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 June 30, 1997
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 character)
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)
Registrant's telephone number, including area code (732) 906-2000
Former name, former address and former fiscal year,
if changed since last report.
Indicate by a check 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 |X| No |_|
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 9,795,654 shares of the
Company's Common Stock, $.01 par value, were outstanding as of May 9, 1997.
<PAGE>
FAXSAV INCORPORATED
Index to June 30, 1997 Form 10-Q
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Page
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Part I - Financial Information
Item 1. Financial Statements
Condensed Balance Sheets - June 30, 1997 and December 31, 1996 .... 3
Condensed Statements of Operations - Three and Six Months Ended
June 30, 1997 and 1996............................................. 4
Condensed Statements of Cash Flow - Six Months Ended June 30,
1997 and 1996...................................................... 5
Notes to Condensed Financial Statements............................ 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................. 8
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
<PAGE>
FAXSAV INCORPORATED
CONDENSED BALANCE SHEETS
June 30, December 31,
1997 1996
(Unaudited)
----------- ------------
ASSETS
Current assets
Cash and cash equivalents $ 3,836,088 $ 7,923,105
Marketable securities 0 1,002,513
Accounts receivable, net of $285,694 and
$229,376 allowance for bad debts, for
June 30, 1997 and December 31, 1996,
respectively 2,213,609 2,015,155
Prepaid expenses and other current assets 159,368 251,417
------------ ------------
Total current assets 6,209,065 11,192,190
Property and equipment, net 4,366,873 3,495,820
Other assets, net 116,855 169,211
------------ ------------
Total assets $ 10,692,793 $ 14,857,221
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 87,438 $ 263,446
Accrued expenses and other liabilities 3,628,929 3,822,762
Obligation under capital lease 299,073 282,776
Current portion of notes payable 185,717 152,111
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Total current liabilities 4,201,157 4,521,095
Obligation under capital lease 240,978 398,662
Notes payable 554,950 278,871
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Total liabilities 4,997,085 5,198,628
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock,$0.01 par value;40,000,000
shares authorized; 9,817,043 and 9,792,010
shares issued and 9,795,654 and 9,770,621
shares outstanding as of June 30, 1997 and
December 31, 1996, respectively 97,957 97,706
Additional paid-in capital 34,639,806 34,616,745
Accumulated deficit (29,042,040) (25,055,843)
Treasury stock, at cost 21,389 common
shares as of June 30, 1997 and
December 31, 1996 (15) (15)
------------ ------------
Total stockholder's equity 5,695,708 9,658,593
------------ ------------
Total liabilities and stockholders' equity $ 10,692,793 $ 14,857,221
============ ============
The accompanying notes are an integral part of the
condensed financial statements
<PAGE>
FAXSAV INCORPORATED
CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------------- -------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 4,321,336 $ 3,831,033 $ 8,390,944 $ 7,445,166
Cost of service 2,636,137 2,166,181 5,280,730 4,280,482
----------- ----------- ----------- -----------
Gross margin 1,685,199 1,664,852 3,110,214 3,164,684
Operating expenses:
Network operations and support 545,806 470,574 1,071,994 867,779
Research and development 469,701 465,618 933,076 780,865
Sales and marketing 1,331,509 1,674,807 2,784,531 3,023,302
General and administrative 800,254 689,103 1,605,766 1,375,312
Depreciation and amortization 414,649 314,607 845,935 586,848
----------- ----------- ----------- -----------
Operating loss (1,876,720) (1,949,857) (4,131,088) (3,469,422)
Interest income (expense), net 36,203 10,319 97,428 (7,935)
Other income(expense), net 26,089 26,551 47,463 45,284
----------- ----------- ----------- -----------
Net loss ($1,814,428) ($1,912,987) ($3,986,197) ($3,432,073)
=========== =========== =========== ===========
Historical net loss per
common and equivalent share ($ 0.19) ($ 3.84) ($ 0.41) ($ 6.88)
=========== =========== =========== ===========
Shares used in computing
historical net loss per
common and equivalent share 9,795,654 497,905 9,791,748 498,055
=========== =========== =========== ===========
Proforma net loss per common
and equivalent share ($ 0.19) ($ 0.23) ($ 0.41) ($ 0.40)
=========== =========== =========== ===========
Shares used in computing
proforma net loss per
common and equivalent share 9,795,654 8,296,930 9,791,748 8,609,119
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the
condensed financial statements
<PAGE>
FAXSAV INCORPORATED
CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
Six Months Ended
June 30,
---------------------------
1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($3,986,197) ($3,432,073)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization expense 845,935 586,848
