SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1996
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 0-09613
FAXSAV INCORPORATED
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(Exact name of registrant as specified in its charter)
Delaware 11-3025769
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
399 Thornall Street, Edison, New Jersey 08837
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (908) 906-2000
Former name, former address and former fiscal year, if changed
since last report.
Indicate by check |x| whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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___ No |x|
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: 9,770,490 shares of the
Company's Common Stock, $.01 par value, were outstanding as of November 6, 1996.
<PAGE>
FAXSAV INCORPORATED
Index to September 30, 1996 Form 10-Q
________________________________________________________________________________
Page
----
Part I -- Financial Information
Item 1. Financial Statements................................................ 3
Condensed Balance Sheets -- September 30, 1996 and
December 31, 1995...................................................... 3
Condensed Statements of Operations -- Three and Nine
Months Ended September 30, 1996 and 1995............................... 4
Condensed Statements of Cash Flows -- Nine Months Ended
September 30, 1996 and 1995............................................ 5
Notes to Condensed Financial Statements................................ 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............................... 7
Part II -- Other Information
Item 1. Legal Proceedings.................................................. 17
Item 2. Changes in Securities.............................................. 17
Item 3. Defaults upon Senior Securities.................................... 17
Item 4. Submission of Matters to a Vote of Security Holders................ 17
Item 5. Other Information.................................................. 17
Item 6. Exhibits and Reports on Form 8-K................................... 17
Signatures......................................................... 19
2
<PAGE>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
FAXSAV INCORPORATED
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
Pro Forma
Note 3
September 30, September 30, December 31,
1996 1996 1995
------------ ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ........................ $ 827,999 $ 552,370
Accounts receivable, net ......................... 2,429,069 2,358,052
Prepaid expenses and other current assets ........ 544,896 67,306
------------ ------------
Total current assets .......................... 3,801,964 2,977,728
PROPERTY AND EQUIPMENT, NET ......................... 3,360,536 2,035,779
OTHER ASSETS, NET ................................... 169,264 118,071
------------ ------------
TOTAL ............................................... $ 7,331,764 $ 5,131,578
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ................................. $ 1,058,400 $ 304,407
Accrued expenses and other liabilities ........... 3,458,192 2,661,308
Obligation under capital lease ................... 275,630 152,593
Amount outstanding under line of credit .......... 652,111 1,000,000
------------ ------------
Total current liabilities ..................... 5,444,333 4,118,308
OBLIGATION UNDER CAPITAL LEASE ...................... 467,267 326,242
AMOUNT OUTSTANDING UNDER LINE OF
CREDIT ........................................... 304,223
------------ ------------
Total liabilities ............................. 6,215,823 4,444,550
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Convertible preferred stock, $0.001 par value;
aggregate liquidation preference of $31,845,128;
Series A, B, C, D, E and F, 80,200,000 shares
authorized; 78,783,340 and 58,769,921 shares
issued as of September 30, 1996 and
December 31, 1995, respectively; and
70,127,830 and 58,769,921 shares outstanding
as of September 30, 1996 and December 31,
1995, respectively, and none issued and
outstanding on a pro forma basis ............... 78,783 -- 58,770
Common stock, $0.01 par value; 40,000,000 shares
authorized; 399,898, 348,742 and 8,191,879
shares issued as of September 30, 1996,
December 31, 1995, and pro forma,
respectively, 378,509, 327,353 and 8,170,490
shares outstanding as of September 30, 1996,
December 31, 1995 and pro forma, respectively .. 3,786 $ 81,706 3,274
Additional paid-in capital ....................... 24,003,509 23,995,716 18,204,453
Accumulated deficit .............................. (22,961,466) (22,961,466) (17,579,454)
Treasury stock, at cost 21,389 common shares as
of September 30, 1996 and December 31, 1995
and 8,655,510 preferred shares as of
September 30, 1996 and no preferred shares on
a pro forma basis ............................. (8,671) (15) (15)
------------ ------------ ------------
Total stockholders' equity .................... 1,115,941 $ 1,115,941 687,028
------------ ============ ------------
TOTAL ............................................... $ 7,331,764 $ 5,131,578
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed
financial statements.
3
<PAGE>
FAXSAV INCORPORATED
CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
-------------------------------- --------------------------------
1996 1995 1996 1995
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
REVENUES $ 3,769,544 $ 3,300,189 $ 11,214,710 $ 8,317,124
COST OF SERVICE....................... 2,223,875 1,975,325 6,504,356 5,082,206
----------- ----------- ------------ -----------
GROSS MARGIN.......................... 1,545,669 1,324,864 4,710,354 3,234,918
OPERATING EXPENSES:
Network operations and support..... 545,093 332,487 1,412,872 898,609
Research and development........... 525,193 249,185 1,306,056 648,471
Sales and marketing................ 1,510,809 1,116,463 4,534,113 3,153,590
General and administrative......... 576,552 494,064 1,951,864 1,337,466
Depreciation and amortization...... 343,117 190,270 929,964 443,708
Other.............................. -- (134,375) -- (340,625)
----------- ----------- ------------ -----------
OPERATING LOSS........................ (1,955,095) (923,230) (5,424,515) (2,906,301)
OTHER INCOME (EXPENSE):
Interest income (expense) net...... (20,440) 8,051 (28,375) 80,007
Other income (expense) net......... 25,597 20,350 70,878 46,002
----------- ----------- ------------ -----------
NET LOSS.............................. $ (1,949,938) $ (894,829) $(5,382,012) $ (2,780,292)
=========== =========== ============ ===========
Net loss per common and equivalent
share.............................. $ (3.66) $ (1.81) $ (10.55) $ (5.64)
=========== =========== ============ ===========
Weighted average common and
equivalent shares outstanding...... 532,196 491,272 509,561 491,272
=========== =========== ============ ===========
Unaudited pro forma data:
Pro forma net loss per common and
equivalent share................ $ (.23) $ (.10) $ (.63) $ (.30)
=========== =========== ============ ===========
Shares used in computing proforma
net loss per common and
equivalent share................ 8,323,183 9,243,484 8,514,098 9,243,484
=========== =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these condensed
financial statements.
4
<PAGE>
FAXSAV INCORPORATED
CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ............................................. $(5,382,012) $(2,780,292)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization expense ............. 929,964 443,708
Provision for doubtful accounts ................... 183,300 119,420
Provision for unrecoverable equipment ............. 150,000 149,071
Changes in assets and liabilities:
Accounts receivable ............................... (254,317) (1,311,628)
Prepaid expenses and other current assets ......... (477,590) (107,682)
Other assets ...................................... (90,425) (46,379)
Accounts payable .................................. 753,993 (236,524)
Accrued expenses and other liabilities ............ 688,920 806,846
----------- -----------
Net cash used in operating activities ........... (3,498,167) (2,963,460)
----------- -----------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property and equipment ................... (1,793,632) (953,781)
----------- -----------
Net cash used in investing activities ........... (1,793,632) (953,781)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments made under capital lease obligation (157,743) (57,427)
Borrowings under line of credit ...................... 956,334 400,000
Repayments under line of credit ...................... (1,000,000) --
Proceeds from issuance of preferred stock, net ....... 7,932,715 4,151,863
Treasury stock acquired preferred .................... (2,163,878) --
----------- -----------
Net cash provided by financing activities ....... 5,567,428 4,494,436
----------- -----------
NET INCREASE IN CASH .................................... 275,629 577,195
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ........ 552,370 311,592
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .............. $ 827,999 $ 888,787
=========== ===========
NONCASH INVESTING AND FINANCING ACTIVITIES:
Equipment acquired under capital lease ............... $ 421,805 $ 24,925
Issuance of common stock under option pursuant to
severance agreement
$ 42,091 --
</TABLE>
The accompanying notes are an integral part of these
condensed financial statements.
