SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
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FORM 10-SB12G/A
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GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS
Under Section 12(g) of
The Securities Exchange Act of 1934
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FLEXEMESSAGING.COM, INC.
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(Name of Small Business Issuer in its charter)
Idaho 82-0485978
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Level 27 Grosvenor Place
225 George Street
Sydney, Australia NSW 2000
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(Address of principal executive offices) (Zip code)
Issuer's telephone number: (011) 61 2 9250-8888
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Securities to be registered pursuant to Section 12(b) of the Act: none
Securities to be registered pursuant to Section 12(g) of the Act: Common Stock
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TABLE OF CONTENTS
Page
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PART I
Item 1. Description of Business
Item 2. Management's Discussion and Analysis
Item 3. Description of Property
Item 4. Security Ownership of Certain Beneficial Owners
and Management
Item 5. Directors, Executive Officers, Promoters and
Control Persons
Item 6. Executive Compensation
Item 7. Certain Relationships and Related Transactions
Item 8. Description of Securities
PART II
Item 1. Market for Common Equities and Related
Stockholder Matters
Item 2. Legal Proceedings
Item 3. Changes in and Disagreements with Accountants
Item 4. Recent Sales of Unregistered Securities
Item 5. Indemnification of Directors and Officers
PART F/S
Financial Statements
PART III
Item 1. Index to Exhibits
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PART I
The Company cautions readers regarding certain forward looking statements in the
following discussion and elsewhere in this document or any other statement made
by, or on the behalf of the Company, whether or not in future filings with the
Securities and Exchange Commission. Forward-looking statements are not based on
historical information but relate to future operations, strategies, financial
results or other developments. Forward looking statements are necessarily based
upon estimates and assumptions that are inherently subject to significant
business, economic and competitive uncertainties and contingencies, many of
which are beyond the Company's control and many of which, with respect to future
business decisions, are subject to change. These uncertainties and contingencies
can affect actual results and could cause actual results to differ materially
from those expressed in any forward looking statements made by, or on behalf of,
the Company. The Company disclaims any obligation to update forward-looking
statements.
Item 1. Description of Business
FlexEmessaging.Com, Inc. was formed under the laws of the State of Idaho on
August 29, 1957 under the name of Siler Equipment Sales, Inc. to salvage and
sell scrap metal, mine timber and related mining products (the "Company").
Thereafter, the name of the Company was changed to American Network
Technologies, Inc. on February 20, 1996, to Piazztec International, Inc. on June
18, 1997 and Siler Ventures, Inc. ("SVI") on February 23, 1998. On February 15,
1999, the Company changed its name to FlexEmessaging.Com, Inc. to better reflect
the new industry in which it now operates upon the successful reverse
acquisition of Trade Wind Group Pty Limited ("TWG"), a wholly-owned subsidiary
of Trade Wind Communications Limited, a Bermuda corporation ("TWC") by the
Company. TWG was incorporated on September 6, 1998.
On February 5, 1999, the Company entered into a business combination with TWC to
purchase all of its business assets, consisting of the stock of TWG, in exchange
for the issuance of 8.8 million shares of common stock of the Company and with
Atlantic International Capital Holdings Ltd., a Bermudan corporation, to provide
financing of $3,660,000 through the sale of the Company's common stock utilizing
private placements. Thus, any references to past accomplishments of the Company
and its financial information shall relate solely to TWG, as combined, since SVI
(now known as Flexemessaging.com, Inc.) has been inactive for several years.
The Company is primarily engaged in two major business segments: voice and data
systems and electronic messaging. The Company's voice and data systems segment
(hereinafter referred to as the "Voice & Data Division") is a distributor of
communication systems and data applications for financial traders and emergency
services operations. The Company's electronic messaging segment (hereinafter
referred to as the "Flexifax Division") provides customers with a global
enhanced fax and email broadcast services originating from the customers'
desktop personal computer ("PC").
The Company presently operates through eight subsidiaries incorporated under the
laws of New South Wales, Australia and Singapore and with approximately 63
employees, including 60 full-time employees as at December 15, 1999. One of the
eight subsidiaries of the acquired TWG is a wholly-owned subsidiary called Trade
Wind Marketing Pty Ltd ("TWM"), a New South Wales, Australian corporation. The
Company's above-described operating
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divisions operate under TWM using the tradename of 'Flexifax Global Services'
and Trade Center Products. The Company's principal office is located in Sydney,
Australia. The Company's assets consist of office equipment, leasehold
improvements and the value of its on-going business operations.
Outlook
Over the next 12 months the Company plans to re-position its offerings of
products and services into a more broad-based messaging operation, reducing its
dependence on fax and focusing on offering specific channel based value added
services to customers rather than solely carriage of fax traffic over a fax
network. Examples of such services are list and database management and
marketing services, as well as services that are complementary to the existing
messaging platforms which will drive and maximize e-commerce opportunities and
interactivity. To facilitate this, the Company plans to develop strategic
relationships and/or partnerships with telecommunications carriers, Internet
Service Providers ("ISPs") and companies with complementary messaging
technologies or services, possibly even potential competitors. These
relationships could cover areas and activities such as sales, product marketing,
services, technology sharing, network partnering, traffic distribution and/or
service provision agreements. The Company may divest itself of certain
technologies in order to move to newer ones or result in alternative methods of
global traffic distribution, thus providing more scope for efficient and cost
effective distribution of its customers messaging traffic. The Company has
already concluded one such strategic alliance. On December 2, 1999, the Company
signed an agreement with Premiere Information Systems Pty Ltd ("Premiere"), a
subsidiary of Premiere Technologies Inc., a communications company based in
Atlanta, Georgia whereby the Company would outsource the delivery of its fax
traffic to the Premiere network. This deal is expected to transform the FlexiFax
Division from a loss to a profit in the immediate future.
The Company also plans to expand its Voice and Data Division further into call
center applications and has negotiated with IPC Information Systems ("IPC"), a
New York corporation, which is a world leader in the delivery of integrated
multimedia communications solutions to the financial trading industry, to
distribute its Turret systems in Australia. This will complement the Voice &
Data Division call center operations supplying Rockwell Electronic Commerce
solutions ("Rockwell") and related activities.
Overview
FlexiFax Division
Flexifax Global Services ("Flexifax") was initially started about 5 years ago
whereby the Company saw the growing need for sending information by fax
efficiently to multiple destinations. It was envisaged that the world would be
sending their messages from the desktop rather than from the fax machine. Thus
all future development would be based on the digital environment of the desktop.
The Company purchased a software application utilizing a Tandem Computer and
enhanced its functionality and efficiency. The Company then gradually
established a global network with remote nodes, which are industrial PC's with
fax cards, in international centers such as London, New York, Hong Kong, Tokyo,
Singapore, Wellington, Auckland and most of the major cities in Australia (the
"FlexiFax Global Network" or "Global
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Network"). Distributors were appointed in some countries, mainly where nodes
existed. The Company also established a presence in London and Singapore.
Product Evolution
FlexiFax today is a digital fax and email broadcasting service which distributes
a document from a user's desktop to potentially thousands of recipients' fax
machines and/or PCs. The software enables stand-alone or networked PC users to
connect to the FlexiFax Global Network. The service offers a number of key
features:
o Broadcast directly from the desktop.
o Minimum online sending time.
o Fine print definition due to transmission of document in digital format.
o Flexible and secure list database management.
o Web browser connection
o File attachment
The growth of fax, and especially IP fax (see below) continues and the potential
for broadcast fax in the business-to-business area is a long way from being
fully realized.
The use of email and other forms of Internet-based messaging are also growing at
an even greater rate. These methods are complementary to, rather than
competitive with, fax broadcasts as each are suited to particular tasks.
Accordingly, FlexiFax now offers the capability of broadcasts that combine fax
and email addresses, with the added option of Web-browser access to its network,
leaving the choice of method to the senders, based on their customers'
preferences. The next stage of the Company's evolution is to provide a high
degree of specialist value added services across all messaging technologies and
become involved in the growth of technologies, such as e-mail management
outsourcing and e-commerce, where messaging forms an essential part of the
service.
Market Segmentation
The large potential of the total broadcast messaging market arises from its wide
`catchment' area and also from the innovation and added value that it brings to
organizations using more conventional methods.
Users of broadcast messaging include, but are not limited to:
O Banks, Securities Houses and Brokers
O Public Relations and Marketing Companies
O Wholesale Distributors (e.g. Computer Products, Books, Records, Food)
O Life Insurance and Superannuation Companies
O Shipping and Freight Forwarders
O Professional Services Organizations
O Professional Associations
O Political and Lobby Organizations
O Government and near-Government Organizations
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Global Service
FlexiFax uses Internet Protocol ("IP") to communicate across its global network
of strategically located nodes controlled by the international hub in Sydney.
The technology ensures efficient use of bandwidth, adaptability to new messaging
technologies and control of network performance. The global architecture of the
system lends itself to the establishment of local subsidiaries, branch offices
and distributors. The service is available anywhere in the world, supported by a
central 24-hour Help Desk and dedicated support teams.
Strengths for the Future.
Frost & Sullivan have estimated that global IP faxing will have increased from 6
million minutes in 1997 to around 90 million minutes by the end of 2001. There
is even more rapid growth in the volume of e-mail. FlexiFax's IP messaging
technology, combining fax and email in the same broadcast, provides a platform
springboard for becoming a broad-based global messaging company, which stands to
benefit greatly from the expansion of the market and the power of the Internet.
Growth Record
Delivered fax minutes have risen from 280,000 in 1995 to 19.5 million in 1999,
with a gross margin of over 60%. This is believed to be at least as good as our
significant competitors.
Strategy for Future Growth
The Company recognizes that for strong growth in the future it has to
re-position itself into the broad-based electronic messaging market and focus on
specific market channels to provide value added services. The Company has
identified the need to move from its reliance on faxing technology and its use
of a fax only global network in order to share more in the high growth in the
Internet. This will involve the Company managing much higher volumes of client
electronic messaging business but with a lower unit cost and margin, preferably
with revenue realized on a per transaction basis. The first step has been the
strategic alliance with Premiere, whereby Flexifax has outsourced the delivery
of its fax traffic to the Premiere network. The Company's management plans to
further achieve its aims by aligning the Company with, and leveraging off,
larger industry players or recognized leaders in their field, and then provide
specialist added value messaging services to such players/leaders, and their
customers, in addition to providing such benefits to the Company's own
customers. This will involve partnerships, strategic alliances or even joint
ventures, with other technology companies or service providers and may involve
alternative methods of global traffic distribution and a change in the Company's
customer profile.
By re-positioning in this way the Company can seize opportunities that may
present themselves to move into yet other growth areas, such as e-commerce,
unified messaging or other growing markets. This is where the Company can take
advantage of the fact that messaging technology has to be included as an
essential part of the business. The Company's growing position in call centers
(See Voice and Data Division) is expected to open up new opportunities for
electronic messaging, universal messaging, messaging/e-mail outsourcing and
e-commerce.
