SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended July 31, 2001
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period
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 August 31, 2001, there were 205,527,000 shares of Class A Common Stock
outstanding.
Transitional Small Business Disclosure Format: Yes _____ No __X__
1
TELYNX, INC.
Form 10-QSB
INDEX
Page
Number
-----------
Part I Financial Information
Item 1 Financial Statements
Condensed Consolidated Balance Sheets
(unaudited) as of July 31, 2001 and October
31, 2000 (unaudited) 3
Condensed Consolidated Statements of Loss
(unaudited) for the three and nine months
ended July 31, 2001 and 2000 4
Condensed Consolidated Statements of Cash
Flows (unaudited) for the nine months ended
July 31, 2001 and 2000 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
Item 1 Legal Proceedings 12
Item 2 Changes in Securities 12
Item 3 Defaults Upon Senior Securities 12
Item 4 Submission of Matters to a Vote of Security
Holders 12
Item 5 Other Information 12
Item 6 Exhibits and Reports on Form 8-K 12
Signatures 13
2
TELYNX, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
July 31 October 31
2001 2000
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 143,000 $ 42,000
Accounts receivable 295,000 375,000
Prepaids and deposits 120,000 108,000
------------ ------------
Total current assets 558,000 525,000
Deferred finance cost - net 147,000 110,000
Property and equipment, net 37,000 70,000
------------ ------------
Total assets $ 742,000 $ 705,000
============ ============
LIABILITIES AND CAPITAL DEFICIT
Current liabilities:
Accounts payable and accrued liabilities $ 3,520,000 $ 2,418,000
Deferred revenue 35,000 70,000
Note payable to stockholder 562,000 479,000
Payable to investor 250,000 --
Liabilities of discontinued operations 678,000 678,000
------------ ------------
Total current liabilities 5,045,000 3,645,000
Convertible notes payable to investors, net of discount 460,000 1,000,000
Capital deficit:
Preferred stock, $0.01 par value - 1,000,000 shares authorized;
500 shares issued and outstanding at July 31, 2001 and October
31, 2000 -- --
Common stock, $0.01 par value - 1,000,000,000 shares authorized;
196,310,969 shares issued and outstanding at July 31, 2001;
24,868,477 shares issued and outstanding at October 31, 2000 1,963,000 249,000
Paid in capital 29,791,000 27,454,000
Accumulated deficit (36,517,000) (31,643,000)
------------ ------------
Total capital deficit (4,763,000) (3,940,000)
------------ ------------
Total liabilities and capital deficit $ 742,000 $ 705,000
============ ============
See Notes to Condensed Consolidated Financial Statements (unaudited).
3
TELYNX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF LOSS
(Unaudited)
Three Months Ended Nine Months Ended
July 31 July 31
------- -------
2001 2000 2001 2000
---- ---- ---- ----
Revenue $ 271,000 $ 388,000 $ 556,000 $ 789,000
Cost of revenue 119,000 1,000 147,000 144,000
------------ ----------- ----------- -----------
Gross margin 152,000 387,000 409,000 645,000
Operating expenses:
Sales and marketing 111,000 250,000 763,000 729,000
Services 126,000 109,000 452,000 311,000
Research and development 147,000 206,000 619,000 401,000
General and administrative expenses 557,000 1,221,000 2,449,000 2,635,000
------------ ----------- ----------- -----------
Total operating expenses 941,000 1,786,000 4,283,000 4,076,000
Loss from operations (789,000) (1,399,000) (3,874,000) (3,431,000)
Other income (expense):
Interest income -- 2,000 -- 9,000
Interest expense (176,000) (27,000) (1,000,000) (79,000)
------------ ----------- ----------- -----------
Total other expense (176,000) (25,000) (1,000,000) (70,000)
------------ ----------- ----------- -----------
Net loss $ (965,000) $(1,424,000) $(4,874,000) $(3,501,000)
------------ ----------- ----------- -----------
Basic and diluted net loss per Common share ($0.01) ($0.07) ($0.07) ($0.30)
============ =========== =========== ===========
Weighted average shares outstanding 126,464,990 19,769,108 74,973,086 11,764,338
============ =========== =========== ===========
See Notes to Condensed Consolidated Financial Statements (unaudited).
