SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
-----------------------------
FORM 10-QSB/A
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[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For Quarter ended September 30, 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
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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
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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
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.
<PAGE>
TABLE OF CONTENTS
Page
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements 3
Unaudited Consolidated Balance Sheet as of September 30, 1999 4
Unaudited Consolidated Statements of Operations for the 5
three months ended September 30, 1999 and 1998
Unaudited Consolidated Statements of Cash Flows for the 6
three months ended September 30, 1999 and 1998
Notes to the Unaudited Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition 11
And Results of Operations
PART II Other Information
Item 6. Exhibits 17
Ex. 27 Financial Data Schedule 17
Signatures 18
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<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 three months ended September 30, 1999 and
1998.
The Company has two divisions: Voice and Data Division and FlexiFax Division
operating under the trade name of FlexiFax Global Services. Voice and Data
Systems is a specialist supplier and integrator of voice communication systems
and decision support applications for dealing rooms, emergency services and
other organizations with mission-critical needs. FlexiFax Global Services
operates an enhanced fax broadcast service over a global network. FlexiFax
specializes in quality fax broadcasts generated from customers' desktops for
delivery to any destination in the world.
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<PAGE>
Flexemessaging.com, Inc
Consolidated Balance Sheets
<TABLE>
<CAPTION>
Note Unaudited
30 September
1999
- ----------------------------------------------------------------------------------------- -------------- -----------------
Assets $
Current
<S> <C>
Cash 240,425
Receivables 2,302,225
Inventory 386,266
Costs on projects not yet billed 341,561
-----------------
3,270,477
-----------------
Capital assets 978,225
Goodwill 6,636
Other 20,453
-----------------
1,005,314
-----------------
4,275,791
- ----------------------------------------------------------------------------------------- -------------- -----------------
Liabilities and Shareholders' Equity
Current
Trade Creditors 1,354,566
Sundry creditors and accruals 600,671
Customer deposits 814,777
Unearned maintenance revenue 213,998
Current portion of lease obligations 31,143
Loan payable on securitization of debt 76,277
-----------------
3,091,432
-----------------
Non Current
Non current portion of lease obligations 21,611
Loans payable 2 724,363
Employee entitlements payable 134,019
-----------------
879,993
-----------------
Total Liabilities 3,971,425
-----------------
Shareholders' Equity
Common Stock, $0.001 par value; 20,000,000 shares
Authorized; 10,400,000 shares issued 10,400
Preferred Stock, $0.001 par value; 5,000,000 shares
Authorized; no shares issued -
Additional paid-in capital 4,611,425
Comprehensive income - foreign currency translation 3 168,074
Accumulated deficit (4,485,533)
-----------------
304,366
-----------------
4,275,791
</TABLE>
The accompanying summary of significant accounting policies and notes form an
integral part of these financial statements.
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<PAGE>
Consolidated Statements of Loss and Comprehensive Loss
<TABLE>
<CAPTION>
Note Unaudited Unaudited
Three months ended Three months ended
30September 30September
1999 1998
- ------------------------------------------------------------- ----------- ------------------------- --- --------------------------
$ $
<S> <C> <C>
Revenues 2,077,290 2,480,940
Less:
Cost of Sales 1,049,520 1,338,376
------------------------- --------------------------
Gross Profit 1,027,770 1,142,564
Operating Expenses
Network operating costs 23,831 28,686
Selling, general and administrative 1,353,988 1,125,494
Depreciation and amortization 109,893 107,117
------------------------- --------------------------
Total operating expenses 1,487,712 1,261,297
------------------------- --------------------------
Loss from Operations (459,942) (118,733)
Other income/(expense)
Interest paid
- loans - short term (11,014) (8,405)
Interest received 1,312 2,135
------------------------- --------------------------
Loss for the year before income tax (469,644) (125,003)
Income tax expense - -
------------------------- --------------------------
Net loss (469,644) (125,003)
Other comprehensive (loss)/income, net of tax
Foreign currency translation adjustments (29,341) (2,229)
------------------------- --------------------------
Comprehensive loss (498,985) (127,232)
Net loss per share (0.05) (0.01)
Weighted average number of shares 10,400,000 8,800,000
</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
Three months ended Three months ended
30September 30September
1999 1998
Cash provided/(used) by: $ $
Operating Activities
Operations
<S> <C> <C>
Net loss for the year (469,644) (125,003)
Items not involving cash:
Amortization 109,893 107,117
Increase/(decrease) from changes in:
Accounts receivable (402,511) (65,919)
Inventory (79,896) (67,911)
Costs on projects not yet billed 115,223 248,638
Accounts payable and other accruals 213,057 (813,836)
Income taxes (111) 3
Employee entitlement payable 2,168 41,625
(511,821) (675,286)
Investing Activities
Investments in:
Capital assets - net (41,823) (118,387)
(41,823) (118,387)
Financing Activities
Loans raised 724,363 -
Loan payable on securitization of debt 1,842 174
Lease payments (3,405) (3,601)
Proceeds on issue of stock -
Contribution of capital (47,643) 320,506
675,157 317,079
(Decrease)/Increase in cash 121,513 (476,594)
Cash at beginning of year 118,912 589,877
Cash at end of year 240,425 113,283
Supplemental non-cash investing and financing activities
Capital lease obligations - 5,915
Interest 11,014 8,405
</TABLE>
The accompanying summary of significant accounting policies and notes form an
integral part of these financial statements.