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Voice and Data Systems Division
The Voice and Data Systems Division is a leading systems integrator and
distributor of data and communications applications in Australia and New
Zealand, providing effective solutions to the critical needs of clients across
many sectors. This is evidenced by the dominant market position held in the
Australasian dealing room market. The Division has established market leadership
in `instant-access' or `turret' voice systems in many of these key areas in
Australia, with over 50% market share in the Australian financial markets, and
approximately 80% in emergency services. This is in addition to a steadily
growing market share of the broader `command-control' sector including airlines,
utilities, defense and other areas of government.
This Division has maintained operating profits since its establishment more than
12 years ago. The Company plans to expand its opportunities in the Voice and
Data Division through the development of call centers. Call centers are growing
in Australia and Asia at an annual rate of 25% (source: New South Wales
Government report) and there is increasing demand for more sophisticated and
cost-effective technology. This Division is ideally situated to capitalize on
this growing trend with a range of world-class products.
As a leading systems integrator and distributor of data and communications
applications in Australia and New Zealand, this Division provides effective
solutions to the following cross sectors: stock and futures exchanges, financial
institutions, emergency service providers, government agencies, airlines, public
utilities, industrial companies and hospitals. This Division maintains a
dominant position in the financial, commercial, government and emergency
services markets as a specialist provider of leading edge communications
products, systems integration and turnkey solutions.
The Voice and Data Division has developed or supplied outstanding products for
use by its clients including:
o V Band - digital dealer board ("turret") systems (recently acquired by
IPC for which the Company has been appointed the Australian distributor)
o Multitone - paging, wide-area call-out systems, DECT cordless PABX
o CSK Software - Slingshot real-time data delivery via Internet/Intranets
The Division's line-up of products for the call center market comprises:
o Rockwell - ACD and Call Center Solutions
o Aspect - Voicetek `Generations' Interactive Voice Response systems
o Pipkins Inc, - `Maxima Advantage' Workforce Management software
o Witness - Quality Monitoring systems
o Webline - Web-based Telebusiness/ e-Commerce system
o Trans-Lux - electronic display systems
o Dictaphone - loggers
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The Division grew out of supplying voice turret systems to the financial market.
Over the past number of years it has added products to its offerings to suit the
markets addressed.
Major Contracts.
Among the major contracts secured recently in the last year were:
o Jindalee Operational Radar Network (JORN) - a defense contract for secure
voice communications for the over-the-horizon radar monitoring system.
o Qantas Airways - digital voice and radio communications for streamlined
load control operations throughout Australia New Zealand and Papua New
Guinea.
o Ambulance and Fire Brigade Services digital voice communication and
call-out systems with multi-location networking, paging and computer-aided
dispatch (CAD) systems integration.
o National Electricity Market Management Co (NEMMCO) - Operations security
communications systems. (NEMMCO is involved in the creation of an
Australia-wide electricity market.)
o Data Connections - Call Center systems including ACD, IVR and Workforce
Management.
o Parliament House, Canberra - Voice systems for Security Control Area
integrated with CCTV, perimeter door opening, intercom, lift phones and
radio channels.
o RAAF Radar Surveillance Units - secure voice communications.
o Intercapital Brokers - Turret system.
o Westpac Banking Corporation - Turret system
The Future in Call Centers
The Company began its operations in this division in 1987 with a core product
distributed from V Band Corporation, ("V Band"), a New Jersey corporation, which
recently filed for protection under Chapter 11 of the US Bankruptcy Code. V Band
was acquired by its major competitor, IPC. Since then negotiations have been
successfully undertaken between the Company and IPC, with the Company emerging
as the non-exclusive Australian distributor for IPC products.
The Company recognized, over two years ago, that it had to diversify out of the
financial market for voice turrets as the financial market was consolidating.
The market chosen to diversify into was the call center market. Call Centers are
evolving into versatile 'customer interaction centers' that facilitate contact
by telephone, email via a Web site call back, or by fax. The Voice & Data
Division is targeting this stage of development (which will also offer messaging
opportunities to FlexiFax Division). The new generation of call centers provides
opportunities for sales of new systems and change-outs of older technology.
Call centers used to refer mainly to communications cost centers dealing with
large volumes of inbound calls organized round Automatic Call Distribution (ACD)
or `queuing systems'. More recently the concept has been extended to include
varying mixes of outbound as well as inbound call handling - but call centers
are still viewed largely as systems for bulk-processing of telephone traffic.
However, business and government organizations need a variety of systems to
communicate with clients, employees, business partners and the public and call
centers are now evolving into `customer interaction centers', facilitating
contact by telephone, email, Web-site call-back and fax.
Call centers can operate independently of the location of their customers, even
across international borders, and Australia is capitalizing on that flexibility.
Regional and international call centers are being installed in Australia because
of its lower staffing and establishment costs
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and multi-lingual workforce. According to New South Wales Government Reports the
call center market in Australia is growing at the rate of around 25% per annum.
An estimated 550 call centers are now operating in Australia, employing
approximately 50,000 people with an annual expenditure of $1.2 billion. A market
study by Price Waterhouse/ACA estimated the growth of this market in Australia
at 20% annually. Other sources, such as the New South Wales Department of State
& Regional Development, put this growth at 25%. According to their 1998 report,
the greater Sydney area is home to half the international call centers operating
in the Asia Pacific region.
Call centers serve the whole spectrum of industry, finance, transport, utilities
and government and the division has begun to extend its traditional focus on
financial and emergency services to a much larger market.
The growth and expansion of this industry has led to a need for products and
services by call centers providing assistance and/or solutions to their strained
and growing operations. By providing such products, the Company, even as a late
entrant, can solicit any client or potential client with such product offerings,
even though that client may be using competitors equipment. As a result of the
Company's targeting initiative the division now represents ( together with other
distributors in many cases) Rockwell Electronic Commerce (Call Centers),
Dictaphone (Loggers) Witness (Quality monitoring systems) Translux (wall boards)
Pipkins (workforce management software) and others. The division uses a solution
oriented approach to meet most customer technology needs.
Divisional sales for the year ended June 30, 1999 were $5.4 million, a decrease
of 29% over the previous year. Sales in the current fiscal year were
significantly lower than in fiscal 1998 mainly as a result of reduced sales of
the core turret system product due to the financial collapse of V Band but an
order book of over $4 million will provide a greater than usual level of
certainty for the year 2000. The Company has moved into the call center market
offering a number of products in this area. This should be considered as a start
up business although the skills required to support these products are similar
to those already being deployed in the financial trading area.
Operational Concerns
International Operations. As the Company's operations are internationally based,
such operations are subject to numerous inherent risks beyond the Company's
control, including political and economic conditions affecting the countries of
operation. The Company's international business activities may include
difficulties in staffing and managing international operations, currency
fluctuations and currency management issues, difficulties in collecting accounts
receivable, imposition of public sector controls, trade and tariffs
restrictions, price or exchange controls, limitations on repatriation of
earnings, foreign tax consequences and the burdens of complying with a wide
variety of foreign laws and regulations.
Suppliers/Service Providers.
Dependence on Key Suppliers -Should any of the Company's key suppliers
experience difficulty in providing product in a timely manner, this could
adversely effect the Company's revenues and reputation in the market.
Additionally, the failure on the part of these suppliers to develop and
manufacture or supply new or enhanced products or software that meet or
anticipate
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technological changes on a timely and cost-competitive basis could have a
materially adverse effect on the Company's financial condition and results of
operations.
Agreement with V Band/IPC - For the fiscal three months ended September 30,
1998, sales of the V Band products accounted for 63% of the sales of the Voice
and Data Systems. IPC, a previous competitor to V Band, has recently acquired V
Band and the Company has been appointed the Australian distributor of IPC
products.
Reliance on third parties - A substantial portion of the Company's total
revenues are derived from the sale of products manufactured by third parties and
the provision of professional services in connection with the sale and
maintenance of such products. As a result, any factor adversely affecting such
distribution rights or services would have a material adverse effect on the
Company's business and results of operations.
Regulations.
Enforcement of Civil Claims - The Company was incorporated under the laws of
Idaho, while the operating entities are based in Australia. Certain of its
directors and all of its officers reside, and all of its assets are located,
outside of the United States. It may not be possible for investors to effect
service of process within the United States upon the directors and officers of
the Company. It may also not be possible to enforce judgments obtained in United
States courts predicated upon the civil liability provisions of applicable
securities laws of the United States against the Company or its directors and
officers.
Change in government policies - A deterioration in economic conditions in
countries where the Company carries on business or other factors could result in
a change in government policies which may materially affect the Company's
financial position and results of operations.
Regulation of the telecommunications industry - The telecommunications industry
is subject to regulatory control. Any amendments to current regulations could
have a material adverse effect on the Company's business, results of operations
and prospects.
Regulation of broadcast faxing and Emailing - In recent years, legislation has
been enacted in the United States, Europe, Australia and other countries
restricting fax or Email broadcasting especially by businesses to private
numbers/addresses. Similar restrictions are starting to appear governing
business-to-business fax broadcasting and this may have an adverse affect on the
Company's business and results. Current trends in regulation of electronic
messaging are that messages should only be sent to those that want the
information in the message or have "opted in" to receive specific types of
information from time to time. The Company is not aware if the Company's
customers have obtained 'opt in' status from the recipients to whom they intend
to send their messages.
Competition and Competitive Business Conditions.
Competition - The Company's Voice and Data Division operates in a highly
competitive environment. The markets in which the Company operates are comprised
of a substantial number of global and regional competitors, many of which have
greater financial, engineering, manufacturing and other resources than the
Company. Competing with such companies will
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require continued investment by the Company in engineering, research and
development, marketing and customer service and support. Future profitability
will depend upon broader market penetration that the Company has yet to secure.
The fax broadcast and messaging industry is intensely competitive and served by
a wide range of companies, including major telephone service providers, ISPs in
developed countries and other companies specializing in providing fax services.
Many of these companies have significantly greater financial resources and reach
than the Company and extensive established networks. Typically, FlexiFax does
not have long-term contractual agreements with its clients and there can be no
assurance that its clients will continue to transact business with the Company
in the future. In addition, there can be no assurance that clients will not
elect to use alternatives to FlexiFax's fax or messaging communications
services, such as the Internet, to carry such communications or that companies
offering such alternatives will not develop product features or pricing policies
which are more attractive to clients than those offered by the Company. Such
competition companies may also invite partnering or joint venture arrangements
with the Company in one country under a mutual agreement but still remain a
strong competitor to the Company in others. This could require the Company to
adapt or change out its technology to achieve such partnering or joint venture
relationships.
Reliance on computer and communications systems - The Company's business is
highly dependent on its computer and telecommunications systems and those of
others, such as Premiere, for the operation and quality of service of the
FlexiFax system. The temporary or permanent loss of all or a portion of any
system, for whatever reason, could have a materially adverse effect on the
Company's business, financial condition and results of operations.