4
TELYNX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
July 31
-------
2001 2000
---- ----
Cash flows from operating activities:
Net loss $(4,874,000) $(3,501,000)
Adjustments to reconcile net loss to cash used in operations:
Depreciation and amortization 49,000 66,000
Interest expense on beneficial conversion of debt 899,000 --
Expenses and settlements paid with equity 229,000 1,536,000
Changes in assets and liabilities:
Receivables 80,000 (25,000)
Prepaid expenses (12,000) (23,000)
Accounts payable and accrued liabilities 1,102,000 (120,000)
Deferred revenue (35,000) 76,000
Other (132,000) 14,000
----------- -----------
Net cash used in operating activities (2,694,000) (1,977,000)
----------- -----------
Cash flows from investing activities:
Capital expenditures (16,000) (28,000)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of convertible debt 2,600,000 880,000
Proceeds from issuance of Common stock 145,000 1,287,000
Proceeds from note payable to stockholder 67,000 245,000
Other (1,000) --
----------- -----------
Net cash provided by financing activities 2,811,000 2,412,000
----------- -----------
Net change in cash and cash equivalents 101,000 407,000
Cash and cash equivalents at beginning of the period 42,000 381,000
----------- -----------
Cash and cash equivalents at end of the period $ 143,000 $ 788,000
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ -- $ --
Income taxes $ -- $ --
Non-cash financing activity:
Conversion of debt and interest into Common shares $ 2,057,000 $ 358,000
Conversion of Preferred stock into Common shares $ 1,008,000 $ 232,000
See Notes to Condensed Consolidated Financial Statements (unaudited).
5
TELYNX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements of
Telynx, Inc. for the three and nine months ended July 31, 2001 and 2000 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, or "SEC", rules and
regulations. The information included in this report should be read in
conjunction with our audited financial statements and notes thereto included in
our Annual Report on Form 10-KSB for the year ended June 30, 2000, previously
filed with the SEC. Certain prior period amounts have been reclassified to
conform to current period presentation.
NOTE 2. NATURE OF BUSINESS
We design and market a line of software products and related services to
telecommunications service providers. Specifically, our software is designed to
be an integral part of the operations support system environment of
telecommunications service providers. Our software is designed to track
inventory, provision new telecommunications service, and provide a tool for
managing network bandwidth. While the software is designed to manage
telecommunications service provider networks, it can also be used to track and
manage any network. Our services relate to the implementation of our software
and the general consulting surrounding network management.
We have leveraged our relationship with key industry leaders such as Hewlett
Packard in order to gain penetration in the marketplace. Specifically,
individual long standing relationships in international markets have leveraged
business for us in the Middle East as well as the Far East. The first two years
of product revenue for us were derived in large part from these sources.
Additionally, we have made significant investments by participating in industry
forums such as the Telemanagement Forum to further our position in the domestic
market. These forums provide industry standards, direction, and catalyst
function to the market in general. Telynx has participated for two years in
these activities. Together, these two strategies have leveraged our market
awareness. Our primary product is Telynx Version 2. We have sales and support
staff located in Dallas, Texas, the Washington, D.C. area, and London, England,
as well as representative offices in Asia (Kuala Lumpur, Malaysia) and the
Middle East (Cairo, Egypt and Saudi Arabia).
NOTE 3. DISCONTINUED OPERATIONS
On February 2, 1999, we transferred all of the issued and outstanding stock
of the discontinued healthcare subsidiaries (the "Subsidiaries") to Imperial
Loan Management Corporation ("Imperial"), an affiliate of our 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. We
received no proceeds from the transfer. Prior to the transfer, Imperial loaned
$900,000 to the Subsidiaries and us, 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. We remain a
guarantor of the Imperial loans, amounting to $678,000 as of July 31, 2001. Upon
liquidation of the Subsidiaries and settlement of the outstanding indebtedness,
we are entitled to receive one-half of the proceeds remaining after payment of
Imperial's expenses. At July 31, 2001, the assets and liabilities of the
discontinued businesses consist primarily of the accounts receivable and the
Imperial loans. We consider the realization of the remaining assets to be
unlikely. All other material obligations of the Subsidiaries have been settled
except for the Imperial loans.
NOTE 4. NOTES PAYABLE
In July 2000, we issued $1 million in principal amount of convertible notes
bearing interest at 6% per annum.
