These shares of preferred stock also have
anti-dilution protections, which could make them convertible into additional
shares of common stock. Additionally, as of October 19, 2000, employee options
to purchase 3,235,000 shares were outstanding. There are also 291,000 warrants
exercisable at $0.20 outstanding.
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WE HAVE AND MAY IN THE FUTURE ISSUE ADDITIONAL PREFERRED STOCK WHICH COULD
ADVERSELY AFFECT THE RIGHTS OF HOLDERS OF OUR COMMON STOCK.
Our board of directors has the authority to issue up to 1,000,000
shares of our preferred stock and to determine the price, rights, preferences
and privileges of those shares without any further vote or action by the
stockholders. We presently have outstanding 500 shares of Series B convertible
preferred stock. Preferred stockholders could adversely affect the rights of
holders of common stock by:
o exercising voting, redemption and conversion rights to the detriment of
the holders of common stock;
o receiving preferences over the holders of common stock regarding or
surplus funds in the event of our dissolution or liquidation;
o delaying, deferring or preventing a change in control of our company;
and
o discouraging bids for our common stock at a premium over the market
price of the common stock.
WE ARE DEPENDENT ON KEY OFFICERS AND EMPLOYEES AND THE LOSS OF THESE PERSONNEL
WOULD HARM OUR ABILITY TO INCREASE REVENUES.
We are dependent on the principal members of our management staff,
including Ali Al-Dahwi, our President and Chief Executive Officer, the loss of
whose services could harm our ability to increase revenues and could materially
adversely affect our results of operations. We have entered into an employment
agreement with Mr. Al-Dahwi. We currently have no key personnel life insurance.
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FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. We have based
these forward-looking statements largely on our current expectations and
projections about future events and financial trends affecting the financial
condition of our business. These forward-looking statements are subject to a
number of risks, uncertainties and assumptions.
In addition, in this prospectus, the words "believe," "may," "will,"
"estimate," "continue," "anticipate," "intend," "expect" and similar
expressions, as they relate to Telynx, our business or our management, are
intended to identify forward-looking statements.
In light of these risks and uncertainties, the forward-looking events
and circumstances discussed in this prospectus may not occur and actual results
could differ materially from those anticipated or implied in the forward-looking
statements.
USE OF PROCEEDS
We will not receive any part of the proceeds from the sales of these
shares of our common stock. We will receive, however, the sale price of any
convertible notes or warrants that are issued to the subscribers under the
equity line agreement if, and to the extent, we elect to put such securities to
the subscribers pursuant to the equity line of credit. All such proceeds will be
used by us for general corporate purposes.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock.
We currently anticipate that we will retain any future earnings for the
development and operation of our business. Therefore, we do not anticipate
paying cash dividends on our capital stock in the foreseeable future. Any future
dividends will be at the discretion of our board of directors.
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CAPITALIZATION
The following table sets forth our capitalization as of September 30,
2000:
The table should be read in conjunction with our financial statements
and the related notes, which are included elsewhere in this prospectus, as well
as Management's Discussion and Analysis of Financial Conditions and Results of
Operations.
<TABLE>
<CAPTION>
SEPTEMBER 30,
2000
-------------
(UNAUDITED)
<S> <C>
Convertible notes payable to investors .................................... $ 1,000,000
Stockholders' equity
Preferred stock, $ 0.01 par value; 1,000,000 shares authorized; --
500 issued and outstanding ...........................................
Common stock, $ 0.01 par value; 205,000,000 shares authorized;
49,674,200 shares issued and outstanding ............................. 497,000
Paid-in capital ........................................................ 27,203,000
Accumulated deficit .................................................... (31,249,000)
Total stockholders' deficit .......................................... (3,549,000)
Total capitalization ................................................. 1,000,000
</TABLE>
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MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is traded in the Nasdaq Over the Counter (OTC) Market.
On November 30, 2000, the closing sales price of the common stock was $0.10 per
share.
Prices below may not be actual representations of daily trading ranges.
The table below sets forth the quarterly high and low closing sales prices for
the common stock in the period from July 1, 1998 through November 27, 2000:
<TABLE>
<CAPTION>
PRICE PER SHARE
----------------------
FISCAL 2001 HIGH LOW
------- -------
<S> <C> <C>
First quarter .................................... $ 0.40 $ 0.21
Second quarter (through November 30, 2000) ....... 0.2031 0.07
FISCAL 2000
First quarter .................................... $ 1.4375 $ 0.625
Second quarter ................................... 0.875 0.1875
Third quarter .................................... 3.25 0.1875
Fourth quarter ................................... 1.1562 0.2812
FISCAL 1999
First quarter .................................... $ 1.06 $ 0.50
Second quarter ................................... 0.63 0.25
Third quarter .................................... 0.50 0.13
Fourth quarter ................................... 2.44 0.19
</TABLE>
As of June 30, 2000, there were approximately 210 holders of record of
our common stock.
We do not anticipate paying any other cash dividends in the foreseeable
future and intend to retain any earnings to fund future growth and the operation
of our business.
In April 2000, we consummated a private placement of common stock
pursuant to which we issued 800,000 shares of common stock at $0.25 a share for
an aggregate consideration of $200,000. In May 2000, we consummated a private
placement of common stock pursuant to which we issued 2,780,000 shares of common
stock at $0.25 a share for an aggregate consideration of $695,000. We believe
that each such issuance or sale was exempt from registration pursuant to Section
4(2) of the Securities Act 1933, as amended.
16
<PAGE> 17
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
On September 6, 2000, Grant Thornton LLP resigned as the independent
accountants of Telynx, Inc., formerly known as Cambio, Inc.
In connection with the audits of our financial statements for each of
the two fiscal years ended June 30, 1999 and June 30, 1998, and during the most
recent interim period preceding Grant Thornton LLP's resignation, there were no
disagreements between Grant Thornton LLP and us on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements, if not resolved to the satisfaction of Grant
Thornton LLP, would have caused it to make reference to the subject matter of
the disagreement in connection with the change in accountants.
BDO Seidman, LLP was retained as our new independent accountants and
the decision to engage BDO Seidman, LLP as our accountants was approved by our
Board of Directors.
During the last two fiscal years and the subsequent interim period to
the date hereof, we did not consult BDO Seidman, LLP regarding any of the
matters or events set forth in Item 304(a)(2) of Regulation SB-2.
17
<PAGE> 18
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with Management's Discussion and Analysis of Financial Condition and
Results of Operations and our financial statements and the related notes
included elsewhere in this prospectus. The selected statement of operations data
for the period from July 1, 1997 through June 30, 2000 and the selected balance
sheet data as of June 30, 2000 are derived from our audited financial statements
included elsewhere in this prospectus. The selected consolidated financial data
for the three months ended September 30, 1999 and 2000 are derived from the
unaudited consolidated financial statements, which, in the opinion of
management, have been prepared on the same basis as the audited consolidated
financial statements. The results for the three months ended September 30, 2000
may not be indicative of the results for the full year.
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
YEAR ENDED ENDED
YEAR ENDED YEAR ENDED ENDED SEPTEMBER 30, SEPTEMBER 30,
JUNE 30, 1998 JUNE 30, 1999 JUNE 30, 2000 1999 2000
------------- ------------- ------------- -------------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue ..................... -- $ 823,000 $ 983,000 $ 228,000 $ 120,000
Gross profit ...................... -- 537,000 719,000 115,000 116,000
Loss from operations .............. $ (1,207,000) (4,114,000) (5,311,000) (1,192,000) (1,266,000)
Loss from discontinued
operations ...................... (1,798,000) (1,013,000) -- -- --
Basic and diluted net loss
per common share ................ (1.00) (2.80) (0.38) (.30) (.03)
Weighted average shares
outstanding ..................... 2,851,893 3,574,460 14,190,965 3,968,961 43,428,492
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000
------------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents .............. $ 514,000
Working capital ........................ (2,739,000)
Total assets ........................... 1,000,000
Total stockholders' deficit ............ (3,549,000)
</TABLE>
18
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
ACQUISITION OF CAMBIO NETWORKS, INC.
On September 14, 1998, we acquired Cambio Networks, Inc. Under the
terms of the Agreement, Cambio Networks' shareholders received an aggregate of
1,238,842 shares of our Class A Common Stock representing approximately 32.3% of
the outstanding Class A and Class B Common Stock.
Immediately following the acquisition of Cambio Networks in September
1998, the company implemented a restructuring plan involving the closing and
relocating of headquarters from Bellevue, Washington to an existing office in
Dallas, Texas. In addition, the company moved its research and development
offices to El Paso, Texas; and is assimilated finance and accounting functions
into existing capabilities in Emeryville, California and subsequently to El
Paso, Texas. We maintained our sales and service offices domestically in
Parsippany, New Jersey until their closure in December 1998.
Our sales and services offices are currently in Dallas, Texas and El
Paso, Texas in the US. Internationally we have sales executives in London,
England and Cairo, Egypt. In an effort to further consolidate its operations, in
February 1999 we decided to close our Emeryville, California office and move all
finance and administrative functions to El Paso, Texas. No material costs were
incurred in connection with these relocations.
DISPOSITION OF HEALTHCARE OPERATIONS
On February 2, 1999, we entered into an agreement with Imperial Loan
Management Corporation whereby we transferred all of the issued and outstanding
stock of our discontinued healthcare subsidiaries to Imperial. As part of the
agreement, Imperial will use its best efforts to liquidate each of the
Subsidiaries, settling outstanding obligations and collecting all amounts due.
We remain a guarantor of the subsidiaries' outstanding indebtedness consisting
of amounts loaned to us and these subsidiaries by Imperial, which approximates
$678,000 as of September 30, 2000. We are entitled to receive one-half of any
amounts remaining after payment of the Imperial loans and expenses. We consider
the realization of the remaining assets to be unlikely and the assets have been
fully provided for. All other material obligations of the subsidiaries have been
settled except for the Imperial loans.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000 AS COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1999:
Revenues from operations decreased 47% from $228,000 for the three
months ended September 30, 1999 to $120,000 for the three months ended September
30, 2000. The decrease in revenues is primarily attributable to sales of our
software at higher sales revenue in the first quarter last year versus lower
sales revenue in the first quarter this year of maintenance and system support.
Cost of revenue for the three months ended September 30, 2000 was down
significantly from the three months ended September 30, 1999 representing the
fact that most revenue was related to software sales where all development costs
have been incurred in prior periods.
19
<PAGE> 20
Sales and Marketing. Sales and marketing expenses decreased slightly by
5% from $293,000 for the three months ended September 30, 1999 to $277,000 for
the three months ended September 30, 2000.
Services expenses decreased 34% from $187,000 for the three months
ended September 30, 1999 to $123,000 for the three months ended September 30,
2000. This decrease was attributable to reduced costs related to servicing order
installation and reduced manpower cost this current quarter versus the
comparable quarter of last year.
Research and development expenses increased 32%, from $131,000 for the
three months ended September 30, 1999 to $173,000 for the three months ended
September 30, 2000. The increase was attributable to increased personnel costs
in development and engineering cost associated with our main product. During the
three months ended September 30, 2000, we employed ten people in its research
and development department as compared to five persons for the three months
ended September 30, 1999.
General and administrative expenses increased 16%, from $696,000 for
the three months ended September 30, 1999 to $809,000 for the three months ended
September 30, 2000. The balance represents additional costs for added personnel
first quarter this year versus first quarter last year.
Interest income decreased $11,000 from the three months ended September
30, 1999 to less than $1,000 for the three months ended September 30, 2000. This
represents the reduced cash balance from $1,923,000 at June 30, 1999 down to
$362,000 at June 30, 2000. Interest expense increased $7,000, primarily due to
amortization of deferred financing costs.
YEAR ENDED JUNE 30, 2000 AS COMPARED TO YEAR ENDED JUNE 30, 1999:
Revenues increased $160,000, or 19%, from $823,000 for the twelve
months ended June 30, 1999 compared to $983,000 for the twelve months ended June
30, 2000. Increases in sales have mainly been reflected by product shipments of
netRunner to Hewlett Packard clients in Middle East and Southeast Asia of
approximately $800,000. Revenues for the twelve months ended June 30, 2000 were
split between sales, services and maintenance, primarily of the netRunner
product, compared to revenues for the twelve months ended June 30, 1999 which
were split between sales, services and maintenance split between the netRunner
and Command products.
Net loss from continuing operations decreased $3,617,000, or 40%, from
$9,002,000 for the twelve months ended June 30, 1999 compared to $5,385,000 for
the twelve months ended June 30, 2000. The decrease was primarily the result of
fiscal year 1999 write-off of goodwill for $4,850,000. Also included in the
twelve months ended June 30, 2000 is approximately $1,000,000 compensation
expenses associated with issuance of stocks, options and warrants at reduced
offering prices compared to current market price.
Because netRunner is a new product, and because of liquidity
difficulties, the launch and marketing activities of the netRunner product were
severely constrained which resulted in poor sales and market penetration for the
twelve months ended June 30, 2000 consistent with the twelve months ended June
30, 1999.
General and administration costs remained consistent, from fiscal year
2000 to 1999. Sales and marketing increased $876,000 in fiscal year 2000 as a
direct result of activities geared
20
<PAGE> 21
at increasing market exposure and generating revenue. These included partner
participation activity and sales staffing activity. Services increased $207,000
in fiscal year 2000 as a direct result of staffing increased to accommodate
deliver of customer project. Research and development costs increased
approximately $314,000 from $280,000 for the twelve months ended June 30, 1999
to $594,000 for the twelve months ended June 30, 2000 as a direct result of
modification to the netRunner product.
Interest income increased approximately $11,000 from $13,000 for the
twelve months ended June 30, 1999 to $24,000 for the twelve months ended June
30, 2000. Interest expense increased approximately $32,000 from $66,000 for the
twelve months ended June 30, 1999 to $98,000 for the twelve months June 30,
2000.The increase is representative of the company's increase in overnight
investments of excess funds compared to prior fiscal year.
YEAR ENDED JUNE 30, 1999 AS COMPARED TO YEAR ENDED JUNE 30, 1998:
Revenues for the twelve months ended June 30, 1999 of $823,000 were
split between sales, services and maintenance of the Command product and its
newly introduced netRunner product. The Command revenues consisted primarily of
services and maintenance revenues with a negligible amount of new sales. The
netRunner revenues were all new sales of software and attendant implementation
services.
