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
---------------
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 Loss and Comprehensive Loss 5
Operations for the three months ended September 30, 1999 and 1998
Unaudited Consolidated Statements of Cash Flows for the three 6
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 17
Item 6 Exhibits
Ex 27 Financial Data Schedule
Signatures 18
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 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.
3
<PAGE>
FLEXEMESSAGING.COM, INC
Consolidated Balance Sheets
<TABLE>
<CAPTION>
NOTE UNAUDITED
30 SEPTEMBER
1999
------------------------------------------------------------- -------- ---------------
<S> <C> <C>
ASSETS $
CURRENT
Cash 240,425
Receivables 2,302,225
Inventory 386,266
Deferred charges 432,799
---------------
3,361,715
---------------
CAPITAL ASSETS 978,225
GOODWILL 6,636
OTHER 20,453
---------------
1,005,314
---------------
4,367,029
------------------------------------------------------------- -------- ---------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT
Trade Creditors 1,354,566
Sundry creditors and accruals 600,671
Customer deposits 814,777
Deferred revenue 333,058
Current portion of lease obligations 31,143
Loan payable on securitization of debt 76,277
---------------
3,210,492
---------------
NON CURRENT
Non current portion of lease obligations 21,611
Loans payable 2 724,363
Employee entitlements payable 134,019
---------------
879,993
---------------
TOTAL LIABILITIES 4,090,485
---------------
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 4,911,425
Comprehensive income - foreign currency translation 3 168,074
Accumulated deficit (4,813,355)
---------------
276,544
---------------
4,367,029
------------------------------------------------------------- -------- ---------------
</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
THREE MONTHS THREE MONTHS
ENDED ENDED
30SEPTEMBER 30SEPTEMBER
1999 1998
-------------------------------------------------------------------------------------------
$ $
<S> <C> <C> <C>
REVENUES 2,077,290 2,142,906
LESS:
COST OF SALES 1,049,520 1,141,963
--------------- ----------------
GROSS PROFIT 1,027,770 1,000,943
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) (260,354)
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) (266,624)
Income tax expense - -
--------------- ----------------
NET LOSS (469,644) (266,624)
OTHER COMPREHENSIVE (LOSS)/INCOME, NET OF TAX
Foreign currency translation adjustments (29,341) (2,229)
--------------- ----------------
COMPREHENSIVE LOSS (498,985) (268,853)
NET LOSS PER SHARE (0.05) (0.03)
WEIGHTED AVERAGE NUMBER OF SHARES 9,800,000 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 THREE MONTHS
ENDED ENDED
30SEPTEMBER 30SEPTEMBER
1999 1998
CASH PROVIDED/(USED) BY: $ $
<S> <C> <C>
OPERATING ACTIVITIES
Operations
Net loss for the year (469,644) (266,624)
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)
Deferred charges 115,223 52,225
Accounts payable and other 213,057 (475,802)
accruals
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.
6
<PAGE>
Notes on the Financial Statements
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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 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
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.
7
<PAGE>
Notes on the Financial Statements
--------------------------------------------------------------------------------
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
Ventures Exchange. As a result, all costs of doing business (i.e. officer
and employee salaries, rent, depreciation, advertising, accounting, legal,
interest expense) have been reflected in the financial statements of TWG.
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 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 $4,813,355 which
includes a net loss for the current period of $469,644. The Company
anticipates raising additional capital to meet it's planned operational and
expansion requirements over the remaining part of the fiscal 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
8
<PAGE>
Notes on the Financial Statements
--------------------------------------------------------------------------------
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 reducing by $338,034, net loss and net loss per
share increasing by $141,621 and $0.02 cents respectively for the
three-month period ended September 30, 1998. There was no effect on the
financial performance for the three-month period ended September 30, 1999.
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 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 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:
9
<PAGE>
Notes on the Financial Statements
--------------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
VOICE AND FLEXIFAX HEAD OFFICE CONSOLIDATED
DATA
<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 2,975,630 1,183,218 208,181 4,367,029
------------ ------------ -------------- ---------------
FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1998
Revenue 1,296,627 846,279 - 2,142,906
------------ ------------ -------------- ---------------
Amortization 31,519 72,912 2,686 107,117
------------ ------------ -------------- ---------------
Segment operating profit/(loss) (85,563) (154,430) (20,361) (260,354)
------------ ------------ -------------- ---------------
Identifiable assets 2,589,823 1,196,906 244,908 4,031,637
------------ ------------ -------------- ---------------
</TABLE>
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.
10
<PAGE>
Notes on the Financial Statements
--------------------------------------------------------------------------------
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.
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 3% to $2,077,290 for the three months ended
September 30, 1999, compared to $2,142,906 for the three months ended September
30, 1998. Cost of sales reduced to $1,049,520, down from $1,141,963 in the prior
period. Cost of sales as a percentage of revenue improved to 51%, down from 53%
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 $266,624.
A detailed explanation of the results by operating division follows.
11
<PAGE>
Notes on the Financial Statements
--------------------------------------------------------------------------------
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 13% to $1,125,377 for the three months ended
September 30, 1999, from $1,296,627 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.
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 $616,655
for the comparative quarter. Cost of sales as a percentage of revenue decreased
to 45% for the current financial period down from 48% 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
12
<PAGE>
Notes on the Financial Statements
--------------------------------------------------------------------------------
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.
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 $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 charge over the assets of Trade Wind Marketing Pty Ltd (a wholly
owned subsidiary of TWG) as well as guarantees by TWG and its subsidiaries.
Interest is charged at the highest of the prevailing rates of either Westpac
Banking Corporation, Australia and New Zealand Banking Group Limited or National
Australia Bank Limited plus a margin of 2%. The prevailing interest rate at June
30, 1999 was 10.93% (1998: 11.06%). The original term of this agreement was for
a 12 month period with automatic 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
13
<PAGE>
Notes on the Financial Statements
--------------------------------------------------------------------------------
payable and other accruals increased by $213,057 compared to a decrease of
$475,802 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.
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 utilize bandwidth from a tier
one carrier feeding traffic to a Sydney located tier one US carrier for fax
delivery until ready to revert back to the Premiere network.
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.
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Notes on the Financial Statements
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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
------------------------
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.
1. Clients not having their systems compliant and therefore are unable to
deliver traffic for some reason
2. The carrier or ISP network not accepting traffic.
3. The Central Building Power.
In the case of clients in (1.) above, no client represents more than 5% of the
Company's monthly revenue billing. The vast majority of major users of the
Flexifax service have their own Y2K compliance programs in place. Thus, although
some companies may have problems it is unlikely all clients will. The Company
has contacted its major client users to try and ensure that any potential
problem is being addressed. The amount of traffic or transmissions sent in over
the first week in January may diminish as focus is shifted towards each client'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
15
<PAGE>
Notes on the Financial Statements
--------------------------------------------------------------------------------
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.
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PART II OTHER INFORMATION
ITEM 6. Exhibits and reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Current Report on Form 8-K
None
17
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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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