SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
-----------------------------
FORM 10-QSB/A
-----------------------------
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For Quarter ended December 31, 1999
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No fee required)
Commission File Number: 0-27059
----------------------------
FLEXEMESSAGING.COM, INC.
-----------------------------
(Name of Small Business Issuer in its charter)
Idaho 82-0485978
----- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Level 27 Grosvenor Place
225 George Street
Sydney, Australia NSW 2000
------------------------ --------
(Address of principal executive offices) (Zip code)
Issuer's telephone number: (011) 61 2 9250-8888
---------------
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
Check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. [ ] Yes [X] No
As of February 11, 2000 there were 10,400,000 shares of Common Stock, par value
$.001 per share, of the registrant outstanding.
1
<PAGE>
TABLE OF CONTENTS
Page
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PART I FINANCIAL INFORMATION 3
Item 1. Financial Statements
Unaudited Consolidated Balance Sheet as of December 31, 1999 4
Unaudited Consolidated Statements of Loss and Comprehensive Loss 5
Operations for the three and six months ended December 31, 1999
and 1998
Unaudited Consolidated Statements of Cash Flows for the six 6
Months ended December 31, 1999 and 1998
Notes to the Unaudited Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition 13
And Results of Operations
Part II - Other Information:
Item 6. Exhibits 20
Ex. 10 Transfer agreement between Trade Centre Systems Pte Ltd 20
and Jebsen and Jessen Communications Pte Ltd
Ex. 27 Financial Data Schedule
Signatures 21
2
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
------- --------------------
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 six months ended December 31, 1999 and 1998,
and the consolidated statements of loss and comprehensive loss for the three
months ended December 31, 1999
The Company has two divisions: Voice and Data Division and FlexiFax Division
operating under the trade name of FlexiFax Global Services. 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. 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.
3
<PAGE>
FLEXEMESSAGING.COM, INC
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
NOTE UNAUDITED
31 DECEMBER
1999
------------------------------------------------------------- -------- ---------------
<S> <C> <C>
ASSETS $
CURRENT
Cash 217,525
Receivables 2,767,835
Inventory 305,620
Deferred charges 1,836,156
---------------
5,127,136
---------------
CAPITAL ASSETS 438,225
GOODWILL 3,805
OTHER 25,745
---------------
467,775
---------------
5,594,911
------------------------------------------------------------- -------- ---------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT
Trade Creditors 2,171,288
Sundry creditors and accruals 1,007,855
Customer deposits 272,188
Deferred revenue 2,139,605
Current portion of lease obligations 31,071
Loan payable on securitization of debt 106,089
---------------
5,728,096
---------------
NON CURRENT
Non current portion of lease obligations 21,561
Loans payable 2 757,695
Employee entitlements payable 138,098
---------------
917,354
---------------
TOTAL LIABILITIES 6,645,450
---------------
SHAREHOLDERS' EQUITY
Common Stock, $0.001 par value; 20,000,000 shares 10,400
Authorized; 10,400,000 shares issued
Preferred Stock, $0.001 par value; 5,000,000 shares -
Authorized; no shares issued
Additional paid-in capital 4,825,393
Comprehensive income - foreign currency translation 3 181,532
Accumulated deficit (6,067,864)
---------------
(1,050,539)
---------------
5,594,911
------------------------------------------------------------- -------- ---------------
</TABLE>
The accompanying summary of significant accounting policies and notes form an
integral part of these financial statements.