Net loss from continuing operations of $9,002,000 for the twelve months
ended June 30, 1999 was considerably greater than to the comparable loss of
$1,067,000 for the twelve months ended June 30, 1998. The loss from continuing
operations in 1998 was almost entirely made up of administrative and general
expenses due to the fact we had no revenues associated with continuing
operations. In fiscal year 1999, we had approximately $823,000 in revenues with
administrative and general expenses of approximately $4,400,000 and goodwill
write-off of approximately $4,850,000.
Goodwill of approximately $4,850,000 was originally recorded as part of
the acquisition of Cambio Networks, Inc. The subsequent write-off of this
goodwill was taken in response to the inability of the primary product of Cambio
Networks, Inc., Command, to maintain its place in the market without a major
upgrade including the prohibitive cost to the Company of such an upgrade. We
withdrew the Command product from the market place in the fourth quarter of
fiscal year 1999; and consequently, the decision was made to write off the
goodwill associated with the Command product.
Because netRunner is a new product, and because of our liquidity
difficulties, the launch and marketing activities of the netRunner product were
severely constrained which resulted in poor sales and market penetration during
the twelve months ended June 30, 1999. An additional effect on fiscal year 1999
sales revenue was our change in market focus in conjunction with the
introduction of the netRunner product and the subsequent phase out of the
Command product. The Command product was designed for, and primarily aimed at,
IT Center applications. The netRunner product was designed for, and is primarily
marketed to the telecommunications industry. This change in market focus
contributed to the slow sale start for the netRunner product.
General and administrative expense increased approximately $3,164,000
from $1,207,000 for the twelve months ended June 30, 1998 to approximately
$4,371,000 for the twelve months ended June 30, 1999. The increase in general
and administrative expenses reflects the increased expenses associated with
entering a new
21
<PAGE> 22
line of business and the launch of a new product. We had research and
development costs of approximately $300,000 for the twelve months ended June 30,
1999 compared with none for the twelve months ended June 30, 1998.
Interest income decreased $127,000 from $140,000 for the twelve months
ended June 30, 1998 to $13,000 for the twelve months ended June 30, 1999. The
decrease is the result of our reduced cash balances in fiscal year 1999 as
compared to fiscal year 1998. Interest expense increased from none for the
twelve months ended June 30, 1998 to $66,000 for the twelve months ended June
30, 1999. This expense was associated with the debt acquired in the acquisition
of Cambio Networks, Inc.
LIQUIDITY AND CAPITAL RESOURCES
Our operating activities used cash of $1,332,000 during the three
months ended September 30, 2000 compared to a use of $1,190,000 for the three
months ended September 30, 1999. The primary reason for the increase in the use
of cash is the increased operating loss for the quarter offset by expenses paid
for by issuance of common stock for the three months ended September 30, 2000
compared to the same period in the previous year.
During the three months ended September 30, 2000, consistent with the
three months ended September 30, 1999, our investing activities were $36,000 and
$9,000 consisting of software and computer/network equipment purchases.
The financing activities during the three months ended September 30,
2000 consisted of proceeds from the issuance of common stock of approximately
$675,000, exercise of stock options of approximately $24,000 and net proceeds of
convertible debt debentures of $880,000. This compares to the three months
ended September 30, 1999 where our financing activities consisted of the
exercise of stock options in the amount of $36,000.
22
<PAGE> 23
Our current operations are cash flow negative. With our reorganization
and the introduction of netRunner in the prior fiscal year, we believe that we
are poised to take advantage of the market opportunities existing in the
telecommunications and wireless telecommunication industry. With the advanced
programming that netRunner represents and our continued development of this
product, we believe that our current negative operational cash flow is temporal
and will be alleviated by increased sales in the coming year. As a result of the
above condition, our most recent audited financial statements contained a going
concern opinion.
On February 1, 2000, we consummated a private placement of common stock
pursuant to which we issued 666,666 shares of common stock at $0.15 a share for
an aggregate consideration of $100,000. Since February 2000, warrant holders
have exercised all of their warrants pursuant to which we issued 1,999,998
shares of common stock at $0.15 a share for an aggregate consideration of
$300,000. In April 2000, we consummated a private placement of common stock
pursuant to which we issued 800,000 shares of common stock at $0.25 a share for
an aggregate consideration of $200,000. In May 2000, we consummated a private
placement of common stock pursuant to which we issued 2,780,000 shares of common
stock at $.25 a share for an aggregate consideration of $695,000. Additionally,
in August and September 2000, we consummated private placements of common stock
pursuant to which we issued 5,674,000 shares of common stock at $.125 a share
for an aggregate consideration of $709,250.
In the first three months of fiscal year 2001, we entered into a
$17,000,000 equity line financing for the next three years. The subscribers
under the equity line agreements have agreed to purchase from us these
convertible notes exercisable at our option. The holders are bound to honor the
loans in the subscription agreement and cannot withhold monies from drawdown by
Telynx except for reason of default. Notes bear interest at 6% and are
convertible to common stock at the option of the note holder. See the discussion
under the section entitled "Equity Line of Credit" later in this prospectus.
Our sales activities have grown as the pipeline of active accounts
has grown from 14 customers last year to 107 active customers as of September
29, 2000. In fiscal year ended June 30, 1999, we had no US customers and
currently we have two U.S. customers, Broadband Now and Avista (symbol AVA), one
of which we delivered product for in fiscal year ended June 30, 2000 and the
other will deliver product in the quarter ending December 31, 2000. We
anticipated further orders from the same two customers.
Additionally, we have committed resources to localize the product to
the Japanese and Chinese languages after negotiations with its strategic
partners and potential clients. The localized product assures that we are in
a unique position among all its competitors to address the lucrative Japan,
Korean and Mainland China market. The product should be ready by mid 2001 with
anticipated sales soon after that.
As discussed above, we are a party to an agreement dated February 2,
1999 with Imperial. The primary subject matter of the agreement concerns the
liquidation of assets transferred from us to Imperial and the use of those
liquidation proceeds as payment of two outstanding loans between Imperial and
us and our wholly owned subsidiary.
23
<PAGE> 24
The Agreement required us, among other things, to pay fees to
Imperial for the liquidation of assets transferred to Imperial, pay interest to
Imperial on the outstanding principal balance of the loans, and to pay the
remaining outstanding principal balance on the loans on February 1, 2000, if
liquidation proceeds had not already satisfied the loans. Imperial's obligation
under the Agreement, among other things, was to liquidate the assets transferred
to Imperial (consisting primarily of Medicare related receivables of the
company's former medical business), apply the proceeds of said liquidation to
pay down the outstanding loan balances, and to provide quarterly reports to
us with respect to Imperial's progress in liquidating the assets transferred
from us to Imperial.
By letter dated August 16, 1999, we notified Imperial that Imperial
was in breach of the Agreement by virtue of the fact that Imperial had not
provided quarterly reports for the quarters ended March 31 and June 30, 1999.
We further advised Imperial that we would discontinue paying any additional
funds to Imperial until this breach was cured. In late September 1999, Imperial
subsequently provided reports for the quarters ended March 31 and June 30, 1999.
Since then, no additional quarterly reports have been provided by Imperial as
required by the Agreement. Additionally, through discussions with Imperial and
the reports provided, it appears that Imperial has liquidated only $80,000 of
the $1,300,000 in assets transferred to it. Our requests for information
documenting why the liquidation process has not gone any further have been
ignored.
Imperial is required under the agreement to use its "best efforts" to
liquidate the assets transferred to Imperial. To date, Imperial has provided no
documentation that would explain why the assets transferred to Imperial have not
been liquidated. We believe that Imperial is in breach of the agreement due
to the failure of Imperial to provide the required quarterly reports and
Imperial's apparent failure to use its best efforts to collect on the accounts
receivable transferred from Telynx to Imperial. Therefore, we believe that
it is not in default of its obligations under the agreement by not paying the
otherwise required payment of the outstanding principal balance of the loans.
We have no commitments for capital expenditures currently outstanding.
Our operating results could vary significantly from period to period,
as a result of a variety of factors including the requisition cycles of our
customers, the financial position of our customers and competitive factors. We
are not subject to any seasonality factors.
New Accounting Pronouncements - See discussion of new accounting
pronouncements appearing in Note 3 to the consolidated financial statements. See
index to Financial Statements on page F-1 of this prospectus.
EQUITY LINE OF CREDIT
We entered into a subscription agreement with The Keshet Fund L.P.,
Keshet L.P., Nesher Ltd., Talbiya B. Investments Ltd. and Esquire Trade &
Finance, Inc. on July 27, 2000, for the future issuance and purchase of shares
of our common stock. The subscription agreement established what is sometimes
termed an equity line of credit or equity drawdown facility.
Pursuant to this equity line of credit and subject to satisfaction of
the conditions set forth below, we may sell and issue to the subscribers under
the equity
24
<PAGE> 25
line agreement, from time to time, up to an aggregate of $17 million of
convertible notes. Beginning on the date that the registration statement, of
which this prospectus is a part, is declared effective by the SEC and continuing
for 36 months thereafter, we may, from time to time, in our sole discretion,
sell or "put" convertible notes to the subscribers under the equity line
agreement. These notes may be converted at a conversion price equal to, for the
first $1 million issued, the lesser of (1) 85% of the average of the three
lowest closing prices of the Common Stock for the thirty trading days prior to
the Closing Date or (2) 78% of the average of the three lowest closing prices of
the Common Stock for the ninety trading days prior to the Conversion Date. The
conversion price for the balance of the amount raised is equal to 82% of the
average of the three lowest closing prices of the common stock for the 10
trading days prior to the Conversion Date. If the maximum amount under the
equity line agreement is not "put" to the investors, they will be entitled to
receive warrants to purchase our common stock.
Our ability to put convertible notes to the subscribers under the
equity line agreement is subject to the following conditions and limitations:
o The common stock issuable upon conversion of a Put Note and
exercise of Put Warrants must be included in an effective
registration statement.
o We will be a reporting company with the class of Shares
registered pursuant to Section 12(g) of the Securities
Exchange Act of 1934.
o No material adverse change in our business or business
prospects shall have occurred and there shall not have been a
material negative restatement of our financial statements.
o An Event of Default as described in Article III of the Note
shall not have occurred.
o Our listing on, and compliance with the listing requirements
of the and our not having received notice from the OTC
Bulletin Board, (or any Principal Market) that we are not in
compliance with the requirements for continued listing.
We cannot assure you that we will satisfy all of the conditions
required under the equity line of credit or that the subscribers under the
equity line agreement will have the ability to purchase all or any of the
convertible notes and warrants put to it thereunder.
The subscribers under the equity line agreement, or other underwriters
of the securities, have the right to review the registration statement and our
records and properties to obtain information about us and the accuracy of the
information contained in this prospectus and the remainder of the registration
statement. The subscribers under the equity line agreement are not entitled to
reject a put by us based on such review.
In conjunction with the equity line of credit, we issued to some of the
subscribers under the equity line agreement warrants to purchase up to 1,250,000
shares of Telynx common stock, at an exercise price of $0.22 per share. These
warrants may be exercised through July 27, 2005. The warrant contains provisions
that adjust the purchase price and number of shares issuable to subscribers
under the equity line agreement upon the occurrence of certain events, such as a
stock split, reverse stock split, stock
25
<PAGE> 26
dividend, merger, or recapitalization. The subscribers under the equity line
agreement may effect a cashless exercise of the warrants only in the period
prior to the effectiveness of the registration statement of which this
prospectus is a part.
Under the equity line of credit, we agreed to register the underlying
common stock for resale by the subscribers, which will permit them to resell the
common stock from time to time in the open market or in privately-negotiated
transactions. We will prepare and file amendments and supplements to the
registration statement as may be necessary in order to keep it effective as long
as the equity line of credit remains in effect or the subscribers own any of our
common stock. We have agreed to bear certain expenses, other than broker
discounts and commissions, if any, in connection with the preparation and filing
of the registration statement and any amendments to it.
We paid an aggregate of approximately $122,000 in fees and commissions
and issued approximately 600,000 shares of common stock in connection with the
equity line agreement to Alon Enterprises Ltd., Bodie Investment Group, Libra
Finance S.A. and Yakov Bodenstein. Mr. Bodenstein is a consultant for Telynx for
general investor and business introductions and receives commissions for
services performed.
The following table describes the amount of securities purchased and the
percentage of shares owned by the subscribers under the maximum amount under the
equity line agreement, assuming the purchase price is 0%, 25%, 50% and 75%
discounted from the current trading price of our common stock. For purposes of
this table, we are assuming a current trading price of $.08 per share.
Notwithstanding the foregoing, under the terms of the equity line agreement, no
subscriber can be required to purchase securities which would result in their
beneficially owning more than 4.9% of our outstanding common stock.
<TABLE>
<CAPTION>
Purchase Price of Purchase Price of Purchase Price Purchase Price
$.08 (discount $.06 (discount of $.04 (discount of $.02 (discount
value of 0%) % value of 25%) % value of 50%) % value of 75%) %
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
The Keshet Fund L.P. 36,125,000 13.8% 48,166,667 14.5% 72,250,000 15.2% 144,500,000 16.1%
shares shares shares shares
------------------------------------------------------------------------------------------------------------------------------------
Keshet L.P. 45,687,500 17.4% 60,916,667 18.3% 91,375,000 19.2% 182,750,000 20.3%
shares shares shares shares
------------------------------------------------------------------------------------------------------------------------------------
Nesher Ltd. 23,375,000 8.9% 31,166,667 9.3% 46,750,000 9.8% 93,500,000 10.4%
shares shares shares shares
------------------------------------------------------------------------------------------------------------------------------------
Talbiya B. Investments 22,312,500 8.5% 29,749,999 8.9% 44,625,000 9.4% 89,250,000 9.9%
Ltd. shares shares shares shares
------------------------------------------------------------------------------------------------------------------------------------
Esquire Trade & 85,000,000 34.2% 113,333,333 35.4% 170,000,000 36.8% 340,000,000 38.3%
Finance Inc. shares shares shares shares
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
26
<PAGE> 27
BUSINESS
We deliver significant value to our customers by designing and
maintaining accurate models by visual tracking of each customer's unique
network, resources and bandwidth capacity. This added value addresses the
mission-critical needs of telecommunication and wireless communication networks
by reducing our customer's time to service and cost of operation, while in the
process improving quality of service. Our products and services are custom
designed to enhance network operating support by reducing network related costs
associated with a variety of business needs including network changes,
relocations, mergers, acquisitions and network outsourcing including backup and
disaster recovery planning. Network documentation is an essential business
information system allowing network support professionals the ability to create,
maintain and access a centralized graphic blueprint of the entire network
operation including all technical components and their relationships. We also
provide our customers a broad range of network integration, consulting, training
and implementation services.