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<PAGE>
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 Ltd
(TWG) which controlled all the business assets.
On February 5, 1999, SVI entered into an acquisition agreement with
Trade Wind Communications Limited ("TWC"), a Bermudan corporation
listed on the Canadian Venture 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. 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 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.
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<PAGE>
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 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
Flexemessaging.com, Inc. for $750,000.
Per the Merger Agreement, AICH is expected to place the balance of
the $3,660,000 financing through the sale of Flexemessaging.com,
Inc.'s common stock pursuant to future private placements. A
condition of the Merger Agreement with AICH was that 600,000 shares
were to be 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. The treatment
of these performance shares is under review by the board pending the
result of the latest capital raising activity by AICH and remain
subject to possible cancellation if the terms and conditions of the
agreement are not met.
Flexemessaging.com, Inc is incorporated under the laws of Idaho. Its
stock is traded on the Over the Counter Bulletin Board market, but
is not registered with the US Securities and Exchange Commission or
the securities commission of any state. Included in the issued stock
are 600,000 shares of common stock beneficially owned by 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 the contract is currently under review by
management.
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 manufacture and 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.
-8-
<PAGE>
These unaudited financial statements present figures for the Company
for the three months ended September 30 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 $4,485,533
which includes a net loss for the current period of $469,644. The
Company anticipates raising additional capital to meet its planned
operational and expansion requirements over the remaining part of
the financial year ending June 30, 2000. Should the appropriate
level of funding not become available, then the Company will have to
reduce its costs employed in various areas including its global
expansion activities, network expansion, new channel marketing
initiatives, R&D, sales and general marketing activities to a cost
level 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.
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 three months ended September 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
performance based, they have been excluded from the weighted average
number of shares.
NOTE 2: LOANS PAYABLE
AICH as Agent has advanced bridge financing in the sum of $499,500,
in return for an unsecured promissory note over 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
above-mentioned offering. 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 Compamny, 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.
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<PAGE>
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 year 138,733
Foreign currency translation adjustments 29,341
-------
Balance at end of year 168,074
NOTE 4: SEGMENTED FINANCIAL INFORMATION
The Company operates two business divisions, Voice and Data Systems and FlexiFax
Global Services. Voice and Data Systems is a specialist supplier and integrator
of voice communications systems and decision support applications for dealing
rooms, emergency services dispatch and similar operations. FlexiFax Global
Services operates an enhanced fax broadcast system. It is not considered
necessary to show geographic segmented financial information as 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 September 30, 1999
<TABLE>
<CAPTION>
Voice and Data FlexiFax Head Office Consolidated
<S> <C> <C> <C> <C>
Revenue 1,125,377 951,913 - 2,077,290
---------------- --------------------- --------------------------------------
Amortization 31,389 71,744 6,760 109,893
---------------- --------------------- --------------------------------------
Segment operating profit/(loss) (128,080) (279,304) (52,558) (459,942)
---------------- -----------------------------------------------------------
Identifiable assets 2,884,392 1,183,218 208,181 4,275,791
---------------- --------------------- --------------------------------------
For the three months ended September 30, 1998
Revenue 1,634,661 846,279 - 2,480,940
---------------- --------------------- --------------------------------------
Amortization 31,519 72,912 2,686 107,117
---------------- --------------------- --------------------------------------
Segment operating profit/(loss) 56,058 (154,430) (20,361) (118,733)
---------------- --------------------- -------------------------------------
Identifiable assets 2,589,823 1,196,906 244,908 4,031,637
---------------- --------------------- --------------------------------------
</TABLE>
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<PAGE>
NOTE 5: EVENTS SUBSEQUENT TO BALANCE SHEET DATE
On August 30, 1999, the Company through AICH, has made an offering of 500,000
common shares at $3.75 per share for the raising of net proceeds of $1,725,000
by way of private placement. This offering is being made pursuant to the limited
and private offering exemption set forth in Rule 506 of Regulation D under the
US Securities Act of 1933, as amended ("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. To date no shares have been sold.
