SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
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FORM 10-SB12G/A
Amendment No 5
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
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(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 3
Item 2. Management's Discussion and Analysis 14
Item 3. Description of Property 21
Item 4. Security Ownership of Certain Beneficial Owners
and Management 21
Item 5. Directors, Executive Officers, Promoters and
Control Persons 22
Item 6. Executive Compensation 23
Item 7. Certain Relationships and Related Transactions 24
Item 8. Description of Securities 24
PART II
Item 1. Market for Common Equities and Related
Stockholder Matters 25
Item 2. Legal Proceedings 25
Item 3. Changes in and Disagreements with Accountants 25
Item 4. Recent Sales of Unregistered Securities 25
Item 5. Indemnification of Directors and Officers 26
PART F/S
Financial Statements 27
PART III
Item 1. Index to Exhibits 28
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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.
On February 5, 1999, SVI entered into an acquisition agreement with Trade Wind
Communications Limited ("TWC"), a Bermudan corporation listed on the Canadian
Ventures Exchange, to purchase all of its business assets, consisting of the
stock of Trade Wind Group Pty Limited ("TWG"), a wholly-owned subsidiary of TWC,
incorporated on September 6, 1988 under the laws of Australia. SVI was a
non-operating public shell with no tangible assets and 500,000 shares of common
stock outstanding. This merger of TWG and SVI (a non-operating public shell with
a tangible asset value of nil) resulted in TWG having actual or effective
operating control of the combined Company after the transaction. As a result,
this transaction has been treated as a capital transaction in substance, rather
than a business combination and has been accounted for as a reverse acquisition.
Any references to past accomplishments of the Company and its financial
information, prior to the acquisition, relate solely to TWG, as combined, since
SVI (now known as Flexemessaging.com, Inc.) has been inactive for several years.
SVI acquired the assets of TWG in exchange for the issuance of 8.8 million
shares of common stock of the Company. This valuation was based on arms length
negotiation driven by ultimate ownership principles. A forward valuation (a
valuation arrived at by applying a revenue multiple to the Company's future
revenue stream) based on future revenues was determined and from this
capitalization model, the total outstanding common stock was calculated.
Thereafter, the respective equity ownership positions were negotiated. SVI has
continued the operations of TWG as a wholly owned operating subsidiary.
Pursuant to the Merger Agreement, the Company entered into an agreement with
Atlantic International Capital Holdings Ltd., a Bermudan corporation ("AICH"),
with the objective of performing two tasks. First, AICH was to identify an
acquisition candidate and secondly, AICH was to arrange for funding for the
Company. Pursuant to that agreement, AICH identified SVI as an acquisition
vehicle and assisted the Company in structuring and concluding the reverse
acquisition, including assisting the Company in seeking financing of $3,660,000
through the sale of the Company's common stock utilizing private placements. As
a condition of the Merger Agreement with AICH, 600,000 shares of the Company's
common stock were issued to AICH as performance shares for arranging future
financing to fund the Company's operating needs. These performance shares were
subject to a lockup agreement signed by AICH whereby shares were to be released
from the lockup agreement in proportion to the funds raised by AICH, subject to
a minimum of $1 million.
AICH did not raise the required funding within the prescribed time and
management informally extended the agreement until June 30, 2000. However, on
May 10, 2000, the Company entered into a Deed of Release with AICH, whereby AICH
was formally relinquished from its previous commitment of raising funds. At the
date of the Deed of Release, AICH had only raised $750,000 and thus fell short
of the $1 million minimum funding level to qualify for performance shares. Per
the terms of the Deed of Release, AICH could convert the outstanding debt
evidenced by a promissory note issued to AICH in July 1999 to equity in order to
satisfy the minimum funding threshold. As a result, AICH was issued 100,000
shares at $2.50 per share. Subject to the conditions governing the amount of
performance shares to be released from the restrictions set forth in the lock up
agreement, AICH qualified for the release of 40,984 free trading shares as a
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result of capital raising undertaken prior to the date of the lock up agreement,
123,079 free trading shares as a result of raising $750,000 and 41,027 free
trading shares as a result of the additional $250,000 resulting from the debt to
equity conversion. Thus, AICH qualified for a total of 205,090 free trading
performance shares, leaving 394,910 shares out of the 600,000 to be canceled.
However, AICH was in possession of only 300,000 shares and pursuant to the terms
of the Deed of Release, AICH agreed to pay the Company an amount equal to the
number of those share not available for cancellation (94,910 shares) multiplied
by $2.50 per share. This amount of $237,275 has been set off against the
promissory note issued to AICH in July 1999. The Company has subsequently
canceled the 300,000 performance shares returned by AICH.
The Company is primarily engaged in two major business segments: Voice and Data
and electronic messaging. The Company's Voice and Data segment (hereinafter
referred to as the "Voice & Data Division") is a value-add 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") or the internet. The enhanced fax and email
broadcast service allows clients to prepare documents for distribution and send
them directly from their PC to the Flexifax network for distribution worldwide.
Clients dial into the Flexifax service using a modem or via the Web interface.
The Company specializes in large scale messaging or "broadcast" distribution
whereby the same document(s) is sent to multiple recipients. Once the
document(s), together with the fax numbers and email addresses of the recipients
have been received by Flexifax they are distributed by Flexifax via various
carriers to the recipients anywhere in the world.
The Company presently operates through eight subsidiaries incorporated under the
laws of New South Wales, Australia and Singapore, and with approximately 55
employees, including 50 full-time employees as at June 30, 2000. 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 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.
With all of the Company's operations being foreign, management of the Company
has considered reorganizing the Company to a foreign jurisdiction in order to
more efficiently and cost-effectively manage the Company's operations. Further,
as the Company's operations are predominately centered in Australia, management
believes that upon reorganization offshore the Company would be better able to
avail itself to foreign financing. Management has considered an exchange offer
proposal from its major shareholder, TWC, whereby the Company would become a
wholly owned subsidiary of TWC and TWC would then merge the Company into a newly
created subsidiary located in Bermuda. Under this proposal, TWC would become the
successor issuer to the Company (pursuant to Rule 12g-3(a) and (f) of the
Securities Exchange Act of 1934, as amended) providing the shareholders with the
continued benefit of the Company's present reporting status through TWC, as well
as TWC's existing listing on the Canadian Ventures Exchange. The Company would
also then become reorganized under the laws of Bermuda which will allow
management to more efficiently and cost effectively manage the Company and seek
to raise funds in Australia and Canada where the Company and TWC's reputation is
better known. The Board of Directors have approved the exchange offer upon
determining the offer would be in the best interest of the Company and
accordingly will present the matter for a vote to the shareholders at a special
meeting to be held no later than November 7, 2000. Specifically, TWC proposes to
exchange 1.754880714 of its shares for each outstanding share of common stock of
the Company on the record date of October 5, 2000 pursuant to the terms of an
Arrangement Agreement and in accordance with Section 99 of the Bermuda Companies
Act and the Idaho General Business Corporations Laws.
OUTLOOK
FLEXIFAX DIVISION
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. Currently the Company enables clients to send documents for
distribution via fax or email and earn revenue based on a fee per minute. This
is considered a standard service. Channel based value added services ("VAS")
provides further added value by identifying the needs for certain market
segments (channels) and designing a special service around these needs (See,
"Overview-FlexiFax Division - Product and Market Evolution" below for more
detail concerning VAS). Examples of such services are list and database
management and marketing services, as well as services that are complementary to
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the existing messaging platforms which will drive and maximize e-commerce
opportunities and interactivity, including e-marketing and one to one
(personalized) web marketing services.
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 seek 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., (NASDAQ: PTEK) a communications company based in Atlanta, Georgia whereby
the Company outsources the delivery of its international fax traffic to the
Premiere network. The outsourcing to Premiere is expected to enable the FlexiFax
Division to generate a profit in the immediate future, as the Company will no
longer have to run an expensive, low traffic volume, global network supported 24
hours a day around the world. The agreement with Premiere is for a period of two
years subject to an initial one year period wherein the Company may cancel the
agreement if the performance of the Premiere network does not meet agreed levels
of performance. The agreement is automatically extended subject to a 6 months
cancellation clause by either party. The agreement also offers either party the
ability of badging products (selling each others products under their own
corporate banner) from the other.
The Company's unique Flexifax client software application, Web page and Gateway
technology were retained by the Company. The Company's Gateway technology has
allowed its delivery infrastructure to be modified so that it may interface with
more than one network at a time. For example, it allows for e-mail traffic to be
delivered to a high speed internet service, while passing off fax traffic to the
Premiere network. The development of the Gateway technology has provided the
following benefits: it has streamlined the ability of the Flexifax clients to
send the same document to a mixture of e-mail and fax addresses in the same
broadcast; it unlocked Flexifax's dependence on a customized network controlled
by a mainframe computer; and it has enabled rapid development of product
enhancements and the easy and sophisticated handling of different file formats,
such as "tif" for fax transmission or attachments and "pdf" for email
attachments within the same document for broadcast. The Web page technology is a
web user interface that allows clients to send lists and documents to FlexiFax
via the internet for broadcast.
VOICE AND DATA DIVISION
The Company plans to expand its Voice and Data Division further into call center
(now often called 'contact centers') applications and has signed a distributor
agreement with IPC Information Systems ("IPC"), a New York corporation (NASDAQ:
IPI), involved in the delivery of integrated multimedia communications solutions
to the financial trading industry, to distribute its Turret systems in
Australia. This relationship complements the Voice and Data Division call center
operations that supply Rockwell Electronic Commerce ("Rockwell") with solutions
and related activities to handle the continuing convergence between dealing room
operations and call center operations. Rockwell is a subsidiary of Rockwell
International (NYSE: ROK), a global electronics company with operations in
industrial automation, avionics and communications, and electronic commerce.
OVERVIEW
FLEXIFAX DIVISION
Flexifax Global Services ("Flexifax") was initially started about 6 years ago
when 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.
Presently the Company has outsourced the international portion of its networking
function to Premiere in order to reduce the high costs of maintaining such a
network for its own use. Distributors were appointed in some countries, mainly
where nodes existed. The Company also established a presence in London and
Singapore.
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Product and Market 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 network for fast transmission to worldwide recipients. 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 marketing and
e-commerce, where messaging forms an essential part of the service.
Products and services currently offered are:
o Flexefax
Fax and email broadcasting solutions designed for government and corporate
communications. This allows the targeting of hundreds or thousands of
destinations instantly.
o Flexemedia (launched July 1999)
This service caters to companies issuing press releases to a number of
specific media editors or similar services. The Division has developed and
is maintaining a number lists on such editors in a centralized database and
has determined the preferred format editors desire to receive releases (by
fax, email or both). These lists are subdivided by media type (e.g. press,
radio, TV etc.). The client sending the press release can therefore choose
the type of media distribution they desire to target.
o Flexedirect (launched fourth quarter)
Cost effective solutions for delivery of documents, invoices, statements,
newsletters and other bulky personalized communications. This service
serves as an efficient, cost effective alternative to direct mail.
The Division will be launching a specialized email service in the second fiscal
quarter of the forthcoming year. This service will facilitate specialized email
delivery and permission based email marketing campaigns. Each campaign will
allow the client to segment the customer base, offer truly personalized
messaging and content to each recipient and provide full tracking and reporting
for follow up and cross and up-selling.
Market Segmentation
The large potential of the total broadcast market arises from the very large
number of PC's and fax machines installed throughout the world. Industry
estimates vary from 60 million to 100 million fax devices installed world wide
all capable of receiving fax messages from each other. The potential is also
aided from innovation and added value that message broadcasting brings to
organizations using more conventional delivery methods (postal mail outs,
newspaper advertisements etc).
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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
* Superannuation companies serve as externally managed investment or fund
vehicles of employees' retirement contributions similar to the role of
defined contribution plans.
Global Service
The Flexifax Gateway technology uses Internet Protocol ("IP") or FTP to send its
traffic to the ISP or Carrier for message delivery. The agreement with Premiere
integrating the use of its Global Network opens up opportunities for business in
other locations in future by the Company as the Premiere network consists of a
number of nodes around the world. The current operation of the Company is to
originate traffic in Australia for delivery anywhere in the world through the
Premiere network for fax. However, in the future when the Company sets up a VAS
offering in another country, the Company's services will be capable of
integration with a local Premiere node (via a Flexifax Gateway server located at
that node) to take advantage of local delivery rates. This global architecture
of the fax delivery network lends itself to the establishment of local
subsidiaries, branch offices and distributors in the future. The service can be
made available from any chosen place in the world and supported by a 24 hour
help desk.
Growth Record
FlexiFax has increased its volume of delivered fax minutes from 280,000 in 1995
to 19.5 million per annum for the year ended June 30, 1999 and 20.2 million
minutes per annum for the year ended June 30, 2000.