On September 14, 1998, we acquired Cambio Networks, Inc., pursuant to
an Agreement and Plan of Merger, dated as of April 3, 1998, as amended by the
Agreement of Amendment, dated as of July 27, 1998. Under the terms of the
Agreement, Networks' shareholders received an aggregate of 1,238,842 shares of
our Class A Common Stock representing approximately 32.3% of the outstanding
Class A and Class B Common Stock. Telynx is a global provider of highly
specialized software technology to the telecommunications industry.
On October 20, 1998, we changed our name from Meadowbrook
Rehabilitation Group, Inc. to Cambio Inc. and in November 2000, we changed our
name to Telynx, Inc. Prior to June 30, 1998, we provided outpatient, home
health, and traditional acute, sub-acute and post-acute comprehensive
rehabilitation services. Since the beginning of the fiscal year ended June 30,
1997, and as a result of poor operating results and poor prospects for growth in
their respective markets, our Board of Directors began to sell our healthcare
operating assets. As of June 30, 1998, our assets consisted mainly of cash and
accounts receivable.
Our goal is to become the premier provider of mission-critical software
solutions providing the telecommunications and wireless communication industries
with the highest utilization of their capital, giving our customers competitive
advantage in providing new and enhanced services within their markets. We
continually strive to broaden our solution offerings to increase market share
for our customers by delivering end-to-end turnkey solutions amplifying
usability and simplicity designed for end user.
PRODUCTS AND SERVICES
Telynx's product offerings are based on the netRunner.com family of
products. The current flagship product, netRunner CMP, has now been on the
market for two years and has received wide acceptance from the market, partners,
and customers. netRunner CMP offers an inventory provisioning solution geared at
streamlining and reducing provisioning intervals for telecommunications
carriers.
Product Improvements:
In September 1999, netRunner version 3.3 was released. This marked the
final release done primarily by Phifer Consulting. Refer to the Proprietary
Rights section of this document for discussion on Phifer Consulting
relationship. All subsequent releases have been developed and
27
<PAGE> 28
delivered entirely by the Telynx development team. In December 1999, Telynx
released version 4.02 of netRunner. Version 4.02 was a complete revamping of the
user interface in an attempt to add critical functionality and usability.
Currently Telynx has issued netRunner version 5.0, which is a total rewrite of
the entire source code. This release is totally owned by Telynx and there are no
longer any source code co-ownership issues.
In addition to a new interface, significant effort was taken to move
the product into an N-Tier environment. This is distributed client-server
architecture, which was seen as critical for addressing scalability and
performance in large carrier environments. Version 4.5, released in March 2000,
added additional functionality at the user level and separated the client
interface code from the database code. This was a significant step in creating a
client-server model. In September 2000, Telynx released version 5 of netRunner
CMP. Version 5 was an entirely CORBA compliant architecture.
Professional Services:
Telynx was engaged in three major projects during the course of fiscal
year ended June 30, 2000. The first and largest project was Telecom Egypt. This
USAID project has many facets including product deliverables and data gathering.
The professional services team met all milestones on schedule throughout the
year. The second project, TM Touch (Telecom Malaysia Wireless), began in
February 2000 and received customer signoff in September 2000. The project
provides a complete wireless inventory system and was delivered on schedule. The
third project, Texas BroadBandNOW, began in May 2000 and is scheduled for
completion in November 2000.
In March 2000, Telynx made a strategic decision to provide services as
an extension to our product. As a result, the Professional Services organization
was moved under product and technology. The Professional Services organization
is no longer treated as a profit center but as a delivery mechanism for Telynx
products. The decision not to be a service company is significant. It does not
mean that Telynx will not provide services and support for its products, but
means that services are viewed as a key component of product deliverables.
De-emphasizing services as a profit center allows Telynx to focus these
resources on successful product implementations and product delivery. It also
avoids the inevitable conflict created between a product and service team since
their charters are otherwise completely different.
MARKETING AND SALES
Telynx is targeting the telecommunications market with its suite of
products and solutions. The telecommunication industry is primarily focused in
the area of providing convergent services to the public and private sector.
These services include voice, data and multi-media. Telynx's solution offering
is positioned to cover the asset management platform that is considered a
crucial part of the Operations Support Systems (OSS) area of the
telecommunication industry. Providing a system that assists in the areas of
network inventory, circuit allocation and assignment, as well as bandwidth
utilization helps the service providers with faster time to market activity and
more reliable service maintenance.
Our marketing activity is focused on the service providers. This market
includes the Regional Bell Operating Company (RBOCs), Competitive Local Exchange
Carrier (CLECs),
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<PAGE> 29
Incumbent Local Exchange Carrier (ILECs), Broadband providers, cellular, Public
Telephone and Telegraph (PTTs) and Internet providers. We concentrate our
attention on joining the forums in which new strategies are molded and service
providers look for guidance. Our involvement in the TMF (Telemanagement Forum)
is such an example. Other marketing activities include the joint representation
between Telynx and our partners in trade shows and specialized exhibitions.
The market potential on a global basis for Telynx is significant. There
are several factors this growth potential can be attributed to. First,
deregulation of telecommunications is occurring on a global scale. This causes
significant expansion in the market where previously it was fixed. In addition,
the worldwide demand for bandwidth has caused an explosion in infrastructure
building. This infrastructure is both wireline based and wireless based.
Telynx's sales strategy is both direct and indirect. We will leverage our
partner relationship to penetrate markets we currently do not have resources to
focus on directly and we are directly targeting the North American, European,
Middle Eastern, and Asian markets.
As these markets develop, Telynx will start maintaining a full presence
in these regions. As soon as a need for Telynx's technology is identified, and
enough interest is generated, Telynx's plan is to open regional offices.
In 2000, we had sales in excess of 10% to two customers amounting to
$665,000 and $147,000. The two customers accounted for 68% and 15% of net
revenues, respectively. In 1999, we had sales in excess of 10% to three
customers amounting to $429,000, $117,000 and $96,000. The customers accounted
for 52%, 14% and 12%, respectively, of net revenues.
PARTNERSHIP AND ALLIANCE
The market requires that we have both a competitive and a collaborative
strategy. The industry is driving the OSS market away from point solutions and
towards a single solution offering. Our partnership and alliance strategy is
designed with this in mind. We leverage the market presence of our large
partners while embedding our technology into their overall solution. Our
partners are Hewlett Packard, Oracle, Sirti, Logica, Alcatel, Information +
Graphic Systems, Inc., Solutions Plus, Sapura System Malaysia (SSM), Step 9 and
Active Software.
SOFTWARE DEVELOPMENT
During fiscal year ended June 30, 2000, we completely restructured the
netRunner product. The development team, formed in June 1999, began first with
reconstructing the user interface and adding key functionality to the original
Phifer Systems code set (see Proprietary Rights section for discussion on Phifer
Consulting relationship). During the last two quarters of the fiscal year, the
development team released the first restructured interface version, and
completely separated the interface code from the database wedge. This enabled
the next step, which was a move to an N-Tier environment. Version 5 is CORBA
based and N-Tier in nature.
Having laid the foundation for a much more scalable and open product,
the team will focus its efforts throughout the year on expanding server
technology to support the OEM product, and adding key functionality for
integration into the OSS environment.
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<PAGE> 30
The team will focus heavily this year on development of next generation
technology for all Telynx products and services. The foundation for an R&D
infrastructure that builds core technology and application suites will be
completed. This includes the support, documentation, and service infrastructure.
COMPETITION
Competition in the telecommunications markets is intense. However, we
believe that the segment of the market within which Telynx competes is currently
under-served. While competition in this segment is not intense, the rapid
changes within the industry as a whole could change this. Our continued
development of enhanced network management and operational support systems
should broaden its range of available competing products. Competitors include
hardware manufacturers that have developed software (or obtained software from
third parties) to operate on their hardware. We also encounter competition from
a large number of small software developers, which sell software or integrated
systems either for specific industries or applications within those industries.
We believe that in order to maintain and improve our competitive
position, we must continue to offer comprehensive services that help customers
effectively implement a complete, integrated software solution by providing a
full range of industry-leading consulting, integration, training and customer
support services. The timely delivery of flexible, cost-effective solutions for
the growing dynamic marketplace will continue to be our competitive initiative.
We believe Telynx's international focus clearly provides a competitive advantage
moving forward. Some of our competitors have little or no international
presence.
PROPRIETARY RIGHTS
We rely on a combination of copyright, trademark and trade secret laws,
confidentiality procedures and licensing arrangements to establish and protect
own proprietary rights. Presently, we have no patents, no patent applications on
file, and no intent to file patent applications in the near future. As part of
our confidentiality procedures, we enter into non-disclosure agreements with our
employees, distributors and corporate partners, and license agreements with
respect to our software, documentation and other proprietary information.
Despite these precautions, it may be possible for a third party to copy or
otherwise obtain and use our products or technology without authorization, or to
develop similar technology independently. In selling our products, we rely on
both signed license agreements and "shrink wrap" licenses that are not signed by
licensees and, therefore, may be unenforceable under the laws of certain
jurisdictions. In addition, effective protection of intellectual property rights
is unavailable or limited in certain foreign countries. Currently, Telynx has
issued netRunner version 5.0, which is a total rewrite of the entire source
code. This release is totally owned by Telynx and there are no longer any source
code co-ownership issues. Telynx originally acquired the source code for
netRunner from Phifer Consulting Systems in 1998. The source code was co-owned
by both companies, but Telynx had exclusive marketing and distribution rights.
The contract provided for a graduated royalty schedule to be paid to Phifer for
sales of netRunner and all upgrade development was contracted through Phifer.
This arrangement was terminated in fiscal year 2000 primarily because the
product had been re-written by Telynx and Phifer required no further effort. The
contract was closed and settled through a stock exchange. There are no further
outstanding issues with Phifer consulting and the two companies remain on good
terms.
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<PAGE> 31
EMPLOYEES
As of September 29, 2000, we had approximately 33 full time employees,
consisting of 13 in customer service and engineering, 11 in sales and marketing,
and 9 in general and administrative functions. Our future performance depends
upon the continued service of our key members of management, as well as
marketing, sales, consulting and product development personnel, none of whom are
bound by an employment contract, and upon our ability to attract and retain
highly skilled personnel in these areas. Competition for such personnel is
intense, and there can be no assurance that we can retain our key employees or
that we will be successful in attracting, assimilating and retaining such
personnel in the future. None of our employees are represented by a labor union.
We have not experienced any work stoppages and consider our relations with our
employees to be good.
PROPERTY
The corporate office is located at 13760 Noel Road, Suite 1023, Dallas,
Texas, 75240. Additional principal administrative, engineering, development and
support offices are located at 6006 Mesa, Suite 600, El Paso, Texas, 79912. The
Dallas office is approximately 3,500 square feet ($6,770 monthly) and the El
Paso office is approximately 7800 square feet ($8,100 monthly). We also have
sales executives located outside of the United States in locations of London,
England and Cairo, Egypt. Our offices are equipped sufficiently with leased
up-to-date technology equipment.
LEGAL PROCEEDINGS
Telynx is a party to various claims and routine litigation arising in
the ordinary course of business. We do not believe that the results of any such
claim litigation, individually or in the aggregate, will have a material adverse
effect on our business, financial position or results of operations.
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<PAGE> 32
MANAGEMENT
The following table sets forth information regarding our executive officers and
directors
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Philip R. Chapman 39 Chairman of the Board
Ali Al-Dahwi 45 President, Chief Executive Officer and
Director
Anas El-Mahdi 33 Executive Vice President of Business
Development and Sales
Scott Munden 37 Executive Vice President of Product and
Technology
Kent J. Van Houten 46 Executive Vice President of Finance,
Chief Financial Officer and Secretary
Lin Meyer 53 Executive Vice President of Strategic
Partners and Alliances
</TABLE>
Philip R. Chapman has served as Chairman of the Board since September
1998. From April 1997 to September 1998, Mr. Chapman was a director of Cambio
Networks, Inc. Mr. Chapman is currently and has been for the past five years, a
General Partner of Adler & Company, which is a member of Euro-America Venture
Partners LLC, which is the general partner of Euro-America-II. Mr. Chapman is
presently a director of Shells Seafood Restaurants as well as several privately
held companies. Mr. Chapman holds a BS in Psychology and an MBA in Finance and
Marketing from Columbia University.
Ali Al-Dahwi has served as a Director since September 1998 and has
served as President and Chief Executive Officer since January 1999. From
September 1998 to January 1999, Mr. Al-Dahwi was President and Chief Operating
Officer. From July 1998 to September 1998, Mr. Al-Dahwi served as Vice President
of Marketing of Cambio Networks, Inc. From 1982 to 1998, Mr. Al-Dahwi held
various positions at Accugraph Corporation including Vice President and General
Manager - Global Complex Enterprise Network Business Unit from 1996 to 1998 and
Manager of International Operations from 1992 to 1996. Mr. Al-Dahwi holds a BS
in Civil Engineering from the University of Texas El Paso.
Anas El-Mahdi has served as Executive Vice President of Business
Development and Sales since January 2000. From June 1999 to December 1999 Mr.
El-Mahdi was Vice President of Business Development. Mr. El-Mahdi joined Telynx
in October of 1998. From April 1998 to October 1998, he was a consultant for
British Telecom in the United Kingdom. From September 1994 to March 1998, he was
a Telecommunications and Networking Consultant for Accugraph Corporation. From
September 1992 to August 1994, he was an Application Engineer for Opensoft. From
October 1990 to September 1992, he was a Development Engineer for AAW
32
<PAGE> 33
Consulting Engineers. Mr. El-Mahdi holds a BSc. degree in Engineering from the
Faculty of Engineering, Cairo University, Egypt.
Scott Munden has served as Executive Vice President of Research and
Development since January 2000. Mr. Munden was hired October 1998 as Director of
Product Marketing and Development, and was subsequently promoted in January 1999
to Vice President Operations before his recent promotion to Executive Vice
President of Research and Development. From 1996 to 1998 Mr. Munden was General
Manager IBIS Corporation. From 1987 to 1996, Mr. Munden held various positions
at Accugraph Corporation including Solutions Architect, Product Manager,
Regional Sales Manager and Technical Coordinator. From 1984 to 1987, Mr. Munden
held various positions at Wang Labs, Inc. including Technical Support Analyst
and Quality Control Auditor. Mr. Munden holds a BS in Economics from the
University of Texas El Paso.
Kent J. Van Houten has served as Executive Vice President of Finance,
Chief Financial Officer since June 2000. From January 2000 to April 2000, Mr.