Dependence on Telephone Services - In broadcasting faxes or other messaging
technologies, FlexiFax is highly dependent on telephone service provided by
local and long distance telephone companies in countries throughout the world.
The quality and availability of telephone service varies and in some areas is
limited. Any significant interruption in telephone service could adversely
affect the Company. Rate increases imposed by telephone companies where FlexiFax
operates nodes will increase the Company's tariffs from Premiere and could
adversely affect its financial condition and results of operations.
Dependence on Internet Service Providers (ISPs) - In using the Internet as a
receiving, transport or delivery mechanism for its messages, the service is
highly dependent on the performance of ISPs throughout the world. As message
traffic can be handed off from ISP to ISP beyond the control of the Company, any
resultant traffic loss, failure or poor performance by any ISP in the chain
could have a detrimental effect upon the service level and performance of the
Company's service. This in turn could effect the Company's clients who may then
opt not to use the service. Although the Company will always try to use reliable
ISPs there can be no assurance that such performance problems will not occur.
Dependence on key customers - FlexiFax derives a significant portion of its
revenues from a relatively small number of customers and there and there is no
assurance that such customers will continue to provide the same levels of
revenue in the future.
Concentration of Clients in the Financial Services Industry - Historically, a
significant portion of the Company's revenues have been derived from sales to
clients in the financial services
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industry. If the financial services industry suffers an economic downturn, it is
likely that the Company would experience a decline in revenues, which could have
a materially adverse effect on the Company's financial condition and results of
operations.
Technology.
Lack of Patentable Technology - The Company owns no patentable technology. None
of the Company's distributorship agreements provide the Company with exclusive
proprietary technology and there can be no assurance that the Company will be
able to sustain a competitive advantage against other firms with access to the
same technology.
Dependence on unpatented proprietary know-how - Unlike certain of its
competitors, FlexiFax relies on unpatented proprietary know-how. While the
Company employs various methods to protect its know-how, such methods may not
afford complete protection and there can be no assurance that others will not
independently develop such know-how, obtain access thereto or develop a more
efficient system.
Technology Risk - The Company's ability to compete effectively is dependent upon
its ongoing significant investment in software development and
telecommunications technology. There can be no assurance that the Company will
be successful in anticipating or adapting to technological changes or in
selecting and developing new and enhanced technology on a timely basis. Future
technological advances in the continually changing telecommunications industry
may result in the availability of new services, products or methods of
electronic document delivery that could compete with the document distribution
services currently provided by FlexiFax. Moreover, decreases in the cost of
existing products or services could enable the Company's current or potential
clients to fulfill their own needs for electronic document distribution services
more cost efficiently than through the use of the Company's services. The
Company could be adversely affected in the event of such technological change,
or if such changes in technology enable additional companies to offer services
which could replace some or all of the services presently offered by FlexiFax.
Competition
The Company's competition is very strong and consists of large carriers, ISPs as
well as new start up industries. For the Flexifax Division such competitors
include Premiere Technologies (incorporating Xpedite), NetMoves (formally
FaxSav), Sprint, Cable & Wireless or other carriers or ISPs, in addition to some
large media companies distributing news releases, and some start-up companies
offering "free" fax services. The competitors for Voice and Data include British
Telecom, Lucent Technologies, Panasonic, Sony, Hanson, NEC, Nortel and any
company offering call center services, products or solutions.
Item 2. Management's Discussion and Analysis
The core elements of the Company's business are messaging and communications
represented by the Company's two operating divisions, FlexiFax and Voice & Data.
The Company offers a range of quality products and solutions in both of these
markets. The expansion of digital messaging is particularly strong and the
FlexiFax Division is rapidly broadening its offerings to meet customer demand.
Similarly, in the systems market, the convergence of computer
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technology with telecommunications infrastructures has created a demand for
ever-increasing functionality. The Voice & Data Division markets a range of
products designed to take advantage of some of these opportunities within its
targeted niches of financial trading, command/control centers and call centers.
Management has established the following objectives for the Company over the
next 12 months:
o Re-position the Company more towards a broad based messaging service and
away from the heavy reliance on fax running on a proprietary fax network.
This is anticipated to transform the FlexiFax Division from loss making
to profitability.
o Identify e-commerce opportunities complementary to the messaging basis of
the Company.
o Seek partnering or joint venture opportunities which will be
complementary and provide opportunities for growth.
o Expand or identify channel opportunities to service new areas and to
improve delivery or service levels in cities currently served.
o Upgrade, add features and improve the Flexifax software and move towards
a more broad based message service capability, with particular focus on
value added services rather than solely providing carriage capability.
o Expand the Company's voice and data systems business and product range
and emphasis on call center applications and turrets.
As a result of the reverse acquisition of TWG by the Company in February 1999,
the financial information and financial statements presented herein are those of
TWG, the accounting acquirer. Thus, the financial position and results of
operation of the Company were recorded in Australian dollars, the functional
currency, and have been converted to US dollars.
Results of operations and financial position for Fiscal Years Ending June 30,
1999 and 1998
Management's discussion and analysis of operations for the years ended June 30,
1999 and 1998 are on the converted US dollar figures. References have been made
to certain figures before taking into account the effect of the foreign currency
translation adjustment where necessary.
Combined Results of Operations
Combined revenues decreased by 20% to $8,873,845 for the year ended June 30,
1999, compared to $11,103,370 for the year ended June 30, 1998. Cost of sales
reduced to $4,686,123, down from $6,516,246 in the prior year. Cost of sales as
a percentage of revenue improved to 53%, down from 59% in the corresponding
period. Total operating expenses increased 8% to $5,713,499 from $5,267,999 in
the prior year. A net loss for the year ended June 30, 1999 of $1,822,201 was
reported, which was up from the net loss reported for the year ended June 30,
1998 of $703,094.
A detailed explanation of the results by operating division follows.
FlexiFax Global Services Division
Revenues. FlexiFax operating revenue decreased 0.5% to $3,447,030 for the year
ended June 30, 1999 from $3,462,992 for the year ended June 30, 1998. (Sales
were 6% higher than the
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comparative figure before adjusting for the foreign currency translation
difference). Revenues generated in countries outside of the US (excluding
Australia) increased by 61% while revenue generated in Australia remained
constant as growth in this market was offset by some migration of customers due
to the deregulation of the Australian Telecommunication Industry resulting in
tight competitive conditions. Strong growth in international markets was
achieved through greater market penetration in existing areas such as the United
Kingdom, Singapore and Vancouver, as well as in new areas such as Switzerland. A
large amount of management effort and resources were directed to the
establishment and growth of direct sales offices located in London and
Singapore.
Cost of sales. Cost of sales comprises local access charges, leased network
backbone circuit expenses, line rental, distributors' commission, software
maintenance and support, and domestic, long distance and international
termination charges. These are variable costs based on actual volumes. Cost of
sales amounted to $2,219,827 for the year ended June 30, 1999 compared to
$2,118,018 for the prior year. Cost of sales as a percentage of revenue
increased to 64% for the year ended June 30, 1999, compared to 61% for the
corresponding period as a result of lower revenues per minute being achieved due
to tight trading conditions.
Total operating expenses. Total operating expenses consist of expenses
associated with staff, premises, communications, travel, group management fees,
depreciation and other expenses incurred in running the operation. Total
operating expenses for the year ended June 30, 1999 amounted to $2,596,181
compared to $1,991,437 in the corresponding period. Significant expenses were
incurred in connection with the establishment of a direct office in London,
which amounted to $439,075. The balance of the increase in expenditure resulted
mainly from increased staff costs. Depreciation increased to $304,409 for the
year ended June 30, 1999, compared to $289,536 in the prior year, as a result of
network equipment acquired to increase network capacity and efficiency.
Voice and Data Systems Division
Revenues. Revenues consist of sales from systems integration solutions for
voice, call center, electronic display, paging, call recording and data
applications. Revenues decreased 29% to $5,426,815 for the year ended June 30,
1999, from $7,640,378 for the year ended June 30, 1998. The decrease is mainly
attributable to: (1) reduced sales of V Band voice systems because of the global
consolidation of financial market players and the inability of V Band Inc to
continue to operate as a going concern; (2) Significant customer delay (between
expected order date and received order date) in the electronic display and call
center markets; (3) A large project secured by the paging division in the prior
year; (4) Reduced sales activity in the Singapore region. The successful
conclusion of the Australian distributorship with IPC is expected to generate
positive results in the next financial year, with turret systems sales for
fiscal 2000 forecast to be significantly higher than for the fiscal 1999 year.
Cost of sales. Cost of sales consists of the purchase of third party product,
necessary to complete the systems integration solution. Cost of sales for the
year ended June 30, 1999 amounted to $2,466,296, compared to $4,398,228 for the
previous 12 months. Cost of sales as a percentage of revenue decreased to 45%
for the current financial year down from 58% for the year ended June 30, 1998.
The decreased percentage is a result of providing a larger proportion of
relocation and ancillary support and maintenance services to the V Band voice
customer base as opposed to
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<PAGE>
supplying larger project system sales, as well as a change in the overall
revenue mix, where different product groups attract different gross margins.
Total operating expenses. Total operating expenses consist of expenses
associated with staff, premises, communications, travel, group management fees,
depreciation and other expenses incurred in running the operation. Total
operating expenses for the year ended June 30, 1999 amounted to $2,858,593
compared to $3,109,126 in the corresponding period. Depreciation increased to
$126,159 for the year ended June 30, 1999, compared to $107,558 in the prior
year,
Liquidity and Capital Resources for the fiscal years ended June 30, 1999 and
1998
The Company's consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the settlement
of liabilities in the normal course of business.
The Company anticipates raising additional capital to meet its planned
operational and expansion requirements over the remaining part of the fiscal
year ending June 30, 2000. Should the appropriate level of funding not become
available, then the Company will have to reduce its costs employed in various
areas including its global expansion activities, network expansion, new channel
marketing initiatives, R&D, sales and general marketing activities. Thereafter,
if the Company's operations do not begin to deliver positive cashflows in
amounts enough to satisfy the Company's requirements, then it will be necessary
for the Company to raise additional funds through bank debt, equity funding,
partnering with others or undertake appropriate divestment strategies of certain
technologies for equity or cash. Additional funding may not be available, or may
not be available on terms and timing acceptable to the Company, which could have
a material adverse effect on the Company's financial position, its overall
business and the result of the Company's operations.
The market for fax and messaging is very competitive and the Voice and Data
Division, with its large contracts, is heavily influenced by the economic
conditions existing in Australia at the time. The Company does not expect this
to change and in fact expects that even greater effort will be needed in the
future. The Company will therefore continue to have the need for additional
funding until it reaches significant levels of revenue and margin to become
cashflow positive.
The Company has financed its cash requirements for operations and investments in
capital assets mainly through private sales of equity securities and loan
finance.