4
<PAGE>
CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
NOTE UNAUDITED UNAUDITED UNAUDITED UNAUDITED
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
31 DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER
1999 1998 1999 1998
--------------------------------- ------ --------------- ---------------- -- --------------- ----------------
$ $ $ $
<S> <C> <C> <C> <C>
REVENUES 2,143,727 1,843,122 4,221,017 3,986,028
LESS:
COST OF SALES 1,086,662 1,042,084 2,136,182 2,184,047
--------------- ---------------- -- --------------- ----------------
GROSS PROFIT 1,057,065 801,038 2,084,835 1,801,981
OPERATING EXPENSES
NETWORK OPERATING COSTS 18,574 27,140 42,405 55,826
SELLING, GENERAL AND 1,424,742 1,043,562 2,778,730 2,169,056
ADMINISTRATIVE
DEPRECIATION AND AMORTIZATION 134,707 120,689 244,600 227,806
RESTRUCTURING COSTS 725,735 - 725,735
--------------- ---------------- -- --------------- ----------------
TOTAL OPERATING EXPENSES 2,303,758 1,191,391 3,791,470 2,452,688
--------------- ---------------- -- --------------- ----------------
LOSS FROM OPERATIONS (1,246,693) (390,353) (1,706,635) (650,707)
Other income/(expense)
Interest paid
- loans - short term (14,698) (16,903) (25,712) (25,308)
Interest received 6,882 4,747 8,194 6,882
--------------- ---------------- -- --------------- ----------------
LOSS FOR THE YEAR BEFORE INCOME (1,254,509) (402,509) (1,724,153) (669,133)
TAX
Income tax expense - - - -
--------------- ---------------- -- --------------- ----------------
NET LOSS (1,254,509) (402,509) (1,724,153) (669,133)
OTHER COMPREHENSIVE INCOME, NET
OF TAX
Foreign currency translation 13,458 17,287 42,799 19,516
adjustments
--------------- ---------------- -- --------------- ----------------
COMPREHENSIVE LOSS (1,241,051) (385,222) (1,766,952) (649,617)
NET LOSS PER SHARE (0.13) (0.044) (0.18) (0.08)
WEIGHTED AVERAGE NUMBER OF 9,800,000 8,800,000 9,800,000 8,800,000
SHARES
</TABLE>
The accompanying summary of significant accounting policies and notes form an
integral part of these financial statements.
5
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN CASH FLOWS
<TABLE>
<CAPTION>
UNAUDITED UNAUDITED
SIX MONTHS SIX MONTHS
ENDED ENDED
31 DECEMBER 31 DECEMBER
1999 1998
--------------------------------------------------------------------------------------------
<S> <C> <C
CASH PROVIDED/(USED) BY: $ $
OPERATING ACTIVITIES
Operations
Net loss for the year (1,724,153) (669,133)
Items not involving cash:
Amortization 244,600 227,806
Write down of network equipment 419,418
Changes in operating assets and liabilities:
Accounts receivable (868,121) 387,727
Inventory 750 (57,232)
Deferred charges (1,288,134) 168,220
Accounts payable and other 2,700,921 (1,154,450)
accruals
Income taxes (111) 1
Employee entitlement payable 6,247 7,705
----- -----
(508,583) (1089,356)
INVESTING ACTIVITIES
Investments in:
Capital assets - net (41,951) (119,083)
-------- ---------
(41,951) (119,083)
FINANCING ACTIVITIES
Loans raised 757,695 -
Loan payable on securitization of debt 31,654 (1,761)
Lease payments (6,527) (7,275)
Contribution of capital - 681,635
Distributions (133,675) -
--------- -
649,147 672,599
(DECREASE)/INCREASE IN CASH 98,613 (535,840)
Cash at beginning of year 118,912 589,877
CASH AT END OF YEAR 217,525 54,037
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING
ACTIVITIES
Capital lease obligations - -
Interest 25,712 25,308
</TABLE>
The accompanying summary of significant accounting policies and notes form an
integral part of these financial statements.
6
<PAGE>
Notes on the Financial Statements
--------------------------------------------------------------------------------
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. INTERIM FINANCIAL STATEMENTS
The Consolidated interim financial statements included herein are stated in
US dollars and have been prepared by the Company, without audit, in
accordance with accounting principles generally accepted in the United
States and pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
such rules and regulations, although the Company believes that the
disclosures are adequate to make the information presented not misleading.
These statements reflect all adjustments, consisting of normal recurring
adjustments, which, in the opinion of management, are necessary for fair
presentation of the information contained therein. It is suggested that
these Consolidated interim financial statements be read in conjunction with
the financial statements of Flexemessaging.com Inc for the year ended June
30, 1999 and notes thereto included in the Company's registration on Form
10-SB, as amended. The Company follows the same accounting principles in
preparation of interim reports.
Results of operations for the interim periods are not indicative of annual
results.