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 services and 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 and new forms of messaging technology. The first step has
been the strategic alliance with Premiere, whereby Flexifax has outsourced the
delivery of its international 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, m-commerce 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.
VOICE AND DATA DIVISION
The Voice and Data 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 Australian dealing room
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market, as the Company has installed more systems consisting of more positions
(each trader occupies a position) than any of its industry competitors and is
based on its own internal research. A dealing room consists of dedicated voice
systems, which are specially designed and developed, highly reliable voice
switching systems capable of handling multiple simultaneous calls, for financial
traders. 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 - (these figures are based upon internal research). 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. A
dealing room is made up of specially designed, highly reliable, voice switching
systems able to handle multiple simultaneous calls to/from the financial
traders.
This Division has maintained operating profits since its establishment more than
13 years ago. The Company plans to expand its opportunities in the Voice and
Data Division through the call center market and related applications. 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.
The Division is also looking to significantly expand its presence in the quality
monitoring and e-learning environment, as systems integrator for Witness Systems
Inc (NasdaqNM: WITS).
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 integrates and supplies outstanding products from
the following vendors, for use by its clients, including:
o IPC - digital dealer board ("turret") systems (previously the Company
supplied V Band turret systems. V Band Corporation, ("V Band"), a New
Jersey corporation, was recently acquired by IPC and the Company has been
appointed as an Australian distributor for IPC). (See, "Outlook-Voice and
Data Division" and "The Future in Call Centres" in this section, first
paragraph.)
o Multitone - paging, wide-area call-out systems, DECT cordless PABX
o CSK Software - Slingshot real-time data delivery via Internet/Intranets
o Rockwell - ACD and Call Center Solutions
o Pipkins Inc, - 'Maxima Advantage' Workforce Management software
o Witness - Quality Monitoring systems
o Trans-Lux - electronic display systems o Dictaphone - loggers
In addition, the Voice and Data Division has also developed certain products and
applications for the dealing room market which were previously supplied to V
Band. These include full duplex, multi-channel open microphone systems for use
on V Band systems, speaker systems specifically designed for dealing rooms,
radio interfaces for emergency services integrated into V Band systems and
programmable modules for an allocation in the software and specific telephones
lines and other types of development lines programmed as part of the Company's
systems installation using V Band products and others.
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 Project Installations.
Among the major project installations secured by the Company in the last year
were as follows (none of these installations represents a large percentage of
the Company's business for accounting purposes, except for one):
o Vodafone - Call Center Workforce Management System
o Emergency Services and Fire Brigade Services - digital voice communication
and call-out systems with multi-location networking, paging and
computer-aided dispatch (CAD) systems integration.
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o American Express - Call Center Quality Monitoring System
o Cooma Manaro Shire - Call Center ACD system
o JB Were - Voice Turret system o Royal Bank of Canada - Voice Turret system
o NSW Treasury Corp - Voice Turret system
o State Street Bank - Voice Turret system.
o Westpac Banking Corporation - Voice Turret system
These project installations involve a systems integration process, whereby a
turnkey solution is implemented. The solution involves the configuration and
specification, assembly, installation and maintenance of certain voice and data
telecommunications equipment, components and accessories. The average length of
time to execute these projects is between four to six weeks, depending on the
size of the installation. The projects are normally invoiced in stages, at the
order, installation and acceptance stage.
The Future in Call Centers
The Company began its operations in this division in 1987 with a core product
distributed from V Band, which recently filed for protection under Chapter 11 of
the US Bankruptcy Code. V Band was acquired by its major competitor, IPC. The
Company and IPC have since entered into a non-exclusive distributorship
agreement naming the Company as an Australian distributor for IPC products.
(See, "Outlook-Voice and Data Division" for description of IPC).
The Company recognized, over three 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'
facilitating contact by telephone, email, fax or a Web browser. 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 around 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, fax or a Web browser.
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 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 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 Systems Inc (Quality monitoring and e-learning systems), Trans-lux
Corporation (electronic displays), Pipkins Inc. (workforce management software)
and others.
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OPERATIONAL CONCERNS
International Operations. As the Company's operations are internationally based,
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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, longer payment cycles, political and economic instability, seasonal
fluctuations in business activity during the summer months, foreign tax
consequences and the burdens of complying with a wide variety of foreign laws
and regulations.
The Company's revenues from countries other than Australia represent less than
10% of its revenue. The Company presently is not faced with any significant
operational risks, including regulatory compliance risks, from other countries
in which it operates than Australia. However, as the Company's revenue derived
from such countries continues to grow, the Company may experience increased risk
due to the above factors.
The Company conducts most of its business outside the US and thus most of its
expenses and revenues, if not all, are derived in foreign currencies. Thus, the
Company may experience a material loss due to fluctuations in foreign
currencies. The Company typically denominate foreign transactions in foreign
currency and have not regularly engaged in hedging transactions.
Suppliers/Service Providers.
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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 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. Key suppliers are:
IPC - Non-exclusive distribution agreement dated August 30, 1999 for Australia
for an initial term of two years, with automatic extension thereafter, unless
terminated in writing upon giving 60 days notice. A performance criterion of $2
million in sales per year is required under the contract. If this is not
achieved, IPC may terminate the agreement upon written notice.
Premiere - Exclusive agreement dated December 2, 1999 with Premiere to carry all
the fax broadcast traffic for a period of 12 - 24 months subject to service and
pricing criteria. This agreement is automatically extended subject to a six (6)
month cancellation notice by either party.
Witness - Non-exclusive distribution agreement dated May 6, 1999 for Australia
for an initial three year period. Thereafter it may be renewed for successive
one year periods by mutual agreement. Termination upon giving 60 days notice or
on breach of contract. Performance criteria of $500,000, $1,000,000 and
$1,500,000 in years 1,2 and 3 respectively.
Pipkins - Non-exclusive distribution agreement dated for Australia is in the
process of being finalized and the Company and Pipkins continue to operate and
conduct business in the same manner based on a purchase order basis.
Rockwell - Non-exclusive distribution agreement dated April 30, 1999 for
Australia for an initial term of one year, with extension by written amendment.
Termination upon giving 90 days notice or on breach of contract. The Company and
Rockwell are presently finalizing a written amendment to extend the agreement.
Trans-lux - No contract in place. Has been operating on a purchase order basis
for in excess of seven years.
Trend Micro - An agreement dated February 21, 2000 with Trend Micro to supply up
to date virus scanning software on the FlexiFax Gateway for an initial period of
two years with automatic extension. Termination upon giving 60 days notice.
Agreement with IPC - For the fiscal year ended June 30, 2000, sales of the IPC
products accounted for 47% of the sales of the Voice and Data Division. IPC, a
previous competitor to V Band, has recently acquired V Band and the Company has
been appointed the Australian distributor of IPC products. Under the new
distributorship arrangement with IPC, margins on sales and costs to support
these systems are similar to those of supporting V Band products.
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No Long-term Contracts - The Company does not typically have or utilize
long-term contractual agreements with its clients, suppliers or vendors and thus
such may not continue to transact business with the Company in the future if
competitors develop products and services that are more sophisticated, efficient
and cost effective, or our technological advances are not timely and responsive
to our clients individual needs or our products become obsolete. The information
and telecommunications service market continually attracts new competitors and
technologies which may offer or provide more sophisticated, efficient and cost
effective products and services which would have a material adverse effect upon
the Company's business, financial condition and operations.
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.
Deregulation of the Australian Telecommunications Industry - On July 1, 1997 the
Australian Telecommunications Industry deregulated. Until late 1999, only
national and international calls were allowed to be offered by licensed
carriers. Since deregulation new and emerging carriers have been taking market
share away from the incumbent, Telstra Corporation Limited. This is evidenced by
Telstra's retail market share of the national and international call market
being forecast at below 50% in 1999, as compared to 74% in 1994 (Source:
Telstra/Austel). As a result, fax broadcast revenues and margins per minute are
expected to continually reduce in order to secure market share and customer
base, as existing and new competitors continue to increase market share through
cost leadership strategies, as a result of reduced carriage costs.
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.
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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 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.
Uncertainty of Strategic Relationships - The Company plans to enter into
strategic relationships or partnerships in order to enable the Company to offer
its products and services to a larger customer base and on more economies of
scale. The Company's success depends in part on the success of these
relationships and the ability of these strategic partners to market and supply
the Company's products and services. Failure of one or more of these strategic
relationships or partners to successfully develop and sustain a market for our
services or the termination of one or more of these strategic relationships
could hinder the Company's ability to increase sales and revenue. Additionally,
our strategic partners may not view their relationship with the Company as
significant to their business and thus any reassessment of their commitment to
the relationship could have a material adverse effect on the Company. The
ability of our strategic partners to incorporate our products and services into
their product and services now and in the future will require the Company to
respond timely with new products and services as technological advances are
made. If the Company fails to enhance or create new products and services in
response to technological changes such could result in the Company's strategic
partners terminating their relationship or seeking alternative providers.
Further, the telecommunications industry is experiencing rapid consolidation.
Consolidation within the industry, including consolidations of the Company's
clients and strategic partners, could have a material adverse effect on the
Company's business, financial condition and operations.
Uncertainty of Market Acceptance - The Company's future success depends upon the
market acceptance of its existing and future computer product lines and services
integrating the functionality of the telephone and the computer. This will
require the market to accept a new way of exchanging and transmitting
information, which will most likely depend upon several factors, including ease
of use, price, reliability, access and quality of the service, system security
and the products functionality. A decline in the demand for, or the failure to
achieve broad market acceptance of the Company's product lines and services
would have a material adverse effect on the Company's business, financial
condition and operations.
The Company believe that its future success is also dependent in part upon its
ability to route more of its client traffic through the Internet and expand its
base of Internet capable nodes. Thus, the Company is dependent upon the
viability of the Internet as a medium for the transmission of documents. The
Company relies upon third party ISP providers for access to the Internet through
Internet capable nodes at varying prices. There can be no assurance that the
current pricing structure for the Company's access and use of the Internet will
not adversely change. If the Internet proves to be an impractical or unreliable
medium for transmission of documents or material capacity constraints develop,
the Company's business, financial condition and operations may be adversely
affected.
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.
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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. There can be
no assurance that an act of sabotage, technical failure, natural disaster or
similar event would not cause the failure of a telephone network, other portions
of the network or one of the switching facilities as a whole, resulting in the
interruption of the Company's services. Such an interruption of service could
have a material adverse impact on the Company's business, financial condition
and 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 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. During the year ended
June 30, 2000, a voice dealing system was installed generating in excess of 10%
of the total revenues of the Company for the year.
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. This know-how,
or in house knowledge concerning the underlying concepts and operational methods
of its technology cannot be patented. 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 market for the Company's products and services is
---------------
characterized by rapidly changing technology, frequent new product
introductions, evolving industry standards and evolving methods of building and
operating communications systems. The Company's ability to compete effectively
is dependent upon its ongoing significant investment in software development and
telecommunications technology by continuing to enhance its current services, and
develop and introduce new services and products in a timely fashion. 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 PTEK Holdings (incorporating Xpedite), NetMoves (formally FaxSav),
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Newsnet.com, AAPT or other carriers and 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, Nice, Blue Pumpkin, 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 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.
In connection with their report on our consolidated financial statements for the
years ended June 30, 2000, June 30, 1999 and 1998, BDO Nelson Parkhill, our
independent auditors, raised substantial doubt about our ability to continue as
a going concern because of recurring losses and a net working capital
deficiency. See Note 1c to the Consolidated Financial Statements as well as the
section on Liquidity and Capital Resources, below, for discussion.
Plan of Operations
Management has established the following objectives for the Company over the
next 12 months:
1. Continue to reposition the Company into a more broad based and value added
messaging service and away from its heavy reliance on fax distribution
using its proprietary network. The ongoing focus will be on providing
delivery capability to a wide variety of delivery platforms, especially new
messaging delivery platforms, such as WAP (wireless application protocol)
etc.
2. Identify m-commerce and e-commerce opportunities complementary to the
messaging basis of the Company. These opportunities are currently under
active consideration and will initially be financed in house. The actual
costs will only be known after a project research and feasibility study is
completed. This is expected to be completed by the end of the forthcoming
third fiscal quarter.
3. Seek Acquisition, Partnering or Joint Venture opportunities, which will be
complementary to the future messaging strategy and provide opportunities
for growth.
4. Expand or identify opportunities to service new areas of the market. The
first of these opportunities has been addressed by the specialized email
delivery service that will be launched in the forthcoming second fiscal
quarter.
5. Upgrade the existing delivery engine to be compatible with the latest
technological trends to facilitate data interchange with current and future
messaging technologies.