Provision for doubtful accounts 107,700 156,300
Provision for unrecoverable equipment 0 150,000
Changes in assets and liabilities:
Accounts receivable (306,154) 65,101
Prepaid expenses and other current assets 92,049 (88,783)
Other assets 37,169 (85,731)
Accounts payable (176,008) 176,597
Accrued expenses and other liabilities (193,833) 258,478
----------- -----------
Net cash used in operating activities (3,579,339) (2,213,263)
----------- -----------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Proceeds from maturity of marketable
securities 1,002,513 0
Purchase of property and equipment (1,701,800) (875,703)
----------- -----------
Net cash used in investing activities (699,287) (875,703)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments made under capital
lease obligation (141,387) (101,309)
Repayments of note payable (86,600) (1,000,000)
Proceeds from note payable 396,285 665,786
Proceeds from issuance of preferred
stock, net 0 7,924,656
Proceeds from exercise of stock options
and warrants 23,311 0
Treasury stock acquired 0 (2,163,878)
----------- -----------
Net cash provided by financing activities 191,609 5,325,255
----------- -----------
NET INCREASE(DECREASE) (4,087,017) 2,236,289
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 7,923,105 552,370
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,836,088 $ 2,788,659
=========== ===========
NONCASH INVESTING AND FINANCING ACTIVITIES:
Equipment acquired under capital lease 0 $ 306,072
=========== ===========
Issuance of common stock under option
pursuant to severance agreement 0 $ 42,091
=========== ===========
The accompanying notes are an integral part of the
condensed financial statements
<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
noted thereto included in its Annual Report on Form 10-K for the year ended
December 31, 1996.
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 and
six month periods ended June 30, 1997 and 1996. The results for the three and
six month periods ended June 30, 1997 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 for the three and six
months ended June 30, 1996, 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. 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 been included
since the effect would be antidilutive.
3. 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.
4. Impact of Recently Issued Accounting Standards
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS
No. 128"), designed to improve the EPS information provided in the financial
statements by simplifying the existing computational guidelines, revising
disclosure requirements, and increasing comparability of EPS data on an
international basis. The statement requires dual presentation of basic and
diluted EPS on the face of the income statement and a reconciliation of the
numerator and denominator of the basic EPS computation to the numerator and
denominator of the diluted EPS computation. The adoption of this standard is
required for the fiscal year ending December 31, 1997. The Company has not yet
assessed the impact of SFAS No. 128 on the Company's results of operations.
In June 1997 the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income". SFAS No. 130 establishes the standards for
reporting and displaying comprehensive income and its components (revenues,
expenses, gains, and losses) as part of a full set of financial statements. This
statement requires that all elements of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. The statement is effective for fiscal years beginning
after December 15, 1997. For the Company, this means the standard is effective
January 1, 1998. Since this standard applies only to the
<PAGE>
presentation of comprehensive income, it will not have any impact on the
Company's results of operations, financial position or cash flows.
In June 1997 the Financial Accounting Standards Board also issued SFAS No.
131, "Disclosures about Segments of an enterprise and Related Information". SFAS
No. 131 establishes the standards for the manner in which public enterprises are
required to report financial and descriptive information about their operating
segments. The standard defines operating segments as components of an enterprise
for which separate financial information is available and evaluated regularly as
a means for assessing segment performance and allocating resources to segments.
In addition, this standard requires the disclosure of information concerning
revenues derived from the enterprise's products or services, countries in which
it earns revenue or holds assets, and major customers. The statement is also
effective for fiscal years beginning after December 15, 1997. For the Company,
this means the standard is effective January 1, 1998. Since this standard
applies only to the presentation of segment information, it will not have any
impact on the Company's results of operations, financial position or cash flows.
<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. In the fourth quarter of 1996, the Company
began offering fax-to-fax services through local resellers in certain countries
where an Internet node was installed. 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.