5
<PAGE>
FAXSAV INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. Basis of Presentation
The financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. However, the Company believes that the disclosures are adequate to
make the information presented not misleading. These condensed financial
statements should be read in conjunction with the financial statements and the
notes thereto included in the Company's financial statements included in its
Registration Statement on Form S-1 (Registration No. 333-09613) for the year
ended December 31, 1995.
The unaudited condensed financial statements included herein reflect all
adjustments (which include only normal, recurring adjustments) which are, in the
opinion of management, necessary to state fairly the results for the three month
and nine month periods ended September 30, 1996 and 1995. The results for the
three and nine month periods ended September 30, 1996 are not necessarily
indicative of the results expected for the full fiscal year.
2. Pro Forma Net Loss Per Common and Equivalent Share
Pro forma net loss per common and equivalent share is based on the
weighted average number of shares outstanding during the periods presented,
including the effect of a reverse stock split for common shares of one-for-nine
shares completed in October 1996 prior to the effective date of the Company's
registration statement on Form S-1 and conversion of all outstanding preferred
stock into 7,791,981 shares of common stock (see Note 3). Pursuant to the
Securities and Exchange Commission Staff Accounting Bulletin No. 83 ("SAB 83"),
all shares, options and warrants issued during the twelve months immediately
preceding the initial public offering were treated as if the had been
outstanding for all periods, using the treasury stock method and assuming a per
share price of $8.00, the initial public offering price. Common stock
equivalents (i.e., convertible preferred stock and certain stock options and
warrants) issued in earlier periods have not ben included since the effect would
be antidilutive.
3. Capital Stock
In October 1996, in connection with the initial public offering of
securities, the Company filed an amendment to its Fifth Amended and Restated
Certificate of Incorporation to effect a one-for-nine reverse stock split at a
par value of $0.01 and to change the authorized number of common shares to
40,000,000. All share and per share amounts in the condensed financial
statements have been retroactively restated to reflect the reverse stock split.
The Company also filed immediately prior to the closing of the offering
its Sixth Amended and Restated Certificate of Incorporation which changed the
authorized number of preferred stock. All outstanding shares of preferred stock
were converted at the consent of the holders into an aggregate of 7,791,981
shares of common stock. The effect of this conversion has been presented in the
accompanying balance sheets on a pro forma basis as of September 30, 1996.
The Company completed the initial public offering of its common stock in
October 1996 with the sale of 1,600,000 shares for net proceeds of $10,904,000.
4. Contingencies
The Company is involved in various disputes, claims or legal proceedings
and may be included in future actions including infringement on intellectual
property rights, related to its normal course of business. In the opinion of
management, all such matters are without merit or involve amounts, if disposed
of unfavorably, which would not have a material adverse effect on the financial
position or results of operations of the Company.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
FaxSav Incorporated (the "Company") derives its revenues from the
provision of a variety of facsimile services largely to small to medium sized
businesses and professionals involved in international commerce. Through the end
of 1995, the Company offered its services exclusively to customers located in
the United States. In the first quarter of 1996, the Company began to focus on
the broader worldwide market for facsimile services through the introduction of
client software to enable faxing from the computer desktop using the Internet as
the means to access the FaxSav network. The Company's network in the United
States includes interconnection with the existing worldwide telephony network,
enabling delivery of facsimile transmissions to virtually any domestic or
international destination. The Company plans to continue to install Internet
nodes in key international telecommunications markets to enable the Company
ultimately to route a majority of its customers' traffic through the Internet.
The Company's revenue and expense levels have continued to increase,
particularly in 1995 and through the nine months ended September 30, 1996, as
the Company's customer base has expanded and the Company has invested in the
design, development and marketing of its newer services, including faxSAV
EZ-List, a fax-to-fax broadcast service, and the faxSAV for Internet suite of
services.
This report contains certain statements of a forward-looking nature
relating to future events or the future financial performance of the Company.
Stockholders are cautioned that such statements are only predictions and that
actual events or results may differ materially. In evaluating such statements,
prospective investors should specifically consider the various factors
identified in this report, including the matters set forth under the caption
"Certain Factors That May Affect Future Results, Financial Condition and the
Market Price of Securities," which could cause actual results to differ
materially from those indicated by such forward-looking statements.
Results of Operations
The following table presents unaudited financial information expressed as
a percentage of total revenues for the periods indicated. The Company believes
that this information has been presented on a basis consistent with the
Company's audited financial statements and includes all adjustments, consisting
only of normal recurring adjustments that management considers necessary for a
fair presentation for the periods presented.
Three Months Ended Nine Months Ended
September 30, September 30,
----------------- -----------------
1996 1995 1996 1995
----- ----- ----- -----
Percentages of Revenues:
Revenues ........................ 100.0% 100.0% 100.0% 100.0%
Cost of service ................. 59.0 59.9 58.0 61.1
----- ----- ----- -----
Gross margin .................... 41.0 40.1 42.0 38.9
----- ----- ----- -----
Operating expenses:
Network operations and support 14.5 10.1 12.6 10.8
Research and development ..... 14.0 7.6 11.7 7.8
Sales and marketing .......... 40.1 33.8 40.4 37.9
General and administrative ... 15.3 15.0 17.4 16.1
Depreciation and amortization 9.1 5.8 8.3 5.3
Other ........................ -- (4.1) -- (4.1)
----- ----- ----- -----
Total operating expenses .. 92.9 68.1 90.4 73.8
----- ----- ----- -----
Operating loss .................. (51.9) (28.0) (48.4) (34.9)
Interest income (expense), net .. (.5) .2 (.2) 1.0
Other income (expense), net ..... .7 .6 .6 .5
Loss before income taxes ........ (51.7) (27.1) (48.0) (33.4)
Provision for income taxes ...... -- -- -- --
----- ----- ----- -----
Net loss ........................ (51.7)% (27.1)% (48.0)% (33.4)%
===== ===== ===== =====
7
<PAGE>
Three Months Ended September 30, 1996 and 1995
Revenues. Revenues, which consist primarily of customer usage charges,
grew 14.2% to $3.8 million in the three months ended September 30, 1996 from
$3.3 million in the three months ended September 30, 1995 primarily as a result
of the continued expansion of the Company's customer base and, to a lesser
extent, commercial introduction of the Company's faxSAV EZ-List broadcast
service and faxSAV for Internet suite of services in 1996.