6. Expand the Company's Voice and Data business and product range. Due to the
consolidation in the financial dealing room market the emphasis will be
changed from turret systems to call centers and their applications. (See,
"Overview - Voice and Data Division" for details).
Most of the Company's objectives will involve minimal capital expenditure, with
the exception of any acquisitions that the Company may pursue. These will be
funded by the issue of shares or by cash raised from the investment community.
As a result of the reverse acquisition of TWG by the Company in February 1999,
the historical financial information and financial statements presented herein
are those of TWG, the accounting acquirer and predecessor of the Company. 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.
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RESULTS OF OPERATIONS AND FINANCIAL POSITION FOR FISCAL YEARS ENDING JUNE 30,
2000 AND 1999
The financial position and results of operations of the Company for the years
ended June 30, 2000 and 1999 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. The Australian and United States dollar exchange rates
at the balance sheet date and the average exchange rates for each year under
review were as follows for $1 Australian:
June 30, 2000 0.5995
July 1, 1999 - June 30, 2000 0.6280
June 30, 1999 0.6565
July 1, 1998 - June 30, 1999 0.6273
June 30, 1998 0.5980
July 1, 1997 - June 30, 1998 0.6710
June 30, 1997 0.7440
Management considers that there are no potential inflation issues affecting the
Company's business. The Company does not currently have any currency rate hedges
in place.
Management's discussion and analysis of operations for all periods 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 increased by 17% to $10,945,636 for the year ended June 30,
2000, compared to $9,108,219 for the year ended June 30, 1999. Cost of sales
increased to $6,272,211, up from $4,835,707 in the prior year. Cost of sales as
a percentage of revenue was 57%, up from 53% in the corresponding period. Total
operating expenses before reorganization costs decreased 3% to $5,560,973 from
$5,713,499 in the prior year. Total operating expenses after reorganization
costs increased 12% to $6,376,686 from $5,713,499 in the prior year. A net loss
before reorganization costs for the year ended June 30, 2000 of $943,813 was
reported, which represented a 54% improvement from the net loss reported for the
year ended June 30, 1999 of $2,037,411. A net loss after reorganization costs
for the year ended June 30, 2000 of $1,759,526 was reported, which was a 14%
improvement from the net loss reported for the year ended June 30, 1999 of
$2,037,411.
A detailed explanation of the results by operating division follows.
FLEXIFAX DIVISION
Revenues. FlexiFax revenue increased 5% to $3,627,309 for the year ended June
30, 2000 from $3,447,030 for the year ended June 30, 1999. Revenue increased as
a result of a stronger focus being placed on account management as well as on
product differentiation and branding. During the year, two new products were
launched: Flexemedia - a value add delivery service for the dissemination of
news and press releases to a media database, maintained by the FlexiFax
Division; and Flexedirect - a value add fax broadcast service allowing full
personalization and customization. This allows customers to combine a template
with a database, ensuring that each recipient receives data specific to
himself/herself. Flexedirect was launched late in the fourth quarter.
The revenue increase was offset somewhat due to a decrease in international
revenues as a result of lower revenues reported from those countries where the
Division has transferred the customer base to Premiere. As a result of the
outsourcing of our network, the Company will only report a percentage of the
revenue generated by the customer base now serviced by Premiere. It is uncertain
what future level of revenue is to be received from Premiere as it is based on
future levels of transaction activity generated from the former customer base
that has now transferred to Premiere. In other words, the Company will only earn
revenue if Premiere has generated revenue from the Company's former customer
base, which is dependent on those customers using the service. Revenues
generated from the customer base now serviced by Premiere amounted to $83,860
for the year ended June 30, 2000 as compared to $520,083 for the year ended June
30, 1999.
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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 $1,943,288 for the year ended June 30, 2000 compared to
$2,219,827 for the prior year. Cost of sales as a percentage of revenue
decreased to 54% for the year ended June 30, 2000, compared to 64% for the
corresponding period since the costs associated with the Company's network
infrastructure, such as local access charges, leased network backbone circuit
expenses, and line rental, have been outsourced to Premiere.
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 Company's operations.
Total operating expenses before reorganization costs for the year ended June 30,
2000 amounted to $2,192,160 compared to $2,596,181 in the corresponding period.
Total operating expenses after reorganization costs for the year ended June 30,
2000 amounted to $2,843,695 compared to $2,596,181 in the corresponding period.
Depreciation decreased to $214,780 for the year ended June 30, 2000, compared to
$304,409 in the prior year, as a result of network equipment being written down
upon the service being outsourced to Premiere.
VOICE AND DATA DIVISION
Revenues. Revenues consist of sales from systems integration solutions for
voice, call center, electronic display, paging, call recording and data
applications. Revenues increased 29% to $7,318,327 for the year ended June 30,
2000, from $5,661,189 for the year ended June 30, 1999. The net increase is
mainly attributable to: (1) increased sales of IPC voice systems (sales
increased by $1,058,150); (2) increased sales of electronic displays (sales
increased by $541,422); (3) increased sales in the paging division as a result
of more DECT system sales (sales increased by $189,289); (4) increased sales of
call center solutions (sales increased by $268,112); (5) increased service and
maintenance revenue due to a stronger focus being placed on signing additional
maintenance contracts (sales increased by $196,005; (6) reduced sales activity
in the logger and data areas as focus has been diverted away from these non-core
areas to the core areas of voice, call centers and maintenance (sales reduced by
$452,817).
Cost of sales. Cost of sales consists of the purchase of third party products,
necessary to complete the Company's systems integration solution. Cost of sales
for the year ended June 30, 2000 amounted to $4,328,923 compared to $2,615,880
for the previous 12 months. Cost of sales as a percentage of revenue increased
to 59% for the current financial year up from 46% for the year ended June 30,
1999. The increased percentage is a result of supplying larger project system
sales as opposed to providing a larger proportion of relocation and ancillary
support and maintenance services to the voice customer base, 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, 2000 amounted to $2,806,739
compared to $2,858,593 in the corresponding period. Depreciation reduced to
$85,179 for the year ended June 30, 2000, compared to $126,159 in the prior
year.
LIQUIDITY AND CAPITAL RESOURCES FOR THE FISCAL YEARS ENDED JUNE 30, 2000 AND
1999
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. In connection with their report
on our consolidated financial statements for the years ended June 30, 2000 and
1999, BDO Nelson Parkhill, our independent auditors, raised substantial doubt
about our ability to continue as a going concern because of recurring losses and
a net working capital deficiency. See Note 1c to the Consolidated Financial
Statements for discussion.
Management believes that current cash resources are adequate to satisfy the
management objectives outlined above as well as to provide working capital and
sustain our operations for the next fiscal year. We expect that these resources
will be provided from the following sources:
o Sales of the accounts receivable of the FlexiFax Division under a working
capital based factoring facility established with Scottish Pacific Business
Finance Pty Ltd (see below for details)
o Cash profits generated from the Voice & Data and FlexiFax Divisions
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The Company has financed its cash requirements for operations and investments in
capital assets mainly through private sales of equity securities and loan
financing. In July 1999, AICH provided a bridge loan for $500,000 secured by a
promissory note, accruing interest only after AICH had raised minimum net
capital of $1.5 million for the Company. The outstanding balance on the
promissory note will be repaid once the Company is listed on a national exchange
such as American Stock Exchange, NASDAQ or other national exchange. The
outstanding balance owing under the bridge loan of AICH at June 30, 2000 was
$12,225, reflecting a set-off in the amount of $237,275 in accordance with the
terms of the Deed of Release (See, Note 1a).
In September 1997, the Company arranged an unlimited working capital-based
facility with Scottish Pacific Business Finance Limited ("Scottish Pacific"), in
respect of the Australian domiciled customers of FlexiFax Global Services. In
accordance with Scottish Pacific lending criteria, this facility has been
secured by a lien over the assets of Trade Wind Marketing Pty Ltd (a wholly
owned subsidiary of TWG) as well as guarantees by TWG and its subsidiaries.
Interest is charged at the highest of the prevailing rates of either Westpac
Banking Corporation, Australia and New Zealand Banking Group Limited or National
Australia Bank Limited plus a margin of 2%. The prevailing interest rate at June
30, 2000 was 10.39% (1999: 10.93%). Funds under the facility are advanced based
on sales invoices with repayment of such advanced funds being made from payments
received relating to the invoices and other working capital and external
sources. The outstanding balance owing to Scottish Pacific as at June 30, 2000
was $36,249. The original term of this agreement was for a 12-month period with
automatic renewal. This agreement may be terminated by Scottish Pacific by
giving one month's notice or by the Company giving three month's notice. If the
Company terminated this facility, paying off the outstanding balance would
result in the Company having direct access to all the receipts on the
outstanding invoices for working capital purposes.
As a result of the FlexiFax Division beginning to report a profit since February
2000, cash generated from operating activities was $1,004,631 for the year ended
June 30, 2000, compared to $1,823,623 used in operating activities for the year
ended June 30, 1999. Accounts receivable decreased $350,899 to $1,548,815 from
$1,899,714 for the year ended June 30, 1999 as a result of better credit
management and more focus being placed on collections and receipt of outstanding
receivables. Accounts payable and other accruals increased by $1,129,143
compared to a reduction of $1,024,398 in the prior comparative year, mainly as a
result of trade payables incurred in the fourth quarter that will be paid after
year end, as well as a general increase in trading activity.
Cash used in investing activities, consisting primarily of the purchase of
capital assets, amounted to $25,725 for the year ended June 30, 2000, compared
to $481,852 in the corresponding period in 1999. Cash generated from financing
activities, amounted to $747,099 compared to $1,834,510 in the prior year
primarily as a result of loans raised in the current year as compared to loans
raised, stock issued and capital contributed in the prior year.
Cash and equivalents increased to $1,726,005 for the year ended June 30, 2000,
compared to a decrease of $470,965 in the previous year, as a result of cash
generated from operations, loan finance and capital contributions.
RESULTS OF OPERATIONS AND FINANCIAL POSITION FOR FISCAL YEARS ENDING JUNE 30,
1999 AND 1998
The financial position and results of operations of the Company for the years
ended June 30, 1999 and 1998 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. The Australian and United States dollar exchange rates
at the balance sheet date and the average exchange rates for each year under
review were as follows for $1 Australian:
December 31, 1999 0.6500
July 1, 1999 - December 31, 1999 0.6533
June 30, 1999 0.6565
July 1, 1998 - June 30, 1999 0.6273
June 30, 1998 0.5980
July 1, 1997 - June 30, 1998 0.6710
June 30, 1997 0.7440
Management considers that there are no potential inflation issues affecting the
Company's business. The Company does not currently have any currency rate hedges
in place.
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Management's discussion and analysis of operations for all periods 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 27% to $9,108,219 for the year ended June 30,
1999, compared to $12,551,383 for the year ended June 30, 1998. Cost of sales
reduced to $4,835,707, down from $7,733,423 in the prior year. Cost of sales as
a percentage of revenue improved to 53%, down from 62% 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 $2,037,411 was
reported, which was up from the net loss reported for the year ended June 30,
1998 of $472,258.
A detailed explanation of the results by operating division follows.
FLEXIFAX DIVISION
Revenues. FlexiFax 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. (Revenues were 6%
higher than the comparative figure before adjusting for the foreign currency
translation difference). Revenues generated from countries other than Australia
represent less than 10% of total revenue. 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. (See
"Operational Concerns - Deregulation of the Australian Telecommunications
Industry" for more information regarding the risks associated with
deregulation). 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, including
recruiting and training staff and establishing the office, and ongoing
operational involvement in day to day management. The expenses incurred in
relation to this expansion are identified under total operating expenses. (See
"FlexiFax Division - Total operating expenses" below).
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 DIVISION
Revenues. Revenues consist of sales from systems integration solutions for
voice, call center, electronic display, paging, call recording and data
applications. Revenues decreased 38% to $5,661,189 for the year ended June 30,
1999, from $9,088,391 for the year ended June 30, 1998. The net 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, (sales reduced by $1,381,296); (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 (sales reduced by $966,570); (4)
reduced sales activity in the Singapore region (sales reduced by $395,450); (5)
reduced sales activity in export sales (sales reduced by $245,322; (6) a new
call centre installation in the prior year (sales reduced by $395,817 in the
current year). 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.
18
<PAGE>
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 $2,615,880, compared to $5,615,405 for the
previous 12 months. Cost of sales as a percentage of revenue decreased to 46%
for the current financial year down from 62% 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 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. In connection with their report
on our consolidated financial statements for the years ended June 30, 1999 and
1998, BDO Nelson Parkhill, our independent auditors, raised substantial doubt
about our ability to continue as a going concern because of recurring losses
from operations and a net working capital deficiency. See Note 1c to the
Consolidated Financial Statements for discussion.