This report contains certain statements of a forward-looking nature relating to
future events of 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 represents 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 Six Months Ended
June 30, June 30,
1997 1996 1997 1996
------ ------ ------ ------
Percentage of Revenues:
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of service 61.0 56.5 62.9 57.5
------ ------ ------ ------
Gross margin 39.0 43.5 37.1 42.5
------ ------ ------ ------
Operating expenses
Net operations and support 12.6 12.3 12.8 11.7
Research and development 10.9 12.2 11.1 10.5
Sales and marketing 30.8 43.7 33.2 40.6
General and administrative 18.5 18.0 19.1 18.5
Depreciation and amortization 9.6 8.2 10.1 7.9
------ ------ ------ ------
Total operating expenses 82.4 94.4 86.3 89.2
------ ------ ------ ------
Operating loss (43.4) (50.9) (49.2) (46.7)
------ ------ ------ ------
Interest income (expense), net 0.8 0.3 1.1 (0.1)
Other income (expense), net 0.6 0.7 0.6 0.6
------ ------ ------ ------
Loss before income taxes (42.0) (49.9) (47.5) (46.1)
------ ------ ------ ------
Provision for income taxes -- -- -- --
------ ------ ------ ------
Net loss (42.0)% (49.9)% (47.5)% (46.1)%
====== ====== ====== ======
<PAGE>
Three Months Ended June 30, 1997 and 1996
Revenues. Revenues, which consist primarily of customer usage charges, grew
12.8% to $4.3 million in the three months ended June 30, 1997 from $3.8 million
in the three months ended June 30, 1996 primarily as a result of the continued
expansion of the Company's customer base, development of an international
fax-to-fax customer base in 1997, and increased revenues from the Company's
faxSAV EZ-List broadcast service and faxSAV for Internet suite of services first
introduced in the first quarter of 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 and also increased as a percentage of revenues
in the three months ended June 30, 1997 to 61.0% from 56.5% in the three months
ended June 30, 1996. The increased percentage is a result of a higher cost of
service for the revenues generated from the Company's lower priced Internet
services. These revenues are being generated without complete benefit of the
lower cost Internet network deployment which is in process.
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 amounted to $0.5 million for the three
month periods ended June 30, 1997 and 1996 representing 12.6% and 12.3%
respectively, of the revenues for the 1997 and 1996 periods.
Research and Development. Research and development expenses consist primarily of
salaries and consulting fees paid to software engineers and development
personnel largely for the continuing development efforts for enhancements to the
company's Internet desktop-to-fax services and faxSAV EZ-List broadcast service.
Research and development expenses amounted to $0.5 million for the three months
ended June 30, 1997 and 1996. As a percentage of revenues, these expenses
decreased to 10.9% in the three months ended June 30, 1997 from 12.2% in the
three months ended June 30, 1996 as a result of the increase in revenues in the
1997 period.
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 decreased to $1.3 million for the
three months ended June 30, 1997 in comparison to $1.7 million in the three
months ended June 30, 1996, primarily as a result of reduced spending for third
party telemarketing programs in the 1997 period in connection with the Company's
change in focus to a direct selling group and higher expenses incurred in the
1996 period for trade shows and an advertising and promotion campaign for the
introduction of the faxSAV for Internet suite of services. As a percentage of
revenues, these costs decreased to 30.8% from 43.7% for the 1997 and 1996
periods, respectively, as a result of reduced spending and higher revenues.
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
$0.8 million and 18.5% of revenues in the three months ended June 30, 1997 from
$0.7 million and 18.0% of revenues in the three months ended June 30, 1996. The
increase in total general and administrative expenses and the percentage of
revenues result from (1) personnel increases to support the increased customer
base and to develop management information systems and (2) expenses incurred in
1997 related to the continuing filing and other requirements for the company's
publicly traded stock.
Depreciation and amortization. Depreciation and amortization increased to $0.4
million and 9.6% of revenues in the three months ended June 30, 1997 in
comparison to $0.3 million and 8.2% of revenues in the three months ended June
30, 1996 primarily reflecting depreciation of the Company's increased investment
in international Internet nodes to implement the Company's strategy to deploy a
global Internet network and in faxSAV Connectors installed at customer premises
to allow access to the FaxSav network.
Provision for income taxes. The Company had losses for income tax purposes for
the three months ended June 30, 1997 and 1996. Accordingly, there was no
provision or credit for income taxes for those periods. Any income tax benefits
at
<PAGE>
the Company's expected effective tax rate for these losses has been offset by an
expected increase in valuation allowance for deferred tax assets.