As a result of operating losses, cash used in operating activities amounted to
$1,820,936 for the year ended June 30, 1999, compared to $199,999 being
generated from operations for the year ended June 30, 1998. Accounts receivable
decreased $224,035 to $1,899,714 from $2,123,749 for the year ended June 30,
1998 as a result of a general reduction in sales activity as well as the
relative cash flow timings of the Voice & Data Division revenue flows. Accounts
payable and other accruals reduced by $1,028,159 compared to an increase of
$428,848 in the prior comparative year, mainly as a result of some of the
funding received going towards reducing the payables to an acceptable level, as
well as a general reduction in sales activity.
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<PAGE>
Cash used in investing activities, consisting primarily of the purchase of
capital assets, amounted to $481,852 for the year ended June 30, 1999, compared
to an inflow of $21,246 in the corresponding period in 1998.
Cash generated from financing activities, amounted to $1,831,823 compared to
$80,113 in the prior year primarily as a result of the sale of stock. 300,000
shares were sold on March 16, 1999 at a price of $2.50 per share under a private
placement, with a further issue of 200,000 shares on June 9, 1999 at a
discounted price of $1.25 under the private placement, for the raising of
bridging finance for a potential acquisition. Capital was contributed by Trade
Wind Communications Limited in the amount of $917,435, compared to $481,659 in
the prior year.
Cash and equivalents decreased to $118,912 for the year ended June 30, 1999,
from $589,877 in the previous year, as a result of funding operations and
capital asset acquisitions, primarily through private issues of securities and
the provision of loan finance.
New Accounting Pronouncements
In April 1998, the American Institute of Certified Public accountants issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up activities",
("SOP 98-5") which provides guidance on the financial reporting of start-up
costs and organization costs. It requires costs of start-up activities and
organization costs to be expensed as incurred. SOP 98-5 is effective for fiscal
years beginning after December 15, 1998 with initial adoption reported as the
cumulative effect of a change in accounting principle. Adoption of this standard
will not have a material effect on the financial statements.
During 1998, the FASB issued SFAS 132, "Employers' Disclosures about Pensions
and Other Post retirement Benefits". This statement revised employers'
disclosures about pension and other post retirement benefit plans but does not
change measurement of recognition of those plans. SFAS 132 is effective for
fiscal years beginning after December 15, 1998. Adoption of this standard will
not have a material effect on the financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133.
"Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133
requires companies to recognize all derivatives contracts as either assets of
liabilities in the balance sheet and to measure them at fair value. If certain
conditions are met, a derivative may be specifically designated as a hedge, the
objective of which is to match the timing of gain or loss recognition on the
hedging derivative with the recognition of (i) the changes in the fair value of
the hedged asset or liability that are attributable to the hedged risk or (ii)
the earnings effect of the hedged forecasted transaction. For a derivative not
designated as a hedging instrument, the gain or loss is recognized in income in
the period of change SFAS No. 133 is effective for all fiscal quarters of fiscal
years beginning after June 15, 2000.
Historically, the Company has not entered into derivatives contracts either to
hedge existing risks or for speculative purposes. Accordingly, the Company does
not expect adoption of the new standards on July 1, 2000 to affect its financial
statements.
Uncertainty due to the Year 2000 Issue
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other
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date, resulting in errors when information using year 2000 dates is processed.
In addition, similar problems may arise in some systems that use certain dates
in 1999 to represent something other than a date. The effects of the Year 2000
Issue may be experienced before, on, or after January 1, 2000, and, if not
addressed, the impact on operations and financial reporting may range from minor
errors to significant systems failure that could affect an entity's ability to
conduct normal business operations. It is not possible to be certain that all
aspects of the Year 2000 Issue affecting the entity, including those related to
the efforts of customers, suppliers, or other third parties, will be fully
resolved.
The Company has formulated a Y2K compliance program to test the Company's
products and services for compliance. All the Company's principals who supply
products have been asked for a compliance statement. However in the
telecommunications environment, individual products may be compliant but their
operation as a whole also depends on third parties over which the Company has no
control or in some cases even input.
The cost to the Company of the Y2K compliance program has not be separated but
been written off into general operating expenses and leasing costs (for
equipment upgrade). Simulation tests have been made and where found necessary
software and hardware applications have been upgraded. A good example of this
was the upgrading of the Tandem mainframe for FlexiFax. After upgrading to Y2K
application from Tandem Computers, a simulated test for satisfactory operation
was carried out over a weekend period. The test simulated the date change from
1999 to 2000 on the Flexifax network applications (under FlexiFax control) for
end to end performance, before and after, and all deliveries monitored. The
tests proved successful. However, it cannot be over emphasized that the correct
Y2K operation depends on all parts of the network, including carriers, service
providers, customers (and their PCs state of readiness, etc). All components of
a network need to be compliant for perfect operation.
The Company's state of readiness for Y2K
Flexifax Division. The central Tandem hub was upgraded in both hardware and
software application, to a Tandem Computer version that Tandem supports for Y2K
compliance. This was a two stage process the first being in 1996 and the second
stage, a series of software upgrades over the July and August 1998. On May 20,
1999, a performance test was undertaken simulating delivery performance with the
date changing over from 1999 to 2000 occurring during the test period. Traffic
tests were then carried out to prove satisfactory operation and delivery of
faxes. The results of all these tests were satisfactory It must be noted that
carriers regularly pass traffic to other carriers until the fax destination is
reached. Correct delivery can only be achieved if all carriers over the network
are operational. As a result of the Premiere deal (whereby Flexifax outsources
final delivery of their fax traffic to the Premiere network) the Y2K risk lies
primarily with the Premiere network readiness. Flexifax has asked (and has
received) from Premiere a Y2K compliance status and fall back plan. However, in
case Premiere, or one of their suppliers, experience difficulties over Y2K,
Flexifax will keep the Tandem running in parallel (hot standby). This will be
during the December 31, 1999 and January 1, 2000 period or until satisfied that
the Premiere network is running satisfactorily. The Tandem will utilize
bandwidth from a tier one carrier feeding traffic to a Sydney located tier one
US carrier for fax delivery until ready to revert back to the Premiere network.
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<PAGE>
Voice and Data Division. Any software designed by the Company over the last year
has been Y2K compliant. The equipment distributed from the Company's principals
have also undergone test simulations for Y2K of the generic product. Similar
tests were not done at client's sites but the Company believes most clients are
conducting their own compliance programs.
The Y2K compliance position of following products (excluding any PCs owned or
supplied by the customer) sold to, or used in customer premises, by the Voice
and Data Division over the 12 months are as listed below:
V Band products - Not date dependent - compliant
IPC Products - Compliant by purchasing upgrade.
CSK Systems - Supplier certificated
Dictaphone - Supplier certificated (with one minor exception currently being
addressed)
Multitone - Supplier certificated
Rockwell (ACD and Transcend) - Supplier certificated
Voicetek - Supplier certificated
Witness Systems - Supplier certificated
Webline - Supplier certificated
NxOrc - Supplier certificated
Company designed products:
Clarity - Compliant
ASX software interface has been tested for compliance. Other designs and
interfaces - Not date dependent.
The Flexifax billing system has been tested for compliance by simulated date
change.
Internal Company Systems
Sybiz accounting. - Upgraded to compliant version July 1, 1999
PCs in the Company. Although there are a number of old PCs in the Company that
are not compliant (old BIOS) the Company does not believe that they will cause
any Y2K operational difficulty and if so, such will be exchanged with compliant
ones. All PCs purchased over at least a year have been compliant. Any PC used in
the Company's accounting area is Y2K compliant.
Cost of Y2K to the Company
Flexifax Division. There were a number of additional costs for changes to the
software applications by outside parties. The cost for these however were not
isolated out as other software enhancement work was bundled into the programming
work each time. These cost therefore are included in the monthly operating
results. All other internal costs have been taken up in the monthly payroll
costs for the Flexifax Division.
Voice and Data Division. The Company has not tracked the individual Y2K
compliance costs as they were not considered material. Suppliers and principles
primarily did the work that had to be done. All costs are principally the
related payroll costs and some non material component costs.
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<PAGE>
Worst Case Risk Scenario
Flexifax Division. The Y2K problem could affect the Company from external
parties.
1. Clients not having their systems compliant and therefore are unable to
deliver traffic for some reason
2. The carrier or ISP network not accepting traffic.
3. The Central Building Power.
In the case of clients in (1.) above, no client represents more than 5% of the
company's monthly revenue billing? The vast majority of major users of the
Flexifax service have their own Y2K compliance programs in place. Thus, although
some companies may have problems it is unlikely all clients will. The Company
has contacted its major client users to try and ensure that any potential
problem is being addressed. The amount of traffic or transmissions sent in over
the first week in January may diminish as focus is given towards each client
company's Y2K performance rather than distributing information by fax or email.
However, historically this time of year has always been a slow time due to the
year end holidays around the world.
In the case of carriers in (2.) above, all carriers are taking Y2K seriously and
implementing compliance programs. The problem, as seen by the Company, will
involve billing rather than traffic handling performance, although this cannot
be guaranteed. In the worst case, the result is a carrier to which the Company
delivers bulk traffic fails to perform and does not accept its traffic. A
contingency plan is in place for this scenario (see below).
In the case of building power in (3.) above, there is a (automatic change over)
standby power generator, that is tested monthly, that can cover for this
eventuality.
Y2K Contingency Plan
Flexifax Division. The most difficult challenge would be to redirect traffic of
transmissions because a major carrier could not accept the traffic the Company
presents to it. To protect against this eventuality there are two main
contingency plans in place. The initial delivery will be through Premiere. If
they experience difficulties then the company will revert to routing traffic
through the Tandem. The Flexifax Tandem technology allows for the traffic to a
network node to be reconfigured from the central Network Control Center in
Sydney. Thus, traffic can be diverted from one node to another and so from one
carrier to another by the Network Control Center changing the routing
information in the Tandem. This allows for traffic rerouting should any one of
the Company's major carriers find that they can not process the traffic. The
Company's fall back bandwidth supplier is a tier one carrier. They have a
termination in the Company's Network Control Center using fiber. If Premiere
experience problems, the Company's Network Control Center can reroute the
traffic via the fiber of a different 'tier one carrier' in Australia to the
Sydney site of a major US carrier. This US carrier already accepts significant
traffic from the Company. If the traffic load is too great then additional nodes
can be recovered from other locations and made operational in the US carrier's
site.
Voice and Data Division. The worst case scenario is that one or more of the
Company's major customers experiences problems with their systems operation and
then call on the Company to assist. This could occur even if the problem was not
of the company's making. Should there be too many calls of this nature at the
same time it is possible that there will not enough manpower
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available to attend to all callers as fast as customers would like, or have come
to expect, from the Company. The telephone numbers of support staff are held
centrally and as such the maximum number of people will be made available if
necessary.