Our current cash requirements to satisfy the management objectives outlined
above as well as to provide working capital and sustain our operations for the
next fiscal year are estimated to be $1,100,000. We expect that these
requirements will be provided from the following sources:
o Sales of the accounts receivable of the FlexiFax Division under a working
capital based factoring facility established with Scottish Pacific Business
Finance Pty Ltd (see below for details)
o Cash profits generated from the Voice & Data division
The Company anticipated raising additional capital of $3.66 million with the
assistance of AICH by means of private placement. However, AICH has not been
able to raise such funds. Thus, the Company will:
o Restructure certain business activities in order to reduce the negative
cash flows and to transform loss making operations into profitable ones.
This would be achieved by cost reduction and identifying areas that could
provide efficiency with an outsourced solution.
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 source alternative 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 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.
AICH was engaged by the Company to raise up to $3.66 million through private
placements. In July 1999, AICH has provided a bridge loan for $500,000 secured
by a promissory note, accruing interest only after AICH had raised minimum net
capital of $1.5 million for the Company. The promissory note will be repaid out
of proceeds of the intended private placement capital raising of $3.66 million,
once the Company is listed on a national exchange such as American Stock
Exchange, NASDAQ or other national exchange. AICH was expected to arrange for
19
<PAGE>
the private placement with one or more brokers, fund managers or other
accredited parties. The Company is not party to any plan to place shares with
one or another particular person or group. AICH was unable to raise the
necessary capital and pursuant to the terms of a Deed of Release, AICH and the
Company have now terminated their relationship. Under the terms of the Deed of
Release, the outstanding balance of the promissory note was set off by $237,275
and the outstanding balance of the promissory note is $12,225 as of June 30,
2000.
In September 1997, the Company arranged an unlimited working capital-based
facility with Scottish Pacific Business Finance Limited ("Scottish Pacific"), in
respect of the Australian domiciled customers of FlexiFax Global Services. In
accordance with Scottish Pacific lending criteria, this facility has been
secured by a lien over the assets of Trade Wind Marketing Pty Ltd (a wholly
owned subsidiary of TWG) as well as guarantees by TWG and its subsidiaries.
Interest is charged at the highest of the prevailing rates of either Westpac
Banking Corporation, Australia and New Zealand Banking Group Limited or National
Australia Bank Limited plus a margin of 2%. The prevailing interest rate at June
30, 1999 was 10.93% (1998: 11.06%). Funds under the facility are advanced based
on sales invoices with repayment of such advanced funds being made from payments
received relating to the invoices and other working capital and external
sources. The outstanding balance owing to Scottish Pacific as at June 30, 2000
was $36,249. The original term of this agreement was for a 12-month period with
automatic renewal. This agreement may be terminated by Scottish Pacific by
giving one month's notice or by the Company giving three month's notice. If this
facility were terminated by the Company, paying off the outstanding balance
would result in the Company having direct access to all the receipts on the
outstanding invoices, for working capital purposes.
As a result of operating losses, cash used in operating activities amounted to
$1,823,623 for the year ended June 30, 1999, compared to $128,251 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 $1,024,398 compared to $1,212,674 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.
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 $1,834,510 compared to
$151,861 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 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 or
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. Based on its current and planned future
activities relative to derivative instruments, the Company believes that the
adoption of SFAS No. 133 will not have a significant effect on its financial
statements.
On December 3, 1999, the SEC issued Staff Accounting Bulletin 101 ("SAB 101"),
Revenue Recognition in Financial Statements. SAB 101 summarizes some of the
SEC's interpretations of the application of generally accepted accounting
principles to revenue recognition. Revenue recognition under SAB 101 was
initially effective for the Company's first quarter 2000 financial statements.
However, SAB 101B, which was released June 26, 2000, delayed adoption of SAB 101
until no later than the fourth quarter of fiscal year ending June 30, 2001.
Changes resulting from SAB 101 require that a cumulative effect of such changes
for 1999 and prior years be recorded as an adjustment to net income on July 1,
20
<PAGE>
2000. The Company believes that its revenue recognition practices are in
substantial compliance with SAB 101 and that adoption of its provisions would
not be material to its annual or quarterly results of operations.
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 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.
As of September 28, 2000, the Company has not experienced any delays or material
adverse effect on its business as a result of Y2K, nor is the Company aware of
any material or known problems concerning Y2K that have not been fixed and
remedied.
The cost to the Company of the Y2K compliance program was not separated but was
written off into general operating expenses and leasing costs (for equipment
upgrade).
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 Sydney 27th floor Grosvenor Place Head Office address for Lease
225 George Street Sydney all companies of Trade expires on
NSW 2000 Australia Wind Communications 31 July 2001
Limited.
FlexiFax Sydney
--------------------- ----------------------------------- -------------------------- -------------
Australia Sydney 210 George Street Voice and Data Sydney Lease
NSW 2000 Australia address expires on
30 June 2002
--------------------- ----------------------------------- -------------------------- -------------
Australia Melbourne Level 7, Royal Insurance Building Flexifax Melbourne Monthly
440 Collins Street Voice & Data Melbourne tenancy
Melbourne Victoria 3000
--------------------- ----------------------------------- -------------------------- -------------
</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.
<TABLE>
<CAPTION>
---------------------------- ------------------------------- ----------------------------------
Name Number of Shares Percentage of Outstanding
Shares(6)
---------------------------- ------------------------------- ----------------------------------
<S> <C> <C>
Skyglen Pty Limited(1) (5) 1,276,973 12.5%
---------------------------- ------------------------------- ----------------------------------
Martin McCarthy(5) 231,314 2.3%
---------------------------- ------------------------------- ----------------------------------
Minbura Holdings Pty 536,942 5.3%
Limited (2) (5)
---------------------------- ------------------------------- ----------------------------------
Patvilt Pty Limited(3) (5) 1,237,073 12.1%
---------------------------- ------------------------------- ----------------------------------
Valazco Pty Limited (4) (5) 168,307 1.7%
---------------------------- ------------------------------- ----------------------------------
Trade Wind Communications 8,800,000 86.3%
Limited
---------------------------- ------------------------------- ----------------------------------
</TABLE>
21
<PAGE>
(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 September 30, 2000
All Officers and Directors as a Group 16.4% (3 persons)
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.
Unless otherwise indicated, all addresses are at the Company's office.
The balance of the Company's securities are held by approximately thirty-one
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 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 that
have created, commercialized and deployed leading edge technologies in the areas
22
<PAGE>
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 that may be formed for
the purpose of engaging in business activities similar to those conducted by the
Company. Accordingly, additional direct 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 which provides for discretionary incentive compensation,
including without limitation, the grant of unvested options of the Company's
Common Stock or bonuses. For the year ended June 30, 2000, Mr. Bird received
total remuneration of $132,394 (1999: $81,543; 1998: $91,209), which comprised a
base salary of $85,117 (1999: $41,713; 1998: $65,620), and other compensation,
comprising superannuation contributions (similar to defined contribution plans)
and life insurance premiums of $47,277 (1999: $39,830; 1998: $25,589).
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.
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
staff who becomes eligible after 10 years of continuous service. Superannuation
(defined contribution benefits) payments are in line with norms in the various
countries that the Company and its subsidiaries operate.
23
<PAGE>
The Company is presently reviewing the merits of establishing an incentive stock
option plan for its key officers, directors 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 that set out the standard terms and
conditions of employment but do not incorporate any contractual obligations on
employees to remain in the employ of the Company.
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.
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 10,200,000 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.
24
<PAGE>
PART II
ITEM 1. MARKET PRICE FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is presently quoted in the pink sheets.. The
Company's Common Stock commenced trading on the "Over-the-Counter Bulletin
Board" 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
---------------------------- ------------------------ -------------------------
Qtr ended December 31, 1999 6.4375 1.25
---------------------------- ------------------------ -------------------------
Qtr ended March 31, 1999* 6.6875 3.125
---------------------------- ------------------------ -------------------------
Qtr ended June 30, 1999* 3.375 .55
---------------------------- ------------------------ -------------------------
*as provided by Pink Sheets LLC
As of April 2000, the Company was delisted from the Over-the-Counter Bulletin
Board. The Company will not be able to relist and trade on the Over-the-Counter
Bulletin Board until it is granted clearance from the Securities and Exchange
Commission on its Registration Statement on Form 10-SB.
There are approximately 31 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 10,200,000 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 was issued pursuant to an
exemption from the registration requirements of the Securities Act of 1933, as
amended.
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.
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 at $2.50
per share to the following three accredited investors presented to the Company
by AICH:
John L. Patten 100,000 shares
Kathleen N. Patten 100,000 shares
Benchmark Capital LLC 100,000 shares
This stock was sold at $2.50 based on AICH recommendation as to price per share
for total proceeds in the amount of $750,000.
As of April 6, 1999 a private placement was made as a result of immediate short
term bridge financing of $1,250,000 arranged by AICH. The proceeds were to be
used to make a bid for Newsnet, a company under administration and in the same
business of fax broadcasting. As consideration for providing this facility on
very short notice the Company issued 200,000 shares at $1.25 ($250,000), a
$550,000 discount on fair value, to AICH, the cost of which was to be deducted
from the $1,250,000 proceeds. After lengthy negotiation the Company decided to
withdraw from pursuing the acquisition further and returned the funds to AICH,
although the shares remain issued and outstanding.
25
<PAGE>
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.
PART F/S
FINANCIAL STATEMENTS.
The following financial statements are attached hereto and filed as a part
hereof.
1) Table of Contents - Financial Statements
2) Independent Auditors' Report - June 1999
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
8) Independent Auditors' Report -June 2000
9) Consolidated Balance Sheet
10) Consolidated Statements of Loss and Comprehensive Loss
11) Consolidated Statements of Changes in Cash Flows
12) Consolidated Statement of Stockholders' Equity
13) Notes to Financial Statements
26
<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*
10.2 IPC Information Systems Inc - Distribution Agreement*
10.3 Premiere Information Systems Pty Ltd - Heads of Agreement*
10.4 Premiere Information Systems Pty Ltd - Wholesale Agreement
10.5 Trend Micro - Partnership Agreement*
10.6 Scottish Pacific Business Finance Limited -
Undisclosed Factoring Agreement*
(21) List of Subsidiaries*
(27) Financial Data Schedule
27.1 Financial Data Schedule - June 1999*
27.2 Financial Data Schedule - June 2000
------------------------
*Previously filed.
27
<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: September 28, 2000
/s/ Nicholas Bird
------------------------------
Nicholas Bird, President
28
<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. The Voice and Data
Division 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. The FlexiFax Division 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/(deficit) 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 on these financial statements based on
our audits.
We conducted our audits in accordance with 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, Inc. 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.
As discussed in Note 1s, the accompanying financial statements have been
restated to reflect the effect of a change in the revenue recognition policy of
the Company.
Sydney, Australia BDO NELSON PARKHILL
October 27, 1999 CHARTERED ACCOUNTANTS
<PAGE>
FLEXEMESSAGING.COM, INC
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
NOTE 30 JUNE
1999
----------- ------------------------------------------------------ ------ ---------------------
ASSETS $
CURRENT
------------------------------------------------------------------ ----------------------------
<S> <C> <C>
Cash 2 118,912
Receivables 3 1,899,714
Inventory 306,370
Deferred charges 548,022
2,873,018
---------------------
CAPITAL ASSETS 4 1,010,902
GOODWILL 5 9,531
OTHER 6 20,610
1,041,043
3,914,061
---------------------
-----------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
CURRENT
Trade Creditors 1,541,309
Sundry creditors and accruals 7 784,269
Customer deposits 248,495
Deferred revenue 315,942
Current portion of lease obligations 8 31,382
Loans payable 9 74,435
Income taxes payable 111
2,995,943
NON CURRENT
Non current portion of lease obligations 8 21,777
Employee entitlements payable 131,851
153,628
---------------------
TOTAL LIABILITIES 3,149,571
---------------------
----------- ------------------------------------------------------ ----------------------------
SHAREHOLDERS' EQUITY/(DEFICIT)
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 4,959,068
Comprehensive income - foreign currency translation 11 138,733
Accumulated deficit (4,343,711)
764,490
3,914,061
----------- ------------------------------------------------------ ------ ---------------------
</TABLE>
The accompanying summary of significant accounting policies and notes form an
integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
----------------------------------------------------------------------------------------------
NOTE 30 JUNE 30 JUNE
1999 1998
$ $
----------------------------------------
<S> <C> <C> <C>
Revenues 9,108,219 12,551,383
------------------------------------------------
Less:
Cost of Sales 4,835,707 7,733,423
--------------------------- -------------------
Gross Profit 4,272,512 4,817,960
------------------------------------------------
Operating Expenses
Network operating costs 106,217 116,730
Selling, general and administrative 5,121,234 4,699,497
Depreciation and amortization 486048 451772
Total operating expenses 5,713,499 5,267,999
Loss from Operations (1,440,987) (450,039)
------------------------------------------------
Other income/(expense)
Interest paid
- leases (1,436) (1,451)
- loans - short term (59,619) (29,983)
- Discount on stock issuance (550,000) -
Interest received 14,631 9,215
------------------------------------------------
Loss for the year before income tax (2,037,411) (472,258)
------------------------------------------------
Income tax expense 12 - -
------------------------------------------------
Net loss (2,037,411) (472,258)
------------------------------------------------
Other comprehensive (loss)/income, net of tax
Foreign currency translation adjustments (96,431) 211,266
Comprehensive loss (2,133,842) (260,992)
------------------------------------------------
Net loss per share (0.23) (0.05)
------------------------------------------------
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.
