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, 2002
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 July 31, 2002, 352,110,957 shares of Class A Common Stock, no shares of
Class B Common Stock, and no shares of Series B Convertible Preferred Stock were
outstanding.
1
TELYNX, INC.
Form 10-QSB
INDEX
Page
Number
------
Part I Financial Information
Item 1 Financial Statements
Condensed Consolidated Balance Sheets as of July 31,
2002 (unaudited) and October 31, 2001 (audited) 3
Condensed Consolidated Statements of Operations for
the three and nine months ended July 31, 2002 and 2001
(unaudited) 4
Condensed Consolidated Statements of Cash Flows for
the nine months ended July 31, 2002 and 2001
(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 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
Signature 11
2
TELYNX, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
July 31 October 31
2002 2001
---------------- ---------------
(Unaudited) (Audited)
ASSETS
Current assets:
Cash and cash equivalents $ 7,082 $ 130,000
Accounts receivable 107,085 467,000
Prepaids and deposits 250,693 51,000
------------- -------------
Total current assets 364,862 648,000
Deferred finance cost, net 117,365 154,000
Property and equipment, net 33,614 34,000
------------- -------------
Total assets $ 515,841 $ 836,000
============= =============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued liabilities $ 4,255,122 $ 3,897,000
Accrued payroll 548,656 313,000
Notes payable to stockholders 151,000 463,000
Payable to investor 312,442 250,000
Current convertible notes payable to investors 0 0
Deferred revenue 0 14,000
------------- -------------
Total current liabilities 5,267,220 4,937,000
Convertible notes payable to investors 791,788 582,000
Stockholders' deficit:
Preferred stock, $0.01 par value - no shares issued and
outstanding at July 31, 2002: 500 shares issued and outstanding at
October 31, 2001 -- --
Common stock, $0.01 par value - 1,005,000,000 authorized; 352,110,957
shares issued and outstanding at July 31, 2002; 200,165,277 shares
issued and outstanding at October 31, 2001 3,521,720 2,002,000
Paid in capital 31,132,000 31,966,000
Accumulated deficit (40,019,887) (38,651,000)
------------- -------------
Total stockholders' deficit (5,543,167) (4,683,000)
------------- -------------
Total liabilities and stockholders' deficit $ 515,841 $ 836,000
============= =============
See Notes to Condensed Consolidated Financial Statements (unaudited).
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TELYNX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
July 31 July 31
------- -------
2002 2001 2002 2001
---- ---- ---- ----
Revenue $ 0 $ 271,000 $ 479,000 $ 556,000
Cost of revenue 2,598 119,000 97,358 147,000
------------- ------------ ------------ -----------
Gross margin (2,598) 152,000 381,882 409,000
Operating expenses:
Sales and marketing 40,034 111,000 258,034 763,000
Services 77,078 126,000 174,078 452,000
Research and development 231,070 147,000 387,070 619,000
General and administrative expenses 413,077 557,000 1,027,077 2,298,000
------------- ------------ ------------ -----------
Total operating expenses 761,259 941,000 1,846,259 4,132,000
Loss from operations (758,661) (789,000) (1,464,377) (3,723,000)
Other income (expense):
Interest income -- -- -- --
Interest expense (172,189) (159,000) (541,189) (1,299,000)
------------- ------------ ------------ -----------
Total other expense (172,189) (159,000) (541,189) (1,299,000)
------------- ------------ ------------ -----------
Net loss $ (930,850) $ (948,000) $ (2,005,566) $(5,022,000)
------------- ------------ ------------ -----------
Basic and diluted net loss per Common share ($0.01) ($0.01) ($0.01) ($0.07)
============= ============ ============ ===========
Weighted average shares outstanding 310,110,957 126,464,990 275,215,023 74,973,086
============= ============ ============ ===========
See Notes to Condensed Consolidated Financial Statements (unaudited).
