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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
[ ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
[X] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM JULY 1, 2000 TO OCTOBER 31, 2000
COMMISSION FILE NUMBER 0-19726
TELYNX, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 94-3022377
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
6006 NORTH MESA STREET, SUITE 600
EL PASO, TEXAS 79912
(Address of principal executive offices)
(915) 581-5828
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
---
As of January 9, 2001, 53,624,690 shares of Class A Common Stock, no shares of
Class B Common Stock, and 500 shares of Series B Convertible Preferred Stock
which are convertible into 250,000 shares of Class A Common Stock, were
outstanding.
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TELYNX, INC.
FORM 10-QSB
INDEX
<TABLE>
<CAPTION>
Page
Number
------
<S> <C> <C> <C>
Part I Financial Information
Item 1 Financial Statements
Condensed Consolidated Balance Sheets as of October
31, 2000 (unaudited) and June 30, 2000 3
Condensed Consolidated Statements of Operations for
the month and four months ended October 31, 2000 and
1999 (unaudited) 4
Condensed Consolidated Statements of Cash Flows for
the four months ended October 31, 2000 and 1999
(unaudited) 5
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II Other Information 10
Item 1 Legal Proceedings 10
Item 2 Changes in Securities and Use of Proceeds 10
Item 3 Defaults upon Senior Securities 10
Item 4 Submission of Matters to a Vote of Security Holders 10
Item 5 Other Information 10
Item 6 Exhibits and Reports on Form 8-K 10
Signatures 11
</TABLE>
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TELYNX, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
October 31 June 30
2000 2000
------------ ------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 42,000 $ 302,000
Accounts receivable 398,000 161,000
Prepaids and deposits 85,000 25,000
------------ ------------
Total current assets 525,000 488,000
Deferred finance cost - net 110,000 --
Property and equipment, net 70,000 62,000
------------ ------------
Total assets $ 705,000 $ 550,000
============ ============
LIABILITIES AND CAPITAL DEFICIT
Current liabilities:
Accounts payable and accrued liabilities $ 2,418,000 $ 2,496,000
Deferred revenue 70,000 15,000
Note payable to stockholder 479,000 478,000
Liabilities of discontinued operations 678,000 678,000
------------ ------------
Total current liabilities 3,645,000 3,667,000
------------ ------------
Convertible notes payable to investors 1,000,000 --
------------ ------------
Capital deficit:
Common stock, $0.01 par value - 49,736,953 authorized shares issued and
outstanding at October 31, 2000; 39,359,350 shares
issued and outstanding at June 30, 2000 497,000 393,000
Preferred stock, $0.01 par value - 500 shares issued and outstanding
at October 31, 2000; 4,567 shares issued and outstanding at
June 30, 2000 -- --
Paid in capital 27,206,000 26,447,000
Accumulated deficit (31,643,000) (29,957,000)
------------ ------------
Total stockholders' deficit (3,940,000) (3,117,000)
------------ ------------
Total liabilities and stockholders' equity $ 705,000 $ 550,000
============ ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements (unaudited).
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TELYNX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Month Ended Four Months Ended
October 31 October 31
---------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue $ 232,000 $ 44,000 $ 352,000 $ 272,000
Cost of revenue 103,000 7,000 107,000 120,000
------------ ------------ ------------ ------------
Gross margin 129,000 37,000 245,000 152,000
Operating expenses:
Sales and marketing 110,000 129,000 387,000 422,000
Services 58,000 29,000 181,000 142,000
Research and development 80,000 59,000 253,000 262,000
General and administrative expenses 241,000 199,000 1,050,000 897,000
------------ ------------ ------------ ------------
Total operating expenses 489,000 416,000 1,871,000 1,723,000
Loss from operations (360,000) (379,000) (1,626,000) (1,571,000)
Other income (expense):
Interest income -- 4,000 -- 15,000
Interest expense (41,000) (19,000) (60,000) (38,000)
------------ ------------ ------------ ------------
Total other expense (41,000) (15,000) (60,000) (23,000)
------------ ------------ ------------ ------------
Net loss $ (401,000) $ (394,000) $ (1,686,000) $ (1,594,000)
------------ ------------ ------------ ------------
Basic and diluted net loss per common share $ (0.01) $ (0.10) $ (0.04) $ (0.40)
============ ============ ============ ============
Weighted average shares outstanding 49,683,332 4,037,236 45,004,915 3,986,030
============ ============ ============ ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements (unaudited).