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN CASH FLOWS
<TABLE>
<CAPTION>
30 JUNE 30 JUNE
1999 1998
-----------------------------------------------------------------------------------------------
$ $
---------------------------------
CASH PROVIDED/(USED) BY:
<S> <C> <C>
OPERATING ACTIVITIES
Operations
Net loss for the year (2,037,411) (472,258)
---------------------------------
Items not involving cash:
Amortization 486,048 451,772
---------------------------------
Interest expenses related to issuance of
stock at a discount
550,000 -
---------------------------------
Increase/(decrease) from changes in:
Accounts receivable 224,035 (28,150)
Inventory (39,644) (43,055)
Deferred charges (7,317) 1,491,590
Accounts payable and other (1,024,398) (1,212,674)
Accruals
Income taxes (3) (56)
Employee entitlement payable 25,067 (58,918)
(1,823,623) 128,251
---------------------------------
INVESTING ACTIVITIES
Investments in:
Capital assets - net (481,852) 21,246
(481,852) 21,246
---------------------------------
FINANCING ACTIVITIES
Loans raised 1,250,000 -
Loans repaid (1,000,000) (319,920)
Loan payable 2,687 71,748
Lease payments (25,183) (81,626)
Proceeds on issue of stock 689,571 -
Contribution of capital 917,435 481,659
1,834,510 151,861
---------------------------------
(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.
<PAGE>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY/(DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK
-------------- ------------- ------------- ---------------------
ADDITIONAL
SHARES AMOUNT PAID IN ACCUMULATED
CAPITAL DEFICIT
------------------------------ -------------- ------------- ------------- ---------------------
<S> <C> <C> <C> <C>
Balance, at June 30, 1997 680,800 506,515 1,574,378 (1,834,042)
Contributed capital 481,659
Net loss for the year (472,258)
-------------- ------------- ------------- ---------------------
Balance at June 30, 1998 680,800 506,515 2,056,037 (2,306,300)
-------------- ------------- ------------- ---------------------
Recapitalization on 8,119,200 (497,715) 497,715
February 5, 1999 (see note (a))
-------------- ------------- ------------- ---------------------
Common stock for SVI 500,000 500 (500)
-------------- ------------- ------------- ---------------------
Shares issued to 600,000 600 (600)
AICH for placement
Agreement
-------------- ------------- ------------- ---------------------
Common stock issued on 300,000 300 749,700
March 16, 1999 @ $2.50
per share
Listing costs (60,429)
Attributable
To issuance
Contributed Capital 917,345
On March 31, 1999
-------------- ------------- ------------- ---------------------
Common stock issued 200,000 200 249,800
On June 9, 1999 at
$1.25 per share
-------------- ------------- ------------- ---------------------
Interest expense 550,000
Related to stock
Issued at a discount
-------------- ------------- ------------- ---------------------
Net loss for the year (2,037,411)
-------------- ------------- ------------- ---------------------
Balance, at June 30, 1999 10,400,000 10,400 4,959,068 (4,343,711)
</TABLE>
(a) The recapitilization that occurred on February 5, 1999 was necessary in
order to adjust the issued share capital to 8,800,000 shares. As described in
Note 1 to the financial statements, 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.
<PAGE>
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. ORGANIZATION
Trade Wind Communications Limited, a Bermudan corporation, listed on the
Canadian Ventures Exchange (VSE: TWC) ("TWC") entered into a business
combination agreement ("Merger Agreement") on February 5, 1999 with
Flexemessaging.com, Inc. (previously Siler Ventures Inc., "SVI") and
Atlantic International Capital Holdings Ltd. ("AICH") 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 that controlled all the business assets.
On February 5, 1999, SVI entered into an acquisition agreement with TWC to
purchase all of its business assets, consisting of the stock of Trade Wind
Group Pty Limited ("TWG"), a wholly-owned subsidiary of TWC, incorporated
on September 6, 1988. SVI was a non-operating public shell with no tangible
assets and 500,000 shares of common stock outstanding. This merger of TWG
and SVI (a non-operating public shell with a tangible asset value of nil)
resulted in TWG having actual or effective operating control of the
combined Company after the transaction. As a result, this transaction has
been treated as a capital transaction in substance, rather than a business
combination and has been accounted for as a reverse acquisition. Any
references to past accomplishments of the Company and its financial
information, prior to the acquisition, relate solely to TWG, as combined,
since SVI (now known as Flexemessaging.com, Inc.) has been inactive for
several years. SVI acquired the assets of TWG in exchange for the issuance
of 8.8 million shares of common stock. This valuation was based on arms
length negotiation driven by ultimate ownership principles. A forward
valuation (a valuation arrived at by applying a revenue multiple to the
Company's future revenue stream) based on future revenues was determined
and from this capitalization model, the total outstanding common stock was
calculated. Thereafter, the respective equity ownership positions were
negotiated. SVI continued the operations of TWG as a wholly owned operating
subsidiary.
Pursuant to the Merger Agreement, the Company entered into an agreement
with AICH, a Bermudan corporation, with the objective of performing two
tasks. First, AICH was to identify an acquisition candidate and secondly,
AICH was to arrange for funding for the Company. Pursuant to that
agreement, AICH identified SVI as an acquisition vehicle and assisted the
Company in structuring and concluding the reverse acquisition. In return,
the shareholders of SVI were allocated 500,000 of the Company's common
stock after it had been recapitilized. The fair value of the assets and
liabilities assumed in the reverse acquisition were nil. AICH has also
assisted the Company in seeking financing of $3,660,000 through the sale of
the Company's common stock utilizing private placements. AICH has made an
interim placement of 300,000 shares of common stock of the Company for
$750,000.
Per the Merger Agreement, AICH was expected to place the balance of the
$3,660,000 financing through the sale of the Company's common stock
pursuant to future private placements. As a condition of the Merger
Agreement with AICH, 600,000 shares of the Company's common stock were
issued to AICH as performance shares for arranging future financing. These
performance shares were subject to a lockup agreement signed by AICH
whereby shares were to be released from the lockup agreement in proportion
to the funds raised by AICH, subject to a minimum of $1 million.
AICH did not raise the required funding within the prescribed time and
management informally extended the agreement until June 30, 2000. However,
on May 10, 2000, the Company entered into a Deed of Release with AICH,
whereby AICH was formally relinquished from its previous commitment of
raising funds. At the date of the Deed of Release, AICH had only raised
$750,000 and thus fell short of the $1 million minimum funding level to
qualify for performance shares. Per the terms of the Deed of Release, AICH
could convert the outstanding debt evidenced by a promissory note issued to
AICH in July 1999 to equity in order to satisfy the minimum funding
threshold. As a result, AICH was issued 100,000 shares at $2.50 per share.
Subject to the conditions governing the amount of performance shares to be
released from the restrictions set forth in the lock up agreement, AICH
qualified for the release of 40,984 free trading shares as a result of
capital raising undertaken prior to the date of the lock up agreement,
123,079 free trading shares as a result of raising $750,000 and 41,027 free
trading shares as a result of the additional $250,000 raised from the debt
to equity conversion. Thus, AICH qualified for a total of 205,090 free
<PAGE>
trading performance shares, leaving 394,910 shares out of the 600,000 to be
canceled. However, AICH was in possession of only 300,000 shares and
pursuant to the terms of the Deed of Release, AICH agreed to pay the
Company an amount equal to the number of those share not available for
cancellation (94,910 shares) multiplied by $2.50 per share. This amount of
$237,275 has been set off against the promissory note issued to AICH in
July 1999. The Company has subsequently canceled the 300,000 performance
shares returned by AICH.
Flexemessaging.com, Inc is incorporated under the laws of Idaho. Its stock
was traded on the Over the Counter Bulletin Board market until April 2000
and is now traded in the pink sheets, but is not registered with the US
Securities and Exchange Commission or the securities commission of any
state.
TWC is a holding company that did not carry on any operations. Its only
expenditures were in relation to investor relations and stock exchange
compliance, relating to its capital stock as listed on the Canadian
Ventures Exchange. As a result, all costs of doing business (i.e. officer
and employee salaries, rent, depreciation, advertising, accounting, legal,
interest expense) have been reflected in the financial statements of TWG.
The Company is primarily engaged in two major business segments: Voice and
Data and electronic messaging. The Company's Voice and Data Division is a
value add distributor of communication systems and data applications for
financial traders and emergency services operations. The Company's Flexifax
Division (electronic messaging) provides customers with a global enhanced
fax and email broadcast services originating from the customers' desktop
personal computer ("PC") or the internet.
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 $4,343,711 that includes a net
loss for the current period of $2,037,411. The Company anticipates raising
additional capital to meet it's 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 to a
cost level which will 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 or 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.
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.
<PAGE>
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. Inventory comprises finished goods consisting primarily
of consoles, handsets, console cards, line cards, controller cards, power
supplies, pagers and cordless telephony equipment.
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 over their estimated useful lives ranging from 2.5 to 8
years 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
(similar to a defined contribution plan) and are charged as expenses when
incurred. The amount contributed to the fund was $235,701 (1998: $178,970).
The Company has a statutory obligation to contribute 7% of total
remuneration to the employee superannuation fund. The contributions are
paid to externally managed funds. The Company has no other legal obligation
to provide benefits to employees on retirement.
K. REVENUE RECOGNITION
Revenue generated by the Voice & Data Division from product sales and
related installation is recognized upon customer acceptance after
completion of the installation. Under contract provisions, customers may be
progress-billed prior to the completion of the installations. The revenue
related to these advance payments is deferred until the system
installations are completed and accepted. Contracts for maintenance are
billed in advance, and are recorded as deferred revenue and recognized
<PAGE>
ratably over the contractual periods. All direct costs incurred prior to
revenue recognition are reflected as deferred charges on the balance sheet.
Revenue is recognized on a gross basis as the Company acts as the principal
in the transaction, takes title to the products, and assumes the risks and
rewards of ownership. Under certain agreements for specified geographic
regions, the Company acts as an agent and recognizes revenue on a net basis
as commissions are earned. (See Note10).
Sales revenue for the FlexiFax division is recognized upon successful
transmission of fax deliveries.
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 that 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. As
the 600,000 shares directly or indirectly beneficially owned by AICH are
contingent, they have been excluded from the weighted average number of
shares because they have not been earned.
P. NEW ACCOUNTING PRONOUNCEMENTS
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.
<PAGE>
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.
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.
R. SALE OF ACCOUNTS RECEIVABLE
The Company has adopted SFAS No 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS
125"), which provides consistent standards for distinguishing transfers of
financial assets that are sales from transfers that are secured borrowings.
The Company has established a factoring line with Scottish Pacific, which
enables the Company to sell selected accounts receivable invoices to the
bank with full recourse against the Company. Pursuant to the provisions of
SFAS 125, the Company reflected the transactions as a sale of assets and
established and established an accounts receivable from Scottish Pacific
for the retained amount less the costs of the transaction and less any
anticipated future loss in the value of the retained asset. The retained
amount is equal to 15% of the total accounts receivable invoice sold to the
bank less 0.7% of the total invoice as an administrative fee and an annual
interest loading of 2% per annum of the total outstanding accounts
receivable as a finance fee. The amount owing to Scottish Pacific as at
June 30, 1999 was $74,435 as compared to $71,748 as at June 30, 1998. The
amount owing at June 30, 2000 was $36,249.
S. CORRECTION OF ERROR
The financial statements have been restated to reflect the effect of a
change in the revenue recognition policy of the Company. The policy has
been restated to recognize revenue only upon customer acceptance after
completion of the installation of its voice switching systems. This change
has resulted in revenue increasing by $234,374, net loss and net loss per
share reducing by $84,790 and $0.01 respectively for the year ended June
30, 1999, and revenue increasing by $1,448,013, net loss and net loss per
share reducing by $230,836 and $0.03 respectively for the year ended June
30, 1998.