6
The conversion of the notes was contingent on our filing a registration
statement on Form SB-2 with the SEC. This registration statement became
effective December 2000. In connection with this financing, we issued warrants
to purchase 625,000 shares of our Class A common stock. In December 2000 and
January 2001, we issued additional convertible debt of $150,000 each month in
principal amount of convertible notes bearing interest at 6% per annum. In
connection with each of these additional financings, we issued warrants to
purchase our common stock of 93,750 shares on each note. In February and March
2001, we issued additional convertible debt of $250,000 each month in principal
amount of convertible notes bearing interest at 6% per annum. In connection with
each of these additional financings, we issued warrants to purchase our common
stock of 156,250 shares on each note. For the three months ending July 31, 2001,
we issued convertible debt of $1,200,000 in principal amount of convertible
notes bearing interest at 6% per annum. In connection with these additional
financings, we issued warrants to purchase our common stock of 1,120,000 shares.
The warrants are priced at the lowest closing price within the prior 10 trading
days of the award. During the nine months ended July 31, 2001, the note holders
exercised their option to convert approximately $1,708,000 of notes payable,
including related interest into our Class A common stock at an average price of
approximately $0.015. 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. For the three months ended July
31, 2001, we took a charge against earnings of approximately $146,000 with an
offset to additional paid in capital related to the beneficial conversion
features of these notes.
On January 19, 2001, we issued $350,000 in principal amount of convertible
notes bearing interest at 8% which were converted into 8,000,000 shares of our
common stock at the holder's option during the three months ended July 31, 2001.
Also, during the three months ended April 30, 2001, we received advances from
the same subscriber of $250,000 which are convertible into approximately
5,714,000 shares of our common stock. During the three months ended January 31,
2001, we were negotiating with this subscriber to provide financing for us.
NOTE 5. PREFERRED STOCK
On March 6, 2001, the Board of Directors of Telynx, Inc. created a Series C
Convertible preferred stock for flexibility in connection with future funding
opportunities. On May 8, 2001, we filed an amendment to our charter with the
State of Delaware to effectively issue the Series C Convertible preferred stock.
The Series C Convertible preferred stock has a par value of $.01 per share and
is convertible into 80,000 share of Class A common stock. Upon filing the
charter with the State of Delaware, we issued 1,260 shares of Series C
Convertible preferred stock. In June 2001, 1,260 shares of Series C convertible
preferred stock was converted to our Class A common stock.
NOTE 6. NOTES PAYABLE TO SHAREHOLDERS
We have notes payable to shareholders in the amount of $250,000 bearing an
interest rate at 7% per annum and notes payable in the amount of $312,000
bearing an interest rate at 8% per annum.
NOTE 7. YEAR END CHANGE
We filed a Current Report on Form 8-K on November 22, 2000 announcing a
change in our fiscal year end from June 30 to October 31. Subsequently, a
transition report was filed for the period from July 1, 2000 to October 31,
2000.
7
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 our SEC filings.
The words "anticipate," "believe," "estimate," "expect," "intend," "will,"
and similar expressions, as they relate to Telynx or its 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
----------------------
Three Months Ended July 31, 2001 as compared to Three Months Ended July 31, 2000
In the fiscal year 2000, our business plan was centered around rebuilding
our product and gearing up our operations for delivery and sale. The business
model was based on our receipt of additional funding, the proceeds of which
would provide for the increased cash flow required to cover additional expenses
relating to human resources and operating expenditures. Moving into fiscal year
2001, this plan was dramatically modified due to market and economic conditions
causing a lag in anticipated revenues. The decreases in expenses for the three
months ended July 31, 2001, versus the three months ended July 31, 2000, is a
direct correlation to our cost reductions implemented in March 2001.
Revenues. Revenues from operations decreased 30% from $388,000 for the three
months ended July 31, 2000 to $271,000 for the three months ended July 31, 2001.
The decrease is mainly due to reduced shipments of software sales of
approximately $360,000 offset by increases in maintenance and consulting
revenues by approximately $149,000 and $92,000, respectively.
Sales and Marketing. Sales and marketing expenses decreased 56% from
$250,000 for the three months ended July 31, 2000 to $111,000 for the three
months ended July 31, 2001. The decrease was mainly related to cost savings
related to travel expenses and decreases in salaries of $27,000 and $99,000,
respectively, this quarter versus the comparable three month period last year.
We implemented strategic restructuring of the sales and marketing focus that
will result in increased sales with minimal costs to us, thereby increasing our
operational efficiency. Management has implemented a plan to reduce costs while
maintaining market momentum in producing revenue. This is being accomplished by
restructuring the organization to focus key resources more in the sales and
marketing area, relying on external sources for lead production, and direct
executive involvement in our sales efforts. The reduction in our workforce
effected March 2001 has had the desired effect both on operational costs as well
as refocusing sales efforts. We did not incur additional costs relating to the
reduction in our workforce.