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TELYNX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
July 31
2002 2001
---- ----
Cash flows from operating activities:
Net loss $ (2,005,566) $ (5,022,000)
-------------
Adjustments to reconcile net loss to cash used in operations:
Depreciation and amortization 3,783 49,000
Beneficial conversion cost of convertible debt and warrants 1,122,429 1,249,000
Expenses and settlements paid with equity -- 91,000
Changes in assets and liabilities:
Receivables 103,000 103,000
Prepaid expenses (19,154) (35,000)
Accounts payable and accrued liabilities 721,328 953,000
Deferred revenue (35,000)
Other (37,000)
-------------
Net cash used in operating activities (74,180) (2,684,000)
------------- -------------
Cash flows from investing activities:
Capital expenditures (16,000)
-------------
Net cash used in investing activities (16,000)
-------------
Cash flows from financing activities:
Proceeds from issuance of convertible debt -- 2,600,000
Proceeds from issuance of common stock -- 145,000
Proceeds from note payable to stockholder -- 67,000
Payment on convertible debt -- --
Other (11,000)
-------------
Net cash provided by financing activities 0 2,801,000
------------- -------------
Net change in cash and cash equivalents (24,974) 101,000
Cash and cash equivalents at beginning of the period (114,824) 42,000
------------- -------------
Cash and cash equivalents at end of the period 7,082 $ 143,000
============= =============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ -- $ --
Income taxes -- --
Non-cash financing activity:
Conversion of debt for common shares -- 2,057,000
Conversion of Preferred Stock into Common Shares -- 1,008,000
Conversion of Common into Preferred Shares -- 83,000
Discount of beneficial conversion on debt 1,758,000
Payment of Imperial loan debt -- 678,000
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 three months ended July 31, 2002 and 2001 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 October 31, 2001 previously filed with the
Securities and Exchange Commission.
The financial statements were prepared by management without a review, pursuant
to Statement on Auditing Standard Number 71, being performed by the Company's
Independent Accountants. The Company will file a Form 10-QA upon completion of
that review.
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. In combination, 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, the Company transferred all of the issued and outstanding
stock of the discontinued healthcare subsidiaries (the "Subsidiaries") to
Imperial Loan Management Corporation ("Imperial"). The Company received no
proceeds from the transfer. Prior to the transfer, Imperial loaned $900,000 to
the Subsidiaries and Telynx, represented by a 10% note payable due February 1,
2000. There is a subsequent agreement allowing for interest to remain accruing
along with a monthly collection fee payable to Imperial. Imperial agreed to use
its best efforts to liquidate each of the Subsidiaries, settle outstanding
obligations and collect all amounts receivable. 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. The Company had received information from Imperial that $641,000 was
collected on the liquidation of the subsidiaries effective January 4, 2001. The
Company therefore changed its estimate of net asset value on the receivables to
$641,000. For the four months ended October 31, 2000, the Company recorded a
credit by decreasing the valuation allowance against the assets with an
offsetting $641,000 gain from disposal of discontinued operations on the income
statement. The Company considers the realization of the remaining assets to be
unlikely and the assets have been fully reserved. All other material
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obligations of the Subsidiaries have been settled, including the Imperial loans
which were paid off effective January 4, 2001.
NOTE 4. NOTES PAYABLE
Convertible Notes Payable to Investors
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. The
notes have various maturities from August 31, 2002 to July 18, 2004. The notes
are subject to certain performance covenants and registration rights, as defined
in the Subscription Agreement. The notes are convertible into the Company's
Class A common stock on a conversion price that is the lower of (1) 85% of the
average of the three lowest closing prices for the Company's common stock quoted
on principal market for the last 30 trading days but not including the issue
date of the note or (2) 78% of the average of the three lowest closing prices
for the Company's common stock quoted on the principal market for the last 90
trading days prior to but not including the conversion date. Through October 31,
2001, $3,150,000 has been funded pursuant to this agreement. From November 1,
2001 to July 31, 2002, no monies have been received pursuant to this agreement.
Through July 31, 2002, $1,710,000 of principal with related accrued interest has
been converted to common stock. The notes convert at the option of the holder
and are subject to certain mandatory and optional redemption, as defined. The
agreement has been terminated and no further investments will be made to the
Company under this line.
