Form 10-K for TELYNX INC 12-Jan-2007
Annual Report
Item 6 Management's Discussion and Analysis of Financial Condition or Plan
of Operation.
This following information specifies certain forward-looking statements of management of the company. Forward-looking statements are statements that estimate the happening of future events are not based on historical fact. Forward-looking statements may be identified by the use of forward-looking terminology, such as "may", "shall", "could", "expect", "estimate", "anticipate", "predict", "probable", "possible", "should", "continue", or similar terms, variations of those terms or the negative of those terms. The forward-looking statements specified in the following information have been compiled by our management on the basis of assumptions made by management and considered by management to be reasonable. Our future operating results, however, are impossible to predict and no representation, guaranty, or warranty is to be inferred from those forward-looking statements.
The assumptions used for purposes of the forward-looking statements specified in the following information represent estimates of future events and are subject to uncertainty as to possible changes in economic, legislative, industry, and other circumstances. As a result, the identification and interpretation of data and other information and their use in developing and selecting assumptions from and among reasonable alternatives require the exercise of judgment. To the extent that the assumed events do not occur, the outcome may vary substantially from anticipated or projected results, and, accordingly, no opinion is expressed on the achievability of those forward-looking statements. No assurance can be given that any of the assumptions relating to the forward-looking statements specified in the following information are accurate, and we assume no obligation to update any such forward-looking statements.
Critical Accounting Policy and Estimates.
Our Management's Discussion and Analysis of Financial Condition and Results of Operations section discusses our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to revenue recognition, accrued expenses, financing operations, and contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The most significant accounting estimates inherent in the preparation of our financial statements include estimates as to the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources, primarily allowance for doubtful accounts on receivables, accruals for other costs, and the classification of net operating loss and tax credit carry forwards between current and long-term assets. These accounting policies are described at relevant sections in this
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discussion and analysis and in the notes to the financial statements included in our Annual Report on Form 10-KSB for the fiscal year ended October 31, 2005.
Overview
We did not conduct any operations from August 2002 through April 2004. Under our new management, we are recommencing operations and beginning to generate revenues as we did prior to our dormant period. Since April 1, 2004 our new management team has been trying to resolve issues with our outstanding liabilities, the dissolution of our 401(k) Plan, and the Internal Revenue Service. At the same time, we negotiated a deal with Hewlett Packard, in regard to providing support for Telecom Egypt.
In 2005 we completed the distribution of our 401(k) Plan.
In September of 2005, we received a letter from the Labor Department stating that they concluded their investigation of the 401(k) Plan.
Please review the last two reports on Form-10KSB for further explanation of the status of the company prior to November 1, 2002. As of September 30, 2002 the company vacated its offices and ceased its operation. The following discussion and analysis should be read in conjunction with our consolidated financial statements, including the notes thereto, appearing elsewhere in this report.
We deliver software and services for the specific purpose of managing telecommunications networks. Our primary target customers are telecommunications service providers. Our software and services are designed to create accurate electronic models of the network infrastructure and assist in the provisioning of new telecommunications services. We believe that the key value proposition of our products and services is the impact on a service provider's provisioning interval. In the estimation of our management, this is a key metric used by a provider to determine their cost of providing service and their ability to provide a wide range of services in a timely fashion.
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 ("OSS") 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, we believe that 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 players such as Hewlett Packard in order to gain penetration in the marketplace. Specifically, individual long standing relationships in international markets have produced business for us in the Middle East as well as in the Far East. The first two years of product revenue for us, namely 2000-2002, were derived in large part from these sources. Additionally, we have made significant investment in participating with 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. From 2004 to the present, we have participated in these activities. In combination, we believe these two strategies have leveraged our market awareness.
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Management's Discussion and Analysis of Financial Condition and Results of
Operations
Liquidity and Capital Resources. As of October 31, 2005, we have cash and cash equivalents of $239, we received $65,000 as part of our 2004 receivables from the HP contract. Therefore, as of October 31, 2005, we had total current assets and total assets of $2,257. In the opinion of management, available funds will not satisfy our working capital requirements for the next twelve months. We believe that in order to (a) pay our operating expenses, (b) begin marketing our products sufficiently to gain additional clients and (c) expand our operations, we will need additional funds.
As mentioned in Note 1 to the financial statements, we encountered significant financial difficulties in 2002 and ceased operations. From approximately August of 2002 to April of 2004, the Company remained in a dormant stage. Prior to August 2002 and during the period from that date to April 2004, the Company was involved in certain claims and lawsuits arising from normal business operations prior to the Company becoming dormant. Several claimants received judgments against the Company. Management has accrued such judgments that are owed at October 31, 2004 and 2003. These liabilities may continue to accrue additional collection costs, and these costs along with other potential claims will be accrued when the amounts to be paid are probable and reasonably estimable. Related amounts accrued in the financial statements as of October 31, 2005 and 2004 are approximately $600,000 that is owed to the Internal Revenue Service for unpaid payroll taxes. Management is currently negotiating with the Internal Revenue Service regarding this liability.