Services. Services expenses increased 16% from $109,000 for the three
months ended July 31, 2000 to $126,000 for the three months ended July 31, 2001.
This increase is attributable to increased personnel salary costs of
approximately $9,000 and increased general services expenses of $8,000 this
quarter versus the comparable three month period last year. In addition to
additional personnel, during the previous period, much of the service work
required was done in-house versus on-site. This in-house cost was absorbed by
the Company and was not reimbursed as a billable cost from the client. As our
projects progress beyond their initial development stage, more direct
involvement is required in their implementation. The costs of sending our
personnel to service new installations are negotiated with the customer as part
of our contract with the customer. Those costs are billed to the customer as
installation costs and reflected as a component of cost of goods sold.
8
Research and Development. Research and development expenses decreased 29%,
from $206,000 for the three months ended July 31, 2000 to $147,000 for the three
months ended July 31, 2001. For the three month period, decreased costs related
primarily to reduction of personnel expenses of $53,000 this quarter versus the
prior period. During March 2001, we instituted a reduction in workforce.
However, we did not incur additional costs relating to this reduction.
General and Administrative. General and administrative expenses decreased
54%, from $1,221,000 for the three months ended July 31, 2000 to $557,000 for
the three months ended July 31, 2001. The decrease is mainly attributable to
reduction of salaries of approximately $150,000, reduction of travel of
approximately $39,000, reduction of professional outside services of
approximately $365,000 and reduction of miscellaneous business expenses of
approximately $63,000. As mentioned earlier, in March 2001, we instituted a
reduction in workforce along with other cost containment controls. However, we
did not incur additional costs relating to this reduction.
Interest. Interest expense increased $149,000 for the three months ended
July 31, 2001 versus July 31, 2000. The increase is primarily attributable to
the beneficial conversion feature of the convertible notes issued in accordance
with the Financial Accounting Standard Board's EITF's Statement 00-27 and 98-5.
Nine Months Ended July 31, 2001 as compared to Nine Months Ended July 31, 2000
In the fiscal year 2000, our business plan was centered around rebuilding
our product and gearing up our operations for delivery and sale. The business
model was based on increased funding to us, the proceeds of which would provide
for the increased cash flow required to cover additional expenses of human
resources and operating capital in these efforts. Moving into fiscal year 2001,
this plan was dramatically modified due to market and economic conditions
causing a lag in anticipated revenue stream. The increase in expenses for the
nine months ended July 31, 2001 versus the nine months ended July 31, 2000 is a
direct correlation to increases in expenses of building the business model
during the first six months of the year offset by a turnaround and decreases in
the following three months related to cost containment and reduction in
workforce implemented in March 2001.
Revenues. For the nine months ended July 31, 2001, revenues were down 30%
from $789,000 in 2000 to $556,000 in 2001. The decrease for the nine months was
mainly attributable to a reduction of software sales and installations of
$454,000 offset by increased maintenance revenue of $221,000 for this nine-month
period versus last period. This lag in revenues was attributed to several
factors. First, as previously stated, our business plan was structured to build
the business based on a model of increased funding. While funding was secured
for operations, additional funding was held back due to market conditions. This
affected our growth strategy as well as the anticipated revenue increase in the
domestic market. Our business model did accommodate for growing international
business. Procuring business of this nature generally takes longer to
cultivate. In addition, while our business model was scaled back to reflect
current market conditions, domestic sales efforts have continued while the
market remains slow in the telecommunications sector.
Sales and Marketing. For the nine months ended July 31, 2001, sales and
marketing costs were up 5% from $729,000 in 2000 to $763,000 in 2001. The
increase for the nine months was primarily related to additional sales and
marketing personnel costs of approximately $106,000 primarily offset by cost
savings of reduced travel costs of approximately $64,000 for this nine month
period versus the comparable nine month period last year. We implemented
strategic restructuring of the sales and marketing focus that we intend to
result in increased sales with minimal costs to us, thereby increasing our
operational efficiency. We have implemented a plan to reduce costs while
maintaining market momentum in producing revenue. This is being accomplished by
restructuring the organization to focus key resources more in the sales and
marketing area, relying on external sources for lead production, and direct
executive involvement in our sales effort. The reduction in workforce effected
March 2001 has had the desired effect both on operational costs as well as
refocusing sales efforts.