Item 3. Description of Property
All Company property is leased. The Company currently operates from the
following offices
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
Australia 27th floor Grosvenor Place Head Office address for all companies Lease expires on
Sydney 225 George Street Sydney of Trade Wind Communications Limited 31 July 2000
NSW 2000 Australia Flexifax Sydney
- -------------------------------------------------------------------------------------------------------------------------------
Australia 210 George Street Voice and Data Sydney Lease expires on
Sydney NSW 2000 Australia address 30 June 2000
- -------------------------------------------------------------------------------------------------------------------------------
Australia Level 7, Royal Insurance Bldg. Flexifax Melbourne Monthly
Melbourne 440 Collins Street Voice & Data Melbourne tenancy
Melbourne Victoria 3000
- -------------------------------------------------------------------------------------------------------------------------------
Singapore 200 Telok Ayer Street Voice & Data Singapore Lease expires on
Singapore 0106 FlexiFax Singapore 31 May 2000
- -------------------------------------------------------------------------------------------------------------------------------
London 98 Curtain Road FlexiFax Global Services UK Monthly
London EC2A3AA tenancy
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Property occupied is currently adequate for the Company's needs.
Item 4. Security Ownership of Certain Beneficial Owners and Management
The table below lists the beneficial ownership of the Company's voting
securities by each person known by the Company to be the beneficial owner of
more than 5% of such securities, as well as the securities of the Company
beneficially owned by all directors officers of the Company. Unless otherwise
indicated, the shareholders listed possess sole voting and investment power with
respect to the stock shown.
20
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Name Number of Shares Percentage of Outstanding Shares(6)
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Skyglen Pty Limited(1) (5) 1,391,259 13.40%
- -----------------------------------------------------------------------------------------------
Martin McCarthy(5) 231,314 2.2%
Minbura Holdings Pty Limited (2) (5) 536,942 5.2%
Patvilt Pty Limited(3) (5) 1,237,073 11.9%
Valazco Pty Limited (4) (5) 168,307 1.6%
- -----------------------------------------------------------------------------------------------
Trade Wind Communications Limited 8,800,000 84.6%
- -----------------------------------------------------------------------------------------------
</TABLE>
(1) An Australian trustee company controlled by Nicholas Rowland Bird.
(2) An Australian trustee company controlled by Sion Grand
(3) An Australian trustee company controlled by Arthur Christopher Walton
(4) An Australian trustee company controlled by Frank Favretto
(5) Beneficially held through Trade Wind Communications Limited.
(6) As at October 31, 1999
All Officers and Directors as a Group 17.2% (3 persons)
(1) Beneficial ownership has been determined in accordance with Rule 13d-3 of
the Securities Exchange Act of 1934. Generally, a person is deemed to be the
beneficial owner of a security if he has the right to acquire voting or
investment power within 60 days.
(2) Unless otherwise indicated, all addresses are at the Company's office.
The balance of the Company's securities are held by approximately fifty persons.
Item 5. Directors, Executive Officers, Promoters and Control Persons.
The directors and officers of the Company are as follows:
Name Age Position
- ---- --- --------
Nicholas Bird 61 CEO, Director
Frank Favretto 47 Director
Martin McCarthy 43 Director
Nicholas Bird is a co-founder of TWC and has extensive engineering and
managerial experience, especially in South East Asia. In 1970, he joined Philips
Telecommunications Industries, Hilversum, Holland in their Singapore operation
and was soon promoted to Regional Manager of South East Asia for
Telecommunications and Data Systems. During this time, he set up a
telecommunications factory in Singapore for PABX and application development.
Until
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1981, Mr. Bird led Philips Telecommunications' Singapore operation in becoming a
market leader in most of its chosen areas, increasing annual revenues of
S$250,000 to in excess of S$20 million. Philips transferred Mr. Bird to
Australia in 1985 as its Group Product Manager, Telecommunications and Data
Systems. In this position, he was responsible for strategy and direction to make
the Australian operations profitable. Philips instructed its Australian company
to rationalize its operations through a management buy-out. He participated in
the buy-out and founded Trade Wind Technologies Pty Ltd (formerly known as Trade
Wind Communications Pty Ltd) in December 1986. He has been significant in the
growth and development of TWC and he now uses his expertise for the continued
growth of the Company in the capacity of Chief Executive Officer. Mr. Bird was
appointed as Chief Executive Officer and as a Director to the Board of Directors
of the Company on February 5, 1999.
Frank Favretto is a Chartered Accountant in Australia and is the non-executive
director of AusAsean Management Ltd., an Australian private company and Chairman
of Coms21 Limited, an Australian public company. Mr. Favretto established
Bankers Trust Australia's stockbroking operations in 1984 and held the positions
of Chairman and non-member director of its Australian Stock Exchange membership
from 1984 to 1991. In 1991, he became Executive Vice-President of Bankers Trust
Australia's equity underwriting committee. In this role, Mr. Favretto gained
considerable experience in private and public capital raisings. He was appointed
a Director of TWC in November, 1996 and has been appointed to the Board of
Directors of the Company since completion of the reverse acquisition.
Martin McCarthy, was recently appointed a Director of the Company in May, 1999.
Mr. McCarthy was the President and CEO of IDD Enterprises, L.P. ("IDD") which
was recently sold to Dow Jones and Company. Mr. McCarthy has been a pioneer in
the online world for almost two decades. He has managed large organizations
which have created, commercialized and deployed leading edge technologies in the
areas of communications, information services and transactions. Prior to joining
IDD in 1988, Mr. McCarthy served as Vice President of Office Message and
Information Services at Western Union and was the youngest corporate officer in
the firm's 130 year history. Mr. McCarthy has an MBA from Harvard University.
The above listed officers and directors will serve until the next annual meeting
of the shareholders or until their death, resignation, retirement, removal, or
disqualification, or until their successors have been duly elected and
qualified. Vacancies in the existing Board of Directors are filled by majority
vote of the remaining Directors. Officers of the Company serve at the will of
the Board of Directors.
Conflicts of Interest
Members of the Company's management are associated with other firms involved in
a range of business activities. Consequently, there are potential inherent
conflicts of interest in their acting as officers and directors of the Company.
Insofar as the officers and directors are engaged in other business activities,
management anticipates it will devote only a minor amount of time to the
Company's affairs.
The officers and directors of the Company are now and may in the future become
shareholders, officers or directors of other companies which may be formed for
the purpose of engaging in business activities similar to those conducted by the
Company. Accordingly, additional direct
22
<PAGE>
conflicts of interest may arise in the future with respect to such individuals
acting on behalf of the Company or other entities. Moreover, additional
conflicts of interest may arise with respect to opportunities which come to the
attention of such individuals in the performance of their duties or otherwise.
The officers and directors are, so long as they are officers or directors of the
Company, subject to the restriction that all opportunities contemplated by the
Company's plan of operation which come to their attention, either in the
performance of their duties or in any other manner, will be considered
opportunities of, and be made available to the Company and the companies that
they are affiliated with on an equal basis. A breach of this requirement will be
a breach of the fiduciary duties of the officer or director. If the Company or
the companies in which the officers and directors are affiliated with both
desire to take advantage of an opportunity, then said officers and directors
would abstain from negotiating and voting upon the opportunity. However, all
directors may still individually take advantage of opportunities if the Company
should decline to do so. Furthermore, no officer or director of the Company has
ever promoted, is promoting or will be promoting any other blank check company
during their tenure as an officer and director of the Company. Accordingly,
there presently exists no conflict of interest in this regard. Except as set
forth above, the Company has not adopted any other conflict of interest policy
with respect to such transactions.
Item 6. Executive Compensation.
The Company does not currently compensate any executive directly. Nicholas Bird
is an employed by TWG, the Company's operating subsidiary, under the terms of an
employment agreement. For the year ended June 30, 1999, Mr. Bird received total
remuneration of $81,543 (1998: $91,209), which comprised base salary of $41,713
(1998: $65,620), and other compensation of $39,830 (1998: $25,589). No employees
received in excess of $100,000.
Board of Directors Compensation
The Company does not pay directors who are also executive officers for service
on the Board of Directors. Non-executive directors receive $1,500 per meeting
and are reimbursed for their expenses incurred in attending meetings of the
Board of Directors.
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<PAGE>
Long-term Incentive and Pension Plans
The Company does not hold any long-term incentive or defined benefit pension
plans. In relation to the Company's subsidiary operations in Australia,
according to legislation the Company provides funds for long service leave to
which staff become eligible after 10 years continuous service. Superannuation
payments are in line with norms in the various countries that the Company and
its subsidiaries does business in.
The Company is presently reviewing the merits of establishing an incentive stock
option plan for its key executives and employees; however, no such plan has been
approved or implemented.
Other
No director or executive officer is involved in any material legal proceeding
against the Company in which he will receive a benefit from such legal
proceedings.
Employment Agreements
The Company currently has no employment agreement any of its employees. Certain
employees have appointment letters.
Indemnification of Directors and Officers
The Company's Charter and Bylaws provide that indemnification for all directors
and officers to the full extent permitted by the Idaho Corporation Law. Under
such provisions, any director or officer who, in such capacity, is made or
threatened to be made a party to any suit or proceeding, may be indemnified if
the Board determines the director or officer acted in good faith and in a manner
the director or officer reasonably believed to be in or not opposed to the
Company's best interest. The Charter, Bylaws, and the Idaho Corporation Law
further provide that indemnification is not exclusive of any other rights to
which individuals may be entitled under the Charter, the Bylaws, any agreement,
any vote of stockholders or disinterested directors, or otherwise.
The Company has the power to purchase and maintain insurance on behalf of any
person who is or was our director, officer, employee, or agent, or is or was
serving at our request as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, or other enterprise against any
expense, liability, or loss incurred by any person in any capacity or arising
out of his status as, whether or not we would have the power to indemnify person
against liability under Idaho law.
Item 7. Certain Relationships and Related Transactions.
There have been no related party transactions, or any other transactions or
relationships required to be disclosed pursuant to Item 404 of Regulation S-B.
24
<PAGE>
Item 8. Description of Securities.
The Company's authorized capital stock consists of 20,000,000 shares of Common
Stock, par value $0.001 per share and 5,000,000 shares of Preferred Stock, par
value $0.001 per share. There are 10,400,000 Common Stock issued and outstanding
as of the date of this filing. There are no preferred stock issued or
outstanding.
Common Stock. All shares of Common Stock have equal voting rights and, when
validly issued and outstanding, are entitled to one vote per share in all
matters to be voted upon by shareholders. The shares of Common Stock have no
preemptive, subscription, conversion or redemption rights and may be issued only
as fully-paid and non-assessable stock. Cumulative voting in the election of
directors is not permitted, which means that the holders of a majority of the
issued and outstanding stock of Common Stock represented at any meeting at which
a quorum is present will be able to elect the entire Board of Directors if they
so choose and, in such event, the holders of the remaining shares of Common
Stock will not be able to elect any directors. In the event of liquidation of
the Company, each shareholder is entitled to receive a proportionate share of
the Company's assets available for distribution to shareholders after the
payment of liabilities and after distribution in full of preferential amounts,
if any. All stock of the Company's Common Stock issued and outstanding are
fully-paid and non-assessable. Holders of the Common Stock are entitled to share
pro rata in dividends and distributions with respect to the Common Stock, as may
be declared by the Board of Directors out of funds legally available therefor.