B. ORGANIZATION
Trade Wind Communications Limited, a Bermudan corporation , listed on the
Canadian Venture 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 has 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 recapitalized. The fair value of the assets and
7
<PAGE>
Notes on the Financial Statements
--------------------------------------------------------------------------------
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 is 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 are subject to a lockup agreement signed by AICH whereby
shares will be released from the lockup agreement in proportion to the
funds raised by AICH, subject to a minimum of $1 million. The funding
minimum was not raised within the required 70 days as a result of various
delays concerning the Merger Agreement with the US shell company, SVI.
Management has informally extended the timeframe for raising the required
funding minimum until June 30, 2000.
Flexemessaging.com, Inc is incorporated under the laws of Idaho. Its stock
is traded on the Over the Counter Bulletin Board market, but is not
registered with the US Securities and Exchange Commission or the securities
commission of any state. Included in the issued stock of the Company are
the 600,000 performance shares of common stock beneficially owned by AICH.
These shares are held in escrow and will be subject to performance by AICH
under the terms of the Merger Agreement. The performance terms have not
been met and management has informally extended the time to complete the
performance terms until June 30, 2000.
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 Venture
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.
TWG's principal activity comprises the sale of telecommunication equipment
and the provision of communication services. The majority of sales to date
have been concentrated in Australia , however with the expansion of its
communication services to Europe and North America, the Company is
developing a global profile.
These financial statements are stated in US dollars and have been prepared
in accordance with generally accepted accounting principles in United
States.
These unaudited financial statements present figures for the Company for
the three and six months ended December 31, 1999, and 1998.
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 $6,067,864, which
includes a net loss (after extraordinary items) for the current period of
$1,724,153. 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.
8
<PAGE>
Notes on the Financial Statements
--------------------------------------------------------------------------------
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.
D. 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.
E. 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 decreasing by $1,807,138, net loss and net loss per
share increasing by $340,665 and $0.05 cents per share for the six months
ended December 31, 1999, and revenue decreasing by $310,241, net loss and
net loss per share increasing by $134,784 and $0.02 cents per share
respectively for the six months ended December 31, 1998.
NOTE 2: LOANS PAYABLE
AICH as Agent, has advanced bridge financing in the sum of $499,500, in return
for an unsecured promissory note of Flexemessaging.com Inc. 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 offering
described in Note 5. 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.
The balance of the loan funds are unsecured with no fixed terms of repayment and
do not attract interest.
NOTE 3: COMPREHENSIVE INCOME - FOREIGN CURRENCY TRANSLATION
In accordance with SFAS 130, the accumulated comprehensive income comprises the
following:
Accumulated comprehensive income
Balance at beginning of period 138,733
Foreign currency translation adjustments 42,799
-----------
Balance at end of period 181,532
9
<PAGE>
Notes on the Financial Statements
--------------------------------------------------------------------------------
NOTE 4: SEGMENTED FINANCIAL INFORMATION
The Company operates two business divisions, Voice and Data and FlexiFax. 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. FlexiFax 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 THREE MONTHS ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
VOICE AND FLEXIFAX HEAD OFFICE CONSOLIDATED
DATA
<S> <C> <C> <C> <C>
Revenue 1,296,716 847,011 - 2,143,727
------------ ------------ -------------- ---------------
Amortization 31,331 96,636 6,740 134,707
------------ ------------ -------------- ---------------
Segment operating profit/(loss) (115,397) (1,020,145) (111,151) (1,246,693)
------------ ------------ -------------- ---------------
Identifiable assets 4,709,531 651,169 234,211 5,594,911
------------ ------------ -------------- ---------------
FOR THE THREE MONTHS ENDED
DECEMBER 31, 1998
Revenue 1,098,960 744,162 - 1,843,122
------------ ------------ -------------- ---------------
Amortization 26,287 91,853 2,549 120,689
------------ ------------ -------------- ---------------
Segment operating profit/(loss) (121,396) (249,013) (19,944) (390,353)
------------ ------------ -------------- ---------------
Identifiable assets 1,839,389 1,205,656 259,360 3,304,405
------------ ------------ -------------- ---------------
</TABLE>
10