<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: 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
-----------------
Depreciation periods for each class of asset are as follows:
Plant and Equipment 2,5 - 4 years
Furniture and Fittings 8 years
Motor Vehicles 3-4 years
Leasehold improvements 8 years
NOTE 5: GOODWILL
Goodwill 103,614
-----------------
Less accumulated amortization (94,083)
-----------------
9,531
-----------------
NOTE 6: OTHER NON CURRENT ASSETS
Trademarks 26,412
-----------------
Less accumulated amortization (5,802)
-----------------
20,610
-----------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
30 JUNE
1999
------------------------------------------------------------------------- -----------------
$
-----------------
<S> <C>
NOTE 7: SUNDRY CREDITORS AND ACCRUALS
Sundry creditors and accruals 584,162
-----------------
Employee entitlements 200,107
-----------------
784,269
-----------------
NOTE 8: 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>
<PAGE>
NOTE 9: LOANS PAYABLE
In September 1997, the Company arranged an unlimited working capital-based
facility with Scottish Pacific Business Finance Limited ("Scottish Pacific") in
respect of the Australian domiciled customers of FlexiFax Global Services. 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 TWG) as well as guarantees by TWG and its subsidiaries.
Interest is charged at the highest of the prevailing rates of either Westpac
Banking Corporation, Australia and New Zealand Banking Group Limited or 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 for
a 12-month period with automatic renewals. This agreement may be terminated by
Scottish Pacific by giving one month's notice or by the Company giving three
month's notice. (See, Note 1(r)).
As of April 6, 1999 a private placement was made as a result of immediate short
term bridge financing of $1,250,000 (US) arranged by AICH. The proceeds were to
be used to make a bid for Newsnet, a company under administration and in the
same business of fax broadcasting. As consideration for providing this facility
on very short notice the Company issued 200,000 shares at $1.25 ($250,000), a
$550,000 discount on fair value, to AICH, the cost of which was to be deducted
from the $1,250,000 proceeds. The $550,000 discount was a cost of obtaining the
financing and has been reflected as an interest expense in the Consolidated
Statement of Loss and Comprehensive Loss. The shares were issued at $1.25 as
compared to a previous placement price per share of $2.50 and $4.00 as quoted on
the OTCBB as of the date of issue. After lengthy negotiation the Company decided
to withdraw from pursuing the acquisition and the funds were returned to AICH as
per the agreement. As AICH provided the necessary funding, the shares were
issued on June 9, 1999.
NOTE 10: 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.
NOTE 11: COMPREHENSIVE INCOME - FOREIGN CURRENCY TRANSLATION
In accordance with SFAS 130, the accumulated comprehensive income comprises the
following:
Accumulated comprehensive income
Balance at beginning of year 235,164
Foreign currency translation adjustments (96,431)
---------
Balance at end of year 138,733
NOTE 12: 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 change 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 13: SEGMENTED FINANCIAL INFORMATION
The Company operates two business divisions, Voice and Data and FlexiFax Global
Services. The Voice and Data Division is a specialist supplier and integrator of
voice communications systems and decision support applications for dealing
rooms, emergency services dispatch and similar operations. The FlexiFax Division
operates an enhanced fax broadcast system. It is not considered necessary to
show geographic segmented financial information as revenues generated from
countries other than Australia are not considered significant and represent less
than 10% of total revenue. 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:
<TABLE>
<CAPTION>
FOR THE YEAR ENDING JUNE 30, 1999
VOICE AND FLEXIFAX HEAD OFFICE CONSOLIDATED
DATA
<S> <C> <C> <C>
Revenue 5,661,189 3,447,030 - 9,108,219
Amortization 126,159 304,409 55,480 486,048
Segment operating profit/(loss) 17,135 (1,368,978) (258,724) (1,440,987)
Identifiable assets 2,456,551 1,248,780 208,730 3,914,061
FOR THE YEAR ENDING JUNE 30, 1998
Revenue 9,088,391 3,462,992 - 12,551,383
Amortization 107,558 289,536 54,678 451,772
Segment operating profit/(loss) 363,860 (625,520) (188,379) (450,039)
Identifiable assets 3,098,631 1,252,369 252,626 4,603,626
</TABLE>
NOTE 14: EVENTS SUBSEQUENT TO BALANCE SHEET DATE
On August 30, 1999, the Company through AICH, has made an offering of 500,000
shares of the Company's common stock at $3.75 per share to raise 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 ("the Act"), and comparable
exemptions from registration under applicable state securities laws.
Accordingly, the securities to be offered will not be and have not been
registered under the Act and may not be offered or sold in the U.S. absent
registration or an applicable exemption from registration. The securities will
be offered 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 is to close 180 days from the
offering date or until all shares are sold whichever is the earlier. No shares
were subscribed for under this offering.
As of July 1999, AICH has advanced bridge financing in the sum of $499,500, in
return for an unsecured promissory note on 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
private placement. The promissory 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 national exchange acceptable to the Company, or
December 21, 1999. The note may be prepaid at any time without penalty or
premium. Under the terms of the Deed of Release between AICH and the Company
terminating their relationship, the outstanding balance of the promissory note
has been set off by $237,275 and the outstanding balance of the promissory note
is $12,225 as of June 30, 2000.
<PAGE>
On August 16, 1999, the Company filed a Form 10-SB with the US Securities and
Exchange Commission to become a reporting entity as of October 15, 1999.
<PAGE>
Flexemessaging.com, Inc
REPORT FOR THE YEAR ENDED JUNE 30, 2000
<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, 2000 and June 30, 1999.
The Company has two divisions: Voice and Data Division and FlexiFax Division
operating under the trade name of FlexiFax Global Services. The Voice and Data
Division 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. The FlexiFax Division 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, 2000 and the related consolidated
statements of loss and comprehensive loss, stockholders' equity/(deficit) and
cash flows for the years ended June 30, 2000 and l999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with 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, 2000 and the consolidated results of their
operations and their cash flows for the years ended June 30, 2000 and 1999 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.
As discussed in Note 1s, the accompanying financial statements have been
restated to reflect the effect of a change in the revenue recognition policy of
the Company.
Sydney, Australia BDO NELSON PARKHILL
September 28, 2000 CHARTERED ACCOUNTANTS
<PAGE>
FLEXEMESSAGING.COM, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
NOTE 30 JUNE
2000
----------- ------------------------------------------------------ ------ ---------------------
<S> <C> <C>
ASSETS $
CURRENT
Cash 2 1,844,917
Receivables 3 1,548,815
Inventory 201,060
Deferred charges 97,642
3,692,434
---------------------
CAPITAL ASSETS 4 332,286
OTHER 5 14,122
346,408
4,038,842
---------------------
-----------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
CURRENT
Trade Creditors 2,102,343
Sundry creditors and accruals 6 831,173
Customer deposits 820,413
Deferred revenue 265,229
Current portion of lease obligations 7 10,859
Loans payable 8 36,249
4,066,266
NON CURRENT
Non current portion of lease obligations 7 9,027
Loans payable 8 145,316
Notes payable to related parties 8 113,955
Employee entitlements payable 140,027
408,325
---------------------
TOTAL LIABILITIES 4,474,591
------------------------------------------------------------------ ---------------------
----------- ------------------------------------------------------ ----------------------------
SHAREHOLDERS' EQUITY/(DEFICIT)
Common Stock, $0.001 par value; 20,000,000 shares
------ ---------------------
Authorized; 10,200,000 shares issued 10,200
------ ---------------------
Preferred Stock, $0.001 par value; 5,000,000 shares
Authorized; no shares issued -
Additional paid-in capital 5,440,264
Comprehensive income - foreign currency translation 9 217,024
Accumulated deficit (6,103,237)
(435,749)
4,038,842
----------- ------------------------------------------------------ ------ ---------------------
</TABLE>
The accompanying summary of significant accounting policies and notes form an
integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
----------------------------------------------------------------------------------------------
NOTE 30 JUNE 30 JUNE
2000 1999
$ $
----------------------------------------
<S> <C> <C>
Revenues 10,945,636 9,108,219
------------------------------------------------
Less:
Cost of Sales 6,272,211 4,835,707
--------------------------- -------------------
Gross Profit 4,673,425 4,272,512
------------------------------------------------
Operating Expenses
Network operating costs 39,053 106,217
Selling, general and administrative 5,158,640 5,121,234
Depreciation and amortization 363,280 486,048
Reorganisation Costs 10 815,713 -
Total operating expenses 6,376,686 5,713,499
Loss from Operations (1,703,261) (1,440,987)
------------------------------------------------
Other income/(expense)
Interest paid
- leases (3,511) (1,436)
- loans - short term (70,844) (59,619)
- Discount on stock issuance - (550,000)
Interest received 18,090 14,631
------------------------------------------------
Loss for the year before income tax (1,759,526) (2,037,411)
------------------------------------------------
Income tax expense 11 - -
------------------------------------------------
Net loss (1,759,526) (2,037,411)
------------------------------------------------
Other comprehensive income/(loss)
Foreign currency translation adjustments 78,291 (96,431)
Comprehensive loss (1,681,235) (2,133,842)
------------------------------------------------
Net loss per share (0.18) (0.22)
------------------------------------------------
Weighted average number of shares 9,883,333 9,075,000
</TABLE>
The accompanying summary of significant accounting policies and notes form an
integral part of these financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN CASH FLOWS
<TABLE>
<CAPTION>
30 JUNE 30 JUNE
2000 1999
-----------------------------------------------------------------------------------------------
$ $
---------------------------------
CASH PROVIDED/(USED) BY:
<S> <C> <C>
OPERATING ACTIVITIES
Operations
Net loss for the year (1,759,526) (2,037,411)
---------------------------------
Items not involving cash:
Amortization 363,280 486,048
Write down of network equipment 357,080 -
Interest expenses related to issuance of stock at a discount - 550,000
---------------------------------
Increase/(decrease) from changes in:
Accounts receivable 350,899 224,035
Inventory 105,310 (39,644)
Deferred charges 450,380 (7,317)
Accounts payable and other Accruals 1,129,143 (1,024,398)
Income taxes (111) (3)
Employee entitlement payable 8,176 25,067
1,004,631 (1,823,623)
---------------------------------
INVESTING ACTIVITIES
Investments in:
Capital assets - net (25,725) (481,852)
(25,725) (481,852)
---------------------------------
FINANCING ACTIVITIES
Loans raised 818,558 1,250,000
Loans repaid - (1,000,000)
Loan payable on securitization of debt (38,186) 2,687
Lease payments (33,273) (25,183)
Proceeds on issue of stock - 689,571
Contribution of capital - 917,435
747,099 1,834,510
---------------------------------
(DECREASE)/INCREASE IN CASH 1,726,005 (470,965)
Cash at beginning of year 118,912 589,877
CASH AT END OF YEAR 1,844,917 118,912
---------------------------------
SUPPLEMENTAL NON-CASH INVESTING AND
FINANCING ACTIVITIES
Capital lease obligations - 59,191
Loan converted to share capital 487,275 -
Interest 74,355 61,055
</TABLE>
The accompanying summary of significant accounting policies and notes form an
integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
Notes on the Financial Statements
-------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY/(DEFICIT)
COMMON STOCK
-------------- ------------- ------------- ---------------------
ADDITIONAL
SHARES AMOUNT PAID IN ACCUMULATED
CAPITAL DEFICIT
------------------------------ -------------- ------------- ------------- ---------------------
<S> <C> <C> <C> <C>
Balance, at June 30, 1997 680,800 506,515 1,574,378 (1,834,042)
Contributed capital 481,659
Net loss for the year (472,258)
-------------- ------------- ------------- ---------------------
Balance at June 30, 1998 680,800 506,515 2,056,037 (2,306,300)
-------------- ------------- ------------- ---------------------
Recapitalization on 8,119,200 (497,715) 497,715
February 5, 1999 (see note (a))
-------------- ------------- ------------- ---------------------
Common stock for SVI 500,000 500 (500)
-------------- ------------- ------------- ---------------------
Shares issued to AICH for 600,000 600 (600)
placement Agreement
-------------- ------------- ------------- ---------------------
Common stock issued on 300,000 300 749,700
March 16, 1999 @ $2.50
per share
Listing costs Attributable (60,429)
To issuance
Contributed Capital 917,345
On March 31, 1999
-------------- ------------- ------------- ---------------------
Common stock issued 200,000 200 249,800
On June 9, 1999 at
$1.25 per share
-------------- ------------- ------------- ---------------------
Interest expense 550,000
Related to stock
Issued at a discount
-------------- ------------- ------------- ---------------------
Net loss for the year (2,037,411)
-------------- ------------- ------------- ---------------------
Balance, at June 30, 1999 10,400,000 10,400 4,959,068 (4,343,711)
-------------- ------------- ------------- ---------------------
Performance shares canceled (300,000) (300) 300
on May 31, 2000
-------------- ------------- ------------- ---------------------
Shares issued on May 31, 2000 100,000 100 249,900
-------------- ------------- ------------- ---------------------
AICH loan converted to equity 237,275
-------------- ------------- ------------- ---------------------
Net loss for the year (1,759,526)
-------------- ------------- ------------- ---------------------
Costs attributable to (6,279)
issuance
-------------- ------------- ------------- ---------------------
Balance, at June 30, 2000 10,200,000 10,200 5,440,264 (6,103,237)
</TABLE>
(a) The recapitilization that occurred on February 5, 1999 was necessary in
order to adjust the issued share capital to 8,800,000 shares. As described in
Note 1 to the financial statements, 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.