Van Houten was a consultant with RF Monolithics, Inc. From May 1995 to October
1999, Mr. Van Houten was Chief Financial Officer, Secretary and Treasurer with
Peerless Mfg. Co. From 1975 to 1994, Mr. Van Houten held various positions with
National Gypsum Company, and its wholly owned Subsidiary, The Austin Company.
Mr. Van Houten holds a BBA in Accounting from Howard Payne University.
Lin Meyer has served as Executive Vice President of Strategic Partners
and Alliances since July 2000. Ms. Meyer was hired in April 1999 as Director
Telecom Sales and Channel Programs and was subsequently promoted on June 1999 to
Vice President Strategic Partners and Alliances before her recent promotion to
Executive Vice President of Strategic Partners and Alliances in July 2000.
Before her employment with Telynx, Ms. Meyer served as Regional Manager for
Beechwood Consulting from 1998 to April 1999. From 1989 to 1998 Ms. Meyer held
various positions with American Telephone &Telegraph. Ms. Meyer holds a BS
degree from Coe College.
BOARD OF DIRECTORS
We currently have authorized two directors. The current directors are
Philip Chapman and Ali Al-Dahwi. These directors hold office until each annual
meeting of stockholders or until their successors are elected or appointed.
Thereafter, at each annual meeting of stockholders the successors to the
directors will be elected to serve from the time of election and qualification
until the next annual meeting following election.
DIRECTOR COMPENSATION
Directors currently do not receive any cash compensation from Telynx
for their services as members of the Board of Directors, although members are
reimbursed for actual and reasonable out of pocket expenses in connection with
attendance at Board of Directors and Committee meetings.
EXECUTIVE COMPENSATION
The following table sets forth information with respect to compensation
as of June 30, 2000 during the last three fiscal years paid by us for services
by our Chief Executive Officer and our four other highest-paid executive
officers whose total salary and bonus for such fiscal year exceeded $100,000,
collectively referred to below as the Named Executive Officers:
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<PAGE> 34
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
--------------------
ANNUAL COMPENSATION NUMBER OF SECURITIES
FISCAL ------------------- OF OTHER
YEAR SALARY BONUS UNDERLYING OPTIONS COMPENSATION
------ ------ ----- -------------------- ------------
<S> <C> <C> <C> <C> <C>
Ali Al-Dahwi(1) 2000 $ 150,015 $19,370 555,000 0
1999 $ 112,512 $ 8,895 250,000 0
1998 0 0 0 0
Steve 2000 $ 135,000 $ 9,448 287,500 0
Dong 1999 $ 43,015 0 333,000 0
1998 0 0 0 0
Anas 2000 $ 124,167 $12,354 500,500 0
El-Mahdi 1999 $ 78,750 0 120,000 0
1998 0 0 0 0
Scott 2000 $ 105,000 $13,964 544,500 0
Munden 1999 $ 48,399 0 76,000 0
1998 0 0 0 0
Lin 2000 $ 100,000 0 150,000 0
Meyer 1999 $ 18,799 0 0 0
1998 0 0 0 0
</TABLE>
----------
(1) Mr. Al-Dahwi became President and Chief Operating Officer in September
1998.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth each grant of stock options during the
fiscal year ended June 30, 2000 to each of the Named Executive Officers. No
stock appreciation rights were granted during such fiscal year.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES IN PRICE EXPIRATION
GRANTED FISCAL 2000 ($/SHARE) DATE
---------- -------------- --------- ----------
<S> <C> <C> <C> <C>
Ali Al-Dahwi 621,771 12.0% $0.20 09/14/04
Steve Dong 336,373 6.0% $0.20 03/05/05
Anas El-Mahdi 514,584 10.0% $0.20 10/01/04
Scott Munden 544,500 10.0% $0.20 10/26/04
Lin Meyer 150,000 2.0% $0.20 04/19/05
</TABLE>
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<PAGE> 35
OPTION VALUES
The following table sets forth for each of the Named Executive Officers
options exercised and the number and value of securities underlying unexercised
options that are held by the Named Executive Officers as of June 30, 2000.
<TABLE>
<CAPTION>
SHARES NUMBER OF SECURITIES VALUE OF UNEXERCISED
ACQUIRED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT YEAR
ON VALUE OPTIONS AT YEAR END END ($)
EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
-------- -------- ------------------------- ----------------------------
<S> <C> <C> <C> <C>
Ali Al-Dahwi 1,216,771 $243,354 405,000/0 $ 45,562/$0
Steve Dong 333,000 $ 66,000 0/336,373 $ 0/$37,842
Anas El-Mahdi 14,584 $ 2,917 206,833/413,667 $23,269/$46,537
Scott Munden 0 0 206,833/413,667 $23,269/$46,537
Lin Meyer 0 0 50,000/100,000 $ 5,625/$11,250
</TABLE>
At this time the Company does not have a long-term incentive plan. The
Company does have an employment agreement with Mr. Al-Dahwi. The terms of the
contract generally provide for the following:
i. Salary of $150,000, with a bonus of 1.5% of sales.
ii. 1,000,000 options with each option being exercisable for 1
share of the Company's Class A Common Shares at $0.20 a share.
750,000 of the options vest over a three-year period and the
remaining 250,000 vested at issuance.
iii. The agreement has a one-year renewable term, which renews on
February 4, 2001.
iv. In the event of termination of the agreement, Mr. Al-Dahwi is
entitled to a severance payment of 6 months base salary
payable semi-monthly over 6 months, and all options
outstanding will vest.
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<PAGE> 36
PRINCIPAL STOCKHOLDERS
The following table sets forth information as relating to the
beneficial ownership of our common stock as of November 30, 2000, and as
adjusted to reflect the sale of shares of our common stock by the selling
stockholders, by:
o each beneficial owner of more than 5% of our common stock;
o each director of Telynx;
o each of our named executive officers;
o each selling stockholder; and
o all executive officers and directors as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF PERCENT OF SHARES OF
CLASS A COMMON STOCK CLASS A COMMON STOCK
NAME BENEFICIALLY OWNED BENEFICIALLY OWNED
<S> <C> <C>
Esquire Trade & Finance Inc. 4,709,874 9.4%
Trident Chambers
Road Town
Tortola, B.V.I.
Ibrahim El-Ibrahim 4,000,000 8.0%
Ali Al-Dahwi(1) 853,894 1.7%
Scott Munden(2) 512,545 1.0%
Anas El-Mahdi(3) 472,792 *
Philip Chapman(4) 268,141 *
Steve Dong 215,373 *
Lin Meyer(5) 50,000 *
All directors and
executive officers as a
group (6 persons) 2,422,745 4.8%
</TABLE>
----------
*LESS THAN 1%
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, based on factors including voting and
investment power with respect to shares. Percentage of beneficial ownership is
based on shares of our common stock outstanding as of November 27, 2000. Shares
of common stock subject to options or warrants currently exercisable, or
exercisable within 60 days after November 27, 2000, are
36
<PAGE> 37
deemed outstanding for the purpose of computing the percentage ownership of the
person holding such options or warrants, but are not deemed outstanding for
computing the percentage ownership of any other person. The address of the
individuals listed above is c/o Telynx.
(1) Includes 405,000 options.
(2) Includes 413,666 options.
(3) Includes 413,666 options.
(4) Includes 9,000 warrants held by Mr. Chapman and 6,000 warrants held by
his wife, Susan Chapman, for the purchase of Class A Common Stock. Mr.
Chapman disclaims beneficial ownership of these warrants.
(5) Represents 50,000 options.
RELATED PARTY TRANSACTIONS
There were no material interests, direct or indirect, of directors,
executive officers or senior officers or any known associate or affiliate of any
of the foregoing in any transaction during the last two years, or in any
proposed transaction which has materially affected or would materially affect us
or any of our subsidiaries and which is not otherwise disclosed herein except
for the following:
On February 2, 1999, we entered into an agreement with Imperial Loan
Management Corporation whereby we transferred all of the issued and outstanding
stock of our discontinued healthcare subsidiaries to Imperial, an affiliate of
our former Chairman and CEO, Harvey Wm. Glasser, M.D., who is overseeing the
liquidation of the Subsidiaries on behalf of Imperial. As part of the agreement,
Imperial will use its best efforts to liquidate each of the Subsidiaries,
settling outstanding obligations and collecting all amounts due. We remain a
guarantor of the Subsidiaries' outstanding indebtedness, which approximates
$677,808 as of September 30, 2000, and are entitled to receive one-half of
proceeds received after payment of all expenses. In connection with this
transaction, we recorded a charge to write-off the remaining net assets from
discontinued operations.
Frederick Adler, who purchased a significant portion of the Preferred
Stock offered in fiscal year 1999, is the father-in-law of the Chairman of the
Board, Philip Chapman.
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<PAGE> 38
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 205,000,000 shares of common
stock, $0.01 par value and 1,000,000 shares of preferred stock, $0.01 par value.
COMMON STOCK
As of October 20, 2000, there were 50,052,678 shares of common stock
outstanding, assuming the conversion of our preferred stock into common stock.
As of October 20, 2000, there are 3,235,000 shares of common stock subject to
the exercise of outstanding options. The holders of common stock are entitled to
one vote per share on all matters to be voted on by the stockholders. Subject to
preferences that may be applicable to any outstanding preferred stock, the
holders of common stock are entitled to receive ratably such dividends, if any,
as may be declared from time to time by the Board of Directors out of funds
legally available therefor. In the event of the liquidation, dissolution, or
winding up of Telynx, the holders of common stock are entitled to share ratably
in all assets remaining after payment of liabilities, subject to prior
distribution rights of preferred stock, if any, then outstanding. The common
stock has no preemptive or conversion rights or other subscription rights. There
are no redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are fully paid and non-assessable, and the
shares of common stock to be issued on completion of this offering will be fully
paid and non-assessable.
PREFERRED STOCK
There are 1,000,000 shares of preferred stock authorized and 500 shares
are outstanding. The 500 shares issued are convertible into shares of common
stock at a ratio of 500:1. Preferred stock has a priority over our common stock
with respect to dividends and to other distributions, including the distribution
of assets upon liquidation.
The Board of Directors has the authority to issue the preferred stock
in one or more series and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series or the designation
of such series, without further vote or action by the stockholders. We may be
obligated to repurchase or redeem any preferred stock that we chose. The
issuance of preferred stock may have the effect of delaying, deferring or
preventing a change in control of Telynx without further action by the
stockholders and may adversely affect the voting and other rights of the holders
of common stock. The issuance of preferred stock with voting and conversion
rights may adversely affect the voting power of the holders of common stock,
including the loss of voting control to others. At present, we have no plans to
issue any additional shares of preferred stock.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION, BYLAWS
AND DELAWARE LAW
Certificate of Incorporation and Bylaws. Our Bylaws provide that all
stockholder actions must be effected either at a duly called meeting or by a
consent in writing. Further, provisions of the Bylaws provide that the
stockholders may amend the Bylaws or certain provisions of the Certificate of
Incorporation with the affirmative vote of 50% of the capital stock.
Delaware Takeover Statute. We are subject to Section 203 of the
Delaware General Corporation Law, or DGCL, Section 203 which regulates corporate
acquisitions, prevents certain
38
<PAGE> 39
Delaware corporations from engaging, under certain circumstances in a "business
combination" with any "interested stockholder" for three years following the
date that such stockholder becomes an interested stockholder. For purposes of
DGCL Section 203, a "business combination" includes, among other things, a
merger or consolidation involving Telynx and the interested stockholder and the
sale of more than ten percent (10%) of Telynx's assets. In general DGCL Section
203 defines an "interested stockholder" as any entity or person beneficially
owning fifteen percent (15%) or more of the outstanding voting stock of Telynx
and any entity or person affiliated with or controlling or controlled by such
entity or person. A Delaware corporation may "opt out" of DGCL. Section 203 with
an express provision in its original certificate of incorporation or an express
provision in its certificate of incorporation or by-laws resulting from
amendments approved by the holders of at least a majority of the corporation's
outstanding voting shares. We have not "opted out" of the provisions of DGCL
Section 203.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the common stock is American Stock
Transfer and Trust Company.
SELLING STOCKHOLDERS
This prospectus relates to the registration of 130,598,040 shares of
common stock of Telynx for resale by certain selling stockholders. The following
table contains certain information about the selling stockholders and the shares
of common stock that they are offering pursuant to this prospectus.
PART A
<TABLE>
<CAPTION>
Number of Shares
Number of Shares Number of of Common Stock
of Common Stock Shares of Beneficially
Beneficially Common Stock Owned After
Owned Before the Registered The
Selling Stockholder Offering Herein Offering
------------------- ---------------- ------------- ----------------
<S> <C> <C> <C>
Ibrahim Al Ibrahim 4,000,000 4,000,000 0
C/O Joseph Strycharz
Merrill Lynch
1850 K Street, Suite 700
Washington, DC 20006
Ahmad Elebrahim 1,080,000 1,080,000 0
C/O Telynx, Inc.
6006 N. Mesa, Suite 515
El Paso, TX 79912
</TABLE>
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<PAGE> 40
<TABLE>
<S> <C> <C> <C>
Ghazi Alkhayyat 100,000 100,000 0
C/O Telynx, Inc.
6006 N. Mesa, Suite 515
El Paso, TX 79912
Trenton Development, Ltd. 1,911,800 1,911,800 0
C/O Telynx, Inc.
6006 N. Mesa, Suite 515
El Paso, TX 79912
Faris Faris 200,000 200,000 0
C/O Jordan Industrial
Petrochemical Co.,Ltd.
Jebal Amman, 3rd Circle
Jordan Insurance Building (B),
6th Floor
Amman, JORDAN
Habib Faris 200,000 200,000 0
C/O Jordan Industrial
Petrochemical Co.,Ltd.
Jebal Amman, 3rd Circle
Jordan Insurance Building (B),
6th Floor
Amman, JORDAN
Con Warren 20,000 20,000 0
C/O Phifer Consulting Group
P.O. Box 119
Lakewood, WA 98259
Andrew Hollands 20,000 20,000 0
C/O Phifer Consulting Group
P.O. Box 119
Lakewood, WA 98259
Stuart Vogelman 20,000 20,000 0
C/O Phifer Consulting Group
P.O. Box 119
Lakewood, WA 98259
James Darden 20,000 20,000 0
C/O Phifer Consulting Group
P.O. Box 119
Lakewood, WA 98259
Michael Barber 20,000 20,000 0
C/O Phifer Consulting Group
P.O. Box 119
Lakewood, WA 98259
</TABLE>
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<PAGE> 41
<TABLE>
<S> <C> <C> <C>
David C. Phifer 4,000 4,000 0
C/O Phifer Consulting Group
P.O. Box 119
Lakewood, WA 98259
Best Consulting 15,000 15,000 0
C/O Tom Grimm, Esq.