Cost of service. Cost of service consists of local access charges, leased
network backbone circuit costs and long distance domestic and international
termination charges. These are primarily variable costs based on actual
facsimile volume. Cost of service increased as a result of the increase in
facsimile volume for the period but decreased as a percentage of revenues in the
three months ended September 30, 1996 to 59.0% from 59.9% in the three months
ended September 30, 1995. The Company's costs for international termination
charges in the 1996 period were lower as a percentage of revenue as a result of
the Company's volume commitment to its major telephony common carrier.
Network operations and support. Network operations and support costs
consist primarily of the expenses of operating and expanding the network
infrastructure, monitoring network traffic and quality of service and providing
customer support in service installations, fax deliveries and message reporting
and billing. Network operations and support costs increased to $.5 million in
the three months ended September 30, 1996 from $.3 million in the three months
ended September 30, 1995 as a result of hiring additional personnel to implement
the Internet fax node deployment plan and to support the Company's expanding
customer base. These costs increased as a percentage of revenues to 14.5% in the
three months ended September 30, 1996 from 10.1% in the same period in 1995.
Research and development. Research and development expenses consist
primarily of salaries and consulting fees paid to software engineers and
development personnel. Research and development expenses increased by 110.8% in
the three months ended September 30, 1996 in comparison to the three months
ended September 30, 1995 due to the continuing development efforts for
enhancements to the Company's Internet desktop-to-fax services both in client
software and network enhancements and the continuing development of the
Company's faxSAV EZ-List broadcast service. As a percentage of revenues, these
expenses increased to 14.0% in the three months ended September 30, 1996 from
7.6% in the three months ended September 30, 1995.
Sales and marketing. Sales and marketing expenses consist primarily of
salaries and commissions for sales and marketing staffs, promotional material
preparation and mailing costs, third-party telemarketing charges and agent and
dealer commissions. Sales and marketing expenses increased to $1.5 million for
the three months ended September 30, 1996 in comparison to $1.1 million in the
three months ended September 30, 1995. As a percentage of revenues, these costs
were 40.1% and 33.8% for the 1996 and 1995 periods, respectively. During 1996,
the Company initiated a program of presenting its faxSAV for Internet suite of
services at trade shows in the United States and in foreign countries where it
plans to deploy Internet fax nodes. The Company also initiated an advertising
and promotion campaign to promote its new services and expanded its sales and
marketing staff.
General and administrative. General and administrative expenses consist of
expenses associated with the Company's management, accounting, finance, billing
and administrative functions. General and administrative expenses increased to
$.6 million and 15.3% of revenues in the three months ended September 30, 1996
from $.5 million and 15.0% of revenues in the three months ended September 30,
1995. The increase in total general and administrative expenses results from
personnel increases to support the increased customer base and expenses incurred
for management information system improvements.
Depreciation and amortization. Depreciation and amortization amounted to
$.3 million in the three months ended September 30, 1996 in comparison to $.2
million in the three months ended September 30, 1995, primarily reflecting
depreciation of the Company's increased investment in faxSAV Connectors
installed at customer premises to allow access to the FaxSav network.
8
<PAGE>
Other. Other operating income of $.1 million for the three months ended
September 30, 1995 represents service fees received under a Service Agreement
with Telstra Corporation Limited ("Telstra") which offset various operating
expenses incurred in support of the development of Telstra's "WorldFax" service
in the U.S. The Agreement expired in 1995.
Provision for income taxes. The Company had losses for income tax purposes
for the three months ended September 30, 1996 and 1995. Accordingly, there was
no provision or credit for income taxes for those periods. Any income tax
benefits at the Company's expected effective tax rate for these losses has been
offset by an expected increase in valuation allowance for deferred tax assets.
Nine Months Ended September 30, 1996 and 1995
Revenues. Revenues grew 34.8% to $11.2 million in the nine months ended
September 30, 1996 from $8.3 million in the nine months ended September 30, 1995
primarily as a result of the continued expansion of the Company's customer base
and, to a lesser extent, commercial introduction of the Company's faxSAV EZ-List
broadcast service and faxSAV for Internet suite of services in 1996.
Cost of service. Cost of service increased as a result of the increase in
facsimile volume for the period but decreased as a percentage of revenues in the
nine months ended September 30, 1996 to 58.0% from 61.1% in the nine months
ended September 30, 1995. The Company's costs for international termination
charges in the 1996 period were lower as a percentage of revenue as a result of
the Company's volume commitment to its major telephony common carrier.
Network operations and support. Network operations and support costs
increased to $1.4 million in the nine months ended September 30, 1996 from $0.9
million in the nine months ended September 30, 1995 as a result of hiring
additional personnel to implement the Internet fax node deployment plan and to
support the Company's expanding customer base. These costs increased as a
percentage of revenues to 12.6% in the nine months ended September 30, 1996 from
10.8% in the same period in 1995.
Research and development. Research and development expenses increased by
101.4% in the nine months ended September 30, 1996 in comparison to the nine
months ended September 30, 1995 due to the continuing development efforts for
enhancements to the Company's Internet desktop-to-fax services both in client
software and network enhancements and the continuing development of the
Company's faxSAV EZ-List broadcast service. As a percentage of revenues, these
expenses increased to 11.7% in the nine months ended September 30, 1996 from
7.8% in the nine months ended September 30, 1995.
Sales and marketing. Sales and marketing expenses increased to $4.5
million for the nine months ended September 30, 1996 in comparison to $3.2
million in the nine months ended September 30, 1995. As a percentage of
revenues, these costs were 40.4% and 37.9% in the 1996 and 1995 periods,
respectively. During 1996, the Company initiated a program of presenting its
faxSAV for Internet suite of services at trade shows in the United States and in
foreign countries where it plans to deploy Internet fax nodes. The Company also
initiated an advertising and promotion campaign to promote its new services and
expanded its sales and marketing staff.
General and administrative. General and administrative expenses increased
to $2.0 million and 17.4% of revenues in the nine months ended September 30,
1996 from $1.3 million and 16.1% of revenues in the nine months ended September
30, 1995. The increase in total general and administrative expenses and the
increase of these expenses as a percentage of revenues result from personnel
increases to support the increased customer base, expenses incurred for
management information system improvements and management recruiting fees.
Depreciation and amortization. Depreciation and amortization amounted to
$0.9 million in the nine months ended September 30, 1996 in comparison to $0.4
million in the nine months ended September 30, 1995, primarily reflecting
depreciation of the Company's increased investment in faxSAV Connectors
installed at customer premises to allow access to the FaxSav network.
9
<PAGE>
Other. Other operating income of $0.3 million for the nine months ended
September 30, 1995 represents service fees received under a Service Agreement
with Telstra which offset various operating expenses incurred in support of the
development of Telstra's "WorldFax" service in the U.S. The Agreement expired in
1995.
Provision for income taxes. The Company had losses for income tax purposes
for the nine months ended September 30, 1995 and 1996. Accordingly, there was no
provision or credit for income taxes for those periods. Any income tax benefits
at the Company's expected effective tax rate for these losses has been offset by
an expected increase in valuation allowance for deferred tax assets.