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TELYNX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
YTD
October 31,
----------------------------
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,686,000) $ (1,594,000)
Adjustments to reconcile net loss to cash used in operations:
Depreciation and amortization 41,000 38,000
Expenses and settlements paid with equity 164,000 17,000
Changes in assets and liabilities:
Receivables (237,000) (76,000)
Prepaid expenses (60,000) 9,000
Accounts payable and accrued liabilities (78,000) (296,000)
Deferred revenue 55,000 (89,000)
------------ ------------
Net cash used in operating activities (1,801,000) (1,991,000)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (39,000) (9,000)
------------ ------------
Net cash used in investing activities (39,000) (9,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of convertible debt 880,000 378,000
Proceeds from issuance of common stock 675,000 --
Proceeds from exercise of stock options 24,000 36,000
Other 1,000 (1,000)
------------ ------------
Net cash provided by financing activities 1,580,000 413,000
------------ ------------
Net change in cash and cash equivalents (260,000) (1,587,000)
Cash and cash equivalents at beginning of the period 302,000 1,923,000
------------ ------------
Cash and cash equivalents at end of the period $ 42,000 $ 336,000
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ -- $ 12,000
Income taxes -- --
</TABLE>
See Notes to Condensed Consolidated Financial Statements (unaudited).
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TELYNX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements of the
Company for the four months ended October 31, 2000 and 1999 have been prepared
on the same basis as the audited financial statements. In the opinion of
management, such unaudited information includes all adjustments (consisting only
of normal recurring accruals) necessary for a fair presentation of this interim
information. Operating results and cash flows for interim periods are not
necessarily indicative of results for the entire year. Certain prior period
amounts have been reclassified to conform to the current period presentation.
Additionally, certain information and footnote disclosures normally included in
a full set of financial statements have been condensed or omitted pursuant to
the Securities and Exchange Commission rules and regulations. The information
included in this report should be read in conjunction with the Company's audited
financial statements and notes thereto included in the Company's Annual Report
on Form 10-KSB for the year ended June 30, 2000 previously filed with the
Securities and Exchange Commission.
NOTE 2. NATURE OF BUSINESS
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.
NOTE 3. DISCONTINUED OPERATIONS
On February 2, 1999, Telynx 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 Telynx, 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. Telynx 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, Telynx is entitled to receive
one-half of the proceeds remaining after payment of Imperial's expenses. At
October 31, 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.
NOTE 4. NOTES PAYABLE
In July 2000, the Company issued $1 million in principal amount of convertible
notes bearing interest at 6% per annum. 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 expects to take a charge to earnings in the next fiscal
quarter, with an offset to additional paid in capital related to beneficial
conversion features of these notes.
NOTE 5. BACKLOG
For the month ended October 31, 2000, the Company received no orders from
customers. At October 31, 2000, the Company's backlog of future shipments was
approximately $217,000.
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NOTE 6. YEAR END CHANGE
This transition report is filed for the period ending October 31, 2000, as the
Company filed a Current Report on Form 8-K on November 22, 2000 announcing a
change in its fiscal year end from June 30 to October 31.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This document contains forward-looking statements that involve risks
and uncertainties that could cause the results of Telynx to differ materially
from those expressed or implied by such forward-looking statements. These risks
include the timely development, production and acceptance of new products and
services and their feature sets; the challenge of managing asset levels; the
flow of products into third-party distribution channels; the difficulty of
keeping expense growth at modest levels while increasing revenues; risks
associated with the settlement of accounts payable claims; and other risks
detailed from time to time in Telynx's Securities and Exchange Commission
filings.
The words "anticipate," "believe," "estimate," "expect," "intend,"
"will," and similar expressions, as they relate to Telynx or our management
team, may identify forward-looking statements. Such statements reflect the
current views of Telynx with respect to future events and are subject to certain
risks, uncertainties and assumptions. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those described herein as anticipated,
believed, estimated or expected. Telynx does not intend to update these
forward-looking statements.
RESULTS OF OPERATIONS
ONE AND FOUR MONTHS ENDED OCTOBER 31, 2000
AS COMPARED TO ONE AND FOUR MONTHS ENDED OCTOBER 31, 1999
Revenues. Revenues from operations increased 427% from $44,000 for the
month ended October 31, 1999 to $232,000 for the month ended October 31, 2000.
The increase in revenues is primarily attributable to sales of the Company's
software at higher sales revenue this month versus lower sales revenue in the
prior October period of maintenance and system support. Cost of revenue for the
month ended October 31, 2000 was up significantly from the month ended October
31, 1999, representing the cost incurred related to the software sales in the
month ended October 31, 2000. For the year to date period, revenues increased
29% from $272,000 for the four months ended October 31, 1999 to $352,000 for the
four months ended October 31, 2000. The increase in revenues is primarily
attributable to increased sales and services of the Company's main product line.