Inslee, Best, Doezie & Ryder,
P.S
Rainier Plaza, Suite 1900
777 - 108th Avenue N.E.
Bellevue, WA 98009
Mithoff/Burton & Partners, Inc. 44,678 44,678 0
4105 Rio Bravo Street
El Paso, TX 79902
Townsend & O'Leary Enterprixex, 13,562 13,562 0
Inc.,
C/O Mithoff Advertising Inc.
4105 Rio Bravo Street
El Paso, TX 79902
Strategic Management Services 15,000 15,000 0
15902 Coolwood Drive
Dallas, TX 75248
Parsons Project 994,000 994,000 0
c/o Telynx Inc.
6006 N. Mesa, Suite 600
El Paso, TX 79912
Lamya Al-Ali 1,680,000 1,680,000 0
c/o Telynx Inc.
6006 N. Mesa, Suite 600
El Paso, TX 79912
Taisir Hussein 200,000 200,000 0
c/o Telynx Inc.
6006 N. Mesa, Suite 600
El Paso, TX 79912
Gazem Abdulkhaleq 40,000 40,000 0
c/o Telynx Inc.
6006 N. Mesa, Suite 600
El Paso, TX 79912
PART B
The Keshet Fund L.P.(1) 2,833,333(6) 20,400,000(1) 0
Ragnall House, 18 Peel Road,
Douglas
Isle of Man
1M1 4L2 United Kingdom
Keshet L.P.(2) 3,583,333(6) 25,800,000(2) 0
Ragnall House, 18 Peel Road,
Douglas
Isle of Man
1M1 4L2 United Kingdom
Nesher Ltd.(3) 1,833,333(6) 13,200,000(3) 0
Ragnall House, 18 Peel Road,
Douglas
Isle of Man
1M1 4L2 United Kingdom
Talbiya B. Investments Ltd.(4) 1,750,000(6) 12,600,000(4) 0
Ragnall House, 18 Peel Road,
Douglas
Isle of Man
1M1 4L2 United Kingdom
Esquire Trade & Finance, Inc.(5) 11,376,540(6) 48,000,000(5) 0
Ragnall House, 18 Peel Road,
Douglas
Isle of Man
1M1 4L2 United Kingdom
</TABLE>
41
<PAGE> 42
(1) These shares are issuable pursuant to the equity line of credit agreement.
This selling stockholder, who is a subscriber under the equity line agreement,
may not be required to purchase more than 4.9% of the issued and outstanding
shares of Telynx pursuant to the terms of their agreements with Telynx. John
Clarke is a director of The Keshet Fund, L.P. and makes investment decisions on
behalf of The Keshet Fund L.P.
(2) These shares are issuable pursuant to the equity line of credit agreement.
This selling stockholder, who is a subscriber under the equity line agreement,
may not be required to purchase more than 4.9% of the issued and outstanding
shares of Telynx pursuant to the terms of their agreements with Telynx. John
Clarke is a director of Keshet L.P. and makes investment decisions on behalf of
Keshet L.P.
(3) These shares are issuable pursuant to the equity line of credit agreement.
This selling stockholder, who is a subscriber under the equity line agreement,
may not be required to purchase more than 4.9% of the issued and outstanding
shares of Telynx pursuant to the terms of their agreements with Telynx. John
Clarke is a director of Nesher Ltd. and makes investment decisions on behalf of
Nesher Ltd.
(4) These shares are issuable pursuant to the equity line of credit agreement.
This selling stockholder, who is a subscriber under the equity line agreement,
may not be required to purchase more than 4.9% of the issued and outstanding
shares of Telynx pursuant to the terms of their agreements with Telynx. John
Clarke is a director of Talbiya B. Investments Ltd. and makes investment
decisions on behalf of Talbiya.
(5) These shares are issuable pursuant to the equity line of credit agreement.
This selling stockholder, who is a subscriber under the equity line agreement,
may not be required to purchase more than 4.9% of the issued and outstanding
shares of Telynx pursuant to the terms of their agreements with Telynx. Gisela
Kindle is a director of Esquire Trade & Finance, Inc. and makes investment
decisions on behalf of Esquire.
(6) Includes shares issuable upon exercise of a convertible note issued to the
subscriber under the equity line agreement.
42
<PAGE> 43
PLAN OF DISTRIBUTION
We are registering the shares of common stock on behalf of the selling
stockholders. We will pay all costs, expenses and fees in connection with this
registration, except that the selling stockholders will pay underwriting
discounts and selling commissions, if any. We will not receive any of the
proceeds from the sale of the shares by the selling stockholders. We will
receive, however, the net sale price of any convertible notes or warrants that
are issued to the subscribers under the equity line agreement if, and to the
extent, we elect to put such securities to these entities. We did not have any
prior relationship with any of the subscribers under the equity line agreement.
When we refer to the "selling stockholders" in this prospectus, that term
includes donees and pledgees selling shares of common stock under this
prospectus which were received from the selling stockholders.
The selling stockholders may sell their shares at various times in one
or more of the following transactions:
o on the OTC Bulletin Board (or any other exchange on which the shares
may be listed);
o in the over-the-counter market;
o in negotiated transactions other than on such exchange;
o by pledge to secure debts and other obligations;
o in connection with the writing of non-traded and exchange-traded call
options, in hedge transactions, in covering previously established
short positions and in settlement of other transactions in standardized
or over-the-counter options; or
o in a combination of any of the above transactions.
The selling stockholders may sell their shares at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices, at negotiated prices or at fixed prices. The selling stockholders may
sell shares directly or may use broker-dealers to sell their shares. The
broker-dealers will either receive discounts or commissions from the selling
stockholders, or they will receive commissions from purchasers of shares. This
compensation may be in excess of customary commission.
The selling stockholders may also sell all or a portion of their shares
under Rule 144 under the Securities Act of 1933, or may pledge shares as
collateral for margin accounts. These shares could then further be resold
pursuant to the terms of such accounts.
Under certain circumstances, the selling stockholders and any
broker-dealers that participate in the distribution might be deemed to be
"underwriters" within the meaning of the Securities Act and any commission
received by them and any profit on the resale of the shares of common stock as
principal might be deemed to be underwriting discounts and commissions under the
Securities Act. The selling stockholders may agree to indemnify any agent,
dealer or broker-dealer that participates in transactions involving sales of the
shares against certain liabilities, including liabilities arising under the
Securities Act. Liabilities under the federal securities laws cannot be waived.
The subscribers under the equity line agreement are "underwriters"
within the meaning of the Securities Act of 1933, as amended in connection with
the sale of common stock offered by it under this prospectus. Other selling
stockholders may be deemed to be "underwriters" under the Securities Act.
Therefore, the selling stockholders will be subject to prospectus delivery
requirements under the Securities Act. Furthermore, in the event of a
"distribution" of their shares, the selling stockholders, any selling broker or
dealer and any "affiliated purchasers" may be subject to Rule 10b-6 under the
Exchange Act or Regulation M under the Exchange Act, which prohibits, with
certain exceptions, any such person from bidding
43
<PAGE> 44
for or purchasing any security which is the subject of such distribution until
such person's participation in that distribution is completed. In addition, Rule
10b-7 under the Exchange Act or Regulation M prohibits any "stabilizing bid" or
"stabilizing purchase" for the purpose of pegging, fixing or stabilizing the
price of the common stock in connection with this offering. We have informed the
selling stockholders that the anti-manipulative provisions of Regulation M
promulgated under the Exchange Act may apply to their sales in the market.
If we are notified by the selling stockholders that any material
arrangement has been entered into with a broker-dealer for the sale of shares
through a block trade, special offering, exchange distribution or secondary
distribution or a purchase by a broker or dealer, we will file a supplement to
this prospectus, if required, under Rule 424(b) under the Securities Act,
disclosing the following:
o the names of the selling stockholders and of the participating
broker-dealer(s);
o the number of shares involved;
o the price at which such shares were sold;
o the commissions paid or discounts or concessions allowed to such
broker-dealer(s), where applicable;
o that such broker-dealer(s) did not conduct any investigation to verify
the information set out or incorporated by reference in this
prospectus; and
o other facts material to the transaction.
In addition, if we are notified by the selling stockholders that a
donee or pledgee intends to sell more than 500 shares, we will file a supplement
to this prospectus.
The selling stockholders may be entitled under agreements entered into
with us to indemnification from us against liabilities under the Securities Act.
In order to comply with certain state securities laws, if applicable,
these shares of Class A common stock will not be sold in a particular state
unless they have been registered or qualified for sale in that state or any
exemption from registration or qualification is available and complied with.
LEGAL MATTERS
The validity of the issuance of the shares of common stock offered by
this prospectus will be passed upon for us by Fulbright & Jaworski L.L.P., New
York, New York. As of September 30, 2000, Frederick R. Adler, who is of counsel
to the firm, beneficially owned 1,322,000 shares of our common stock.
EXPERTS
The financial statements and schedules included in this prospectus and
in the Registration Statement have been audited by BDO Seidman, LLP, independent
certified public accountants to the extent and for the periods set forth in
their reports (which contain an explanatory paragraph regarding our ability to
continue as a going concern) appearing elsewhere herein and in the Registration
Statement and are included in reliance upon such reports given upon the
authority of said firm as experts in auditing and accounting. Grant Thornton
LLP, independent public accountants have audited our consolidated financial
statements at June 30, 1999, as set forth in their report.
44
<PAGE> 45
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission. You may inspect
and copy any document we file at the SEC's Public Reference Room at 450 Fifth
Street, N.W. Washington, D.C. 20549 or at the SEC's other public reference
facilities in New York, New York, or Chicago, Illinois. Please call the SEC at
1-800-SEC-0330 for further information on the public reference rooms. Our SEC
filings are also available to the public from the SEC's web site on the Internet
at http://www.sec.gov. This web site contains reports, proxy and information
statements and other information regarding our company and other registrants
that file electronically with the SEC.
We have filed a registration statement on Form SB-2 with the SEC
covering the shares of common stock being offered by means of this prospectus.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Our corporation is organized under the laws of the State of Delaware.
Section 145 of the DGCL, in general, empowers a Delaware corporation to
indemnify any person who was or is a party or is threatened to be made a party
to any lawsuit or proceeding (other than an action by or in the right of that
corporation) due to the fact that such person is or was a director, officer,
employee or agent of that corporation, or is or was serving at the request of
that corporation as a director, officer, employee or agent of another
corporation or entity. A corporation is also allowed, in advance of the final
disposition of a lawsuit or proceeding, to pay the expenses (including
attorneys' fees) incurred by any officer, director, employee or agent in
defending the action, as long as the person undertakes to repay this amount if
it is ultimately determined that he or she is not entitled to be indemnified by
the corporation. In addition, Delaware law allows a corporation to indemnify
these persons against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by any of them in
connection with the lawsuit or proceeding if (a) he or she acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interests of the corporation, and (b) with respect to any criminal action
or proceeding, had no reasonable cause to believe his or her conduct was
unlawful.
A Delaware corporation also can indemnify its officers and directors in
an action by or in the right of the corporation to procure a judgment in its
favor under the same conditions, except that judicial approval is needed to
indemnify any officer or director who is adjudged to be liable to the
corporation. Where an officer or director is successful on the merits or
otherwise in the defense of any such action, the corporation must indemnify him
or her against the expenses (including attorneys' fees) which he or she actually
and reasonably incurred in connection with this action. The indemnification
provided by Delaware law is not deemed to be exclusive of any other rights to
which an officer or director may be entitled under any corporation's own
organizational documents, agreements or otherwise.
As permitted by Section 145 of the DGCL, Article VI of our restated
certificate of incorporation provides that we will indemnify each person who is
or was our director, officer, employee or agent (including the heirs, executors,
administrators or estate of these individuals) or is or was serving at our
request as a director, officer, employee or agent of another entity, to the
fullest extent that the law permits. This indemnification is exclusive of any
other rights to which
45
<PAGE> 46
any of these individuals otherwise may be entitled. The indemnification also
continues after a person ceases to be a director, officer, employee or agent of
our company and inures to the benefit of the heirs, executors and administrators
of these individuals. Expenses (including attorneys' fees) incurred in defending
any lawsuit or proceeding are also paid by us in advance of the final
disposition of these lawsuits or proceedings after we receive an undertaking
from the indemnified person to repay this amount if it is ultimately determined
that he or she is not entitled to be indemnified by us. Article VI further
provides that our directors are not personally liable to us or our stockholders
for monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of his or her duty of loyalty to us or our
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the DGCL (which deals with unlawful dividends or stock purchases or
redemptions), or (iv) for any transaction from which he or she derived an
improper personal benefit. Our By-laws also provide that, to the fullest extent
permitted by law, we will indemnify any person who is a party or otherwise
involved in any proceeding because of the fact that he or she is or was a
director or officer of our company or was serving at our request.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to our directors, officers and controlling persons
pursuant to any of these foregoing provisions, or otherwise, we have been
advised that in the opinion of the SEC such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
46
<PAGE> 47
PART II INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the "DGCL")
empowers a Delaware corporation to indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of such corporation) by reason of the
fact that such person is or was a director, officer, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. A
corporation may, in advance of the final disposition of any civil, criminal,
administrative or investigative action, suit or proceeding, pay the expenses
(including attorneys' fees) incurred by any officer, director, employee or agent
in defending such action, provided that the director or officer undertakes to
repay such amount if it shall ultimately be determined that he or she is not
entitled to be indemnified by the corporation. A corporation may indemnify such
person against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding if he or she acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
A Delaware corporation may indemnify officers and directors in an
action by or in the right of the corporation to procure a judgment in its favor
under the same conditions, except that no indemnification is permitted without
judicial approval if the officer or director is adjudged to be liable to the
corporation. Where an officer or director is successful on the merits or
otherwise in the defense of any action referred to above, the corporation must
indemnify him or her against the expenses (including attorneys' fees) which he
or she actually and reasonably incurred in connection therewith. The
indemnification provided is not deemed to be exclusive of any other rights to
which an officer or director may be entitled under any corporation's by-law,
agreement, vote or otherwise.
