Fonix Corp. to liquidate telecom subsidiaries

Salt Lake-based Fonix Corp. on Friday announced significant structural changes and the liquidation of its telecommunications subsidiaries.

According to a statement released by the company, LTEL Holdings Inc., LecStar DataNet Inc., LecStar Telecom Inc. and Fonix Telecom Inc. filed for Chapter 7 bankruptcy protection on Oct. 2 in Delaware. A trustee was named to liquidate the assets of those entities, the company said. Except as to the consolidated financial statements, those filings do not affect the operations of Fonix Corp. or Fonix Speech Inc., the company said in its statement.

In addition, the company said that McCormack Avenue Ltd., the holder of "significant debt" associated with Fonix's purchase of the telecom group, has noticed a foreclosure action of Fonix's stock of LTEL Acquisition Inc., the sole shareholder of LTEL Holdings Inc. The foreclosure action is scheduled to occur on or before Oct. 20.

"The liquidation of the telecom group and subsequent foreclosure action by McCormack will eliminate approximately $17 million of accrued liabilities on the Fonix consolidated balance sheet," Roger D. Dudley, executive vice president and chief financial officer of Fonix Corp., said in the statement.

"While consolidated annual revenues will decrease due to the liquidation of the telecom subsidiaries, consolidated operating losses will also dramatically decrease. Going forward, management will focus energy on Fonix Speech's award-winning speech technologies without the financial burden of the telecom operations and liabilities."

The financial results reflecting these events will be reported in the reports and statements for the period ending Dec. 31.