Preferred Stock. No Preferred Stock of the Company is presently issued or
outstanding. The Preferred Stock of the Company may be issued in various series
and shall have preferences as to dividends and to liquidation rights. The Board
of Directors shall establish the specific rights, preferences, voting privileges
and restrictions of such Preferred Stock or any series thereof.
25
<PAGE>
PART II
Item 1. Market Price for Common Equity and Related Stockholder Matters.
The Company's Common Stock is quoted at the present time on the
"Over-the-Counter Bulletin Board. The Company's Common Stock commenced trading
in April 1999 at $3.00 per share under the symbol of "FLXM". Quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission, and may
not represent actual transactions.
- ----------------------------------------------------------------------------
High Bid Low Bid
- ----------------------------------------------------------------------------
Qtr ended June 30, 1999 $4.50 $3.00
- ----------------------------------------------------------------------------
Qtr ended September 30, 1999 $3.375 $2.00
- ----------------------------------------------------------------------------
December 23, 1999 $4.875 $4.5625
- ----------------------------------------------------------------------------
There are approximately 50 holders of the Company's Common Stock. From 1970 to
1984 the Company issued its common stock to various independent contractors and
employees for their services. Presently there are 10,400,000 shares of the
Company's Common Stock outstanding with 20,000,000 common stock authorized. All
of the issued and outstanding stock of the Company's Common Stock were issued
pursuant to an exemption from the registration requirements of the Securities
Act of 1933, as amended.
As of the date of this Form 10-SB, 10,400,000 shares of the Company's Common
Stock are eligible for sale under Rule 144 promulgated under the Securities Act
of 1933, as amended, subject to certain limitations included in said Rule. In
general, under Rule 144, a person (or persons whose stock are aggregated), who
has satisfied a one-year holding period, under certain circumstances, may sell
within any three-month period, a number of stock which does not exceed the
greater of one percent of the then outstanding Common Stock or the average
weekly trading volume during the four calendar weeks prior to such sale. Rule
144 also permits, under certain circumstances, the sale of stock without any
quantity limitation by a person who has satisfied a two-year holding period and
who is not, and has not been for the preceding three months, an affiliate of the
Company.
The Company has not paid any dividends to date and has no plans to do so in the
immediate future.
Item 2. Legal Proceedings.
There is no litigation pending or threatened by or against the Company.
26
<PAGE>
Item 3. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
Not applicable.
Item 4. Recent Sales of Unregistered Securities.
On February 18, 1999, the Company sold 300,000 shares of Common Stock to three
stockholders at $2.50 per share in a private placement pursuant to Regulation D,
Section 504.These funds were used for international expansion and working
capital purposes. On April 6, 1999, the Company sold an additional 200,000
shares of Common Stock at a discount for $250,000 under the terms of a private
placement pursuant to Regulation D, Section 504. These funds were used for
working capital purposes.
Item 5. Indemnification of Directors and Officers.
The Company's by-laws include provisions providing for the indemnification of
officers and directors and other persons against expenses, judgments, fines and
amounts paid in settlement in connection with threatened, pending or completed
suits or proceedings against such persons by reason of serving or having served
as officers, directors or in other capacities, except in relation to matters
with respect to which such persons shall be determined not to have acted in good
faith and in the best interests of the Company. With respect to matters as to
which the Company's officers and directors and others are determined to be
liable for misconduct or negligence, including gross negligence in the
performance of their duties to the Company, Idaho law provides for
indemnification only to the extent that the court in which the action or suit is
brought determines that such person is fairly and reasonably entitled to
indemnification for such expenses which the court deems proper.
Insofar as indemnification for liabilities arising under the 1933 Act may be
permitted to officers, directors or persons controlling the Company pursuant to
the foregoing, the Company has been informed that in the opinion of the U.S.
Securities and Exchange Commission such indemnification is against public policy
as expressed in the 1933 Act, and is therefore unenforceable.
In accordance with the laws of the State of Idaho, the Company's by-laws
authorize indemnification of a director, officer, employee, or agent of the
Company for expenses incurred in connection with any action, suit, or proceeding
to which he or she is named a party by reason of his having acted or served in
such capacity, except for liabilities arising from his own misconduct or
negligence in performance of his or her duty. In addition, even a director,
officer, employee, or agent of the Company who was found liable for misconduct
or negligence in the performance of his or her duty may obtain such
indemnification if, in view of all the circumstances in the case, a court of
competent jurisdiction determines such person is fairly and reasonably entitled
to indemnification.
27
<PAGE>
PART F/S
Financial Statements.
The following financial statements are attached hereto and filed as a part
hereof. See page 23.
1) Table of Contents - Financial Statements
2) Independent Auditors' Report
3) Consolidated Balance Sheet
4) Consolidated Statements of Loss and Comprehensive Loss
5) Consolidated Statements of Changes in Cash Flows
6) Consolidated Statement of Stockholders' Equity
7) Notes to Financial Statements
28
<PAGE>
PART III
Item 1. Exhibit Index
No. Sequential
Page No.
(3) Certificate of Incorporation and Bylaws
3.1 Certificate of Incorporation and
Amendments Thereto*
3.2 Bylaws*
(10) Material Contracts
10.1 Merger Agreement*
(21) List of Subsidiaries*
(27) Financial Data Schedule
- ------------------------
*Previously filed.
29
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the Registrant has duly caused this amendment to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized.
FLEXEMESSAGING.COM, INC.
(Registrant)
Date: December 30, 1999
/s/ Nicholas Bird
------------------------------
Nicholas Bird, President
30
<PAGE>
Flexemessaging.com, Inc
REPORT FOR THE YEAR ENDED JUNE 30, 1999
<PAGE>
For financial accounting purposes, as a result of the reverse acquisition by
Flexemessaging.com, Inc. (the "Company") of the business assets of Trade Wind
Communications Limited ("TWC"), consisting of the stock of Trade Wind Group Pty
Ltd., the financial statements presented herein are the consolidated financial
statements of the Company for the year ended June 30, 1999 and June 30, 1998.
The Company has two divisions: Voice and Data Division and FlexiFax Division
operating under the trade name of FlexiFax Global Services. Voice and Data
Systems is a specialist supplier and integrator of voice communication systems
and decision support applications for dealing rooms, emergency services and
other organizations with mission-critical needs. FlexiFax Global Services
operates an enhanced fax broadcast service over a global network. FlexiFax
specializes in quality fax broadcasts generated from customers' desktops for
delivery to any destination in the world.
SCHEDULE A Financial Information
- ---------- ---------------------
<PAGE>
TO THE SHAREHOLDERS
FLEXEMESSAGING.COM,INC
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated balance sheet of
Flexemessaging.com,Inc. as of June 30, 1999 and the related consolidated
statements of loss and comprehensive loss, stockholders' equity and cash flows
for the years ended June 30, 1999 and l998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion of these financial statements based on our audits.
We conducted our audits in accordance with Australian generally accepted
auditing standards in the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Flexemessaging.com,lnc. at June 30, 1999 and the consolidated results of their
operations and their cash flows for the years ended June 30, 1999 and 1998 in
conformity with generally accepted accounting principles in the United States.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1c to the
financial statements, the Company has suffered recurring losses from operations
and has a net working capital deficiency that raise substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 1c. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Sydney, Australia BDO NELSON PARKHILL
October 27, 1999 CHARTERED ACCOUNTANTS
<PAGE>
Flexemessaging.com, Inc
Consolidated Balance Sheet
<TABLE>
<CAPTION>
Note 30 June
1999
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets $
Current
Cash 2 118,912
Receivables 3 1,899,714
Inventory 4 306,370
Costs on projects not yet billed 456,784
------------------
2,781,780
------------------
Capital assets 5 1,010,902
Goodwill 6 9,531
Other 7 20,610
------------------
1,041,043
------------------
3,822,823
- -----------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current
Trade Creditors 1,541,309
Sundry creditors and accruals 8 784,269
Customer deposits 248,495
Unearned maintenance revenue 196,882
Current portion of lease obligations 9 31,382
Loan payable on securitization of debt 10 74,435
Income taxes payable 111
-------------------
2,876,883
-------------------
Non Current
Non current portion of lease obligations 9 21,777
Employee entitlements payable 131,851
-------------------
153,628
-------------------
Total Liabilities 3,030,511
-------------------
Shareholders' Equity
Common Stock, $0.001 par value; 20,000,000 shares
Authorized; 10,400,000 shares issued 10,400
Preferred Stock, $0.001 par value; 5,000,000 shares
Authorized; no shares issued --
Additional paid-in capital 4,659,068
Comprehensive income - foreign currency translation 12 138,733
Accumulated deficit (4,015,889)
-------------------
792,312
-------------------
3,822,823
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying summary of significant accounting policies and notes form an
integral part of these financial statements.
F-1
<PAGE>
Consolidated Statements of Loss and Comprehensive Loss
<TABLE>
<CAPTION>
Note 30 June 30 June
1999 1998
- ------------------------------------------------------------------------------------------------------------------
$ $
<S> <C> <C>
Sales 8,873,845 11,103,370
Less:
Cost of Sales 4,686,123 6,516,246
-------------------- -----------------------
Gross Profit 4,187,722 4,587,124
Operating Expenses
Network operating costs 106,217 116,730
Selling, general and administrative 5,121,234 4,699,497
Depreciation and amortization 486,048 451,772
-------------------- -----------------------
Total operating expenses 5,713,499 5,267,999
-------------------- -----------------------
Loss from Operations (1,525,777) (680,875)
Other income/(expense)
Interest paid
- leases (1,436) (1,451)
- loans - short term (59,619) (29,983)
- Discount on stock issuance (250,000) -
Interest received 14,631 9,215
-------------------- -----------------------
Loss for the year before income tax (1,822,201) (703,094)
Income tax expense 13 - -
-------------------- -----------------------
Net loss (1,822,201) (703,094)
Other comprehensive (loss)/income, net of tax
Foreign currency translation adjustments (96,431) 211,266
-------------------- -----------------------
Comprehensive loss (1,918,632) (491,828)
Net loss per share (0.20) (0.08)
Weighted average number of shares 9,075,000 8,800,000
</TABLE>
The accompanying summary of significant accounting policies and notes form an
integral part of these financial statements.