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.
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<PAGE>
Results of operations and financial position for the three months ended
September 30, 1999 and 1998
Management's discussion and analysis of operations for the period ended
September 30, 1999 and 1998 are on the converted US dollar figures. References
have been made to certain figures before taking into account the effect of the
foreign currency translation adjustment where necessary.
Consolidated Results of Operations
Consolidated revenues decreased by 16% to $2,077,290 for the three months ended
September 30, 1999, compared to $2,480,940 for the three months ended September
30, 1998. Cost of sales reduced to $1,049,520, down from $1,338,376 in the prior
period. Cost of sales as a percentage of revenue improved to 51%, down from 54%
in the corresponding period. Total operating expenses increased 18% to
$1,487,712 from $1,261,297 in the prior period. A net loss for the three months
ended September 30, 1999 of $469,644 was reported, which was up from the net
loss reported for the three months ended September 30, 1998 of $125,003.
A detailed explanation of the results by operating division follows.
FlexiFax Division
Revenues. FlexiFax operating revenue increased 12% to $951,913 for the three
months ended September 30, 1999 from $846,279 for the three months ended
September 30, 1998. Revenues generated in countries outside of the US (excluding
Australia) increased by 90% while revenue generated in Australia increased by
11%. 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 Switzerland, largely brought about by the establishment
and growth of direct sales offices located in London and Singapore.
Cost of sales. Cost of sales comprises local access charges, leased network
backbone circuit expenses, line rental, distributors' commission, software
maintenance and support, and domestic, long distance and international
termination charges. These are variable costs based on actual volumes. Cost of
sales amounted to $546,651 for the three months ended September 30, 1999
compared to $529,115 for the prior period. Cost of sales as a percentage of
revenue decreased to 58% for the three months ended September 30, 1999, compared
to 63% for the corresponding period, mainly as a result of lower termination
pricing being negotiated with carriers.
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 September 30, 1999 amounted to
$660,932 compared to $370,024 in the corresponding period. Significant expenses
were incurred in connection with the establishment of a direct office in London,
which amounted to $84,693 for the three months ended September 30, 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, for
the dissemination of news releases. Depreciation decreased to $71,744 for the
three months ended September 30, 1999, compared to $72,912 in the prior 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 decreased 31% to $1,125,377 for the three months ended
September 30, 1999, from $1,634,660 for the three months ended September 30,
1998. The decrease is mainly attributable to: (1) no sales of turret systems due
to the financial collapse of V Band Corp, and their subsequent acquisition by
IPC Information Systems, Inc. ("IPC"); (2) significant customer delay (between
expected order date and received order date) on a major turret deal as a result
of (1) above; (3) reduced sales activity in the Singapore region. The Voice &
Data Division was awarded the Australian distributorship for IPC products, which
was only finalized late into the quarter and as a result no IPC sales were
concluded in the three months ended September 30, 1999. However, the successful
conclusion of the Australian distributorship with IPC is expected to generate
positive results in this fiscal year, with turret systems sales forecasted to be
significantly higher than for the fiscal 2000 year.
-12-
<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
three months ended September 30, 1999 amounted to $509,401, compared to $813,068
for the comparative quarter. Cost of sales as a percentage of revenue decreased
to 45% for the current financial period down from 50% for the three months ended
September 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 three months ended September 30, 1999 amounted to
$750,601 compared to $769,364 in the corresponding period. Depreciation was
$31,389 for the three months ended September 30, 1999, compared to $31,519 in
the prior period.