Liquidity and Capital Resources
The Company has financed its cash requirements for operations and
investments in equipment primarily through private sales of equity securities,
bank borrowings and capital lease financing. Cash flows from the sales of equity
securities amounted to $7.9 million in the nine months ended September 30, 1996,
net of issuance costs, $2.2 million of which were used to repurchase shares of
the Company's Series D Preferred Stock from a major stockholder pursuant to a
pre-existing option. Cash flows from the sales of equity securities net of
issuance costs amounted to $4.2 million for the comparable period in 1995. Cash
flows associated with bank borrowings included 1.0 million in borrowing and 1.0
million in repayments for the nine months ended September 30, 1996 and net
borrowings of $0.4 million for the comparable period in 1995.
As a result of operating losses, cash used in operating activities
amounted to $3.5 million in the nine months ended September 30, 1996 as compared
to $3.0 million for the comparable period in 1995. Cash used in investing
activities, largely consisting of the purchase of equipment, amounted to $1.8
million in the nine months ended September 30, 1996 and $1.0 million for the
comparable period in 1995. The equipment primarily consisted of faxSAV
Connectors purchased by the Company for installation at customer locations. In
addition, network and computer equipment, amounting to $0.4 million in 1996, was
financed under capital leases.
The Company's principal sources of liquidity at September 30, 1996
included cash and cash equivalents of $.8 million and available lease financing
of $.3 million. There were no available borrowings under the Company's Credit
Facility (as amended to date, the "Credit Facility") with Silicon Valley Bank as
the total outstanding indebtedness at September 30, 1996 was at the Credit
Facility borrowing limit of $1.0 million. The Company completed its initial
public offering in October 1996. The net proceeds to the Company, after
deducting underwriting discounts and estimated offering expenses were
$10,904,000. From the proceeds, the Company repaid $.5 million in principal and
accrued interest on the outstanding working capital line of the Credit Facility.
Upon such repayment, the Credit Facility was further amended to terminate the
working capital line of credit portion of the Credit Facility and to delete
certain covenants.
The Company currently believes that the net proceeds from its initial
public offering, together with its current cash and cash equivalents and
available bank and lease financing facilities, will be sufficient to meet its
anticipated cash needs for working capital and capital expenditure requirements
through at least the end of 1997. Thereafter, if the Company does not begin to
generate positive cash flows from operations in amounts that are sufficient to
satisfy the Company's liquidity requirements, it will be necessary for the
Company to raise additional funds through bank facilities, debt or equity
offerings or other sources of capital. Additional funding may not be available
when needed or on terms acceptable to the Company, which could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Certain Factors That May Affect Future Results, Financial Condition
and the Market Price of Securities.
History of Operating Losses; Accumulated Deficit. From its inception in
1989 through the nine-month period ended September 30, 1996, the Company has
experienced significant operating losses.
10
<PAGE>
The Company incurred operating losses of $3.3 million, $3.6 million and $4.1
million during the years ended December 31, 1993, 1994 and 1995, respectively,
and $5.4 million during the nine months ended September 30, 1996. The Company
currently anticipates incurring further operating losses as it attempts to
expand its business and there can be no assurance that its future operations
will generate positive operating income. As of September 30, 1996, the Company
had an accumulated deficit of $23.0 million.
The Company has generated net operating loss ("NOL") carryforwards for
income tax purposes of approximately $16.1 million through December 31, 1995.
These NOL carryforwards have been recorded as a deferred tax asset of
approximately $5.2 million. Based upon the Company's history of operating losses
and presently known factors, management has determined that it is more likely
than not that the Company will be unable to generate sufficient taxable income
prior to the expiration of these NOL carryforwards and has accordingly reduced
its deferred tax assets to zero with a full valuation allowance. See --
Liquidity and Capital Resources."
Quarterly Fluctuations; Possible Volatility of Stock Price. The Company
may in the future experience significant quarter to quarter fluctuations in its
results of operations, which may result in volatility in the price of the
Company's Common Stock. Quarterly results of operations may fluctuate as a
result of a variety of factors, including demand for the Company's services, the
introduction of new services and service enhancements by the Company or its
competitors, market acceptance of new services, the mix of revenues between
Internet-based versus telephony-based deliveries, the timing of significant
marketing programs, the number and timing of the hiring of additional personnel,
competitive conditions in the industry and general economic conditions. The
Company's revenues are difficult to forecast. Shortfalls in revenues may
adversely and disproportionately affect the Company's results of operations
because a high percentage of the Company's operating expenses are relatively
fixed, and planned expenditures, such as the anticipated expansion of the
Company's Internet infrastructure, are based primarily on sales forecasts. In
addition, the stock market in general has experienced extreme price and volume
fluctuations, as evidenced by the fluctuations in the Nasdaq National Market in
July 1996, which have affected the market price of securities of many companies
in the telecommunications and technology industries and which have been
unrelated to the operating performance of such companies. These market
fluctuations may adversely affect the market price of the Company's Common
Stock. Accordingly, the Company believes that period to period comparisons of
results of operations are not necessarily meaningful and should not be relied
upon as an indication of future results of operations. There can be no assurance
that the Company will be profitable in any future quarter. Due to the foregoing
factors, it is likely that in one or more future quarters the Company's
operating results will be below the expectations of public market analysts and
investors. Such an event would have a material adverse effect on the price of
the Company's Common Stock.
Dependence on Network Infrastructure; No Assurance of Successful
Internet-Capable Node Deployment. The Company's future success will depend in
part upon the capacity, reliability and security of its network infrastructure
and in particular upon its ability to successfully deploy an international
network of Internet-capable facsimile nodes. The Company must continue to expand
and adapt its network infrastructure as the number of customers and the volume
of traffic they wish to transmit increases. The expansion and adaptation of the
Company's network infrastructure will require substantial financial, operational
and management resources. There can be no assurance that the Company will be
able to expand or adapt its network infrastructure to meet any additional demand
on a timely basis, at a commercially reasonable cost, or at all. In addition,
the Company anticipates that implementation of its price leadership strategy
generally will cause its overall gross profit margin to be reduced until a
sufficient number of key international telecommunications markets are serviced
by its Internet-capable facsimile nodes. There can be no assurance that the
Company will be able to deploy the contemplated Internet-capable facsimile node
expansion on a timely basis, at a commercially reasonable cost, or at all. Any
failure of the Company to expand its network infrastructure on a timely basis,
to adapt it to changing customer requirements or evolving industry standards or
to deploy the contemplated Internet-capable facsimile node infrastructure on a
timely basis, or at all, would have a material adverse effect on the Company's
business, financial condition and results of operations. Further, there can be
no assurance that the Company will be able to satisfy the regulatory
requirements in each of the countries currently targeted for node deployment,
which may prevent the Company from installing Internet-capable facsimile nodes
11
<PAGE>
in such countries and may have a material adverse effect on the Company's
business, operating results and financial condition.