Six Months Ended June 30, 1997 and 1996
Revenues. Revenues grew 12.7% to $8.4 million in the six months ended June 30,
1997 from $7.4 million in the six months ended June 30, 1996 primarily as a
result of the continued expansion of the Company's customer base, development of
an international fax-to-fax customer base in 1997, and revenues from the
Company's faxSAV EZ-List broadcast service and faxSAV for Internet suite of
services first introduced in the first quarter of 1996.
Cost of service. Cost of service increased as a result of the increase in
facsimile volume for the period and also increased as a percentage of revenues
in the six months ended June 30, 1997 to 62.9% from 57.5% in the six months
ended June 30, 1996. The increased percentage is a result of a higher cost of
service for the revenues generated from the Company's lower priced Internet
services. These revenues are being generated without complete benefit of the
lower cost Internet network deployment which is in process.
Network operations and support. Network operations and support costs increased
to $1.1 million and 12.8% of revenues in the six months ended June 30, 1997 from
$0.9 million and 11.7% of revenues in the six months ended June 30, 1996 as a
result of hiring additional personnel to implement the Internet fax node
deployment plan and to support the Company's expanding customer base.
Research and Development. Research and development expenses increased to $0.9
million from $0.8 million in the six months ended June 30, 1997 in comparison to
the six months ended June 30, 1996 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 11.1% in the six months ended June 30, 1997 from 10.5% in
the six months ended June 30, 1996.
Sales and Marketing. Sales and marketing expenses decreased to $2.8 million and
33.2% of revenues for the six months ended June 30, 1997 in comparison to $3.0
million and 40.6% of revenues in the three months ended June 30, 1996. These
costs decreased as a result of reduced spending for the third party
telemarketing programs in the 1997 period in connection with the Company's
change in focus to a direct selling group and higher expenses incurred in the
1996 period for trade shows and an advertising and promotion campaign for the
introduction of the faxSAV for Internet suite of services.
General and administrative. General and administrative expenses increased to
$1.6 million and 19.1% of revenues in the six months ended June 30, 1997 from
$1.4 million and 18.5% of revenues in the six months ended June 30, 1996. The
increase in total general and administrative expenses and the percentage of
revenues result from personnel increases to support the increased customer base
and expenses incurred for management information system improvements.
Depreciation and amortization. Depreciation and amortization increased to $0.8
million and 10.1% of revenues in the six months ended June 30, 1997 in
comparison to $0.6 million and 7.9% of revenues in the six months ended June 30,
1996 primarily reflecting depreciation of the Company's increased investment in
international Internet nodes to implement the Company's strategy to deploy a
global Internet network and in faxSAV Connectors installed at customer premises
to allow access to the FaxSav network.
Provision for income taxes. The Company had losses for income tax purposes for
the six months ended June 30, 1997 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.
<PAGE>
Liquidity and Capital Resources
The Company has financed its cash requirements for operations and investments in
equipment primarily through public and private sales of equity securities, bank
borrowings and capital lease financing. During the six months ended June 30,
1997, the Company entered into an agreement for a $0.5 million equipment loan
facility from Phoenix Growth Capital Corp. and $0.4 million was outstanding
under this facility as of June 30, 1997. The net proceeds from the Company's
initial public offering completed in October 1996 amounted to $10.6 million.
Cash flows from the sales of equity securities amounted to $7.9 million in the
six months ended June 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.
As a result of operating losses, cash used in operating activities amounted to
$3.6 million in the six months ended June 30, 1997, as compared to $2.2 million
for the comparable period in 1996. Cash used in investing activities, largely
consisting of the purchase of equipment, amounted to $1.7 million in the six
months ended June 30, 1997 and $0.9 million for the comparable period in 1996.
The equipment primarily consisted of network equipment (particularly in the 1997
period) and faxSAV Connectors purchased by the Company for installation at
customer locations. The Company has minimum usage commitments with its primary
long-distance carriers. Through November 1997, the Company is obligated to LDDS
WorldCom for a minimum monthly usage commitment of $0.25 million for
international long distance service, and through April 1999, is obligated to MCI
Communications Corp. for a minimum monthly usage commitment for total long
distance services of $0.2 million per month.