In accordance with Section 145 of the DGCL, Article VI of the Company's
Restated Certificate of Incorporation (the "Certificate") provides that the
Company shall indemnify each person who is or was a director, officer, employee
or agent of the Company (including the heirs, executors, administrators or
estate of such person) or is or was serving at the request of the Company as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, to the fullest extent permitted. The
indemnification provided by the Certificate shall not be deemed exclusive of any
other rights to which any of those seeking indemnification or advancement of
expenses may be entitled under any by-law, agreement, vote of shareholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office, and shall
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of the heirs, executors and administrators
of such a person. Expenses (including attorneys' fees) incurred in defending a
civil, criminal, administrative or investigative action, suit or proceeding
shall be paid by the Company in advance of the final disposition of such action,
suit or proceeding upon receipt of an undertaking by or on behalf of the
indemnified person to repay such amount if it shall ultimately be determined
that he or she is not entitled to be indemnified by the Company. Article VI of
the Certificate further provides that a director of the Company shall not be
personally liable to the Company or its stockholders for monetary damages for
breach of
<PAGE> 48
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Company or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the DGCL, or (iv) for any
transaction from which the director derived an improper personal benefit. The
By-laws of the Company provide that, to the fullest extent permitted by
applicable law, the Company shall indemnify any person who is a party or
otherwise involved in any proceeding by reason of the fact that such person is
or was a director or officer of the Company or was serving at the request of the
Company.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the Company's estimates (other than of
the SEC registration fee) of the expenses in connection with the issuance and
distribution of the shares of common stock being registered:
<TABLE>
<S> <C>
SEC registration fee ................... $ 3,103.01
Legal fees and expenses ................ $ 10,000.00
Accounting fees and expenses ........... $ 10,000.00
Miscellaneous expenses ................. $ 1,896.99
-----------
Total: ................................. $ 25,000.00
</TABLE>
* estimated
None of these expenses are being paid by the selling stockholders.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
Sale of Preferred Stock
On January 31, 1999 our Board of Directors authorized for issuance
37,500 shares of Series B Convertible Preferred Stock. The Board on April 29,
1999 amended its earlier resolution to allow authorization of the issuance of up
to 62,500 shares of Preferred Stock. The Preferred Stock was issued at $100 per
share and is convertible into 500 shares of common stock.
On February 3, 1999 the following shares of Preferred Stock were
issued:
i. 7,548 shares were issued for the conversion of debt owing to
Frederick Adler in the amount of $754,800 and an additional 3,034 shares were
issued to Mr. Adler for $303,400 in cash; and
ii. 3,025 shares were issued for the conversion of debt owing to
Euro-America II, L.P. in the amount of $302,500 and an additional 1,216 shares
were issued to Euro-America II, L.P. for $121,600 in cash.
In the fourth quarter additional Preferred Stock was issued as follows:
i. 3,500 shares were issued for the conversion of debt in the amount of
$350,000; and
ii. 32,750 shares were issued for $3,275,000 in cash.
<PAGE> 49
In all, 51,073 shares of Series A Preferred Stock have been issued for
the conversion of $1,407,300 in debt and $3,700,000 for cash.
Sale of Additional Securities
On February 1, 2000, we consummated a private placement of common stock
pursuant to which we issued 666,666 shares of common stock at $0.15 a share for
an aggregate consideration of $100,000. Since February 2000 warrant holders have
exercised all of their warrants pursuant to which we issued 1,999,998 shares of
common stock at $0.15 a share for an aggregate consideration of $300,000. In
April 2000, we consummated a private placement of common stock pursuant to which
the Company issued 800,000 shares of common stock at $0.25 a share for an
aggregate consideration of $200,000. In May 2000, we consummated a private
placement of common stock pursuant to which we issued 2,780,000 shares of common
stock at $.25 a share for an aggregate consideration of $695,000.
Finally, in July 2000, we issued $1 million in principal amount of
convertible notes. In connection with this financing, we issued warrants to
purchase 1,250,000 shares of common stock. The subscribers in this financing
have agreed to purchase from us convertible notes up to the principal amount of
$17 million. This right is exercisable at our option. In connection with this
right, we are obligated to issue additional warrants to the subscribers.
The Company believes that these issuance and sales were exempt from
registration pursuant to Section 4(2) of the Securities Act.
<PAGE> 50
ITEM 27. EXHIBITS.
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
2.1 Agreement and Plan of Merger, dated April 3, 1998, between Meadowbrook
Rehabilitation Group, Inc., Interset, Inc., Cambio Networks, Inc., and
the securityholders named therein, filed as Exhibit 2.1 to the
Company's current report on Form 8-K dated April 22, 1998.
2.2 Agreement of Amendment, dated July 27, 1998, between Meadowbrook
Rehabilitation Group, Inc., Interset, Inc., Cambio Networks, Inc., and
the securityholders named therein, filed as Annex A to the Company's
Joint Information/Consent Solicitation Statement on Schedule 14C dated
August 14, 1998.
2.3 Secured Bridge Financial Note dated April 3, 1998, between Meadowbrook
Rehabilitation Group, Inc., and Cambio Networks, Inc., filed as Exhibit
2.2 to the Company's current report on Form 8-K dated April 22, 1998.
3.1 Amended and Restated Certificate of Incorporation of the Company, filed
as Exhibit 3.1 to the Company's Registration Statement on Form S-1
(Commission File No. 33-44197).
3.2 Amended and Restated By-Laws of the Company, filed as Exhibit 3.2 to
the Company's Registration Statement on Form S-1 (Commission File No.
33-44197).
3.3 Certificate of the Designations, Powers, Preferences, and Rights of the
Series B Convertible Preferred Stock, filed as Exhibit 10.4 to the
Company's Quarterly Report on Form 10 QSB for the quarter ended March
31, 1999.
3.4 Certificate of Amendment of Certificate of Incorporation, dated
November 28, 2000.*
4.1 Form of Convertible Note, dated as of July 27, 2000.
4.2 Form of Warrant, dated as of July 27, 2000.
5.1 Opinion of Fulbright & Jaworski L.L.P.
10.1 1994 Stock Incentive Plan of the Company filed as Exhibit 10.1 to the
Company's Annual Report on Form 10-K for the fiscal year ended June 30,
1995.
10.2 Agreement dated February 2, 1999 by and between Harvey Glasser, the
Company and certain security holders, filed as Exhibit 10.2 to the
Company's Quarterly Report on Form 10-QSB for the quarter ended
December 31, 1998.
10.3 Agreement dated February 2, 1999 by and between Imperial Loan
Management Corporation, Telynx, Inc. and Medbrook Home Health, Inc.,
filed as Exhibit 10.3 to the Company's Quarterly Report on Form 10-QSB
for the quarter ended December 31, 1998.
<PAGE> 51
10.4 Form of Subscription Agreement, dated as of July 27, 2000, between the
Company and the subscribers named therein.
21.1 Subsidiaries of the Company, as filed as Exhibit 21.1 to the Company's
Annual Report on Form 10-KSB for the year ended June 30, 1999.
23.1 Consent of BDO Seidman, LLP.*
23.2 Consent of Grant Thornton LLP.*
24.1 Power of Attorney.*
27.1 Financial Data Schedule, filed with the Company's Annual Report on Form
10-KSB for the year ended June 30, 2000.
--------------
* Previously filed.
ITEM 28. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement; provided,
however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
<PAGE> 52
(b) insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described under Item 15 above, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective by the Securities and
Exchange Commission.
(2) For the purposes of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
<PAGE> 53
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CAMBIO, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Certified Public Accountants - BDO Seidman, LLP...................................F-2
Report of Independent Certified Public Accountants - Grant Thornton, LLP................................F-3
Consolidated Financial Statements:
Balance Sheets.................................................................................F-4
Statements of Operations.......................................................................F-5
Statements of Stockholders' Deficit ...........................................................F-6
Statements of Cash Flows.......................................................................F-7
Notes to Financial Statements..................................................................F-8 - F-17
</TABLE>
F-1
<PAGE> 54
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders of
Cambio, Inc.
We have audited the accompanying consolidated balance sheet of Cambio, Inc. (a
Delaware corporation) and subsidiaries as of June 30, 2000, and the related
consolidated statements of operations, stockholders' deficit and cash flows for
the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Cambio,
Inc. and subsidiaries as of June 30, 2000, and the consolidated results of their
operations and their cash flows for the year then ended, in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As shown in the consolidated
financial statements, the Company incurred a net loss of $5,385,000 during the
year ended June 30, 2000, and, as of that date, the Company's liabilities
exceeded its current assets and total assets by $3,179,000 and $3,117,000,
respectively. These factors, among others, as discussed in Note 2 to the
consolidated financial statements, raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 2. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
BDO Seidman, LLP
Dallas, Texas
September 22, 2000
F-2
<PAGE> 55
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders of
Cambio, Inc.
We have audited the accompanying consolidated statements of operations,
stockholders' deficit and cash flow of Cambio, Inc. (a Delaware corporation) and
subsidiaries for the year ended June 30, 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
Cambio, Inc. and subsidiaries for the year ended June 30, 1999, in conformity
with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As shown in the consolidated
financial statements, the Company incurred a net loss of $10,015,000 during the
year ended June 30, 1999, and, as of that date, the Company's current
liabilities exceeded its current assets by $1,381,000 and its total liabilities
exceeded its total assets by $1,215,000. These factors, among others, as
discussed in Note 2 to the consolidated financial statements, raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 2. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ GRANT THORNTON LLP
San Jose, California
September 1, 1999
F-3
<PAGE> 56
CAMBIO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, September 30,
ASSETS 2000 2000
------ ------------ ------------
(Unaudited)
<S> <C> <C>
Current Assets
Cash and cash equivalents.................................................. $ 302,000 $ 514,000
Accounts receivable........................................................ 161,000 233,000
Deposits and prepaid expenses.............................................. 25,000 63,000
------------ ------------
Total Current Assets.................................................... 488,000 810,000
Deferred financing cost, net................................................... -- 113,000
Property and equipment, net.................................................... 62,000 77,000
------------ ------------
$ 550,000 $ 1,000,000
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
Current Liabilities
Accounts payable and accrued liabilities................................... $ 2,496,000 $ 2,309,000
Liabilities of discontinued operations..................................... 678,000 678,000
Notes payable to stockholders.............................................. 478,000 479,000
Deferred revenue........................................................... 15,000 83,000
------------ ------------
Total current liabilities............................................... 3,667,000 3,549,000
------------ ------------
Convertible notes payable to investors......................................... -- 1,000,000
Commitments and contingencies
Stockholders' deficit
Common stock, $.01 par value - 55,000,000 shares authorized;
39,359,350 shares issued and outstanding................................ 393,000 497,000
Preferred stock, $.01 par value - 1,000,000 shares authorized;
4,567 shares issued and outstanding..................................... -- --
Paid-in capital............................................................ 26,447,000 27,203,000
Accumulated deficit........................................................ (29,957,000) (31,249,000)
------------ ------------
Total stockholders' deficit............................................. (3,117,000) (3,549,000)
------------ ------------
Total liabilities and stockholders' deficit............................. $ 550,000 $ 1,000,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE> 57
CAMBIO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
June 30, September 30,
------------------------------ -------------------------
2000 1999 2000 1999
------------ ------------- ----------- ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net revenues...................................... $ 983,000 $ 823,000 $ 120,000 $ 228,000
Cost of revenue................................... 264,000 286,000 4,000 113,000
------------ ------------- ----------- ------------
Gross profit.............................. 719,000 537,000 116,000 115,000
------------ ------------- ----------- ------------
Operating expenses
Sales and marketing............................ 1,121,000 245,000 277,000 293,000
Services....................................... 421,000 214,000 123,000 187,000
Research and development....................... 594,000 280,000 173,000 131,000
Administrative and general expenses............ 3,894,000 3,912,000 809,000 696,000
------------ ------------- ----------- ------------
Total operating expenses.................. 6,030,000 4,651,000 1,382,000 1,307,000
------------ ------------- ----------- ------------
Loss from operations...................... (5,311,000) (4,114,000) (1,266,000) (1,192,000)
Other income (expense)
Interest income................................ 24,000 13,000 -- 11,000
Interest expense............................... (98,000) (66,000) (26,000) (19,000)
Write-off of goodwill.......................... -- (4,850,000) -- --
Other, net..................................... -- 15,000 -- --
------------ ------------- ----------- ------------
Total other expense....................... (74,000) (4,888,000) (26,000) (8,000)
------------ ------------- ----------- ------------
Loss from continuing operations................ (5,385,000) (9,002,000) (1,292,000) (1,200,000)
Discontinued operations
Loss from disposal of discontinued operations.. -- (1,013,000) -- --
------------ ------------- ----------- ------------
Loss from discontinued operations.............. -- (1,013,000) -- --
------------ ------------- ----------- ------------
Net loss.......................................... $ (5,385,000) $ (10,015,000) $(1,292,000) $ (1,200,000)
============ ============= =========== ============
Basic and diluted net loss per common share-
continued operations............................ $ (0.38) $ (2.52) $ (0.03) $ (0.30)
Basic and diluted net loss per common share-
discontinued operations......................... $ -- $ (0.28) $ -- $ --
------------ ------------ ----------- ------------
Basic and diluted net loss per common share....... $ (0.38) $ (2.80) $ (0.03) $ (0.30)
============ ============= =========== ============
Weighted average shares outstanding............... 14,190,965 3,574,460 43,428,492 3,968,961
============ ============= =========== ============
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE> 58
CAMBIO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED JUNE 30, 1999 AND 2000
<TABLE>
<CAPTION>
Preferred Stock Class A Class B
------------------ --------------------- ---------------------
Shares Amount Shares Amount Shares Amount
------- ------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance June 30, 1998 -- $ -- 1,434,069 $ 14,000 1,159,500 $ 12,000
Net Loss -- -- -- -- -- --
Issuance of Common
Stock in connection
with Cambio Networks,
Inc. acquisition -- -- 1,238,842 -- 12,000 --
Conversion of debt into
preferred stock 14,073 -- -- -- -- --
Issuance of Preferred
Stock 37,000 1,000 -- -- -- --
Conversion of Class B
to Class A stock -- -- 1,159,500 12,000 (1,159,500) (12,000)
------- ------- ---------- -------- ---------- --------
Balance, June 30, 1999 51,073 1,000 3,832,411 38,000 -- --
Net Loss -- -- -- -- -- --
Issuance of Common Stock
including 7,186,000
shares issued for
proceeds of $1,483,000 -- -- 12,273,939 123,000 -- --
Conversion of Preferred
Stock into Class A
stock (46,506) (1,000) 23,253,000 232,000 -- --
Options Granted and
Warrants Issued -- -- -- -- -- --
------- ------- ---------- -------- ---------- --------