F-2
<PAGE>
Notes on the Financial Statements
- --------------------------------------------------------------------------------
Consolidated Statements of Changes in Cash Flows
<TABLE>
<CAPTION>
30 June 30 June
1999 1998
- ------------------------------------------------------------------------------------------------
$ $
<S> <C> <C>
Cash provided/(used) by:
Operating Activities
Operations
Net loss for the year (1,822,201) (703,094)
Items not involving cash:
Amortization 486,048 451,772
Interest expenses related to issuance of stock at a 250,000 --
discount
Increase/(decrease) from changes in:
Accounts receivable 224,035 (28,150)
Inventory (39,644) (43,055)
Costs on projects not yet billed 83,921 152,652
Accounts payable and other (1,028,159) 428,848
accruals
Income taxes (3) (56)
Employee entitlement payable 25,067 (58,918)
---------- ----------
(1,820,936) 199,999
Investing Activities
Investments in:
Capital assets - net (481,852) 21,246
---------- ----------
(481,852) 21,246
Financing Activities
Loans repaid -- (319,920)
Lease payments (25,183) (81,626)
Proceeds on issue of stock 939,571 --
Contribution of capital 917,435 481,659
---------- ----------
1,831,823 80,113
(Decrease)/Increase in cash (470,965) 301,358
Cash at beginning of year 589,877 288,519
Cash at end of year 118,912 589,877
Supplemental non-cash investing and financing activities
Capital lease obligations 59,191 --
Interest 61,055 28,532
</TABLE>
The accompanying summary of significant accounting policies and notes form an
integral part of these financial statements.
F-3
<PAGE>
Notes on the Financial Statements
- -------------------------------------------------------------------------------
Consolidated Statement of Stockholders' Equity
<TABLE>
<CAPTION>
Common Stock Additional Accumulated
Shares Amount Paid in Deficit
Capital
-------------- ---------------- -------------------- ---------------------
<S> <C> <C> <C> <C>
Balance, at June 30, 1997 680,800 506,515 1,574,378 (1,490,594)
Contributed capital 481,659
Net loss for the year (703,094)
------------------------------------------------------------------ ---------------------
Balance at June 30, 1998 680,800 506,515 2,056,037 (2,193,688)
Recapitalization on February 15, 8,119,200 (497,715) 497,715
1999
Reverse Acquisition 500,000 500 (500)
Shares issued to AICH for 600,000 600 (600)
placement agreement
Common stock issued on March 16, 300,000 300 749,700
1999 @ $2.50 per share
Listing costs attributable to (60,429)
issuance
Contributed Capital on March 31, 917,345
1999
Common stock issued on June 9, 200,000 200 249,800
1999 at $1.25 per share
Interest expense related to stock 250,000
issued at a discount
Net loss for the year (1,822,201)
----------------------------------------------------------------------------------------
Balance, at June 30, 1999 10,400,000 10,400 4,659,068 (4,015,889)
</TABLE>
F-4
<PAGE>
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Organization
Trade Wind Communications Limited (VSE: TWC) ("TWC") entered into a
business combination agreement ("Merger Agreement") on February 5,
1999 with Flexemessaging.com Inc. (previously Siler Ventures Inc.)
and Atlantic International Capital Holdings Ltd. ("Atlantic") to
complete a reverse acquisition of Flexemessaging.com Inc and a
financing arrangement of $3,660,000 through the sale of
Flexemessaging.com, Inc. common stock pursuant to an exemption from
the registration requirements of the Securities Act of 1933, as
amended. TWC owned all of the stock in Trade Wind Group Pty Ltd
(TWG) which controlled all the business assets.
In summary, Flexemessaging.com, Inc acquired the business assets of
TWC, consisting of the stock of TWG, in exchange for 8,800,000
shares of common stock of Flexemessaging.com, Inc. and Atlantic has
made an interim placement of 300,000 shares of common stock of
Flexemessaging.com Inc. for $750,000. Per the Merger Agreement,
Atlantic is expected to place the balance of the $3,660,000
financing through the sale of Flexemessaging.com Inc.'s common stock
pursuant to a private placement.
Flexemessaging.com Inc is incorporated under the laws of Idaho. Its
stock is traded on the Over the Counter Bulletin Board market, but
is not registered with the US Securities and Exchange Commission or
the securities commission of any state. Included in the issued stock
are 600,000 shares of common stock beneficially owned by Atlantic.
These shares are held in escrow and will be subject to performance
by Atlantic under the terms of the Merger Agreement. The performance
terms have not been met and the contract is currently under review
by management.
Trade Wind Group Pty Ltd was incorporated in Australia on September
6, 1988. Its principal activity comprises the manufacture and sale
of telecommunication equipment and the provision of communication
services. The majority of sales to date have concentrated in
Australia and South East Asia, however with the expansion of
communication services to Europe and North America, the Company is
developing a global profile.
These financial statements are stated in US dollars and have been
prepared in accordance with generally accepted accounting principles
in United States.
These financial statements present figures for the Company for the
years ended June 30, 1999, and June 30, 1998.
b. Principles of Consolidation
The consolidated accounts comprise the accounts of the Company and
all of its subsidiaries. All material intercompany accounts and
transactions have been eliminated.
c. Going Concern
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the
satisfaction of liabilities and commitments in the normal course of
business.
The Company has incurred cumulative losses to date of $4,015,889
that includes a net loss for the current period of $1,822,201. The
Company anticipates raising additional capital to meet its planned
operational and expansion requirements over the remaining part of
the financial year ending June 30, 2000. Should the appropriate
level of funding not become available, then the Company will have to
reduce its costs employed in various areas including its global
expansion activities, network expansion, new channel marketing
initiatives, R&D, sales and general marketing activities to a cost
level to meet the anticipated cash needs for working capital and
capital expenditure requirements. Thereafter if the Company's
operation does not begin to deliver positive cashflows in amounts
enough to satisfy the Company's requirements then it will be
necessary for the Company to raise additional funds through bank
debt, equity funding, partnering with others to share overheads,
undertake appropriate divestment strategies of certain technologies
for equity or cash, or through other sources of capital. Additional
funding may not be available, or may not be available on terms and
timing acceptable to the Company, which could have a material
adverse effect on the Company's financial position, its overall
business and the result of the Company's operations.
F-5
<PAGE>
The market for fax and messaging is very competitive and the Voice
and Data business, with its large contracts is very influenced by
the economic conditions pertaining in Australia at the time. The
Company does not expect this to change and in fact expects it to
require even greater effort to overcome in the future. The Company
will therefore continue to have the need for additional funding
until it reaches significant levels of revenue and margin to become
cashflow positive.
d. Goodwill and intangibles
Goodwill is recorded initially at the amount by which the purchase
price for a business or for ownership interest in a controlled
entity exceeds the fair value attributed to its net tangible assets
at date of acquisition. Goodwill is amortized on a straight-line
basis over a period of 10 years. Intangibles represent trademarks
and customer list acquisition. Intangibles are amortized on a
straight-line basis over a period of 5 years.
e. Long-lived Assets
Long-lived assets, consisting principally of capital assets and
goodwill, are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be
recoverable. If the sum of the expected future undiscounted cash
flows is less than the carrying amount of the asset a loss is
recognized for the difference between the fair value and the
carrying value.
f. Inventories
Inventories are measured at the lower of cost and net realizable
value. Costs are assigned on a first-in first-out basis and include
direct materials, direct labor and an appropriate proportion of
variable and fixed overhead expenses.
g. Income Tax
The Company accounts for income taxes under an asset and liability
approach that requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that
have been recognized in the Company's financial statements or tax
returns. To the extent it is more likely than not that all of the
Company's deferred tax assets will not be realized a valuation
allowance is recorded to reduce the deferred tax asset to its
estimated Net Realizable Value.
h. Capital Assets
Capital assets are recorded at cost. Amortization is provided on
owned plant and equipment at rates between 4% and 36% using either
the straight line or diminishing balance method. Leased assets are
amortized over the shorter of the estimated life of the assets or
the term of the lease.
i. Research and Development
Research and Development expenditures are expensed as incurred.
j. Employee Benefits
Provision is made in respect of the Company's liability for annual
leave and long service leave at the balance sheet date. Long service
leave is accrued in respect of all employees.
Contributions are made by the Company to an employee superannuation
fund and are charged as expenses when incurred. The amount
contributed to the fund was $235,701 (1998: $178,970). The Company
has no other legal obligation to provide benefits to employees on
retirement.
k. Revenue Recognition
Sales revenue on contracts for the Voice & Data division are
recognized on a percentage of completion basis but finalization, at
which point all associated costs are billed, is subject to
acceptance of the operational capability and confirmation of
installation by the customer. Until such time, accumulated costs
(after progress billings) are held in Costs on projects not yet
billed. Unearned maintenance revenue represents revenue received in
advance of the period covered by the maintenance agreement. The
revenue is recognized evenly over the period covered by the
maintenance agreement. Sales revenue for the FlexiFax division is
recognized upon successful transmission of fax deliveries.
F-6
<PAGE>
l. Foreign Currency Transactions and Balances
The financial position and results of operations of the Company are
determined using the Australian dollar as the functional currency.
Assets and liabilities are translated at the exchange rate in effect
at each period end. Amounts on the statement of loss and
comprehensive loss are translated at the average rate of exchange
prevailing during the period. Translation adjustments arising from
the use of different exchange rates from period to period are
included in the comprehensive income account in shareholders'
equity. The gains and losses from foreign currency transactions are
included in net loss.
m. Financial Instruments
The Company's financial instruments consist of cash, receivables,
accounts payable, other loans, and employee entitlements payable.
Unless otherwise noted, it is management's opinion that the Company
is not exposed to significant interest, currency or credit risks
arising from these financial instruments. The fair values of these
financial instruments approximate their carrying values, unless
otherwise noted.
n. Use of Estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could materially differ from these estimates. The assets which
required management to make significant estimates and assumptions in
determining carrying values include plant and equipment and all
other non-current assets.
o. Loss per share
Basic earnings per share is computed by dividing the net loss by the
weighted average number of stock of common stock outstanding each
year. Diluted earnings per share is computed in a manner consistent
with that of basic earnings per share while giving effect to all
potentially dilutive common stock equivalents that were outstanding
during the period. For the years ended June 30, 1999 and 1998 there
were no common stock equivalents, therefore both basic and dilutive
earnings per share were the same amounts for both periods. Net loss
per share is calculated assuming recapitalization occurred at the
beginning of the earliest period shown.
p. New Accounting Pronouncements
In April 1998, the American Institute of Certified Public
accountants issued Statement of Position 98-5, "Reporting on the
Costs of Start-Up activities", ("SOP 98-5") which provides guidance
on the financial reporting of start-up costs and organization costs.
It requires costs of start-up activities and organization costs to
be expensed as incurred. SOP 98-5 is effective for fiscal years
beginning after December 15, 1998 with initial adoption reported as
the cumulative effect of a change in accounting principle. Adoption
of this standard will not have a material effect on the financial
statements.