<PAGE>
Notes on the Financial Statements
--------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
VOICE AND FLEXIFAX HEAD OFFICE CONSOLIDATED
DATA
<S> <C> <C> <C> <C>
Revenue 2,422,093 1,798,924 - 4,221,017
------------ ------------ -------------- ---------------
Amortization 62,720 168,380 13,500 244,600
------------ ------------ -------------- ---------------
Segment operating profit/(loss) (-239,824) (1,303,102) (163,709) (1,706,635)
------------ ------------ -------------- ---------------
Identifiable assets 4,709,531 651,169 234,211 5,594,911
------------ ------------ -------------- ---------------
FOR THE SIX MONTHS ENDED
DECEMBER 31, 1998
Revenue 2,395,587 1,590,441 - 3,986,028
------------ ------------ -------------- ---------------
Amortization 57,806 164,765 5,235 227,806
------------ ------------ -------------- ---------------
Segment operating profit/(loss) (206,959) (403,443) (40,305) (650,707)
------------ ------------ -------------- ---------------
Identifiable assets 2,255,668 1,205,656 259,360 3,720,684
------------ ------------ -------------- ---------------
</TABLE>
NOTE 5: 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 for the raising of net
proceeds of $1,725,000 by way of private placement. This offering is being made
pursuant to the limited and private offering exemption set forth in Rule 506 of
Regulation D under the US Securities Act of 1933, as amended ("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.
NOTE 6: RESTRUCTURING 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.
11
<PAGE>
Notes on the Financial Statements
--------------------------------------------------------------------------------
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 would outsource the delivery of its 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
discontinued and/or outsourced service) will now be serviced by Premiere with
the Company receiving a commission on revenues generated for the next 24 months.
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 Dec 31, 1999
------------------------------------ --------------- ------------------- ------------ --------------
<S> <C> <C> <C> <C>
Assumed obligations on closed 188,723 (50,116) 138,607
network operations
------------------------------------ --------------- ------------------- ------------ --------------
Severance and other employee 117,594 (19,500) 98,094
costs(3 employees)
------------------------------------ --------------- ------------------- ------------ --------------
Impairment loss on network 419,418 (419,418) - -
equipment
------------------------------------ --------------- ------------------- ------------ --------------
725,735 (419,418) (69,616) (236,701)
------------------------------------ --------------- ------------------- ------------ --------------
</TABLE>
Accrued liabilities for network operations in the amount of $138,607 as of
December 31, 1999 relate to termination costs of contracts and other contractual
agreements with third parties.
Estimated severance and other employee costs in the amount of $98,094 as of
December 31, 1999 relate to estimated severance for terminated employees.
Employee groups affected include management and network support personnel. As of
December 31, 1999 the accrual related to one senior employee.
The impairment loss on network equipment relates to network equipment that is to
be abandoned or otherwise disposed of. These assets are no longer being used in
the continued operations of the Company.
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.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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.
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.
As a result of the reverse acquisition of TWG by the Company in February 1999,
the financial information and financial statements presented herein are those of
TWG, the accounting acquirer. Thus, the financial position and results of
operation of the Company were recorded in Australian dollars, the functional
currency, and have been converted to US dollars.
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 agreement on December 2, 1999
with Premiere whereby the Company would outsource the delivery of its 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
discontinued and/or outsourced service) will now be serviced by Premiere with
the Company receiving a commission on revenues generated for the next 24 months.
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.
On December 16, 1999 TCSH, an indirectly wholly owned subsidiary of the Company,
operating in Singapore entered into an agreement with J&J. Under the agreement
TCSH has transferred its Voice & Data business to J&J in return for revenue
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based commissions on sales and maintenance through 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.
RESULTS OF OPERATIONS AND FINANCIAL POSITION FOR THE THREE MONTHS ENDED DECEMBER
31, 1999 AND 1998
Management's discussion and analysis of operations for the period ended December
31, 1999 and 1998 are on the converted US dollar figures. References have been
made to certain figures before taking into account the effect of the foreign
currency translation adjustment where necessary.