Cost of revenues decreased 11% from $120,000 for the four months ended October
31, 1999 to $107,000 for the four months ended October 31, 2000. The decrease is
attributable to higher cost incurred in product sales for the four months ended
October 31, 2000 versus lower cost incurred in system support for the four
months ended October 31, 1999.
Sales and Marketing. Sales and marketing expenses decreased 15% from
$129,000 for the month ended October 31, 1999 to $110,000 for the month ended
October 31, 2000 related to reduced travel and related costs in October 2000
versus October 1999. For the year to date period, sales and marketing expenses
decreased 8% from $422,000 for the four months ended October 31, 1999 to
$387,000 for the four months ended October 31, 2000. Consistent with the month,
the decrease was related to reduced travel related costs in October 2000 versus
October 1999.
Services. Services expenses increased 100% from $29,000 for the month
ended October 31, 1999 to $58,000 for the month ended October 31, 2000. This
increase was attributable to increased manpower costs related to servicing order
installation this month versus the comparable month of last year. For the year
to date period, services increased 28% from $142,000 for the four months ended
October 31, 1999 to $188,000 for the four months ended October 31, 2000.
Consistent with the month, the increase was attributable to increased manpower
costs related to servicing order installation mostly in October 2000 versus
October 1999.
Research and Development. Research and development expenses increased
35%, from $59,000 for the month ended October 31, 1999 to $80,000 for the month
ended October 31, 2000. The increase was attributable to increased personnel
costs in development and engineering cost associated with the Company's main
product. For the year to date period, research and development costs decreased
slightly by 3% from $262,000 for the four months ended October 31, 1999 to
$253,000 for the four months ended October 31, 2000.
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General and Administrative. General and administrative expenses increased
21%, from $199,000 for the month ended October 31, 1999 to $241,000 for the
month ended October 31, 2000. The increase represents additional costs for added
personnel in October of this year versus the comparable month of last year. For
the year to date period, general and administrative costs increased 17% from
$897,000 for the four months ended October 31, 1999 to $1,050,000 for the four
months ended October 31, 2000. The increase represents additional costs for
added personnel in the current four month period versus the four month period
last year.
Interest. Interest expense increased $22,000 from the month ended
October 31, 1999 of $19,000 to $41,000 for the month ended October 31, 2000. For
the year to date period, interest expense increased 58% from $38,000 for the
four months ended October 31, 1999 to $60,000 for the four months ended October
31, 2000. These increases are representative of additional financing by the
Company this year versus last year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities used cash of $1,801,000 during the
four months ended October 31, 2000 compared to a use of $1,991,000 for the four
months ended October 31, 1999. The primary reason for the decrease in the use of
cash is the payment of expenses by the issuance of common stock for the four
months ended October 31, 2000 versus October 31, 1999.
During the four months ended October 31, 2000, consistent with the four
months ended October 31, 1999, the Company's investing activities were $39,000
and $9,000 consisting of software and computer/network equipment purchases.
The financing activities during the four months ended October 31, 2000
consisted of proceeds from the issuance of common stock of approximately
$675,000, exercise of stock options of approximately $24,000 and proceeds of
convertible debt debentures of $880,000. This compares to the four months ended
October 31, 1999 where financing activities of the Company consisted of proceeds
of convertible debentures of $378,000 and the exercise of stock options in the
amount of $36,000.
The Company believes that its current negative operational cash flow is
temporal and will be alleviated by increased sales. However, there can be no
assurance that sales will increase or additional capital other than provided in
the paragraph above will be available on terms favorable to the Company. If
adequate funds are not available, the Company's liquidity could be impaired,
which would have a negative impact on the Company's ability to grow its
business. As a result of the above conditions, the Company's most recent audited
financial statements contained a going concern opinion.
In July 27, 2000, the Company issued $1,000,000 in principal amounts of
convertible notes bearing interest at 6% which are convertible into Common stock
at the option of the holders. On December 19, 2000, an SB-2 was declared
effective by the SEC allowing additional funding to proceed. On December 29,
2000, the Company issued an additional $150,000 in principal amounts of 6%
convertible notes under this financing. The Company anticipates drawing down on
the credit line, to the extent permitted, as the funds become necessary.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
During the month ended October 31, 2000, three employees received
compensation from commissions as paid in Common Stock. Total shares
issued for these expenses were 20,442 shares of the Company's Class A
Common Stock.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(b) Reports on Form 8-K
Current report on Form 8-K filed August 24, 2000. Current
report on Form 8-K filed September 11, 2000.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Dated: January 11, 2001
Telynx, Inc.
/s/ Kent J. Van Houten
----------------------
Kent J. Van Houten
Executive Vice President of Finance and Chief Financial Officer
(Principal Financial Officer)
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