Balance, June 30, 2000 4,567 -- 39,359,350 393,000 -- --
Net Loss (unaudited) -- -- -- -- -- --
Issuance of Common
Stock (unaudited) -- -- 8,300,000 83,000 -- --
Conversion of Preferred
Stock to Class A Stock
(unaudited) (4,067) -- 2,100,000 21,000 -- --
------- ------- ---------- -------- ---------- --------
Balance, September 30, 2000
(unaudited) 500 $ -- 49,759,350 $497,000 -- --
======= ======= ========== ======== ========== ========
</TABLE>
<TABLE>
<CAPTION>
Total
Paid-in Accumulated Stockholders'
Capital Deficit Deficit
----------- ------------ -------------
<S> <C> <C> <C>
Balance June 30, 1998 $17,605,000 $(14,557,000) $ 3,074,000
Net Loss -- (10,015,000) (10,015,000)
Issuance of Common
Stock in connection
with Cambio Networks,
Inc. acquisition 607,000 -- 619,000
Conversion of debt into
preferred stock 1,407,000 -- 1,407,000
Issuance of Preferred
Stock 3,699,000 -- 3,700,000
Conversion of Class B
to Class A stock -- -- --
----------- ------------ ------------
Balance, June 30, 1999 23,318,000 (24,572,000) (1,215,000)
Net Loss -- (5,385,000) (5,385,000)
Issuance of Common Stock
including 7,186,000
shares issued for
proceeds of $1,483,000 3,127,000 -- 3,250,000
Conversion of Preferred
Stock into Class A
stock (231,000) -- --
Options Granted and
Warrants Issued 233,000 -- 233,000
----------- ------------ ------------
Balance, June 30, 2000 26,447,000 (29,957,000) (3,117,000)
Net Loss (unaudited) -- (1,292,000) (1,292,000)
Issuance of Common
Stock (unaudited) 777,000 -- 860,000
Conversion of Preferred
Stock to Class A Stock
(unaudited) (21,000) -- --
----------- ------------ ------------
Balance, September 30, 2000
(unaudited) $27,203,000 $(31,249,000) $ (3,549,000)
=========== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE> 59
CAMBIO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
June 30, September 30,
---------------------------- ---------------------------
2000 1999 2000 1999
----------- ------------- ----------- ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss .......................................... $(5,385,000) $ (10,015,000) $(1,292,000) $ (1,200,000)
Adjustments to reconcile net loss to cash used
in operating:
Depreciation and amortization................. 97,000 195,000 28,000 28,000
Write-off of goodwill......................... -- 4,850,000 -- --
Expenses and settlements paid with equity..... 1,594,000 -- 161,000 17,000
Gain on sale of equipment..................... -- (2,000) -- --
Loss from discontinued operations............. -- 1,013,000 -- --
Changes in assets and liabilities:
Receivables................................. 42,000 (5,000) (72,000) 3,000
Prepaid expenses............................ 10,000 60,000 (38,000) 10,000
Other assets................................ 12,000 (25,000) -- --
Net assets of discontinued operations....... -- (211,000) -- --
Accounts payable and accrued liabilities 214,000 74,000 (187,000) 40,000
Deferred revenue............................ (77,000) (123,000) 68,000 (88,000)
----------- ------------- ----------- ------------
Net cash used in operating activities...... (3,493,000) (3,289,000) (1,332,000) (1,190,000)
----------- ------------- ----------- ------------
Cash flows from investing activities:
Proceeds from sale of equipment.................... -- 25,000 -- --
Additions to property and equipment................ (18,000) (143,000) (36,000) (9,000)
Cash advanced to acquired company.................. -- (638,000) -- --
Costs related to acquisition....................... -- (100,000) -- --
----------- ------------- ----------- ------------
Net cash used in investing activities..... (18,000) (856,000) (36,000) (9,000)
----------- ------------- ----------- ------------
Cash flows from financing activities:
Proceeds from issuance of convertible debt......... -- -- 880,000 --
Proceeds from issuance of common stock............. 1,483,000 3,700,000 675,000 --
Proceeds from exercise of stock options............ -- -- 24,000 36,000
Borrowings on debt................................. 407,000 64,000 -- --
Net proceeds of loans collateralized by assets of
discontinued operations......................... -- 678,000 -- --
Decrease in restricted cash........................ -- 302,000 -- --
Other.............................................. -- -- 1,000 --
----------- ------------- ----------- ------------
Net cash provided by financing
activities.............................. 1,890,000 4,744,000 1,580,000 36,000
----------- ------------- ----------- ------------
Net increase (decrease) in cash and cash
equivalents....................................... (1,621,000) 599,000 212,000 (1,163,000)
Cash and cash equivalents, beginning of period...... 1,923,000 1,324,000 302,000 1,923,000
----------- ------------- ----------- ------------
Cash and cash equivalents, end of period............ $ 302,000 $ 1,923,000 $ 514,000 $ 760,000
=========== ============= =========== ============
Supplemental disclosure of cash flow information:
Interest paid ................................ $ 17,000 $ 21,000 $ -- $ 11,515
Income taxes paid ............................ $ -- $ -- $ -- $ --
Supplemental disclosure of non-cash investing and
financing activities:
Purchase of Cambio Networks, Inc.
Common stock issued to seller..................... -- 619,000 -- --
Liabilities assumed (including cash advanced
prior to acquisition of $1,513,000)............. -- 4,658,000 -- --
</TABLE>
See accompanying notes to consolidated financial statements
F-7
<PAGE> 60
CAMBIO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Acquisition costs................................... -- 100,000 -- --
----------- ------------- ----------- ------------
Assets acquired (including goodwill of
$4,875,000) $ -- $ 5,377,000 $ -- $ --
=========== ============= =========== ============
Conversion of debt into preferred stock............. $ -- $ 1,207,000 $ -- $ --
=========== ============= =========== ============
Conversion of debt into common stock................ $ 406,000 $ -- $ -- $ --
=========== ============= =========== ============
Conversion of preferred stock into common stock..... $ 232,000 $ -- $ -- $ --
=========== ============= =========== ============
</TABLE>
See accompanying notes to consolidated financial statements
F-8
<PAGE> 61
CAMBIO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND OPERATIONS
Cambio, Inc. ("Cambio" or the "Company"), formerly Meadowbrook
Rehabilitation Group, Inc., acquired Cambio Networks, Inc. ("Networks") on
September 14, 1998. The Company currently provides professional services and
supplies software products for operations support systems of telecommunications
networks. The Company's primary product is netRunner(TM). The Company's
corporate headquarters is in Dallas, Texas. The Company's accounting, finance,
and research and development functions are located in El Paso, Texas. The
Company also has sales executives located in the United Kingdom and Egypt.
Prior to the acquisition of Networks, the Company provided outpatient,
home health, and traditional acute, sub-acute and post-acute comprehensive
rehabilitation services through several subsidiaries. In the fourth quarter of
fiscal 1998, the Company's Board of Directors decided to discontinue the
Company's remaining rehabilitation operations due to continued losses and a
diminishing market for the Company's services. Previously, several of the
Company's service locations and units had been sold or otherwise disposed. In
connection with the decision to discontinue the remaining operations, the
Company recorded a charge of $1,563,000 for the write down of tangible and
intangible assets, termination and severance costs and other costs of disposal.
As of June 30, 1998, all health care operations had substantially ceased and the
Company's assets consisted almost exclusively of cash and accounts receivable.
On February 2, 1999, Cambio transferred all of the issued and
outstanding stock of the discontinued healthcare subsidiaries (the
"Subsidiaries") to Imperial Loan Management Corporation ("Imperial"), an
affiliate of the Company's former Chairman and CEO, Harvey Wm. Glasser M.D. Dr.
Glasser, who in February 1999 resigned his position as CEO and in March 1999
resigned from the Board of Directors, is overseeing the liquidation of the
Subsidiaries on behalf of Imperial. The Company received no proceeds from the
transfer. Prior to the transfer, Imperial loaned $900,000 to the Subsidiaries
and Cambio, represented by 10% notes payable. Imperial will use its best efforts
to liquidate each of the Subsidiaries, settle outstanding obligations and
collect all amounts receivable. Cambio remains a guarantor of the Imperial
loans, amounting to $678,000 as of June 30, 2000. Upon liquidation of the
Subsidiaries and settlement of the outstanding indebtedness, Cambio is entitled
to receive one-half of the proceeds remaining after payment of Imperial's
expenses. At June 30, 2000, the assets and liabilities of the discontinued
businesses consist primarily of the accounts receivable and the Imperial loans.
The Company considers the realization of the remaining assets to be unlikely and
the assets have been fully provided for. All other material obligations of the
Subsidiaries have been settled except for the Imperial loans.
Results of discontinued operations are as follows:
<TABLE>
<CAPTION>
2000 1999
-------------- --------------
<S> <C> <C>
Net revenues......................................................... $ -- $ --
Net expenses......................................................... -- --
-------------- --------------
Net loss from operations of discontinued businesses.................. $ -- $ --
============== ==============
Net loss on disposal of discontinued businesses...................... $ -- $ (1,013,000)
============== ===============
</TABLE>
The operations of Networks are reflected in the Company's fiscal year
1999 results from the date that Networks was acquired by the Company. Pro forma
results for 1999 are not presented, as the results would not be materially
different than the results reported.
F-9
<PAGE> 62
NOTE 2 - GOING CONCERN
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As shown in the
consolidated financial statements, the Company incurred net losses of $5,385,000
and $10,015,000 during the years ended June 30, 2000 and 1999, and, as of June
30, 2000, the Company's liabilities exceeded its current assets and total assets
by $3,179,000 and $3,117,000, respectively. These conditions give rise to
substantial doubt about the Company's ability to continue as a going concern.
In addition to the subscription agreement mention below, the Company
continues to seek additional funding through various financing arrangements. The
Company plans to fund its operations for the next twelve months from additional
proceeds, as discussed in Note 11, and ongoing operations. If the investors in
the subscription agreement default, the Company's liquidity will be impaired,
which could have a material adverse effect on its business.
As discussed in Note 11, subsequent to year-end the Company entered
into a Subscription Agreement (the "Subscription Agreement") whereby the Company
offered for sale up to $17,000,000 principal amount of 6% convertible notes (the
"Notes") and issuance of common stock purchase warrants, as defined in the
Subscription Agreement. Through September 22, 2000, the Company sold $1,000,000
in Notes with proceeds, net of fees, of $880,000.
NOTE 3 - SUMMARY OF ACCOUNTING POLICIES
A summary of the Company's significant accounting policies applied in
the preparation of the accompanying financial statements follows.
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements as of September 30, 2000 and for
the three months ended September 30, 2000 and 1999 are unaudited, and have been
prepared on the same basis as the audited financial statements included herein.
In the opinion of management, such unaudited financial statements include all
adjustments consisting of normal recurring accruals necessary to present fairly
the information set forth therein. Results for interim periods are not
indicative of results to be expected for an entire year.
REVENUE RECOGNITION
Revenue is recognized when earned in accordance with American Institute
of Certified Public Accountants Statements of Position ("SOP") 97-2, "Software
Revenue Recognition" as amended by SOP 98-9. Revenue from products licensed to
customers directly is recorded when the software has been delivered. Maintenance
revenue is recognized ratably over the contract period. Revenue from
professional services are recorded monthly when the services are performed and
invoiced. Provisions are recorded for returns and bad debts.
CONSOLIDATION
The consolidated financial statements include the accounts of Cambio
and Networks. All significant intercompany accounts and transactions have been
eliminated.
F-10
<PAGE> 63
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation
and amortization. Depreciation and amortization are provided for under the
straight-line method in amounts sufficient to relate the cost of depreciable
assets to operations over their estimated service lives, which range from one to
five years. Leasehold improvements are amortized over the lesser of the lease
term or the estimated useful life of the assets.
RESEARCH AND DEVELOPMENT COSTS
All expenditures for research and development are expensed when
incurred. Software development costs are charged to expense until technological
feasibility of the computer software product has been established. No software
development costs have been capitalized to date, as costs incurred after
establishing technological feasibility have been immaterial.
INCOME TAXES
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. When management determines that it is more likely than not that a
deferred tax asset will not be realized, a valuation allowance is established.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of cash and cash equivalents, accounts receivables and
accounts payables approximates carrying value due to the short maturity of such
instruments. The fair value of debt with related parties is not readily
determinable due to the terms of the debt and no comparable market for such
debt.
USE OF ESTIMATES
In preparing the Company's financial statements, management is required
to make estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
EARNINGS PER SHARE
Basic earnings per share is computed using the weighted average number
of common shares outstanding during the period. Diluted earnings per share is
computed using the weighted average number of common and dilutive potential
common shares outstanding during the period. Potential common shares, consist of
options and warrants, have not been included in computing diluted EPS for 2000
and 1999 as their effects are antidilutive.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents.
F-11
<PAGE> 64
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash equivalents and trade
accounts receivable. Cash equivalents are maintained with high quality
institutions and are regularly monitored by management. The Company extends
credit to its customers, most of whom are large, established companies. Credit
risk is mitigated by performing ongoing credit evaluations of its customers'
financial condition. The Company generally does not require collateral. The
Company provides an allowance for expected uncollectible amounts and actual
amounts not collected have been within management's expectations.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company accounts for stock-based awards to employees using the
intrinsic value method in accordance with Accounting Principles Board Opinion
No. 25, "Accounting For Stock Issued To Employees." The Company provides
additional pro forma disclosures as required under Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting For Stock-Based
Compensation."
SEGMENT REPORTING
The Company currently has one operating segment based on the markets in
which the Company operates and the information used to manage the business.
Identifiable assets held outside the United States are not material. Revenues
attributable to customers outside the United States, amounted to $665,000 and
$147,000, primarily in Egypt and Malaysia, respectively, in 2000 and $479,000,
primarily in Egypt, in 1999.
GOODWILL
In 1999, the Company recorded an impairment loss on the goodwill
associated with the Networks acquisition, as the products obtained in the
acquisition were no longer being sold by the Company.
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Board has issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, as amended by SFAS No. 137, which
is effective for financial statements issued for periods beginning after June
15, 2000. SFAS No. 133 establishes accounting and reporting standards for
derivative instruments and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. The adoption is
not expected to materially impact the results of operations, financial position
and financial statement disclosures in the period in which it is adopted, and is
not expected to have a significant impact on future financial statements.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SFAS 101"), "Revenue Recognition in
Financial Statements." SAB 101 outlines the basic criteria that must be met to
recognize revenue and provides guidance for disclosure related to revenue
recognition policies. In June 2000, the SEC issued SAB 101B that delayed the
implementation date of SAB 101 until the quarter ended December 31, 2000 with
retroactive application to the beginning of our fiscal year. The Company does
not expect the adoption of SAB 101 to have a material impact on its financial
position of results of operations.
In March 2000, the FASB issued Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation - an Interpretation of APB No.