CONSOLIDATED RESULTS OF OPERATIONS
Consolidated revenues increased by 16% to $2,143,727 for the three months ended
December 31, 1999, as compared to $1,843,122 for the three months ended December
31, 1998. As a result of increased sales volumes, cost of sales increased to
$1,086,662 from $1,042,084 in the prior period. Cost of sales as a percentage of
revenue decreased to 51%, down from 57% in the corresponding period. Total
operating expenses before restructuring costs increased 32% to $1,578,023 from
$1,191,391 in the prior period. Total operating expenses after restructuring
costs increased 93% to $2,303,758 from $1,191,391 in the prior period. The net
loss before restructuring costs for the three months ended December 31, 1999 was
$520,958, which was up from the net loss reported for the three months ended
December 31, 1998 of $390,353. As a result of the restructuring costs, the net
loss for the three months ended December 31, 1999 was $1,254,509, which was up
from the net loss reported for the three months ended December 31, 1998 of
$402,509.
A detailed explanation of the results by operating division follows.
FlexiFax Division
Revenues. Revenue increased 14% to $847,011 for the three months ended December
31, 1999 from $744,162 for the three months ended December 31, 1998. Revenues
generated in countries outside of the US increased by 14%, which is lower than
the previous quarter increase as a result of the transaction with 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 been migrated to Premiere. In other words,
revenue will only be earned by the Company, if Premiere has generated revenue
from the said customer base, which is dependent on those customers using the
service.
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 $462,797 for the three months ended December 31, 1999 compared
to $505,482 for the prior period. Cost of sales as a percentage of revenue
decreased to 55% for the three months ended December 31, 1999, compared to 68%
for the corresponding period, mainly as a result of lower termination pricing
being negotiated with carriers. Note that from December 1999, cost of sales will
only include distributors' commission, software maintenance and support, and
domestic, long distance and international termination charges.
Total operating expenses. Total operating expenses consist of expenses
associated with staff, premises, communications, travel, group management fees,
depreciation, restructuring costs and other expenses incurred in running the
operation. Total operating expenses before restructuring costs for the three
months ended December 31, 1999 amounted to $705,911 compared to $589,264 in the
corresponding period. Significant expenses were incurred in connection with the
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establishment of a direct office in London in the amount of $94,050 for the
three months ended December 31, 1999. The balance of the increase in expenditure
resulted mainly from increased staff costs, largely as a result of the
establishment of the Flexemedia Division which disseminates news releases.
Depreciation decreased to $96,636 for the three months ended December 31, 1999,
compared to $91,853 in the prior period. Restructuring costs have been incurred
as a result of closing down the Company's network and releasing some employees
in connection with the agreement with Premiere, whereby the end delivery of
transmissions will be performed by Premiere. Restructuring costs amounted to
$725,735 in the three months ended December 31, 1999. Total operating expenses
after restructuring costs for the three months ended December 31, 1999 amounted
to $1,431,646 compared to $589,264 in the corresponding period.
Voice and Data Division
Revenues. Revenues consist of sales from systems integration solutions for
voice, call centre, electronic display, paging, call recording and data
applications. Revenues increased 18% to $1,296,716 for the three months ended
December 31, 1999, from $1,098,960 for the three months ended December 31, 1998.
The increase is mainly attributable to turret system sales of $354,242 resulting
from the Division entering into an agreement with IPC as its Australian
distributor for its products as compared to $289,253 generated in the
comparative period. The agreement with IPC is expected to generate further
positive results in this fiscal year, with turret systems sales forecasted to be
significantly higher than for the fiscal 2000 year.
Cost of sales. Cost of sales consists of the purchase of third party product,
necessary to complete the systems integration solution. Cost of sales for the
three months ended December 31, 1999 amounted to $623,865 compared to $536,602
for the comparative quarter as a result of increased sales volumes. Cost of
sales as a percentage of revenue increased to 51% for the current fiscal period
up from 49% for the three months ended December 31, 1998. 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 V Band voice customer base, as well as a change in
the overall revenue mix, where different product groups attract different gross
margins. It is envisaged that the margins will be maintained around these
levels. The decrease in the margin is as a result of more turret system sales
being concluded in this period as compared to the prior period where mainly
moves, adds and changes were performed with very little turret system sales
being concluded. The turret system sales generate higher revenue but lower
margins as compared to moves, adds and changes. Increased turret system sales
was the desired effect in signing the IPC distribution agreement. The Company is
subject to a performance criterion of $2 million sales per year under this IPC
distribution agreement.