Services. For the nine months ended July 31, 2001, services expenses costs
were up 45% from $311,000 in 2000 to $452,000 in 2001. This increase is
primarily attributable to additional personnel costs of approximately $160,000
offset by miscellaneous operating cost reductions of approximately $19,000 for
this nine month period versus the comparable nine month period last year. In
addition to additional personnel, during the previous period, much of the
service work required was done in-house versus on-site. This in-house cost was
absorbed by the
9
Company and was not reimbursed as a billable cost from the client. As our
projects progress beyond their initial development stage, more direct
involvement is required in their implementation. The costs of sending our
personnel to service new installations are negotiated with the customer as part
of our contract with the customer. Those costs are billed to the customer as
installation costs and reflected as a component of cost of goods sold.
Research and Development. For the nine months ended July 31, 2001,
research and development costs were up 54% from $401,000 in 2000 to $619,000 in
2001. For the nine month period, the increase was mainly attributable to
additional hires of personnel. Compensation cost increased by approximately
$133,000 and recruitment of personnel cost increased by approximately $11,000.
Additional costs associated with research and development was travel related
costs of approximately $102,000. Our engineering group located in El Paso was
doubled in size and another engineering operation was established in Houston,
Texas, with the addition of two engineering resources. These increased costs
were incurred during the first six months of the year and were subsequently
retired relating to our cost containment program and reduction in workforce
implemented in March 2001.
General and Administrative. For the nine months ended July 31, 2001, general
and administrative costs were down 7% from $2,635,000 in 2000 to $2,449,000 in
2001. For the nine month period, the decrease was mainly attributable to cost
savings in outside professional fees of approximately $500,000, and other
miscellaneous expenses of approximately $108,000 offset by increased
compensation costs of approximately $91,000, and increases in travel costs by
approximately $25,000. Included also is a settlement of open payable litigation
issues for approximately $170,000 versus a gain on settlement in the prior
period of approximately $130,000.
Interest. Interest expense increased $921,000 for the nine month period
ended July 31, 2001 versus July 31, 2000. The increase is primarily
attributable to the beneficial conversion feature of the convertible notes
issued in accordance with the Financial Accounting Standard Board's EITF's
Statement 00-27 and 98-5.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Since the beginning of 1999, we have been challenged in raising financing to
support our operations as we have undergone a transformation of moving from the
Command product offering to our netRunner product and subsequently to Telynx
Version 2. Included with the operational challenges of the new product, we have
the added responsibility of old debts and obligations from the past. We have
used private placement offerings of our common stock to provide the capital
required to meet our daily operating requirements. Also, in July 2000, we
entered into a $17 million credit facility with certain investors whereby they
agreed to purchase promissory notes convertible into our Class A common stock.
Through July 31, 2001, we have issued promissory notes of approximately
$3,600,000 as described more fully below. As described on the balance sheet at
July 31, 2001, we have convertible notes payable of approximately $1,328,000
exclusive of discounts, $812,000 payable to investors and stockholders, $678,000
notes payable of discontinued operations along with various accounts payable and
accrued expenses of over $3,500,000. Although we are generating revenues, they
have not been sufficient to satisfy our current on-going cost structure. We
anticipate needing approximately $250,000 a month in additional financing beyond
our current revenue stream to sufficiently cover our operating budgetary
requirements for the next six months. Thereafter, we anticipate that operating
revenues should be sufficient solely to cover our daily operating needs.
The use of cash of $2,694,000 for the nine months ended July 31, 2001 was
composed of a net loss of $4,874,000, partially offset by expenses settled by
payments in Class A common stock of $229,000, interest expense on beneficial
conversion of debt of $899,000 and increases in accounts payable and accrued
expenses of $1,102,000. This use of cash in our operating activities of
$2,694,000 for the nine months ended July 31, 2001 is compared to $1,977,000 for
the nine months ended July 31, 2000, which was composed of net losses of
$3,501,000 for the nine months ended July 31, 2000, mainly offset by expenses
settled by payments in Class A common stock of $1,536,000 and a slight cash flow
decrease in operating assets over liabilities of approximately $78,000 for the
nine months ended July 31, 2000.
During the nine months ended July 31, 2001, we made numerous capital
expenditures mainly in software and computer/network equipment totaling $16,000
versus $28,000 of capital expenditures made for the same period last year.