Dependence on the Internet as a Facsimile Transmission Medium. The Company
believes that its future success will depend in part upon its ability to
significantly expand its base of Internet-capable nodes and route more of its
customers' traffic through the Internet. The Company's success is therefore
largely dependent upon the viability of the Internet as a medium for the
transmission of documents. To date, the Company has transmitted a limited amount
of customer traffic over the Internet, and there can be no assurance that the
Internet will prove to be a viable communications medium, that document
transmission over the Internet will be reliable or that Internet capacity
constraints will not develop which inhibit efficient document transmission. The
Company accesses the Internet from its Internet-capable nodes by dedicated
connection to third party internet service providers. The Company pays fixed
monthly fees for such Internet access, regardless of the Company's usage or the
volume of its customers' traffic. There can be no assurance that the current
pricing structure for access to and use of the Internet will not change
unfavorably. If the Internet proves to be an impractical or unreliable medium
for document transmissions, if material capacity constraints develop on the
Internet or the current Internet pricing structure changes unfavorably, the
Company's business, financial condition and results of operations would be
materially and adversely affected.
No Assurance of Market Acceptance. The Company's ability to route existing
customers' traffic through the Internet and to sell its faxSAV PLUS service to
new customers may be inhibited by, among other factors, the reluctance of some
customers to switch from real-time fax delivery to "virtual real-time" delivery
and by widespread concerns over the adequacy of security in the exchange of
information over the Internet. The Company currently relies on encryption
technology to enable the secure transfer of customer documents over the
Internet. There can be no assurance that advances in computer capabilities, new
discoveries in the field of cryptography or other events or developments will
not result in a compromise or breach of the encryption technology or other
algorithms used by the Company to protect customer data. If the Company's
existing and potential customers do not accept "virtual real-time" delivery
through the Internet as a means of sending and receiving documents via fax, or
if any compromise of the Company's security were to occur, the Company's
business, financial condition and results of operations would be materially and
adversely affected.
Intense Competition. The market for facsimile transmission services is
intensely competitive and there are limited barriers to entry. The Company
expects that competition will intensify in the future. The Company believes that
its ability to compete successfully will depend upon a number of factors,
including market presence; the capacity, reliability and security of its network
infrastructure; the pricing policies of its competitors and suppliers; the
timing of introductions of new services and service enhancements by the Company
and its competitors; and industry and general economic trends.
The Company's current and prospective competitors generally fall into the
following groups: (i) telecommunication companies, such as AT&T Corp. ("AT&T"),
MCI Communications Corp., Inc. ("MCI"), Sprint Corp. ("Sprint"), LDDS WorldCom
Inc. ("LDDS WorldCom") and the regional Bell operating companies; (ii)
telecommunications resellers, such as Frontier Corporation, Biztel Corporation
and Eastern Telecom Corporation; (iii) Internet service providers, such as Uunet
Technologies, Inc. and NETCOM On-Line Communications Services, Inc., (iv)
on-line services providers, such as America Online, Inc. and CompuServe
Incorporated and (v) direct fax delivery competitors, including Xpedite Systems,
Inc. and Fax International, Inc. Many of these competitors have greater market
presence, engineering and marketing capabilities, and financial, technological
and personnel resources than those available to the Company. As a result, they
may be able to develop and expand their communications and network
infrastructures more quickly, adapt more swiftly to new or emerging technologies
and changes in customer requirements, take advantage of acquisition and other
opportunities more readily, and devote greater resources to the marketing and
sale of their products and services than can the Company. Further, the
foundation of the Company's telephony network infrastructure consists of the
right to use the telecommunications lines of several of the above-mentioned long
distance carriers, including LDDS WorldCom and MCI. There can be no assurance
that these companies will not discontinue or otherwise alter their relationships
with the Company in a manner that would have a material adverse effect upon the
12
<PAGE>
Company's business, financial condition and results of operations. In addition,
current and potential competitors have established or may establish cooperative
relationships among themselves or with third parties to increase the ability of
their services to address the needs of the Company's current and prospective
customers. Accordingly, it is possible that new competitors or alliances among
competitors may emerge and rapidly acquire significant market share. In addition
to direct competitors, many of the Company's larger potential customers may seek
to internally fulfill their fax communication needs through the deployment of
their own computerized fax communications systems or network infrastructures for
intra-company faxing.
Increased competition is likely to result in price reductions and could
result in reduced gross margins and erosion of the Company's market share, any
of which would have a material adverse effect on the Company's business,
financial condition and results of operations. There can be no assurance that
the Company will be able to compete successfully against current or future
competitors or that competitive pressures will not have a material adverse
effect on the Company's business, financial condition and results of operations.
No Assurance of Successful Management of Growth. The Company has rapidly
and significantly expanded its operations and anticipates that significant
expansion will continue to be required in order to address potential market
opportunities. The Company anticipates significantly increasing the size of its
sales and marketing efforts following the completion of this offering, and the
Company also will be required to increase its customer support staff. There can
be no assurance that such expansion will be successfully completed or that it
will generate sufficient revenues to cover the Company's expenses. The inability
of the Company to promptly address and respond to these circumstances could have
a material adverse effect on the Company's business, financial condition and
results of operations.
Rapid Industry Change. The telecommunications industry in general, and the
facsimile transmission business in particular, are characterized by rapid and
continuous technological change. Future technological advances in the
telecommunications industry may result in the availability of new services or
products that could compete with the facsimile transmission services provided by
the Company or reduce the cost of existing products or services, any of which
could enable the Company's existing or potential customers to fulfill their fax
communications needs more cost efficiently. There can be no assurance that the
Company will be successful in developing and introducing new services that meet
changing customer needs and respond to technological changes or evolving
industry standards in a timely manner, if at all, or that services or
technologies developed by others will not render the Company's services
noncompetitive. The inability of the Company to respond to changing market
conditions, technological developments, evolving industry standards or changing
customer requirements, or the development of competing technology or products
that render the Company's services noncompetitive would have a material adverse
effect on the Company's business, financial condition and results of operations.
Risk of System Failure; Security Risks. The Company's operations are
dependent on its ability to protect its network from interruption by damage from
fire, earthquake, power loss, telecommunications failure, unauthorized entry,
computer viruses or other events beyond the Company's control. Most of the
Company's current computer hardware and switching equipment, including its
processing equipment, is currently located at two sites. There can be no
assurance that the Company's existing and planned precautions of backup systems,
regular data backups and other procedures will be adequate to prevent
significant damage, system failure or data loss. Despite the implementation of
security measures, the Company's infrastructure may also be vulnerable to
computer viruses, hackers or similar disruptive problems caused by its customers
or other Internet users. Persistent problems continue to affect public and
private data networks, including computer break-ins and the misappropriation of
confidential information. Such computer break-ins and other disruptions may
jeopardize the security of information stored in and transmitted through the
computer systems of the individuals, businesses and financial institutions
utilizing the Company's services, which may result in significant liability to
the Company and also may deter potential customers from using the Company's
services. Any damage, failure or security breach that causes interruptions or
data loss in the Company's operations or in the computer systems of its
customers could have a material adverse effect on the Company's business,
financial condition and results of operations.