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 three months ended December 31, 1999 amounted to
$760,961 compared to $582,183 in the corresponding period. Depreciation was
$31,331 for the three months ended December 31, 1999, compared to $26,287 in the
prior period.
RESULTS OF OPERATIONS AND FINANCIAL POSITION FOR THE SIX MONTHS ENDED DECEMBER
31, 1999 AND 1998
Management's discussion and analysis of operations for the period ended December
31, 1999 and 1998 are on the converted US dollar figures. References have been
made to certain figures before taking into account the effect of the foreign
currency translation adjustment where necessary.
CONSOLIDATED RESULTS OF OPERATIONS
Consolidated revenues increased by 6% to $4,221,017 for the six months ended
December 31, 1999, compared to $3,986,028 for the six months ended December 31,
1998. Cost of sales decreased to $2,136,182, from $2,184,047 in the prior
period. Cost of sales as a percentage of revenue decreased to 51%, down from 55%
in the corresponding period. Total operating expenses before restructuring costs
increased 25% to $3,065,735 from $2,452,688 in the prior period. Total operating
expenses after restructuring costs increased 55% to $3,791,470 from $2,452,688
in the prior period. The net loss before restructuring costs for the six months
15
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ended December 31, 1999 was $980,900, which was up from the amount reported for
the six months ended December 31, 1998 of $650,707. A net loss after
restructuring costs for the six months ended December 31, 1999 of $1,724,153 was
reported, which was up from the net loss reported for the six months ended
December 31, 1998 of $669,133.
A detailed explanation of the results by operating division follows.
FlexiFax Division
Revenues. FlexiFax revenues increased 13% to $1,798,924 for the six months ended
December 31, 1999 from $1,590,441 for the six months ended December 31, 1998.
Revenues generated in countries outside of the US increased by 13%. 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 been migrated to Premiere. In other words, revenue
will only be earned by the Company, if Premiere has generated revenue from the
said customer base, which is dependent on those customers using the service.
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 $1,009,448 for the six months ended December 31, 1999 compared
to $1,034,597 for the prior period. Cost of sales as a percentage of revenue
decreased to 56% for the six months ended December 31, 1999, compared to 65% for
the corresponding period, mainly as a result of lower termination pricing being
negotiated with carriers. From December 1999, cost of sales will only include
distributors' commission, software maintenance and support, and domestic, long
distance and international termination charges.
Total operating expenses. Total operating expenses consist of expenses
associated with staff, premises, communications, travel, group management fees,
depreciation, restructuring costs and other expenses incurred in running the
operations. Total operating expenses before restructuring costs for the six
months ended December 31, 1999 amounted to $1,366,843 as compared to $959,288 in
the corresponding period. Significant expenses were incurred in connection with
the establishment of an office in London amounting to $178,743 for the six
months ended December 31, 1999. The balance of the increase in expenditure
resulted mainly from increased staff costs, largely as a result of the
establishment of the Flexemedia division, which disseminates news releases.
Depreciation decreased to $148,380 for the six months ended December 31, 1999,
compared to $164,765 in the prior period. Total operating expenses after
restructuring costs for the six months ended December 31, 1999 amounted to
$2,092,578 as compared to $959,288 in the corresponding period.
Voice and Data Division
Revenues. Revenues consist of sales from systems integration solutions for
voice, call centre, electronic display, paging, call recording and data
applications. Revenues increased 1% to $2,422,093 for the six months ended
December 31, 1999, from $2,395,587 for the six months ended December 31, 1998.
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
six months ended December 31, 1999 amounted to $1,126,734 as compared to
$1,149,450 for the comparative quarter. Cost of sales as a percentage of revenue
decreased to 47% for the current fiscal period down from 48% for the six months
ended December 31, 1998.
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 operations. Total
operating expenses for the six months ended December 31, 1999 amounted to
$1,535,183 as compared to $1,453,095 in the corresponding period. Depreciation
was $62,720 for the six months ended December 31, 1999, as compared to $57,806
in the prior period.
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Liquidity and Capital Resources
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, expressed substantial doubt
about our ability to continue as a going concern because of recurring net losses
and negative cash flows from operations.