Payable to Investor
On January 19, 2001, the Company issued $350,000 in principle amount of
convertible notes bearing interest at 8% which were converted into 8,000,000
shares of the Company's common stock at the holder's option during 2001. Also
during 2001, the Company received advances from the same subscriber of $250,000
which is convertible into approximately 5,714,000 shares of the Company's common
stock.
Current Convertible Notes Payable to Investors
In the first three months ended January 31, 2002, the Company issued $215,000
principle amount of 5% convertible notes payable with maturities due within one
year. Through the three months ended January 31, 2002, $75,000 of principle has
been paid off. The notes have various maturities due by January 10, 2003. The
notes are subject to certain performance covenants and registration rights. The
notes are convertible into the Company's Class A common stock on a conversion
price that is the lower of (1) 80% of the average of the three lowest closing
prices of the common stock for the 30 trading days prior to but not including
the closing date, or (2) 80% of the average of the three lowest closing prices
for the common stock for the 30 trading days prior to but not including the
conversion date.
Notes Payable to Shareholders
We have notes payable to shareholders in the amount of $151,000 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.
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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' Securities and Exchange Commission
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, 2002 as compared to Three Months Ended July 31, 2001
Revenues. Revenues from operations decreased 100% from $271,000 for the
three months ended July 31, 2001 to $0 for the three months ended July 31, 2002.
The decrease is mainly attributable to delays in invoicing for project work in
customer accounts due to lack of proper resourcing in these projects.
Cost of Revenues. Cost of revenues from operations decreased 98% from
$119,000 for the three months ended July 31, 2001 to $2,598 for the three months
ended July 31, 2002. The decrease is mainly attributable to the costs of license
sales and consulting expenses incurred during the three months ended July 31,
2001.
Sales and Marketing. Sales and marketing expenses decreased 64% from
$111,000 for the three months ended July 31, 2001 to $40,034 for the three
months ended July 31, 2002. The decrease of $70,966 is mainly attributable to
the continued cost containment of sales staffing levels and a limited travel for
sales purposes during the period.
Services. Services expenses decreased 38% from $126,000 for the three
months ended July 31, 2001 to $77,078 for the three months ended July 31, 2002.
The decrease of $48,922 is mainly attributable to continued cost containment
measures in staffing levels and reduced expenditures on travel and miscellaneous
office expenses.
Research and Development. Research and development expenses increased 57%,
from $147,000 for the three months ended July 31, 2001 to $231,070 for the three
months ended July 31, 2002. The increase of $84,070 is mainly representative of
salaries and benefits expense accruals for this period
General and Administrative. General and administrative expenses decreased
26%, from $557,000 for the three months ended July 31, 2001 to $413,077 for the
three months ended July 31, 2002. The decrease of $143,923 is mainly
representative of decreased salaries and benefits expense, reduction of travel
related costs, reduction of outside professional services, and reduction of
other general office expenses.
Interest. Interest expense increased from $159,000 for the three months
ended July 31, 2001 to $172,189 for the three months ended July 31, 2002. The
increase is mainly attributable to a beneficial conversion feature of the
convertible notes and warrants issued on July 27, 2000 and effective December
31, 2000, in accordance with EITF's 00-27 and 98-5. The charge is the
amortization expense related to the discount recorded on the conversion feature
versus the fair market price.
8
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended July 31, 2002, the Company had no investing
activities as compared to the nine months ended July 31, 2001 of $16,000.
The Company believes that its current negative operational cash flow will
be alleviated by increased sales and investment. 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. If we are unable to raise
additional capital in the future, we may not be able to continue as a going
concern. As a result of the above conditions, the Company's most recent audited
financial statements contained a going concern opinion.
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Part II. Other Information
Item 1. Legal Proceedings
Telynx is a party to various litigation matters primarily
involved with vendors and arising out of the ordinary course of
business. Aggressive efforts are being pursued to defend or
otherwise resolve the claims and any pending litigation.
Item 2. Changes in Securities
None.
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
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, 2002
Telynx, Inc.
/s/ Ali Al-Dahwi
- ----------------------------------
Ali Al-Dahwi
Chairman/CEO
(Chief Executive Officer)
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