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 by:
Internally:
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.
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.
-13-
<PAGE>
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 were 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
the share 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 charge over the assets of Trade Wind Marketing Pty Ltd (a wholly
owned subsidiary of Trade Wind Group Pty Ltd) as well as guarantees by Trade
Wind Group Pty Ltd and its subsidiaries. Interest is charged at the highest of
the prevailing rates of 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
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
$511,821 for the three months ended September 30, 1999, compared to $675,286 for
the three months ended September 30, 1998. Accounts receivable increased to
$2,302,225 from $1,899,714 for the three months ended September 30, 1998 mainly
as a result of an initial invoice being generated in the quarter for a large
turret system, (this amount has been recognised in customer deposits). Accounts
payable and other accruals increased by $213,057 compared to a decrease of
$813,836 in the prior comparative period, mainly as a result of 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 $41,823 for the three months ended September 30,
1999, and $118,387 in the corresponding period in 1998.
Cash generated from financing activities, amounted to $675,157 compared to
$317,079 in the prior period primarily as a result of unsecured loans raised in
the amount of $724,363. Capital contributed by TWC was an outflow of $47,643,
compared to $320,506 capital being contributed in the prior period.
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<PAGE>
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 the Company's
products and services for compliance. All the Company's principals who supply
products have been asked for a compliance statement. However in the
telecommunications environment, individual products may be compliant but their
operation as a whole also depends on third parties over which the Company has no
control or in some cases even input.
The cost to the Company of the Y2K compliance program has not be separated but
been written off into general operating expenses and leasing costs (for
equipment upgrade). Simulation tests have been made and where found necessary
software and hardware applications have been upgraded. A good example of this
was the upgrading of the Tandem mainframe for FlexiFax. After upgrading to Y2K
application from Tandem Computers, a simulated test for satisfactory operation
was carried out over a weekend period. The test simulated the date change from
1999 to 2000 on the Flexifax network applications (under FlexiFax control) for
end to end performance, before and after, and all deliveries monitored. The
tests proved successful. However, it cannot be over emphasized that the correct
Y2K operation depends on all parts of the network, including carriers, service
providers, customers (and their PCs state of readiness, etc). All components of
a network need to be compliant for perfect operation.
The Company's state of readiness for Y2K
Flexifax Division. The central Tandem hub was upgraded in both hardware and
software application, to a Tandem Computer version that Tandem supports for Y2K
compliance. This was a two stage process the first being in 1996 and the second
stage, a series of software upgrades over the July and August 1998. On May 20,
1999, a performance test was undertaken simulating delivery performance with the
date changing over from 1999 to 2000 occurring during the test period. Traffic
tests were then carried out to prove satisfactory operation and delivery of
faxes. The results of all these tests were satisfactory It must be noted that
carriers regularly pass traffic to other carriers until the fax destination is
reached. Correct delivery can only be achieved if all carriers over the network
are operational. As a result of the Premiere deal (whereby Flexifax outsources
final delivery of their fax traffic to the Premiere network) the Y2K risk lies
primarily with the Premiere network readiness. Flexifax has asked (and has
received) from Premiere a Y2K compliance status and fall back plan. However in
case Premiere, or one of their suppliers, experience difficulties over Y2K,
Flexifax will keep the Tandem running in parallel (hot standby). This will be
during the 12/31/99 and 1/1/2000 period or until satisfied that the Premiere
network is running satisfactorily. The Tandem will utilise bandwidth from a tier
one carrier feeding traffic to a Sydney located tier one US carrier for fax
delivery until ready to revert back to the Premiere network.
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<PAGE>
Voice and Data Division. Any software designed by the Company over the last year
has been Y2K compliant. The equipment distributed from the Company's principals
have also undergone test simulations for Y2K of the generic product. Similar
tests were not done at client's sites but the Company believes most clients are
conducting their own compliance programs.
The Y2K compliance position of following products (excluding any PCs owned or
supplied by the customer) sold to, or used in customer premises, by the Voice
and Data over the 12 months are as listed below:
V Band products - Not date dependent - compliant
IPC Products - Complient by purchasing upgrade.
CSK Systems - Supplier certificated
Dictaphone - Supplier certificated (with one minor exception currently being
addressed)
Multitone - Supplier certificated
Rockwell (ACD and Transcend) - Supplier certificated
Voicetek - Supplier certificated
Witness Systems - Supplier certificated
Webline - Supplier certificated
NxOrc - Supplier certificated
Company designed products:
Clarity - Compliant
ASX software interface has been tested for compliance.
