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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 APRIL 30, 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 May 30, 2001, there were 182,686,818 shares of Class A Common Stock
outstanding.
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TELYNX, INC.
FORM 10-QSB
INDEX
Page
Number
------
Part I Financial Information
Item 1 Financial Statements
Condensed Consolidated Balance Sheets (unaudited) as
of April 30, 2001 and October 31, 2000 3
Condensed Consolidated Statements of
Loss (unaudited) for the three and six
months ended April 30, 2001 and 2000 4
Condensed Consolidated Statements of Cash Flows
(unaudited) for the six months ended April 30, 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 11
Item 1 Legal Proceedings 11
Item 2 Changes in Securities 11
Item 3 Defaults upon Senior Securities 11
Item 4 Submission of Matters to a Vote of Security Holders 11
Item 5 Other Information 11
Item 6 Exhibits and Reports on Form 8-K 11
Signature 12
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TELYNX, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
April 30 October 31
2001 2000
---------------- ---------------
ASSETS
Current assets:
Cash and cash equivalents $ 4,000 $ 42,000
Accounts receivable 216,000 398,000
Prepaids and deposits 33,000 85,000
--------------- --------------
Total current assets 253,000 525,000
Deferred finance cost - net 35,000 110,000
Property and equipment, net 40,000 70,000
--------------- --------------
Total assets $ 328,000 $ 705,000
=============== ============
LIABILITIES AND CAPITAL DEFICIT
Current liabilities:
Accounts payable and accrued liabilities $ 3,520,000 $ 2,418,000
Deferred revenue 48,000 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 5,058,000 3,645,000
Convertible notes payable to investors 198,000 1,000,000
Capital deficit:
Preferred stock, $0.01 par value - 1,000,000 shares authorized;
500 shares issued and outstanding at April 30, 2001 and
October 31, 2000 -- --
Common stock, $0.01 par value - 200,000,000 shares authorized;
174,642,853 shares issued and outstanding at April 30, 2001;
49,736,953 shares issued and outstanding at October 31, 2000 1,746,000 497,000
Paid in capital 28,878,000 27,206,000
Accumulated deficit (35,552,000) (31,643,000)
--------------- --------------
Total capital deficit (4,928,000) (3,940,000)
--------------- --------------
Total liabilities and capital deficit $ 328,000 705,000
=============== ==============
See Notes to Condensed Consolidated Financial Statements (unaudited).
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TELYNX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF LOSS
(UNAUDITED)
Three Months Ended Six Months Ended
April 30 April 30
---------------------------- -------------------
2001 2000 2001 2000
------------- ------------- ------------- ---------
Revenue $ 205,000 $ 31,000 $ 285,000 $ 401,000
Cost of revenue $ 28,000 9,000 28,000 143,000
------------- ------------ ------------- ----------
Gross margin 177,000 22,000 257,000 258,000
------------- ------------ ------------- ----------
Operating expenses:
Sales and marketing 210,000 257,000 652,000 479,000
Services 142,000 86,000 326,000 202,000
Research and development 242,000 138,000 472,000 195,000
General and administrative expenses 841,000 881,000 1,892,000 1,414,000
------------- ------------ ------------- ----------
Total operating expenses 1,435,000 1,362,000 3,342,000 2,290,000
Loss from operations (1,258,000) (1,340,000) (3,085,000) (2,032,000)
Other income (expense):
Interest income -- 1,000 -- 7,000
Interest expense (381,000) (30,000) (824,000) (52,000)
------------- ------------ ------------- ----------
Total other expense (381,000) (29,000) (824,000) (45,000)
------------- ------------ ------------- ----------
Net loss $ (1,639,000) $ (1,369,000) $ (3,909,000) $(2,077,000
============= ============ ============= ===========
Basic and diluted net loss per Common share $ (0.01) $ (0.05) $ (0.04) $ (0.13)
============= ============ ============= ===========
Weighted average shares outstanding 139,379,361 25,527,942 97,600,810 15,523,908
============= ============ ============= ===========
See Notes to Condensed Consolidated Financial Statements (unaudited).
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TELYNX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
April 30
------------------------------
2001 2000
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(3,909,000) $(2,077,000)
Adjustments to reconcile net loss to cash used in operations:
Depreciation and amortization 45,000 47,000
Interest expense on beneficial conversion of debt 745,000 --
Expenses and settlements paid with equity 229,000 --
Changes in assets and liabilities:
Receivables 182,000 192,000
Prepaid expenses 52,000 (134,000)
Accounts payable and accrued liabilities 1,102,000 20,000
Deferred revenue (22,000) (1,000)
Other (58,000) 1,000
----------- -----------
Net cash used in operating activities (1,634,000) (1,952,000)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (15,000) (9,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of convertible debt 1,400,000 --
Proceeds from issuance of Common stock 145,000 1,369,000
Proceeds from note payable to stockholder 67,000 245,000
Other (1,000) --
----------- -----------
Net cash provided by financing activities 1,611,000 1,614,000
----------- -----------
Net change in cash and cash equivalents (38,000) (347,000)
Cash and cash equivalents at beginning of the period 42,000 381,000
----------- -----------
Cash and cash equivalents at end of the period $ 4,000 $ 34,000
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period
for:
Interest $ -- $ --
Income taxes $ -- $ --
Non-cash financing activity:
Redemption of convertible debt for Common shares $ 1,835,000 $ --
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 Telynx, Inc. for the three and six months ended April 30, 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.