25" ("FIN 44"). FIN 44 clarified the application of Opinion No. 25 for certain
issues including: (a) the definition of employee for purposes of applying
Opinion No. 25, (b) the criteria for determining whether a plan qualifies as a
non-compensatory plan, (c) the accounting consequences of
F-12
<PAGE> 65
various modifications to the terms of a previously fixed stock option or various
modifications to the terms of a previously fixed stock option or award, and (d)
the accounting for an exchange of stock compensation awards in a business
combination. In general, FIN 44 is effective July 1, 2000. The Company does not
expect the adoption of FIN 44 to have a material impact on its financial
position or results of operations.
RECLASSIFICATIONS
Certain items in 1999 have been reclassified to conform to the 2000
presentation. These reclassifications have no effect on the Company's financial
position or results of operations.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
June 30,
2000
-----------
<S> <C>
Office and computer equipment............................................................ $ 289,000
Leasehold improvements................................................................... 27,000
-----------
316,000
Less accumulated depreciation and amortization .......................................... 254,000
-----------
$ 62,000
===========
</TABLE>
NOTE 5 - NOTES PAYABLE TO STOCKHOLDERS
The Company has promissory notes payable to common stockholders of
$250,000, bearing interest at 7% per annum, due on demand, collateralized by
first position on all assets of the Company.
In addition, during fiscal 2000 the Company entered into an unsecured
promissory note agreement with an executive officer of the Company in the amount
of $245,000. This note, bearing interest at 8% per annum, is due on demand. At
June 30, 2000 the balance due under this note was $228,000.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases its office and service facilities and certain
equipment under noncancelable and month-to-month operating lease agreements,
which expire at various dates through 2005. Future minimum lease payments under
these agreements for the fiscal years ending June 30, are as follows:
<TABLE>
<CAPTION>
<S> <C>
2001 ................................................................................... $ 241,000
2002 ................................................................................... 126,000
2003 ................................................................................... 111,000
2004 ................................................................................... 104,000
2005 ................................................................................... 104,000
-----------
$ 686,000
===========
</TABLE>
Rent expense for the years ended June 30, 2000 and 1999 was $309,000
and $419,000, respectively.
F-13
<PAGE> 66
CONTINGENCIES
The Company is subject to Value Added Tax in the United Kingdom
resulting from the acquisition of Networks and is currently in the process of
finalizing the tax liability for all years since 1995. Management believes any
liability the Company may owe will not be material to the financial statements.
The Company is involved in certain claims and lawsuits occurring in the
normal course of business. Management, after consultation with outside legal
counsel, does not believe that the outcome of these actions would have a
material impact on the financial statements of the Company.
NOTE 7 - EMPLOYEE BENEFIT PLANS
The Company has a defined contribution savings plan (401(k)) covering
substantially all employees who have completed three months of service. At the
discretion of the Board of Directors, the Company can match 50% of employee
contributions up to a total contribution of 3% of each employee's annual salary.
There were no employer contributions in 2000 and 1999.
NOTE 8 - STOCKHOLDERS' EQUITY
COMMON STOCK
The Company has authorized 50,000,000 shares of Class A and 5,000,000
shares of Class B Common Stock. During 1999, all shares of Class B Common Stock
were converted into Class A Common Stock.
During 2000, the Company exchanged 2,348,000 shares of Class A Common
Stock as compensation for services. Expenses of $1,504,000 have been recognized
in connection with these issuances.
SALE OF PREFERRED STOCK
During 1999, the Company's Board of Directors approved the issuance of
up to 62,500 shares of a newly created Convertible Preferred Stock designated as
Series B (the "Preferred Stock") for $100 per share. Each share of Preferred
Stock is convertible into 500 shares of the Company's Class A Common Stock and
is entitled to receive dividends in an amount equal to the equivalent per share
dividend declared on the Class A Common Stock when and as declared by the Board
of Directors. During 2000, certain preferred shareholders elected to convert
46,506 shares of Preferred Stock into 23,253,000 shares of Class A Common Stock.
STOCK DIVIDEND
In April 1998, the Company effected a three for two stock split paid as
a dividend in the form of shares at the rate of one share for every two shares
of stock owned at the date of reward. The Company has retroactively reflected
the stock dividend in the financial statements for all periods presented.
CONVERSION OF DEBT TO EQUITY
During 2000, the Company converted notes payable of $178,000 into
790,000 shares of the Company's Class A Common Stock. Also during 2000, the
Company converted trade payables and other liabilities of $228,000 into 608,000
shares of the Company's Class A Common Stock.
F-14
<PAGE> 67
In February 1999 and May 1999, the Company converted debt and accrued
interest of $1,057,000 and $350,000 into 10,573 and 3,500 shares of the
Company's Preferred Stock.
STOCK PLAN
The Company has in place the 1994 Stock Incentive Plan which has
1,022,500 shares available for grant. No options are outstanding from this plan.
Nonqualified stock options granted to employees in 1999 outside the 1994 plan
generally vest within three years and terminate ten years from the date of
grant.
Employee stock option activity is summarized as follows:
<TABLE>
<CAPTION>
Weighted
Average
Exercise
Price
Shares Per Share
------------ -----------
<S> <C> <C>
Balance at June 30, 1998............................................ 30,000 $ 2.73
Granted........................................................ 2,567,000 .20
Exercised...................................................... --
Cancelled...................................................... (30,000) 2.73
------------ -----------
Balance at June 30, 1999............................................ 2,567,000 $ .20
Granted........................................................ 3,684,000 .20
Exercised...................................................... (1,728,000) .20
Cancelled...................................................... (1,288,000) .20
------------ -----------
Balanced at June 30, 2000 3,235,000 $ .20
============ ===========
</TABLE>
The following table summarizes information about stock options
outstanding as of June 30, 2000:
<TABLE>
<CAPTION>
Weighted Weighted
Average Average
Exercise Number Exercise Remaining Number
Price Outstanding Price Life (Years) Exercisable
-------- ----------- -------- ------------ -----------
<S> <C> <C> <C> <C>
$ .20 3,235,000 $ .20 5 1,325,000
</TABLE>
The following table depicts the Company's pro forma results had
compensation expense for employee stock options been determined based on the
fair value at the grant dates as prescribed in SFAS No. 123:
<TABLE>
<CAPTION>
2000 1999
------------- --------------
<S> <C> <C>
Net loss applicable to common shareholders..........................
As reported.................................................... $ (5,385,000) $ (10,015,000)
Pro forma...................................................... (5,594,000) (10,329,000)
Basic and diluted net loss per share................................
As reported.................................................... $ (.38) $ (2.80)
Pro forma...................................................... (.39) (2.89)
</TABLE>
F-15
<PAGE> 68
The fair value of each option grant was determined using the
Black-Scholes model. The weighted average fair value of options granted to
employees was $.24 and $.20 in 2000 and 1999, respectively. The following
weighted average assumptions were used to perform the calculations: expected
life of 5 years; interest rate of 6%; volatility of 205% in 2000 and 390% in
1999; and no dividend yield. The pro forma disclosures above may not be
representative of pro forma effects on reported financial results for future
years.
During 2000, the Company issued 250,000 shares of Class A Common Stock
to an employee of the Company. Compensation expense of $90,000 has been
recognized in connection with this issuance.
WARRANTS/OPTIONS
On May 3, 1999, the Company sold 39,000 shares of preferred stock and
issued 1,256,000 warrants to purchase 1,256,000 shares of class A common stock
of the Company at $0.20 per share. The warrants were issued as a fee for the
sale of the preferred stock. The warrants expire May 6, 2004. During 2000, the
holders of these warrants exercised 1,085,000 warrants under a cashless exercise
feature of the grant.
During February 2000, the Company issued 2,000,000 warrants to purchase
Class A Common Stock in connection with the sale of 667,000 shares of Class A
Common Stock. These warrants are exercisable into 2,000,000 shares of the Class
A Common Stock at $0.15 per share. Of these warrants 500,000 were issued as a
fee for the sale of the common stock. The warrants were exercised during 2000.
DELISTING OF CLASS A COMMON STOCK FROM NASDAQ
On October 20, 1998, the Company received notice of a decision by the
NASDAQ Stock Market to delist the Company's Class A Common Stock from the NASDAQ
National Market effective with the close of business on October 20, 1998.
Additionally, at that time, the Company did not meet, and currently does not
meet, the requirements to transfer its listing to the NASDAQ SmallCap Market.
Accordingly, trading in the Company's Class A Common Stock is being conducted on
the OTC Bulletin Board.
NOTE 9 - INCOME TAXES
No provision for taxes was made in 2000 or 1999 due to the losses in
each year. The Company increased the valuation allowance on net deferred tax
assets by $1,073,000 and $3,085,000 in 2000 and 1999.
The primary differences between the statutory federal tax rate and the
effective rate are the change in the valuation allowance provided against
deferred tax assets and a change in the effective tax rate of the Company as a
result of the discontinuation of rehabilitation operations and the acquisition
of Networks. The Company has $23,396,000 of net operating loss carryforwards for
federal purposes and associated state net operating loss carryforwards, which
expire at various dates through 2020. Current federal and state tax law includes
certain provisions limiting the annual use of net operating loss carryforwards
in the event of certain defined changes in stock ownership. The annual use of
the Company's net operating loss carryforwards are limited according to these
provisions.
Deferred income taxes are comprised of the following at June 30, 2000:
Accruals not currently deductible..................... $ 201,000
Tax loss carry forwards............................... 7,955,000
-----------
Total deferred income tax assets...................... 8,156,000
Less valuation allowance.............................. (8,156,000)
-----------
Net deferred income tax assets........................ $ --
===========
F-16
<PAGE> 69
NOTE 10 - MAJOR CUSTOMERS
In 2000 the Company had sales in excess of 10% to two customers
amounting to $665,000 and $147,000. The customers accounted for 68% and 15% of
net revenues, respectively.
In 1999, the Company had sales in excess of 10% to three customers
amounting to $429,000, $117,000 and $96,000. The customers accounted for 52%,
14% and 12%, respectively, of net revenues.
NOTE 11 - SUBSEQUENT EVENTS
In July 2000, the Company increased its authorized Class A common
shares from 50,000,000 shares to 200,000,000 shares.
The Company settled certain litigation with a vendor for 74,293 Class A
common shares in July 2000.
In July 2000, the Company entered into a Subscription Agreement,
whereby up to $17,000,000 principal amount of 6% convertible notes were offered
for sale, as well as associated stock purchase warrants (the "Warrants"). The
maturity date of the Notes is July 1, 2003. The Notes are subject to certain
performance covenants and registration rights, as defined in the Subscription
Agreement. The Notes convert at the option of the holder and subject to certain
mandatory and optional redemption, as defined. The Warrants grant certain put
provisions to the holder, as defined in the Subscription Agreement.
F-17
<PAGE> 70
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and has duly caused this amendment
to the registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of El Paso and State of Texas on the 12th
day of December, 2000.
Telynx Inc.
By: /s/ Ali Al-Dahwi
---------------------------
Ali Al-Dahwi
Chief Executive Officer and
Director
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<S> <C> <C>
/s/ Ali Al-Dahwi Chief Executive Officer and Director December 12, 2000
------------------- (Principal Executive Officer)
Ali Al-Dahwi
/s/ Kent Van Houten Chief Financial Officer and Director December 12, 2000
------------------- (Principal Accounting Officer)
Kent Van Houten
/s/ * Director December 12, 2000
-------------------
Phillip Chapman
*By: /s/ Ali Al-Dahwi
----------------------
As Attorney In fact
</TABLE>
<PAGE> 71
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<S> <C>
2.1 Agreement and Plan of Merger, dated April 3, 1998, between Meadowbrook
Rehabilitation Group, Inc., Interset, Inc., Cambio Networks, Inc., and
the securityholders named therein, filed as Exhibit 2.1 to the
Company's current report on Form 8-K dated April 22, 1998.
2.2 Agreement of Amendment, dated July 27, 1998, between Meadowbrook
Rehabilitation Group, Inc., Interset, Inc., Cambio Networks, Inc., and
the securityholders named therein, filed as Annex A to the Company's
Joint Information/Consent Solicitation Statement on Schedule 14C dated
August 14, 1998.
2.3 Secured Bridge Financial Note dated April 3, 1998, between Meadowbrook
Rehabilitation Group, Inc., and Cambio Networks, Inc., filed as Exhibit
2.2 to the Company's current report on Form 8-K dated April 22, 1998.
3.1 Amended and Restated Certificate of Incorporation of the Company, filed
as Exhibit 3.1 to the Company's Registration Statement on Form S-1
(Commission File No. 33-44197).
3.2 Amended and Restated By-Laws of the Company, filed as Exhibit 3.2 to
the Company's Registration Statement on Form S-1 (Commission File No.
33-44197).
3.3 Certificate of the Designations, Powers, Preferences, and Rights of the
Series B Convertible Preferred Stock, filed as Exhibit 10.4 to the
Company's Quarterly Report on Form 10-QSB for the quarter ended March
31, 1999.
3.4 Certificate of Amendment of Certificate of Incorporation, dated
November 28, 2000.*
4.1 Form of Convertible Note, dated as of July 27, 2000.
4.2 Form of Warrant, dated as of July 27, 2000.
5.1 Opinion of Fulbright & Jaworski L.L.P.
10.1 1994 Stock Incentive Plan of the Company filed as Exhibit 10.1 to the
Company's Annual Report on Form 10-K for the fiscal year ended June 30,
1995.
10.2 Agreement dated February 2, 1999 by and between Harvey Glasser, the
Company and certain security holders, filed as Exhibit 10.2 to the
Company's Quarterly Report on Form 10-QSB for the quarter ended
December 31, 1998.
10.3 Agreement dated February 2, 1999 by and between Imperial Loan
Management Corporation, Telynx, Inc. and Medbrook Home Health, Inc.,
filed as Exhibit 10.3 to the Company's Quarterly Report on Form 10-QSB
for the quarter ended December 31, 1998.
</TABLE>
<PAGE> 72
<TABLE>
<S> <C>
10.4 Form of Subscription Agreement, dated as of July 27, 2000, between the
Company and the subscribers named therein.
21.1 Subsidiaries of the Company, filed as Exhibit 21.1 to the Company's
Annual Report on Form 10-KSB for the year ended June 30, 1999.
23.1 Consent of BDO Seidman, LLP.*
23.2 Consent of Grant Thornton LLP.*
24.1 Power of Attorney.*
27.1 Financial Data Schedule, filed with the Company's Annual Report on Form
10-KSB for the year ended June 30, 2000 and incorporated herein by
reference.
</TABLE>
----------
* Previously filed.