<PAGE>
Notes on the Financial Statements
--------------------------------------------------------------------------------
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. ORGANIZATION
Trade Wind Communications Limited, a Bermudan corporation , listed on the
Canadian Ventures Exchange (VSE: TWC) ("TWC") entered into a business
combination agreement ("Merger Agreement") on February 5, 1999 with
Flexemessaging.com, Inc. (previously Siler Ventures Inc. , "SVI") and
Atlantic International Capital Holdings Ltd. ("AICH") 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 Limited that controlled all the business assets.
On February 5, 1999, SVI entered into an acquisition agreement with TWC to
purchase all of its business assets, consisting of the stock of Trade Wind
Group Pty Limited ("TWG"), a wholly-owned subsidiary of TWC, incorporated
on September 6, 1988. SVI was a non-operating public shell with no tangible
assets and 500,000 shares of common stock outstanding. This merger of TWG
and SVI (a non-operating public shell with a tangible asset value of nil)
resulted in TWG having actual or effective operating control of the
combined Company after the transaction. As a result, this transaction has
been treated as a capital transaction in substance, rather than a business
combination and has been accounted for as a reverse acquisition. Any
references to past accomplishments of the Company and its financial
information, prior to the acquisition, relate solely to TWG, as combined,
since SVI (now known as Flexemessaging.com, Inc.) has been inactive for
several years. SVI acquired the assets of TWG in exchange for the issuance
of 8.8 million shares of common stock. This valuation was based on arms
length negotiation driven by ultimate ownership principles. A forward
valuation (a valuation arrived at by applying a revenue multiple to the
Company's future revenue stream) based on future revenues was determined
and from this capitalization model, the total outstanding common stock was
calculated. Thereafter, the respective equity ownership positions were
negotiated. SVI continued the operations of TWG as a wholly owned operating
subsidiary.
Pursuant to the Merger Agreement, the Company entered into an agreement
with AICH, a Bermudan corporation, with the objective of performing two
tasks. First, AICH was to identify an acquisition candidate and secondly,
AICH was to arrange for funding for the Company. Pursuant to that
agreement, AICH identified SVI as an acquisition vehicle and assisted the
Company in structuring and concluding the reverse acquisition. In return,
the shareholders of SVI were allocated 500,000 of the Company's common
stock after it had been recapitilized. The fair value of the assets and
liabilities assumed in the reverse acquisition were nil. AICH has also
assisted the Company in seeking financing of $3,660,000 through the sale of
the Company's common stock utilizing private placements. AICH made an
interim placement on March 16, 1999 of 300,000 shares of common stock of
the Company for $750,000.
Per the Merger Agreement, AICH was expected to place the balance of the
$3,660,000 financing through the sale of the Company's common stock
pursuant to future private placements. As a condition of the Merger
Agreement with AICH, 600,000 shares of the Company's common stock were
issued to AICH as performance shares for arranging future financing. These
performance shares were subject to a lockup agreement signed by AICH
whereby shares were to released from the lockup agreement in proportion to
the funds raised by AICH, subject to a minimum of $1 million.
On May 10, 2000, the Company entered into a Deed of Release with AICH,
whereby AICH was formally relinquished from its previous commitment of
raising funds. At the date of the Deed of Release, AICH had only raised
$750,000 and thus fell short of the $1 million minimum funding level to
qualify for performance shares. Per the Deed of Release, AICH could convert
outstanding debt evidenced by a promissory not issued to AICH in July 1999
to equity in order to satisfy the minimum funding threshold. As a result,
AICH was issued 100,000 shares at $2.50 per share. Subject to the
conditions governing the amount of performance shares to be released from
the restrictions set forth in the lock up agreement, AICH qualified for the
release of 40,984 free trading shares as a result of capital raising
undertaken prior to the date of the lock up agreement, 123,079 free trading
shares as a result of raising $750,000 and 41,027 free trading shares as a
result of the additional $250,000 raised from the debt to equity
conversion. Thus, AICH qualified for a total of 205,090 free trading
<PAGE>
Notes on the Financial Statements
--------------------------------------------------------------------------------
performance shares leaving 394,910 shares out of the 600,000 to be
canceled. However, AICH was in possession of only 300,000 shares and
pursuant to the terms of the Deed of Release, AICH agreed to pay the
Company an amount equal to the number of shares not available for
cancellation (94,910 shares) multiplied by $2.50 per share. This amount of
$237,275 has been set off against the promissory note issued to AICH in
July 1999 with the outstanding balance of such note being $12,225 as of
June 30, 2000. The Company has subsequently canceled the 300,000
performance shares returned by AICH.
Flexemessaging.com, Inc is incorporated under the laws of Idaho. Its stock
was traded on the Over the Counter Bulletin Board market until April 2000
and is now traded in the pink sheets, but is not registered with the US
Securities and Exchange Commission or the securities commission of any
state.
TWC is a holding company that did not carry on any operations. Its only
expenditures were in relation to investor relations and stock exchange
compliance, relating to its capital stock as listed on the Canadian
Ventures Exchange. As a result, all costs of doing business (i.e. officer
and employee salaries, rent, depreciation, advertising, accounting, legal,
interest expense) have been reflected in the financial statements of TWG.
The Company is primarily engaged in two major business segments: Voice and
Data and electronic messaging. The Company's Voice and Data Division is a
value add distributor of communication systems and data applications for
financial traders and emergency services operations. The Company's Flexifax
Division (electronic messaging) provides customers with a global enhanced
fax and email broadcast services originating from the customers' desktop
personal computer ("PC") or the internet.
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, 2000, and June 30, 1999.
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 $6,103,237 that includes a net
loss for the current period of $1,759,526. Management has the following
objectives for the next fiscal year:
o Continue to reposition the Company into a more broad based and value
added messaging service and away from its heavy reliance on fax
distribution using its proprietary network. The ongoing focus will be
on providing delivery capability to a wide variety of delivery
platforms, especially new messaging delivery platforms, such as WAP
(wireless application protocol) etc.
o Identify m-commerce and e-commerce opportunities complementary to the
messaging basis of the Company. These opportunities are currently
under active consideration and will initially be financed in house.
The actual costs will only be known after a project research and
feasibility study is completed. This is expected to be completed by
the end of the forthcoming third fiscal quarter.
o Seek Acquisition, Partnering or Joint Venture opportunities, which
will be complementary to the future messaging strategy and provide
opportunities for growth.
o Expand or identify opportunities to service new areas of the market.
The first of these opportunities has been addressed by the specialized
<PAGE>
Notes on the Financial Statements
--------------------------------------------------------------------------------
email delivery service that will be launched in the forthcoming second
fiscal quarter.
o Upgrade the existing delivery engine to be compatible with the latest
technological trends to facilitate data interchange with current and
future messaging technologies.
o Expand the Company's Voice and Data business and product range. Due to
the consolidation in the financial dealing room market the emphasis
will be changed from turret systems to call centers and their
applications.
The Company believes that current objectives and cash needs for operations
will be funded by the sale of the account receivables of the FlexiFax
Division under a working capital based factoring facility established with
Scottish Pacific Business Finance Pty Ltd. and cash profits generated from
the Voice & Data and FlexiFax Divisions. Acquisitions that the Company may
decide to pursue will be funded by the issuance of shares or by cash raised
from the investment community.
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, 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. Inventory comprises finished goods consisting primarily
of consoles, handsets, console cards, line cards, controller cards, power
supplies, pagers and cordless telephony equipment.
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 over their estimated useful lives ranging from 2.5 to 8
years 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.
<PAGE>
Notes on the Financial Statements
--------------------------------------------------------------------------------
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
(similar to a defined contribution plan) and are charged as expenses when
incurred. The amount contributed to the fund was $254,705 (1999: $235,701).
The Company has a statutory obligation to contribute 7% of total
remuneration to the employee superannuation fund. The contributions are
paid to externally managed funds. The Company has no other legal obligation
to provide benefits to employees on retirement.
K. REVENUE RECOGNITION
Revenue generated by the Voice & Data Division from product sales and
related installation is recognized upon customer acceptance after
completion of the installation. Under contract provisions, customers may be
progress-billed prior to the completion of the installations. The revenue
related to these advance payments is deferred until the system
installations are completed and accepted. Contracts for maintenance are
billed in advance, and are recorded as deferred revenue and recognized
ratably over the contractual periods. All direct costs incurred prior to
revenue recognition are reflected as deferred charges on the balance sheet.
Revenue is recognized on a gross basis as the Company acts as principal in
the transaction, takes title to products, and assumes the risks and rewards
from ownership. Under certain agreements for specified geographic regions,
the Company acts as an agent and recognizes revenue on a net basis as
commissions are earned. (See Note10).
Sales revenue for the FlexiFax division is recognized upon successful
transmission of fax deliveries.
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.
<PAGE>
Notes on the Financial Statements
--------------------------------------------------------------------------------
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 that 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, 2000 and 1999 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. As
the 600,000 shares directly or indirectly beneficially owned by AICH were
performance based, they were excluded from the weighted average number of
shares, until May 10, 2000, when the minimum funding requirement was met
and the contract terminated.
P. NEW ACCOUNTING PRONOUNCEMENTS
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 or 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. Based on its current and planned future
activities relative to derivative instruments, the Company believes that
the adoption of SFAS No. 133 will not have a significant effect on its
financial statements.
On December 3, 1999, the SEC issued Staff Accounting Bulletin 101 ("SAB
101"), Revenue Recognition in Financial Statements. SAB 101 summarizes some
of the SEC's interpretations of the application of generally accepted
accounting principles to revenue recognition. Revenue recognition under SAB
101 was initially effective for the Company's first quarter 2000 financial
statements. However, SAB 101B, which was released June 26, 2000, delayed
adoption of SAB 101 until no later than the fourth quarter of fiscal year
ending June 30, 2001. Changes resulting from SAB 101 require that a
cumulative effect of such changes for 1999 and prior years be recorded as
an adjustment to net income on July 1, 2000. The Company believes that its
revenue recognition practices are in substantial compliance with SAB 101
and that adoption of its provisions would not be material to its annual or
quarterly results of operations.
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.
T. SALE OF ACCOUNTS RECEIVABLE
The Company has adopted SFAS No 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS
125"), which provides consistent standards for distinguishing transfers of
financial assets that are sales from transfers that are secured borrowings.
The Company has established a factoring line with Scottish Pacific which
enables the Company to sell selected accounts receivable invoices to the
bank with full recourse against the Company. Pursuant to the provisions of
SFAS 125, the Company reflected the transactions as a sale of assets and
established an accounts receivable from Scottish Pacific for the retained
amount less the costs of the transaction and less any anticipated future
loss in the value of the retained asset. The retained amount is equal to
15% of the total accounts receivable invoice sold to the bank less 0.7% of
the total invoice as an administrative fee and an annual interest loading
of 2% per annum of the total outstanding accounts receivable as a finance
fee. The amount owing to Scottish Pacific as at June 30, 2000 was $36,249
as compared to $74,435 as at June 30, 1999.
<PAGE>
Notes on the Financial Statements
--------------------------------------------------------------------------------
S. CORRECTION OF ERROR
The financial statements have been restated to reflect the effect of a
change in the revenue recognition policy of the Company. The policy has
been restated to recognize revenue only upon customer acceptance after
completion of the installation of its voice switching systems. This change
has resulted in an increase in revenues by $234,374, net loss and net loss
per share reducing by $84,790 and $0.01 respectively for the year ended
June 30, 1999.