10
The financing activities during the nine months ended July 31, 2001
consisted of proceeds from the issuance of our common stock of approximately
$145,000 versus $1,287,000 for the nine months ended July 31, 2000. We had
proceeds from notes payable to stockholder of $67,000 for the nine months ended
July 31, 2001 versus $245,000 for the nine months ended July 31, 2000. We had
proceeds from the issuance of convertible debt debentures of $2,600,000 for the
nine months ended July 31, 2001 versus $880,000 for the nine months ended July
31, 2000. During the nine month period, we recorded the redemption of
convertible debt debentures and related interest of approximately $2,057,000
which was converted into our common stock.
On July 27, 2000, we issued $1,000,000 in principal amount of convertible
notes bearing interest at 6% which are convertible into our Class A common stock
at the option of the holders. On December 19, 2000, our registration statement
on Form SB-2 was declared effective by the SEC thereby allowing for the
conversion of the notes and raising of additional funding proceeds. On December
29, 2000 and January 12, 2001, we issued additional $150,000 convertible notes
each month at 6% interest under this financing. In February and March 2001, we
issued additional convertible debt of $250,000 each month in principal amount of
convertible notes bearing interest at 6% per annum. Furthermore, for the three
months ending July 31, 2001, we issued $1,200,000 in principal amount of
convertible notes bearing interest at 6% per annum. We anticipate drawing down
on the credit line, to the extent permitted, as the funds become necessary.
On January 19, 2001, we issued $350,000 in principal amount of convertible
notes bearing an interest rate of 8% which were converted into 8,000,000 shares
of our Class A common stock at the holder's option during the three months ended
April 30, 2001. Also, during the three months ended April 30, 2001, we received
advances from the same subscriber of $250,000 which are convertible into
approximately 5,714,000 shares of our Class A common stock.
Though we have recorded negative operational cash flow during the past two
years while developing our core product, this product is now commercially
available. We have received a favorable response in the industry and from our
core customer base. This has resulted in increased sales pipeline projections
that we anticipate will provide us with much needed sales revenue thereby
increasing our ability to continue as a going concern. Our fixed cost base is
low, and we anticipate that the negative operational cash flow will turn
positive as the forecasted sales materialize providing profitability.
Therefore, we believe that our current negative operational cash flow is
temporary and will be alleviated by increased sales of our products. However,
there can be no assurance that sales will increase or additional capital will be
available on terms favorable to us. If adequate funds are not available to us,
our operations would be impaired, including any operational efficiencies to
provide our client base with superior services and performance. In the high
tech telecommunications industry in which we compete, quality and efficiency is
highly important to our competitive advantage and our ability to grow our
business. As a result of the above conditions, our most recent audited financial
statements contained a going concern opinion issued by our accountants.
On June 1, 2001, our shareholders met and voted for a 1-for-2 reverse
stock split. On January 4, 2001, we effected the reverse stock split and the
historical financial statements have been adjusted.
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Part II. Other Information
-----------------
Item 1. 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 litigation claims, individually or in the aggregate, will have
a material adverse effect on our business, financial position or
results of operations.
Item 2. Changes in Securities
---------------------
On March 6, 2001, our Board of Directors approved the issuance of up to
100,000 shares of a newly created Series C convertible preferred stock
(the "Preferred Stock") at $0.01 par value, issue price of $3,500.00
per share. Each share of Preferred Stock is convertible into shares of
our Class A common stock. In May 2001, we issued a total of 1,260
shares of Preferred Stock to a group of investors in exchange for our
Class A common stock. In June 2001, 1,260 shares of Preferred Stock
was converted to shares of our Class A common.
Item 3. Defaults Upon Senior Securities
-------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
On June 1, 2001, we held a special meeting of the shareholders at the
Holiday Inn, 900 Sunland Park Drive, El Paso, Texas, in accordance with
the Notice of Special Meeting of Stockholders dated May 14, 2001. The
following matters were submitted to a vote of the stockholders.
1. To approve an amendment to our certificate of incorporation
increasing the number of authorized shares of Class A Common Stock
to 1,000,000,000 from 200,000,000 shares.
2. To approve an amendment to our certificate of incorporation
affecting a 1-for-2 reverse stock split.
With respect to the aforementioned matters, votes were tabulated, and
the stockholders of the Company approved both proposals as follows:
For Against Abstain
--- ------- --------
Proposal Number 1 92% 1% 0%
Proposal Number 2 92% 1% 0%
Item 5. Other Information
-----------------
None.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
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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: September 19, 2001
Telynx, Inc.
(Registrant)
By: /s/ Kent J. Van Houten
--------------------------
Kent J. Van Houten
Vice President of Finance and Chief Financial Officer
(Principal Financial and Accounting Officer)
13