Other designs and interfaces - Not date dependent.
The Flexifax billing system has been tested for compliance by simulated date
change.
Internal Company Systems
Sybiz accounting. - Upgraded to compliant version July 1, 1999
PCs in the Company. Although there are a number of old PCs in the Company that
are not compliant (old BIOS) the Company does not believe that they will cause
any Y2K operational difficulty and if so, such will be exchanged with compliant
ones. All PCs purchased over at least a year have been compliant. Any PC used in
the Company's accounting area is Y2K compliant.
Cost of Y2K to the Company
Flexifax Division. There were a number of additional costs for changes to the
software applications by outside parties. The cost for these however were not
isolated out as other software enhancement work was bundled into the programming
work each time. These cost therefore are included in the monthly operating
results. All other internal costs have been taken up in the monthly payroll
costs for the Flexifax Division.
Voice and Data Division. The Company has not tracked the individual Y2K
compliance costs as they were not considered material. The work that had to be
done was primarily done by suppliers and principles. All costs are principally
the related payroll costs and some non material component costs.
Worst Case Risk Scenario
Flexifax Division. The Y2K problem could affect the Company from external
parties.
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<PAGE>
1. Clients not having their systems compliant and therefore are unable to
deliver traffic for some reason
2. The carrier or ISP network not accepting traffic.
3. The Central Building Power.
In the case of clients in (1.) above, no client represents more than 5% of the
companies monthly revenue billing. The vast majority of major users of the
Flexifax service have their own Y2K compliance programs in place. Thus, although
some companies may have problems it is unlikely all clients will. The Company
has contacted its major client users to try and ensure that any potential
problem is being addressed. The amount of traffic or transmissions sent in over
the first week in January may diminish as focus is given towards each client
company's Y2K performance rather than distributing information by fax or email.
However, historically this time of year has always been a slow time due to the
year end holidays around the world.
In the case of carriers in (2.) above, all carriers are taking Y2K seriously and
implementing compliance programs. The problem, as seen by the Company, will
involve billing rather than traffic handling performance, although this cannot
be guaranteed. In the worst case, the result is a carrier to which the Company
delivers bulk traffic fails to perform and does not accept its traffic. A
contingency plan is in place for this scenario (see below).
In the case of building power in (3.) above, there is a (automatic change over)
standby power generator, that is tested monthly, that can cover for this
eventuality.
Y2K Contingency Plan
Flexifax Division. The most difficult challenge would be to redirect traffic of
transmissions because a major carrier could not accept the traffic the Company
presents to it. To protect against this eventuality there are two main
contingency plans in place. The Flexifax technology allows for the traffic to
the network nodes around the world to be reconfigured from the central Network
Control Center in Sydney. Thus, traffic can be diverted from one node to another
and so from one carrier to another by the Network Control Center changing the
routing information in the Tandem. This allows for traffic rerouting should any
one of the Company's major carriers around the world find that they cannot
process the traffic. The Company's Bandwidth supplier is IXnet. They have a node
in the Company's Network Control Center using fiber leased from a 'tier one
carrier' in Australia. If IXnet experience problems, the Company's Network
Control Center can reroute the traffic via the fiber of a different 'tier one
carrier' in Australia to the Sydney site of a major US carrier. This US carrier
already accepts significant traffic from the Company. If the traffic load is too
great then additional nodes can be taken from other locations and made
operational in the US carrier's site.
Voice and Data Division. The worst case scenario is that one or more of the
Company's major customers experiences problems with their systems operation and
then call on the Company to assist. Should there be too many calls of this
nature at the same time it is possible that there will not enough manpower
available to attend to all callers as fast as customers would like, or have come
to expect, from the Company. The telephone numbers of support staff are held
centrally and as such the maximum number of people will be made available if
necessary.
As of March 17, 2000, the Company has not experienced any delays or material
adverse effect on its business as a result of Y2K.
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
------- --------------------------------
(a) Exhibits
*27 Financial Data Schedule
(b) Reports on Form 8-K
None
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* 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: March 21, 2000
/s/ Nicholas Bird
------------------------------
Nicholas Bird, President