NOTE 2. NATURE OF BUSINESS
We supply software solutions and provide professional services for
operations support systems of telecommunications networks. Our primary product
is Telynx Version 2. We have sales and support staff in Dallas, Texas, the
Washington, D.C. area, London, England, 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 April
30, 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 April 30, 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. The conversion feature was contingent on
the filing of the our registration statement on Form SB-2. This registration
statement became effective December 2000. In connection with this financing, we
issued warrants to purchase 1,250,000 shares of our 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 187,500 shares. 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
312,500 shares. The warrants are priced at the lowest closing price within the
prior 10 trading days of the award. During the three months ended April 30,
2001, the note holders exercised their option to convert approximately $798,000
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 April 30, 2001, we took a charge against earnings of approximately
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$348,000 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 16,000,000
shares of our 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 11,428,000 shares of our common stock. During the three months
ended January 31, 2001, we were negotiating with this subscriber to provide
financing for us. Convertible notes and advances of $600,000 were advanced to us
over the six month period ended April 30, 2001.
NOTE 5. SUBSEQUENT EVENT AND PREFERRED STOCK
On March 6, 2001 the Board of Directors of Telynx, Inc. created a
Series C Convertible Preferred Stock for opportunities of future funding growth
subscribers. On May 8, 2001, we filed an amendment 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 160,000 share of Class A common stock. The Series C Convertible Preferred
Stock has a voting power of 805,929 votes per preferred share. Subsequent to
being effective by the State of Delaware, we issued 1,260 shares of Series C
Convertible Preferred Stock.
NOTE 6. NOTES PAYABLE TO SHAREHOLDERS
Notes Payable to Shareholders is composed of $250,000 value of notes
payable to subscribers who loaned funds to Cambio Networks, Inc. before they
were acquired by Meadowbrook. On March 13, 2000, the current Chief Executive
Officer Ali Al-Dahwi, loaned $245,000 to Telynx, Inc. Subsequently on December
13, 2000, he loaned $67,000 to Telynx, Inc. The notes bear interest of 8% per
annum.
NOTE 7. LITIGATION SETTLEMENT
During the six months ended April 30, 2001, we settled two long-term
litigation issues. The first was to a vendor where we settled a $171,000
liability case for $147,000 to be paid over a period of time. As we had accrued
approximately $96,000 on this case, the result was an additional charge against
earnings of approximately $51,000. Also during the six months ended April 30,
2001, we settled a long-term case against a vendor for approximately $118,000.
As we had no beginning accrual on the books for this case, the charge in
settling this case resulted in a charge against earnings of approximately
$118,000.
NOTE 8. 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.
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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 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 APRIL 30, 2001 AS COMPARED TO THREE MONTHS ENDED
APRIL 30, 2000
In fiscal year 2000, we fashioned a business plan whereby our products
were available for production, 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 resource and
operating capital in the future. The increases in expenses for the three months
ended April 30, 2001, versus the three months ended April 30, 2000, is a direct
correlation to the funding model of growing the business that had been planned
for the past year.
Revenues. Revenues from operations increased 561% from $31,000 for the
three months ended April 30, 2000 to $205,000 for the three months ended April
30, 2001. The increase is due to shipments of approximately $150,000 of product
from backlog along with approximately $68,000 of product from new sales for the
quarter. We anticipate the trend of the second quarter to increase as customers
book additional sales for the balance of the year.
Sales and Marketing. Sales and marketing expenses decreased 18% from
$257,000 for the three months ended April 30, 2000 to $210,000 for the three
months ended April 30, 2001. The decrease was related to various cost reductions
associated with the re-evaluation of the strategy of marketing and selling our
products. We anticipate that a strategic restructuring of the sales and
marketing focus will result in increased sales with minimal costs thereby
increasing operational efficiency.
Services. Services expenses increased 65% from $86,000 for the three
months ended April 30, 2000 to $142,000 for the three months ended April 30,
2001. This increase is attributable to additional manpower costs related to
servicing new order installations this year versus the prior year period.
Revenues recognized for these services are recognized as the services are
rendered and based on contractual milestones. Some of our employees within the
services area provide some sales and marketing benefit for our core product.
Research and Development. Research and development expenses increased
75%, from $138,000 for the three months ended April 30, 2000 to $242,000 for the
three months ended April 30, 2001. For the three month period, increased costs
related to development and engineering of our "Telynx Version 2" was largely
offset by certain cost reduction efforts which were implemented halfway through
the quarter ended April 30, 2001. Also consistent with the services department,
selected employees within the research and development area provide some sales
and marketing benefit for our core product.