13
<PAGE>
Dependence upon Suppliers; Sole and Limited Sources of Supply. The Company
relies on third parties to supply key components of its network infrastructure,
including long distance telecommunications services and telecommunications node
equipment, many of which are available only from sole or limited sources. LDDS
WorldCom, MCI and Telstra are the primary providers of long distance
telecommunications services to the Company. The Company has from time-to-time
experienced partial interruptions of service from its telecommunications
carriers which have temporarily prevented customers in limited geographical
areas from reaching the FaxSav network. There can be no assurance that the
Company will not experience partial or complete service interruptions in the
future. The fixed term of the Company's contract with LDDS WorldCom expires on
October 31, 1996, after which date the contract will continue on a
month-to-month basis until renegotiated by the parties or terminated by either
party. There can be no assurance that LDDS WorldCom and the Company's other
telecommunications providers will continue to provide long distance services to
the Company at attractive rates, or at all, or that the Company will be able to
obtain such services in the future from these or other long distance providers
on the scale and within the time frames required by the Company. Any failure to
obtain such services on a timely basis at an affordable cost, or any significant
delays or interruptions of service from such carriers, would have a material
adverse effect on the Company's business, financial condition and results of
operations.
All of the faxboards used in the Company's telecommunications nodes are
supplied by Brooktrout Technology, Inc. ("Brooktrout"). The Company purchases
Brooktrout faxboards on a non-exclusive basis pursuant to purchase orders placed
from time-to-time, carries a limited inventory of faxboards and has no
guaranteed supply arrangement with Brooktrout. In addition to faxboards, many of
the routers, switches and other hardware components used in the Company's
network infrastructure are supplied by sole or limited sources on a
non-exclusive, purchase order basis. There can be no assurance that Brooktrout
or the Company's other suppliers will not enter into exclusive arrangements with
the Company's competitors, or cease selling these components to the Company at
commercially reasonable prices, or at all. The anticipated expansion of the
Company's network infrastructure is expected to place a significant demand on
the Company's suppliers, some of which have limited resources and production
capacity. In addition, certain of the Company's suppliers, in turn, rely on sole
or limited sources of supply for components included in their products. Failure
of the Company's suppliers to adjust to meet such increasing demand may prevent
them from continuing to supply components and products in the quantities and
quality and at the times required by the Company, or at all. The Company's
inability to obtain sufficient quantities of sole or limited source components
or to develop alternative sources if required could result in delays and
increased costs in the expansion of the Company's network infrastructure or in
the inability of the Company to properly maintain the existing network
infrastructure, which would have a material adverse effect on the Company's
business, financial condition and results of operations.
Limited Protection of Intellectual Property Rights; Risk of Third Party
Claims of Infringement. The Company's success is dependent upon its proprietary
technology. The Company relies primarily on a combination of contract, copyright
and trademark law, trade secrets, confidentiality agreements and contractual
provisions to protect its proprietary rights. The Company has patent
applications pending for its faxSAV Connector and for its "e-mail Stamps"
security technology incorporated into its faxMailer service. There can be no
assurance that patents will issue from such applications or that present or
future patents will provide sufficient protection to the Company's present or
future technologies, services and processes. In addition, there can be no
assurance that others will not independently develop substantially equivalent
proprietary information or obtain access to the Company's know-how. Despite the
Company's efforts to protect its proprietary rights, unauthorized parties may
attempt to copy aspects of the Company's services or to obtain and use
information that the Company regards as proprietary. In addition, the laws of
some foreign countries do not protect the Company's proprietary rights to the
same extent as do the laws of the United States. There can be no assurance that
the steps taken by the Company to protect its proprietary rights will be
adequate or that the Company's competitors will not independently develop
technologies that are substantially equivalent or superior to the Company's
technologies.
The Company is not aware that any of its services, trademarks or other
proprietary rights infringe upon valid proprietary rights of third parties.
However, the Company received a letter in the third quarter of 1995 stating that
the Company's faxSAV Connector may be utilizing a call diversion methodology
14
<PAGE>
patented by such correspondent. To the Company's knowledge, such third party has
not initiated a suit, action, proceeding or investigation relating to any
alleged infringement by the Company of such patent. In addition, the Company is
aware that another third party has recently brought patent infringement actions
against several facsimile service providers. There can be no assurance that
these or other third parties will not assert infringement claims against the
Company in the future. Patents have been granted recently on fundamental
technologies in the communications and desktop software areas, and patents may
issue which relate to fundamental technologies incorporated in the Company's
services. As patent applications in the United States are not publicly disclosed
until the patent issues, applications may have been filed which, if issued as
patents, could relate to the Company's services. The Company could incur
substantial costs and diversion of management resources with respect to the
defense of any claims that the Company has infringed upon the proprietary rights
of others, which costs and diversion could have a material adverse effect on the
Company's business, financial condition and results of operations. Furthermore,
parties making such claims could secure a judgment awarding substantial damages,
as well as injunctive or other equitable relief which could effectively block
the Company's ability to license and sell its services in the United States or
abroad. Any such judgment could have a material adverse effect on the Company's
business, financial condition and results of operations. In the event a claim
relating to proprietary technology or information is asserted against the
Company, the Company may seek licenses to such intellectual property. There can
be no assurance, however, that licenses could be obtained on terms acceptable to
the Company, or at all. The failure to obtain any necessary licenses or other
rights could have a material adverse effect on the Company's business, financial
condition and results of operations.
Risk of Software Defects or Development Delays. Software-based services
and equipment, such as the Company's faxSAV for Internet suite of services and
the faxSAV Connector, may contain undetected errors or failures when introduced
or when new versions are released. There can be no assurance that, despite
testing by the Company and by current and potential customers, errors will not
be found in such software or other releases after commencement of commercial
shipments, or that the Company will not experience development delays, resulting
in delays in the shipment of software and a loss of or delay in market
acceptance, any of which could have a material adverse effect on the Company's
business, financial condition and results of operations.
Dependence on Key Personnel. The Company's future performance depends in
significant part upon the continued service of its key technical, sales and
senior management personnel, none of whom is bound by an employment agreement.
Competition for such personnel is intense, and there can be no assurance that
the Company can retain its key technical, sales and managerial employees or that
it can attract, assimilate or retain other highly qualified technical, sales and
managerial personnel in the future.
Risks Related to Potential Acquisitions. The Company may in the future
pursue acquisitions of complementary services or product lines, technologies or
businesses, although the Company has no present understandings, commitments or
agreements with respect to any such acquisitions. Future acquisitions by the
Company could result in potentially dilutive issuances of equity securities, the
incurrence of debt and contingent liabilities and amortization expenses related
to goodwill and other intangible assets, which could materially adversely affect
the Company's business, financial condition and results of operations. In
addition, acquisitions involve numerous risks, including difficulties in the
assimilation of the operations, technologies, services and products of the
acquired companies and the diversion of management's attention from other
business concerns. In the event that any such acquisition were to occur, there
can be no assurance that the Company's business, financial condition and results
of operations would not be materially adversely affected.
Reliance on International Strategic Alliances. The Company intends to
establish and build an international customer base by forming strategic sales
and marketing alliances with foreign Internet service providers,
telecommunications companies and resellers. There can be no assurance that the
Company will be able to form or, if formed, maintain such strategic alliances.