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 anticipates raising additional capital of $3.66 million with the
assistance of AICH by means of private placement. If the private placement is
not completed, 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.
The Company will achieve this 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's need for
additional funding will continue 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 US$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
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.
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
17
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received relating to the invoices and other working capital and external
sources. The outstanding balance owing to Scottish Pacific as at December 31,
1999 was $106,089. 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
$508,583 for the six months ended December 31, 1999, as compared to $1,089,356
for the six months ended December 31, 1998. Accounts receivable increased to
$2,767,835 from $1,899,714 for the six months ended December 31, 1998 mainly as
a result of increased sales volumes in the second quarter. Accounts payable and
other accruals increased by $2,700,921 as compared to a decrease of $1,154,450
in the prior comparative period, mainly as a result of increased sales activity
in the second quarter as well as some of the funding received going towards
reducing the payables to an acceptable level in the prior period.
Cash used in investing activities, consisting primarily of the purchase of
capital assets, amounted to $41,951for the six months ended December 31, 1999,
and $119,083 in the corresponding period in 1998.
Cash generated from financing activities, amounted to $649,147 as compared to
$672,599 in the prior period primarily as a result of unsecured loans in the
amount of $757,695. In the prior period, TWC contributed capital in the amount
of $681,635.
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 which 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 which could
affect an entity's ability to conduct normal business operations. It is not
possible to be certain that all aspects of the Year 2000 Issue affecting the
entity, including those related to the efforts of customers, suppliers, or other
third parties, will be fully resolved.
The Company has formulated a Y2K compliance program to test and has successfully
tested the Company's products and services for compliance. All the Company's
principals who supply products have been asked for a compliance statement.
However in the telecommunications environment, individual products may be
compliant but their operation as a whole also depends on third parties over
which the Company has no control or in some cases even input.
The cost to the Company of the Y2K compliance program has not be separated but
been written off into general operating expenses and leasing costs (for
equipment upgrade). As of March 17, 2000 the Company has not experienced any
material effect or delay as a result of the Y2K issue.
Flexifax Division. As a result of the Premiere transaction (whereby Flexifax
-----------------
outsources final delivery of their fax traffic to the Premiere network) the Y2K
risk lies primarily with the Premiere network readiness. Flexifax has asked (and
has received) from Premiere a Y2K compliance status and fall back plan. To date,
the Company has not experienced any difficulties with delay or material adverse
effects from the services provided by Premiere as a result of Y2K.
Voice and Data Division. Any software designed by the Company over the last year
-----------------------
has been Y2K compliant. The equipment distributed from the Company's principals
has also undergone test simulations for Y2K of the generic product. Similar
tests were not done at client's sites but the Company believes most clients are
conducting their own compliance programs. To date, the Company has not
experienced any difficulties with delay or material adverse effects as a result
Y2K.
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The Y2K compliance position of following products (excluding any PCs owned or
supplied by the customer) sold to, or used in customer premises, by the Voice
and Data over the 12 months are as listed below:
V Band products - Not date dependent - compliant
IPC Products - Compliant by purchasing upgrade.
CSK Systems - Supplier certificated
Dictaphone - Supplier certificated (with one minor exception currently being
addressed)
Multitone - Supplier certificated
Rockwell (ACD and Transcend) - Supplier certificated
Voicetek - Supplier certificated
Witness Systems - Supplier certificated
Webline - Supplier certificated
NxOrc - Supplier certificated
Company designed products:
Clarity - Compliant
ASX software interface has been tested for compliance.
Other designs and interfaces - Not date dependent.
The Flexifax billing system has been tested for compliance by simulated date
change.
Internal Company Systems
------------------------
To date, none of the Company's internal systems have experienced any problems or
delays as a result of Y2K. PCs purchased over at least a year ago by the Company
have been compliant and PC's used in the Company's accounting area are Y2K
compliant.
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Part II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
* 10 Transfer agreement between Trade Centre Systems Pte Ltd and
Jebsen and Jessen Communications Pte Ltd
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
------------------
* previously filed
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SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the Registrant has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized.
FLEXEMESSAGING.COM, INC.
(Registrant)
Date: October 11, 2000
/s/ Nicholas Bird
------------------------------
Nicholas Bird, President
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