The Company's principal sources of liquidity at June 30, 1997 included cash and
cash equivalents of $3.8 million and the $0.1 million balance of the equipment
loan line from Phoenix Growth Capital Corp. The Company has also agreed to terms
for a $0.8 million secured equipment line of credit with Silicon Valley Bank.
Such credit line will be available upon final approval of the loan documentation
by both parties. However, there can be no assurance that such documentation will
be approved and executed by the relevant parties. The Company currently believes
that its current cash and cash equivalents 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 six-month period ended June 30, 1997, the Company has experienced
significant operating losses. The Company incurred operating losses of $3.6
million, $4.1 million and $7.5 million during the years ended December 31, 1994,
1995 and 1996, respectively, and $4.0 million during the six months ended June
30, 1997. 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 June 30, 1997,
the Company had an accumulated deficit of $29.0 million.
The Company has generated net operating loss ("NOL") carryforwards for income
tax purposes of approximately $23.0 million through December 31, 1996. These NOL
carryforwards have been recorded as a deferred tax asset of approximately $8.3
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.
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.
<PAGE>
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, which
have affected the market price of securities of many companies in the
telecommunications and technology industries and which may 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.
Future Capital Needs; Uncertainty of Additional Financing; Dilution. The Company
currently believes that its current cash and cash equivalents will be sufficient
to meet its presently 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. In addition, in the event that the Company
obtains any additional funding, such financings may have a dilutive effect on
the holders of the Company's securities.
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,
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 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.
<PAGE>
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 Microsoft Corporation, America Online, Inc.
and CompuServe Incorporated and (v) direct fax delivery competitors, including
Xpedite Systems, Inc. and Unifi Communication. 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
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.
On August 7, 1997, the Federal Communications Commission (the "FCC") issued new
rules which may significantly reduce the cost of international calls originating
in the United States. Such rules are scheduled to be phased in over a five-year
period starting on January 1, 1998. To the extent that these new regulations are
implemented and result in reductions in the cost of international calls
originating in the United States, the Company will face increased competition
for its international fax services which may have a material adverse effect on
the Company's business, financial condition or 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.
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.
<PAGE>
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.
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
November 30, 1997, after which 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
<PAGE>
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 been granted a
patent related to its faxSAV Connector and has a patent application pending 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 does not believe that any of its services, trademarks or other
proprietary rights infringe upon valid proprietary rights of third parties.
However, the Company is aware that another third party has recently brought
patent infringement actions against several facsimile service providers and
there can be no assurance that this 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
<PAGE>
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 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 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.
On August 7, 1997, the FCC issued new rules which may significantly reduce the
cost of international calls originating in the United States. Such rules are
scheduled to be phased in over a five year period starting on January 1, 1998.
To the extent that these new regulations are implemented and result in
reductions in the cost of international calls originating in the United States,
the Company will face increased competition for its international fax services
which may have a material adverse effect on the Company's business, financial
condition or results in operations.
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 has authority for the export of such encryption
technology other than to Cuba, Iran, Libya, North Korea, Sudan and Syria.
Nevertheless, there can be no assurance that such authority 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.
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company's annual meeting of stockholders was held on May 20,
1997.
(b) Mr. Howley was reelected as director for a three-year term expiring
in 2000. Messrs. Murawski, Drazan and Labant continue as directors.
(c) Motions before stockholders:
1. Election as director as follows:
Name Votes For Votes Against Abstentions Broker Non-Votes
Peter A. Howley 5,295,437 0 6,899 4,493,318
2. Resolution ratifying selection of Coopers & Lybrand L.L.P.,
independent public accounts, as auditors of the Company for
the fiscal year ending December 31, 1997.
Votes For Votes Against Abstentions Broker Non-Votes
5,301,826 10 500 4,493,318
Item 5. Other Information
None
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).
3.3 Amendment to By-laws of the Registrant, dated April 25, 1997.
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, 3.2 and 3.3 for provisions of the Certificate of
Incorporation and Bylaws of the Registrant defining rights of holders of
Common Stock of the Registrant.
<PAGE>
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* Telecommunications Services Agreement, between LDDS World Com and the
Registrant, dated December 1, 1996 (incorporated by reference to Exhibit
10.7 to the Registrant's Report on Form 10-Q for the quarter ended March
31, 1997).