As of October 31, 2005, our total liabilities were $754,969, which were comprised solely of accounts payable and accrued expenses.
We have three outstanding judgments in addition to the IRS liability. The first is by RHT, L.P. for the sum of $30,684.51 for administrative services. This judgment was granted on June 9th, 2003. The second by Robert C. Samuel of Coronado Tower for the sum of $111,796.53 for office lease which was granted in 2003. The third, R. R. Donnelley and Sons Company for the sum of $14,948.40 for printing services which was granted on June 13, 2003.
We are planning on resolving these liabilities from future revenues and funding.
We do not have any long term commitments or contingencies.
Going Concern. Note 5 to our financial statements include the following language: "The Company incurred a net operating loss of $1,015,611 for the year ended October 31, 2005. The Company will need additional working capital for its planned future activity and to satisfy its liabilities, which raises substantial doubt about its ability to continue as a going concern. Continuation of the Company as a going concern is dependent upon obtaining sufficient working capital to be successful in that effort. The management of the Company has developed a strategy which it believes will accomplish this objective through additional short term loans from related parties, and equity financing as needed, which will enable the Company to operate in the future."
Income Taxes
The Company utilizes the liability method of accounting for income taxes. Under the liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. When management determines that it is more likely than not that a deferred tax asset will not be realized, a valuation allowance is established. As of October 31, 2005, the Company had a net operating loss carryforward of $36,432,451. The tax benefit from the loss carryforward has been fully offset by a valuation reserve because the use of the future tax benefit is undetermined at this time. The loss carryforward will begin to expire in 2018.
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Results of Operations
For the year ended October 31, 2005 as compared to the year ended October 31,
2004.
Revenues. For the year ended October 31, 2005, we generated $0 in revenue from our operations. This is in comparison to the year ended October 31, 2004, where we generated $147,000 in revenues from our operation. These revenues were generated from sales of our software products. We had no cost of generating revenues, therefore our gross profit was also $147,000. We anticipate that our source of revenues will continue to be through services and product sales. Therefore, we will need to expand our client base and explore new markets suitable for our product and services, because our revenue is based on such.
Operating Expenses. For year ended October 31, 2005, we had total operating expenses of $1,019,111, which were comprised of $5,571 in sales and marketing expenses, $963,218 in services and $50,322 represented by general and administrative expenses. Therefore our loss from operations was $1,019,111. We had no other income or expenses, so our net loss for the year ended October 31, 2005 was also $1,019,111. This is in comparison to the year ended October 31, 2004, where we had total operating expenses of $190,858, which were comprised of $1,653 in sales and marketing expenses, $121,212 in services and $67,993 represented by general and administrative expenses. Therefore our loss from operations was $43,858. We had no other income or expenses, so our net loss for the year ended October 31, 2004 was also $43,858.
Our Plan of Operation for the Next Twelve Months. To continue operating and begin generating profits during the next twelve months, we must do the following:
o generate more significant revenues or raise capital to pay for our monthly costs of operation
o expand and develop our customer base; and
o increase our sales efforts to attract clients and generate revenues.
We have cash and equivalents of $239 as of October 31, 2005. We believe we do not have adequate funds to satisfy our working capital requirements for the next twelve months. Our forecast for the period for which our financial resources will be adequate to support our operations involves risks and uncertainties and actual results could fail as a result of a number of factors. We may need to raise additional capital to continue our operations.
We plan to complete our product and prepare to launch new services to increase our customer base. This plan requires a minimum of $2 million to be successfully accomplished. The additional capital will be used to complete, launch and market the new product and services world wide.
In addition to launching our own product and services, we are aggressively perusing potential acquisition of other companies with products and services in the telecommunication space.
Our forecast for the period for which our financial resources will be adequate to support our operations involves risks and uncertainties and actual results could differ as a result of a number of factors. We may need to raise additional capital to expand our operations. In the event that we experience a shortfall in our capital, we intend to pursue capital through public or private financing as well as borrowings and other sources, such as our officers and directors. We
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cannot guaranty that additional funding will be available on favorable terms, if at all. If adequate funds are not available, then our ability to expand our operations may be significantly hindered. If adequate funds are not available, we may have to cease operations. However, we have not contemplated any plan of liquidation in the event that we do not generate revenues.
We are currently conducting research and development activities since restarting our operations in April 2004. In the event that we expand our customer base, then we may need to hire additional employees or independent contractors as well as purchase or lease additional equipment. We will be required to purchase or lease a server in order to provide web hosting services.
Off-balance sheet arrangements. There are no off balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