During 1998, the FASB issued SFAS 132, "Employers' Disclosures about
Pensions and Other Post retirement Benefits". This statement revised
employers' disclosures about pension and other post retirement
benefit plans but does not change measurement of recognition of
those plans. SFAS 132 is effective for fiscal years beginning after
December 15, 1998. Adoption of this standard will not have a
material effect on the financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS
No. 133. "Accounting for Derivative Instruments and Hedging
Activities". SFAS No. 133 requires companies to recognize all
derivatives contracts as either assets of liabilities in the balance
sheet and to measure them at fair value. If certain conditions are
met, a derivative may be specifically designated as a hedge, the
objective of which is to match the timing of gain or loss
recognition on the hedging derivative with the recognition of (i)
the changes in the fair value of the hedged asset or liability that
are attributable to the hedged risk or (ii) the earnings effect of
the hedged forecasted transaction. For a derivative not designated
as a hedging instrument, the gain or loss is recognized in income in
the period of change SFAS No. 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 2000.
Historically, the Company has not entered into derivatives contracts
either to hedge existing risks or for speculative purposes.
Accordingly, the Company does not expect adoption of the new
standards on January 1, 2000 to affect its financial statements.
F-7
<PAGE>
q. Risks and Uncertainties
A significant portion of the Company's client base is concentrated
within the financial services industry. An economic downturn in the
financial services industry could have a material adverse effect on
the Company's results of operations.
F-8
<PAGE>
<TABLE>
<CAPTION>
30 June
1999
- ------------------------------------------------------------------------ -------------------- ---------------------
$
<S> <C>
NOTE 2: CASH
Cash at bank and on deposit 111,293
Cash on hand 7,619
---------------------
118,912
---------------------
NOTE 3: RECEIVABLES
Trade debtors 1,744,978
Allowance for doubtful debts (86,812)
Other debtors 241,548
---------------------
1,899,714
---------------------
NOTE 4: INVENTORY
Raw material 176,711
Finished goods 129,659
---------------------
306,370
---------------------
NOTE 5: CAPITAL ASSETS
(a) Plant and Equipment - at cost 1,692,447
Furniture and Fittings - at cost 552,206
Motor Vehicles - at cost 85,084
Leasehold improvements - at cost 333,970
Less accumulated amortization (1,703,491)
---------------------
960,216
---------------------
(b) Leased
Leased Motor Vehicles -
Capitalized leased assets 219,941
Less accumulated amortization (169,255)
---------------------
50,686
---------------------
Total
Cost 2,883,648
Less accumulated amortization (1,872,746)
---------------------
Cost less accumulated amortization 1,010,902
---------------------
NOTE 6: GOODWILL
Goodwill 103,614
Less accumulated amortization (94,083)
---------------------
9,531
---------------------
<PAGE>
NOTE 7: OTHER NON CURRENT ASSETS
Trademarks 26,412
Less accumulated amortization (5,802)
---------------------
20,610
---------------------
F-9
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
30 June
1999
- ------------------------------------------------------------------------ -------------------- ---------------------
$
<S> <C>
NOTE 8: SUNDRY CREDITORS AND ACCRUALS
Sundry creditors and accruals 584,162
Employee entitlements 200,107
---------------------
784,269
---------------------
NOTE 9: LEASE LIABILITIES
(a) Finance Leasing Commitments
Payable
- not later than one year 31,492
- later than one year but not later than 2 years 11,948
- later than 2 years but not later than 3 years 9,932
- later than 3 years but not later than 4 years -
- later than 4 years but not later than 5 years -
---------------------
Minimum lease payments 53,372
Less future finance charges 213
---------------------
Total lease liability 53,159
---------------------
Current portion 31,382
Non-current portion 21,777
---------------------
53,159
---------------------
Finance lease liabilities are collateralized by the underlying lease
assets.
(b) Operating Lease Commitments
Non-cancelable operating leases contracted for but not
capitalized in the accounts
Payable
- not later than one year 352,599
- later than one year but not later than 2 years 445,832
- later than 2 years but not later than 3 years 11,805
- later than 3 years but not later than 4 years -
- later than 4 years but not later than 5 years -
---------------------
810,236
---------------------
Rent expense incurred for the year ended June 30, 1999 was $435,496
(1998: $324,419)
</TABLE>
F-10
<PAGE>
NOTE 10: LOAN PAYABLE ON SECURITIZATION OF DEBT
In September 1997, the Company arranged an unlimited working capital-based
facility with Scottish Pacific Business Finance Limited in respect of the
Australian domiciled customers of FlexiFax Global Services.(a division of Trade
Wind marketing Pty Ltd) In accordance with Scottish Pacific lending criteria,
this facility has been secured by a charge over the assets of Trade Wind
Marketing Pty Ltd (a wholly owned subsidiary of Trade Wind Group Pty Ltd) as
well as guarantees by Trade Wind Group Pty Ltd and its subsidiaries. Interest is
charged at the highest of the prevailing rates of Westpac Banking Corporation,
Australia and New Zealand Banking Group Limited and National Australia Bank
Limited plus a margin of 2%. The prevailing interest rate at June 30, 1999 was
10.93% (1998: 11.06%). The original term of this agreement was 12 months with
automatic renewal. This agreement may be terminated by Scottish Pacific Business
Finance Limited by giving one month's notice or by the Company giving three
month's notice.
NOTE 11: CONTRIBUTED CAPITAL
In the past, loans were payable to Trade Wind Communications Limited. These
loans were unsecured and did not attract interest or have timetables for set
repayment. All loans have been forgiven at certain times. The forgiveness
has been reflected in paid-in capital.
F-11
<PAGE>
NOTE 12: COMPREHENSIVE INCOME - FOREIGN CURRENCY TRANSLATION
In accordance with SFAS 130, the accumulated comprehensive income comprises the
following:
<TABLE>
<CAPTION>
<S> <C>
Accumulated comprehensive income
Balance at beginning of year 235,164
Foreign currency translation adjustments (96,431)
-----------------
Balance at end of year 138,733
</TABLE>
NOTE 13: INCOME TAX EXPENSE
Estimated tax losses available to the Company to be carried forward to future
years amount to $5,975,184 (1998: $4,057,173). These losses are not subject to
an expiry date, however, the benefits of these losses will only be obtained if:
(a) the Company derives future assessable income of a nature and of an
amount sufficient to enable the benefit from the deduction for the
loss to be realized;
(b) the Company continues to comply with the conditions for
deductibility imposed by law; and
(c) no changes in tax legislation adversely affect the Company in
realizing the benefit from the deduction for the loss.
Differences between the effective income tax rate and the statutory income tax
rate were primarily the result of the valuation allowance, which fully reserved
the net deferred tax asset. The net deferred tax asset arose primarily from the
taxable losses generated during the years ended June 30, 1992 through June 30,
1999.
<PAGE>
NOTE 14: SEGMENTED FINANCIAL INFORMATION
The Company operates two business divisions, Voice and Data Systems and FlexiFax
Global Services. Voice and Data Systems is a specialist supplier and integrator
of voice communications systems and decision support applications for dealing
rooms, emergency services dispatch and similar operations. FlexiFax Global
Services operates an enhanced fax broadcast system. It is not considered
necessary to show geographic segmented financial information as on a materiality
basis, all revenue has been generated from Australia. The accounting principles
used to report the segment amounts is the same as that used to report the
financial statements. Segmented financial information for these two divisions
follows:
For the year ending June 30, 1999
F-12
<PAGE>
<TABLE>
<CAPTION>
Voice FlexiFax Head Office Consolidated
and Data
<S> <C> <C> <C> <C>
Revenue 5,426,815 3,447,030 -- 8,873,845
- -----------------------------------------------------------------------------------------------
Amortization 126,159 304,409 55,480 486,048
- -----------------------------------------------------------------------------------------------
Segment operating profit/(loss) 101,925 (1,368,978) (258,724) (1,525,777)
- -----------------------------------------------------------------------------------------------
Identifiable assets 2,365,313 1,248,780 208,730 3,822,823
- -----------------------------------------------------------------------------------------------
For the year ending June 30, 1998
Revenue 7,640,378 3,462,992 -- 11,103,370
- -----------------------------------------------------------------------------------------------
Amortization 107,558 289,536 54,678 451,772
- -----------------------------------------------------------------------------------------------
Segment operating profit/(loss) 133,024 (625,520) (188,379) (680,875)
- -----------------------------------------------------------------------------------------------
Identifiable assets 3,098,631 1,252,369 252,626 4,603,626
- -----------------------------------------------------------------------------------------------
</TABLE>
NOTE 15: EVENTS SUBSEQUENT TO BALANCE SHEET DATE
On August 30, 1999, the Company made an offering of 500,000 common shares at
$3.75 per share for the raising of net proceeds of $1,725,000 by way of private
placement. This offering is being made pursuant to the limited and private
offering exemption set forth in Rule 506 of Regulation D under the US Securities
Act of 1933, as amended and comparable exemptions from registration under
applicable state securities laws. Accordingly, the Shares offered hereby will be
sold only to investors who are accredited investors (as that term is defined in
Regulation D of the Securities Act). The Offering has no aggregate minimum
purchase requirement. This offering closes after 180 days from the offering date
or until all shares are sold whichever is the earlier.
To date no shares have been sold.
Pursuant to the above, Atlantic International Capital Holdings Limited, as agent
of such offering, has advanced bridge financing in the sum of $499,500, in
return for an unsecured promissory note over the Company. The loan bears
interest at the rate announced, from time to time, by Nationsbank N.A. as its
prime rate, plus 200 basis points, per annum. Interest is calculated on the
basis of a 360-day year, but only to the extent that the unpaid principal
remains outstanding. Interest accrues and is payable from the day that the
Company receives net proceeds of not less than $1,500,000 from the
above-mentioned offering. The Note is to be repaid on the later of commencement
of trading of securities of the Company on the American Stock Exchange, NASDAQ
or another exchange acceptable to the Company, or December 21, 1999. The note
may be prepaid at any time without penalty or premium.
On August 16, 1999, the Company filed a Form 10SB with the US Securities and
Exchange Commission to become a reporting entity.
F-13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10SB FOR THE TWELVE MONTH PERIOD ENDED JUNE 30, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 118,912
<SECURITIES> 0
<RECEIVABLES> 1,899,714
<ALLOWANCES> 86,812
<INVENTORY> 306,370
<CURRENT-ASSETS> 2,781,780
<PP&E> 2,883,648
<DEPRECIATION> 1,872,746
<TOTAL-ASSETS> 3,822,823
<CURRENT-LIABILITIES> (2,876,883)
<BONDS> 0
0
0
<COMMON> 10,400
<OTHER-SE> 781,912
<TOTAL-LIABILITY-AND-EQUITY> 3,822,823
<SALES> 8,873,845
<TOTAL-REVENUES> 8,873,845
<CGS> 0
<TOTAL-COSTS> 4,686,123
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 64,937
<INTEREST-EXPENSE> 60,605
<INCOME-PRETAX> (1,822,201)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,822,201)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,822,201)
<EPS-BASIC> (.20)
<EPS-DILUTED> (.20)
</TABLE>