10.8* 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).
10.9 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).
10.10 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).
10.11 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).
10.12 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).
10.13 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).
10.14 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).
10.15 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).
10.16 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).
10.17 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).
10.18 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.
<PAGE>
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: August 12, 1997 /s/ Thomas F. Murawski
-----------------------------------------------
Thomas F. Murawski
Chief Executive Officer, President and Chairman
of the Board of Directors
Date: August 12, 1997 /s/ Peter S. Macaluso
-----------------------------------------------
Peter S. Macaluso
Chief Financial Officer (Principal Financial and
Accounting Officer), Treasurer and Secretary
<PAGE>
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).
3.3 Amendment to the By-laws of the Registrant, dated April 25, 1997.
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, 3.2 and 3.3 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* Telecommunications Services Agreement, between LDDS WorldCom and the
Registrant, dated December 1, 1996 (incorporated by reference to Exhibit
10.7 to the Registrant's Report on Form 10-Q for the quarter ended March
31, 1997).
10.8* 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).
10.9 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).
10.10 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).
10.11 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).
10.12 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).
10.13 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>
10.14 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).
10.15 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).
10.16 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).
10.17 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).
10.18 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.
EX-3.3
Amendment to By-laws of the
Registrant, dated April 25, 1997
CERTIFICATE OF AMENDMENT
OF THE BYLAWS OF
FAXSAV INCORPORATED
Pursuant to Article X of the
Sixth Amendment and Restated
Certificate of Incorporation
* * * * * * * * * * * * * * *
The undersigned, Peter S. Macaluso, the Secretary of FaxSav Incorporated, a
Delaware corporation (the "Company"), hereby certifies that effective April 25,
1997, the Bylaws of the Company, are amended as follows:
Article III, Section 1, is hereby amended in its entirety to read as follows:
"ARTICLE III
DIRECTORS
Section 1. The number of directors which shall constitute the whole board shall
not be less than four (4) nor more than nine (9). Within the limits above
specified, the number of directors shall be determined by the resolution of the
Board of Directors or by the stockholders at the annual meeting of the
stockholders, except as provided in Section 2 of this Article, and each director
elected shall hold office until his successor is elected and qualified.
Directors need not be stockholders."
/s/ Peter S. Macaluso
-------------------------
Peter S. Macaluso
Secretary
April 25, 1997
EX-11
Statement Re: Computation of Earnings per Share
FaxSav Incorporated
Earnings per share
(proforma in 1996)
EXHIBIT 11
<TABLE>
<CAPTION>
For the three months ended For the six months ended
June 30 June 30
1996 1997 1996 1997
-----------------------------------------------------
<S> <C> <C> <C> <C>
Net Loss $(1,814,428) $(1,912,987) $(3,986,197) $(3,432,073)
=========== =========== =========== ===========
Weighted average number of
common and equivalent shares
used in computing pro forma
loss per share:
Actual 9,795,654 497,905 9,791,748 498,055
Effect of converting all
preferred into common stock 0 7,799,025 0 8,111,064
----------- ----------- ----------- -----------
9,795,654 8,296,930 9,791,748 8,609,119
=========== =========== =========== ===========
Net loss per common and
equivalent share (proforma in 1996) $ (.19) $ (.23) $ (.41) $ (.40)
=========== =========== =========== ===========
</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 statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 3,836,088
<SECURITIES> 0
<RECEIVABLES> 2,499,303
<ALLOWANCES> 285,694
<INVENTORY> 0
<CURRENT-ASSETS> 6,209,065
<PP&E> 7,440,140
<DEPRECIATION> 3,073,267
<TOTAL-ASSETS> 10,692,793
<CURRENT-LIABILITIES> 4,201,157
<BONDS> 0
0
0
<COMMON> 97,942
<OTHER-SE> (15)
<TOTAL-LIABILITY-AND-EQUITY> 10,692,793
<SALES> 8,390,944
<TOTAL-REVENUES> 8,390,944
<CGS> 5,280,730
<TOTAL-COSTS> 7,241,302
<OTHER-EXPENSES> (47,463)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (97,428)
<INCOME-PRETAX> (3,986,197)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,986,197)
<EPS-PRIMARY> (.41)
<EPS-DILUTED> (.41)
</TABLE>