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General and Administrative. General and administrative expenses decreased
5%, from $881,000 for the three months ended April 30, 2000 to $841,000 for the
three months ended April 30, 2001. The decrease represents costs savings in
consulting and outside services contracted for, offset with expenses in settling
an open payable litigation item of approximately $118,000. Consistent with
services and research and development, selected employees within the general and
administrative area provide some sales and marketing benefit for our core
product.
Interest. Interest expense increased $351,000 for the three months ended
April 30, 2001 versus April 30, 2000. The increase is attributable to the
beneficial conversion feature of the convertible notes issued July 27, 2000,
effective December 19, 2000, in accordance with the Financial Accounting
Standard Board's EITF's statement 00-27 and 98-5.
SIX MONTHS ENDED APRIL 30, 2001 AS COMPARED TO SIX MONTHS ENDED APRIL 30, 2000
In fiscal year 2000, we fashioned a business plan whereby our products
were available for production, 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 resource and
operating capital in the future. The increases in expenses for the six months
ended April 30, 2001, versus the six months ended April 30, 2000, is a direct
correlation to the funding model of growing the business that had been planned
for the past year.
Revenues. For the six months ended April 30, 2001, revenues were down 29%
from $401,000 in 2000 to $285,000 in 2001. The decrease for the six months was
mainly attributable to a lag of revenues in the first quarter this year versus
the first quarter last year. We anticipate the trend of the second quarter to
increase as customers book additional sales for the balance of the year.
Sales and Marketing. For the six months ended April 30, 2001, sales and
marketing costs were up 36% from $479,000 in 2000 to $652,000 in 2001. The
increase for the six months was related to additional sales and marketing people
and travel related expenses related to sales in the first quarter. We anticipate
that a strategic restructuring of the sales and marketing focus will result in
increased sales with minimal costs thereby increasing operational efficiency.
Services. For the six months ended April 30, 2001, services expenses
costs were up 61% from $202,000 in 2000 to $326,000 in 2001. This increase is
attributable to additional personnel costs related to servicing new order
installations this year versus the prior year period. Revenues recognized for
these services are recognized as the services are rendered and based on
contractual milestones. Some of our employees within the services area provide
some sales and marketing benefit for our core product.
Research and Development. For the six months ended April 30, 2001,
research and development costs were up 142% from $195,000 in 2000 to $472,000 in
2001. For the six month period, the increase was attributable to increased
personnel costs in development and engineering our new recently released product
"Telynx Version 2". Also consistent with the services department, selected
employees within the research and development area provide some sales and
marketing benefit for our core product.
General and Administrative. For the six months ended April 30, 2001,
general and administrative costs were up 34% from $1,414,000 in 2000 to
$1,892,000 in 2001. For the six month period, the increase was attributable to
additional costs for added personnel, recruitment of those personnel, and
additional costs for consulting and outside services. Also included was the cost
of settling open payable litigation issues for approximately $170,000.
Consistent with services and research and development, selected employees within
the general and administrative area provide some sales and marketing benefit for
our core product.
Interest. Interest expense increased $772,000 for the six month period
ended April 30, 2001 versus April 30, 2000. The increase is attributable to the
beneficial conversion feature of the convertible notes issued July 27, 2000,
effective December 19, 2000, in accordance with the Financial Accounting
Standard Board's EITF's statement 00-27 and 98-5.
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LIQUIDITY AND CAPITAL RESOURCES
The use of cash of $1,634,000 for the six months ended April 30, 2001
was composed of a net loss of $3,909,000, partially offset by expenses settled
by payments in common stock of $229,000, interest expense on beneficial
conversion of debt of $745,000, increases in accounts payable and accrued
liabilities of $1,102,000. This use of cash in operating activities of $1,634,00
for the six months ended April 30, 2001 is comparable to $1,952,000 for the six
months ended April 30, 2000, which was composed of net losses of $2,077,000 for
the six months ended April 30, 2000, with a slight cash flow increase in
operating assets over liabilities of approximately $78,000 for the six months
ended April 30, 2000.
During the six months ended April 30, 2001, consistent with the six
months ended April 30, 2000, we invested in software and computer/network
equipment with purchases totaling $15,000 and $9,000, respectively.
The financing activities during the six months ended April 30, 2001
consisted of proceeds from the issuance of our common stock of approximately
$145,000 versus $1,369,000 for the six months ended April 30, 2000. We had
proceeds from notes payable to stockholder of $67,000 for the six months ended
April 30, 2001 versus $245,000 for the six months ended April 30, 2000. We had
proceeds from the issuance of convertible debt debentures of $1,400,000 for the
six months ended April 30, 2001 of which there were no convertible debt
issuances in the comparable prior year. During the six month period, we recorded
the redemption of convertible debt debentures and related interest of
approximately $1,835,000 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 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. 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 interest at 8% which were converted into 16,000,000
shares of our 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 11,428,000 shares of our common stock.
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 other than provided
in the paragraph above will be available on terms favorable to us. If adequate
funds are not available, our liquidity could be impaired, which would have a
negative impact on 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.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
During the three months ended April 30, 2001, we settled a
long-term case against a vendor for approximately $118,000. As
we had no beginning accrual on the books for this case, the
charge in settling this case resulted in a charge against
earnings of approximately $118,000.
.
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: June 14, 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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