<PAGE>
Notes on the Financial Statements
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
30 JUNE
2000
------------------------------------------------------------------------- -----------------
$
-----------------
<S> <C>
NOTE 2: CASH
Cash at bank and on deposit 1,843,118
-----------------
Cash on hand 1,799
-----------------
1,844,917
-----------------
NOTE 3: RECEIVABLES
Trade debtors 1,408,893
Allowance for doubtful debts (40,355)
-----------------
Other debtors 180,277
-----------------
1,548,815
-----------------
NOTE 4: CAPITAL ASSETS
(a) Plant and Equipment - at cost 733,575
Furniture and Fittings - at cost 102,697
Motor Vehicles - at cost 78,791
Leasehold improvements - at cost 305,680
-----------------
Less accumulated amortization (921,511)
-----------------
299,232
-----------------
(b) Leased
Leased Motor Vehicles -
Capitalized leased assets 200,844
-----------------
Less accumulated amortization (167,790)
-----------------
33,054
-----------------
Total
Cost 1,421,587
-----------------
Less accumulated amortization (1,089,301)
-----------------
Cost less accumulated amortization 332,286
-----------------
Depreciation periods for each class of asset are as follows:
Plant and Equipment 2.5 - 4 years
Furniture and Fittings 8 years
Motor Vehicles 3-4 years
Leasehold improvements 8 years
NOTE 5: OTHER NON CURRENT ASSETS
Trademarks and customer lists 24,098
-----------------
Less accumulated amortization (9,976)
-----------------
14,122
-----------------
</TABLE>
<PAGE>
Notes on the Financial Statements
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
30 JUNE
2000
------------------------------------------------------------------------- -----------------
$
-----------------
<S> <C>
NOTE 6: SUNDRY CREDITORS AND ACCRUALS
Sundry creditors and accruals 551,691
-----------------
Employee entitlements 176,263
Accrued liabilities for reorganisation costs 103,219
-----------------
831,173
-----------------
NOTE 7: LEASE LIABILITIES
(a) Finance Leasing Commitments
-----------------
Payable
- not later than one year 10,911
- later than one year but not later than 2 years 9,070
- later than 2 years but not later than 3 years -
- later than 3 years but not later than 4 years -
-----------------
- later than 4 years but not later than 5 years -
Minimum lease payments 19,981
-----------------
Less future finance charges 95
-----------------
Total lease liability 19,886
Current portion 10,859
-----------------
Non-current portion 9,027
-----------------
19,886
-----------------
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 405,163
- later than one year but not later than 2 years 10,780
- later than 2 years but not later than 3 years -
- later than 3 years but not later than 4 years -
-----------------
- later than 4 years but not later than 5 years -
415,943
-----------------
-----------------
Rent expense incurred for the year ended
June 30, 2000 was $311,903 (1999: $435,496)
-----------------
</TABLE>
<PAGE>
Notes on the Financial Statements
--------------------------------------------------------------------------------
NOTE 8: LOANS PAYABLE
In September 1997, the Company arranged an unlimited working capital-based
facility with Scottish Pacific Business Finance Limited ("Scottish Pacific") in
respect of the Australian domiciled customers of FlexiFax Global Services. 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 TWG) as well as guarantees by TWG and its subsidiaries.
Interest is charged at the highest of the prevailing rates of either Westpac
Banking Corporation, Australia and New Zealand Banking Group Limited or National
Australia Bank Limited plus a margin of 2%. The prevailing interest rate at June
30, 2000 was 10.39% (1999: 10.93%). The original term of this agreement was for
a 12-month period with automatic renewals. This agreement may be terminated by
Scottish Pacific by giving one month's notice or by the Company giving three
month's notice. The amount owing to Scottish Pacific at June 30, 2000 is
$36,249. (See, Note 1(r)).
As of April 6, 1999 a private placement was made as a result of immediate short
term bridge financing of $1,250,000 arranged by AICH. The proceeds were to be
used to make a bid for Newsnet, a company under administration and in the same
business of fax broadcasting. As consideration for providing this facility on
very short notice the Company issued 200,000 shares at $1.25 ($250,000), a
$550,000 discount on fair value, to AICH, the cost of which was to be deducted
from the $1,250,000 proceeds. The $550,000 discount was a cost of obtaining the
financing and has been reflected as an interest expense in the Consolidated
Statement of Loss and Comprehensive Loss. The shares were issued at $1.25 as
compared to a previous placement price per share of $2.50 and $4.00 as quoted on
the OTCBB as of the date of issue. After lengthy negotiation the Company decided
to withdraw from pursuing the acquisition and the funds were returned to AICH as
per the agreement. As AICH provided the necessary funding, the shares were
issued on June 9, 1999.
AICH, as Agent, has advanced bridge financing in the sum of $499,500 to the
Company in return for an unsecured promissory note of the Company. The loan
bears interest at a 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 offering. As the
Company did not receive such net proceeds, no interest is due and payable. The
promissory note was to be repaid on the later of commencement of trading of the
Company's securities on the American Stock Exchange, NASDAQ or another national
exchange acceptable to the Company, or June 30, 2000. The note may be prepaid at
any time without penalty or premium. As the Company has not listed on any
exchange, the Company is not in default on the repayment of the loan. As per the
Deed of Release signed on May 10, 2000, AICH converted some of the promissory
note into equity in the amount of $487,275. The amount owing to AICH by the
Company at June 30, 2000 under the promissory note is $12,225. The Company also
borrowed an additional $54,695 from AICH. This amount is unsecured with no fixed
terms of repayment and does not attract interest.
Notes payable to related parties represent loans payable to Martin McCarthy for
$60,000 and Frank Favretto in the amount of $53,955. Mr. McCarthy and Mr.
Favretto are both directors of the Company. These loans are unsecured with no
fixed terms of repayment and do not attract interest.
The balance of the loan funds are unsecured with no fixed terms of repayment and
do not attract interest.
NOTE 9: COMPREHENSIVE INCOME - FOREIGN CURRENCY TRANSLATION
In accordance with SFAS 130, the accumulated comprehensive income comprises the
following:
Accumulated comprehensive income
Balance at beginning of year 138,733
Foreign currency translation adjustments 78,291
-------
Balance at end of year 217,024
<PAGE>
Notes on the Financial Statements
--------------------------------------------------------------------------------
NOTE 10: REORGANISATION COSTS
One of the core management objectives has been to 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 plan would involve the closure of the
existing proprietary fax network and the cessation of use of the related network
equipment and resources. This is considered to be a closure of the existing
proprietary fax delivery network and the cessation of use of the related network
equipment and resources. This is considered to be a closure of part of a line of
business. Currently only customer bases in the UK, Canada, USA, Switzerland and
Singapore are affected by this closure. Revenues from this service comprise less
than 9% of FlexiFax's total revenues.
In connection with this plan the Company signed an exclusive agreement on
December 2, 1999, with Premiere Information Systems Pty Ltd ("Premiere"), a
subsidiary of Premiere Technologies Inc., a communications company based in
Atlanta, Georgia whereby the Company has outsourced the delivery of its
international fax traffic to the Premiere network. This agreement provides for
Premiere to transmit all fax broadcast traffic for the Company for a period of
12 to 24 months subject to certain service and pricing criteria. The customer
bases in the UK, Canada, the USA, Switzerland and Singapore (representing the
outsourced service) will now be serviced by Premiere with the Company receiving
a commission on revenues generated over the next 24 months following the
execution of the agreement.
FlexiFax will still provide enhanced fax and email broadcast services to their
existing customers, namely Australia and New Zealand, which comprise 92% of the
segment's revenue. The Company is still billing the remaining customers that
have not been affected and the manner in which they transact with the Company is
unaltered.
As a result, with effect from December 1, 1999, all expenses in respect of
network operations (leased network backbone circuit expenses, facilities
management, software and hardware expenses and maintenance, network staff
resources) will not be continued.
The costs and liabilities of this plan includes:
<TABLE>
<CAPTION>
------------------------------------ --------------- ------------------- ------------ --------------
Expensed Applied against Payments Balance
related asset June 30, 2000
------------------------------------ --------------- ------------------- ------------ --------------
<S> <C> <C> <C>
Assumed obligations on closed 181,415 (78,196) 103,219
network operations
------------------------------------ --------------- ------------------- ------------ --------------
Severance and other employee 113,040 (113,040) -
costs(3 employees)
------------------------------------ --------------- ------------------- ------------ --------------
Impairment loss on network 357,080 (357,080) - -
equipment
------------------------------------ --------------- ------------------- ------------ --------------
651,535 (357,080) (191,236) 103,219
------------------------------------ --------------- ------------------- ------------ --------------
</TABLE>
Accrued liabilities for network operations in the amount of $103,219 as of June
30, 2000 relate to termination costs of contracts and other contractual
agreements with third parties. It is anticipated that this will be satisfied
during the next fiscal year.
There were not any further expenses incurred that would have the effect of
adjusting the restructuring liabilities. During the year payments of $191,236
were made, comprising of $78,196 in connection with line rentals and other
carrier related costs and $113,040 as a result of termination payments to a
former employee.
On December 16, 1999, Trade Centre Systems Holdings Pte Ltd ("TCSH"), an
indirectly wholly owned subsidiary of the Company, operating in Singapore
entered into an agreement with Jebsen and Jessen Communications Pte Ltd ("J&J").
Under the agreement TCSH has transferred its Voice & Data business to J&J in
return for revenue based commissions on sales and maintenance through to October
31, 2000. J&J have agreed to offer employment to certain of the employees of
TCSH. TCSH has agreed to provide J&J with certain stock and spare parts in order
to perform the maintenance function as well providing client site configuration
details. This agreement relates to the transfer/disposal of a geographical
portion of a segment and does not constitute a discontinued operation. This
transfer will not have a material impact on the performance of the Company as
the anticipated commission revenue stream represents less than 5% of the
Company's total revenues.
<PAGE>
Notes on the Financial Statements
--------------------------------------------------------------------------------
In July 1999, the Company ceased activities in relation to sales and
distribution of Dictaphone dictation products. This decision was taken, as this
activity was not aligned to the core competence of the Voice and Data Division
of the Company, which is voice and data systems integration. The Company still
continues to sell and support Dictaphone logging and call recording systems.
This will not have a material impact on the overall performance of the Company
as the earnings contribution from this activity was negligible. The amount
expensed in relation to the cessation of these activities was $164,178.
NOTE 11: INCOME TAX EXPENSE
Estimated tax losses available to the Company to be carried forward to future
years amount to $7,332,750 (1999: $5,975,184). 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 change 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,
2000.
NOTE 12: SEGMENTED FINANCIAL INFORMATION
The Company operates two business divisions, Voice and Data and FlexiFax Global
Services. The Voice and Data Division is a specialist supplier and integrator of
voice communications systems and decision support applications for dealing
rooms, emergency services dispatch and similar operations. The FlexiFax Division
operates an enhanced fax broadcast system. It is not considered necessary to
show geographic segmented financial information as revenues generated from
countries other than Australia are not considered significant and represent less
than 10% of total revenue. 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, 2000
<TABLE>
<CAPTION>
VOICE AND FLEXIFAX HEAD OFFICE CONSOLIDATED
DATA
<S> <C> <C> <C> <C>
Revenue 7,318,327 3,627,309 - 10,945,636
Amortization 85,179 214,780 63,321 363,280
Reorganisation Costs - (651,535) (164,178) (815,713)
Segment operating profit/(loss) 182,666 (1,159,675) (726,252) (1,703,261)
Identifiable assets 1,513,055 719,654 1,806,133 4,038,842
</TABLE>
<PAGE>
Notes on the Financial Statements
--------------------------------------------------------------------------------
FOR THE YEAR ENDING JUNE 30, 1999
<TABLE>
<CAPTION>
VOICE AND FLEXIFAX HEAD OFFICE CONSOLIDATED
DATA
<S> <C> <C> <C> <C>
Revenue 5,661,189 3,447,030 - 9,108,219
Amortization 126,159 304,409 55,480 486,048
Segment operating profit/(loss) 17,135 (1,368,978) (258,724) (1,440,987)
Identifiable assets 2,365,313 1,248,780 208,730 3,822,823
</TABLE>
During the year ended June 30, 2000, a voice dealing system was installed by the
Voice & Data Division generating in excess of 10% of the total revenues of the
Company for the year.
NOTE 13: EVENTS SUBSEQUENT TO BALANCE SHEET DATE
The Company has received an exchange offer proposal from its major shareholder,
TWC, whereby the Company would become a wholly owned subsidiary of TWC and TWC
would then merge the Company into a newly created subsidiary located in Bermuda.
Under this proposal, TWC would become the successor issuer to the Company
(pursuant to Rule 12g-3(a) and (f) of the Securities Exchange Act of 1934, as
amended) providing the shareholders with the continued benefit of the Company's
present reporting status through TWC, as well as TWC's existing listing on the
Canadian Ventures Exchange. The Board of Directors have approved the exchange
offer upon determining the offer would be in the best interest of the Company
and accordingly will present the matter for a vote to the shareholders at a
special meeting to be held no later than November 7, 2000. Specifically, TWC
proposes to exchange 1.754880714 of its shares for each outstanding share of
common stock of the Company on the record date of October 5, 2000 pursuant to
the terms of an Arrangement Agreement and in accordance with Section 99 of the
Bermuda Companies Act and the Idaho General Business Corporations Laws.