The Company's success in developing an international customer base depends not
only on the formation of such alliances but also on the success of these
partners and their ability to market the Company's services. The failure to form
and maintain such strategic alliances or the failure of these partners to
successfully develop and sustain a market for the Company's service will have a
material adverse effect on the Company's ability to establish and build an
15
<PAGE>
international customer base, which could have a material adverse effect on the
Company's business, financial condition and results of operations.
Government Regulation. The Company is subject to regulation by the Federal
Communications Commission (the "FCC"), by various state public service and
public utility commissions and by various international regulatory authorities.
FaxSav is licensed by the FCC as an authorized telecommunications company
and is classified as a "non-dominant interexchange carrier." Generally, the FCC
has chosen not to exercise its statutory power to closely regulate the charges
or practices of non-dominant carriers. Nevertheless, the FCC acts upon
complaints against such carriers for failure to comply with statutory
obligations or with the FCC's rules, regulations and policies. The FCC also has
the power to impose more stringent regulatory requirements on the Company and to
change its regulatory classification. There can be no assurance that the FCC
will not change the Company's regulatory classification or otherwise subject the
Company to more burdensome regulatory requirements.
In connection with the anticipated deployment of Internet-capable nodes in
countries throughout the world, the Company will be required to satisfy a
variety of foreign regulatory requirements. The Company intends to explore and
seek to comply with these requirements on a country-by-country basis as the
deployment of Internet-capable facsimile nodes continues. There can be no
assurance that the Company will be able to satisfy the regulatory requirements
in each of the countries currently targeted for node deployment, and the failure
to satisfy such requirements may prevent the Company from installing
Internet-capable facsimile nodes in such countries. The failure to deploy a
number of such nodes could have a material adverse effect on the Company's
business, operating results and financial condition.
The Company's nodes and its faxLauncher service utilize encryption
technology in connection with the routing of customer documents through the
Internet. The export of such encryption technology is regulated by the United
States government. The Company is seeking authority for the export of such
encryption technology and anticipates that authority will be granted to export
such technology worldwide, other than to Cuba, Iran, Libya, North Korea, Sudan
and Syria. Nevertheless, there can be no assurance that such authority will be
granted or, if granted, that it will not be revoked or modified at any time for
any particular jurisdiction or in general. In addition, there can be no
assurance that such export controls, either in their current form or as may be
subsequently enacted, will not limit the Company's ability to distribute its
services outside of the United States or electronically. While the Company takes
precautions against unlawful exportation of its software, the global nature of
the Internet makes it virtually impossible to effectively control the
distribution of its services. Moreover, future Federal or state legislation or
regulation may further limit levels of encryption or authentication technology.
Any such export restrictions, the unlawful exportation of the Company's
services, or new legislation or regulation could have a material adverse effect
on the Company's business, financial condition and results of operations.
16
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PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
On October 7, 1996, the Company effected a one-for-nine reverse stock
split of the Common Stock and changed the number of authorized shares of
Common Stock. On October 17, 1996, upon consummation of its initial
public offering, all outstanding shares of all series of the Company's
Preferred Stock were converted into an aggregate of 7,791,981 shares of
Common Stock and the Company filed its Sixth Amended and Restated
Certificate of Incorporation, which among other things changed the
number of authorized shares of Preferred Stock.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
On October 17, 1996, the Company consummated its initial public offering
of 1,600,000 shares of its Common Stock at a price to the public of
$8.00 per share. All of the shares were sold by the Company.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No.
- -----------
3.1 Registrant's Sixth Amended and Restated Certificate of Incorporation
(incorporated by reference to exhibit 3.3 to the Registrant's Registration
Statement on Form S-1, Registration No. 333-09613 ("Registrant's
Registration Statement")).
3.2 By-laws of the Registrant (incorporated by reference to exhibit 3.4 and
3.5 to the Registrant's Registration Statement).
4.1 Specimen Common Stock Certificate (incorporated by reference to exhibit
4.1 to the Registrant's Registration Statement).
4.2 See Exhibits 3.1 and 3.2 for provisions of the Certificate of
Incorporation and Bylaws of the Registrant defining rights of holders of
Common Stock of the Registrant.
10.1 Fifth Amended and Restated Investor Rights Agreement (incorporated by
reference to exhibit 10.1 to the Registrant's Registration Statement).
10.2 Amendment and waiver to Fifth Amended and Restated Investor Rights
Agreement (incorporated by reference to exhibit 10.2 to the Registrant's
Registration Statement).
10.3 1990 Stock Option Plan (incorporated by reference to exhibit 10.3 to the
Registrant's Registration Statement).
10.4 1996 Stock Option/Stock Issuance Plan (incorporated by reference to
exhibit 10.4 to the Registrant's Registration Statement).
10.5 Form of Officer Severance Agreement (incorporated by reference to exhibit
10.5 to the Registrant's Registration Statement).
17
<PAGE>
10.6 Form of Director Severance Agreement (incorporated by reference to exhibit
10.6 to the Registrant's Registration Statement).
10.7 Telstra Severance Agreement (incorporated by reference to exhibit 10.7 to
the Registrant's Registration Statement).
10.8* Telecommunications Services Agreement, between Wiltel, Inc. and the
Registrant, dated April 4, 1994 (incorporated by reference to exhibit 10.8
to the Registrant's Registration Statement).
10.9* Agreement between MCI Telecommunications Corporation and the Registrant,
effective March 1, 1996 (incorporated by reference to exhibit 10.9 to the
Registrant's Registration Statement).
10.10 Lease Agreement, dated May 28, 1992, between Metro Four Associates Limited
Partnership, Thornall Associates and the Registrant, as extended and
amended to date (incorporated by reference to exhibit 10.10 to the
Registrant's Registration Statement).
10.11 Credit Agreement, dated July 7, 1995, between the Company and Silicon
Valley Bank, as amended to date (incorporated by reference to exhibit
10.11 to the Registrant's Registration Statement).
10.12 Letter Agreement, dated November 1, 1994 between Telstra Incorporated and
the Registrant (incorporated by reference to exhibit 10.12 to the
Registrant's Registration Statement).
10.13 Form of Series C Warrant (incorporated by reference to exhibit 10.13 to
the Registrant's Registration Statement).
10.14 Series B Preferred Stock Warrant between the Registrant and Comdisco,
Inc., dated May 30, 1991 (incorporated by reference to exhibit 10.14 to
the Registrant's Registration Statement).
10.15 Series B Preferred Stock Warrant between the Registrant and Comdisco,
Inc., dated September 16, 1992 (incorporated by reference to exhibit 10.15
to the Registrant's Registration Statement).
10.16 Series D Preferred Stock Warrant between the Registrant and Comdisco,
Inc., dated October 28, 1993 (incorporated by reference to exhibit 10.16
to the Registrant's Registration Statement).
10.17 Common Stock Warrant between the Registrant and LTI Ventures Leasing
Corp., dated February 15, 1993 (incorporated by reference to exhibit 10.17
to the Registrant's Registration Statement).
10.18 Common Stock Warrant between the Registrant and LTI Ventures Leasing
Corp., dated May 5, 1994 (incorporated by reference to exhibit 10.18 to
the Registrant's Registration Statement).
10.19 Common Stock Warrant between the Registrant and Silicon Valley Bancshares,
dated April 6, 1992 (incorporated by reference to exhibit 10.19 to the
Registrant's Registration Statement).
10.20 Common Stock Warrant between the Registrant and Silicon Valley Bancshares,
dated July 7, 1995 (incorporated by reference to exhibit 10.20 to the
Registrant's Registration Statement).
11. Statement Re: Computation of Earnings per Share.
27. Financial Data Schedule.
- ----------
* Confidential treatment granted
(b) Reports on Form 8-K
No reports on Form 8-K.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FAXSAV INCORPORATED
(Registrant)
Date: November 21, 1996 /s/ Thomas F. Murawski
-----------------------
Thomas F. Murawski
Chief Executive Officer, President
and Chairman of the
Board of Directors
Date: November 21, 1996 /s/ Peter S. Macaluso
-----------------------
Peter S. Macaluso
Chief Financial Officer
(Principal Financial and Accounting
Officer),
Treasurer and Secretary
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FAXSAV INCORPORATED
Exhibit Index
Exhibit No.
3.1 Registrant's Sixth Amended and Restated Certificate of Incorporation
(incorporated by reference to exhibit 3.3 to the Registrant's Registration
Statement on Form S-1, Registration No. 333-09613 ("Registrant's
Registration Statement")).
3.2 By-laws of the Registrant (incorporated by reference to exhibit 3.4 and
3.5 to the Registrant's Registration Statement).
4.1 Specimen Common Stock Certificate (incorporated by reference to exhibit
4.1 to the Registrant's Registration Statement).
4.2 See Exhibits 3.1 and 3.2 for provisions of the Certificate of
Incorporation and Bylaws of the Registrant defining rights of holders of
Common Stock of the Registrant.
10.1 Fifth Amended and Restated Investor Rights Agreement (incorporated by
reference to exhibit 10.1 to the Registrant's Registration Statement).
10.2 Amendment and waiver to Fifth Amended and Restated Investor Rights
Agreement (incorporated by reference to exhibit 10.2 to the Registrant's
Registration Statement).
10.3 1990 Stock Option Plan (incorporated by reference to exhibit 10.3 to the
Registrant's Registration Statement).
10.4 1996 Stock Option/Stock Issuance Plan (incorporated by reference to
exhibit 10.4 to the Registrant's Registration Statement).
10.5 Form of Officer Severance Agreement (incorporated by reference to exhibit
10.5 to the Registrant's Registration Statement).
10.6 Form of Director Severance Agreement (incorporated by reference to exhibit
10.6 to the Registrant's Registration Statement).
10.7 Telstra Severance Agreement (incorporated by reference to exhibit 10.7 to
the Registrant's Registration Statement).
10.8* Telecommunications Services Agreement, between Wiltel, Inc. and the
Registrant, dated April 4, 1994 (incorporated by reference to exhibit 10.8
to the Registrant's Registration Statement).
10.9* Agreement between MCI Telecommunications Corporation and the Registrant,
effective March 1, 1996 (incorporated by reference to exhibit 10.9 to the
Registrant's Registration Statement).
10.10 Lease Agreement, dated May 28, 1992, between Metro Four Associates Limited
Partnership, Thornall Associates and the Registrant, as extended and
amended to date (incorporated by reference to exhibit 10.10 to the
Registrant's Registration Statement).
10.11 Credit Agreement, dated July 7, 1995, between the Company and Silicon
Valley Bank, as amended to date (incorporated by reference to exhibit
10.11 to the Registrant's Registration Statement).
10.12 Letter Agreement, dated November 1, 1994 between Telstra Incorporated and
the Registrant (incorporated by reference to exhibit 10.12 to the
Registrant's Registration Statement).
10.13 Form of Series C Warrant (incorporated by reference to exhibit 10.13 to
the Registrant's Registration Statement).
10.14 Series B Preferred Stock Warrant between the Registrant and Comdisco,
Inc., dated May 30, 1991 (incorporated by reference to exhibit 10.14 to
the Registrant's Registration Statement).
10.15 Series B Preferred Stock Warrant between the Registrant and Comdisco,
Inc., dated September 16, 1992 (incorporated by reference to exhibit 10.15
to the Registrant's Registration Statement).
<PAGE>
10.16 Series D Preferred Stock Warrant between the Registrant and Comdisco,
Inc., dated October 28, 1993 (incorporated by reference to exhibit 10.16
to the Registrant's Registration Statement).
10.17 Common Stock Warrant between the Registrant and LTI Ventures Leasing
Corp., dated February 15, 1993 (incorporated by reference to exhibit 10.17
to the Registrant's Registration Statement).
10.18 Common Stock Warrant between the Registrant and LTI Ventures Leasing
Corp., dated May 5, 1994 (incorporated by reference to exhibit 10.18 to
the Registrant's Registration Statement).
10.19 Common Stock Warrant between the Registrant and Silicon Valley Bancshares,
dated April 6, 1992 (incorporated by reference to exhibit 10.19 to the
Registrant's Registration Statement).
10.20 Common Stock Warrant between the Registrant and Silicon Valley Bancshares,
dated July 7, 1995 (incorporated by reference to exhibit 10.20 to the
Registrant's Registration Statement).
11. Statement Re: Computation of Earnings per Share.
27. Financial Data Schedule.
- ----------
* Confidential treatment granted
(b) Reports on Form 8-K
No reports on Form 8-K.
FaxSav Incorporated
Pro forma earnings per share
EXHIBIT 11
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30 September 30
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net loss (1,949,938) (894,829) (5,382,012) (2,780,292)
========== ========== ========== ==========
Weighted average number of
common and equivalent shares
used in computing pro forma loss
per share:
Actual 378,509 327,354 350,215 327,354
Effect of fully dilutive shares 7,944,674 8,916,131 8,163,883 8,916,131
---------- ---------- ---------- ----------
8,323,183 9,243,484 8,514,098 9,243,484
========== ========== ========== ==========
Pro forma net loss per common
and equivalent share $ (0.23) $ (0.10) $ (0.63) $ (0.30)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Faxsav, Inc. Financial Statements, and is qualified in its entirety by
reference to such financial statments.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 827,999
<SECURITIES> 0
<RECEIVABLES> 2,681,873
<ALLOWANCES> 252,804
<INVENTORY> 0
<CURRENT-ASSETS> 3,801,964
<PP&E> 5,232,436
<DEPRECIATION> 1,871,900
<TOTAL-ASSETS> 7,331,764
<CURRENT-LIABILITIES> 5,444,333
<BONDS> 0
0
78,783
<COMMON> 3,786
<OTHER-SE> (8,671)
<TOTAL-LIABILITY-AND-EQUITY> 7,331,764
<SALES> 11,214,710
<TOTAL-REVENUES> 11,214,710
<CGS> 6,504,356
<TOTAL-COSTS> 10,134,869
<OTHER-EXPENSES> (70,878)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28,375
<INCOME-PRETAX> (5,382,012)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,382,012)
<EPS-PRIMARY> (.63)
<EPS-DILUTED> (.63)
</TABLE>
