SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
-----------------------------
FORM 10-SB12G/A
-----------------------------
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS
Under Section 12(g) of
The Securities Exchange Act of 1934
----------------------------
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
<PAGE>
TABLE OF CONTENTS
Page
----
PART I
Item 1. Description of Business 3
Item 2. Management's Discussion and Analysis 14
Item 3. Description of Property 22
Item 4. Security Ownership of Certain Beneficial Owners
and Management 22
Item 5. Directors, Executive Officers, Promoters and
Control Persons 23
Item 6. Executive Compensation 24
Item 7. Certain Relationships and Related Transactions 25
Item 8. Description of Securities 25
PART II
Item 1. Market for Common Equities and Related
Stockholder Matters 26
Item 2. Legal Proceedings 26
Item 3. Changes in and Disagreements with Accountants 26
Item 4. Recent Sales of Unregistered Securities 26
Item 5. Indemnification of Directors and Officers 27
PART F/S
Financial Statements 27
PART III
Item 1. Index to Exhibits 28
-2-
<PAGE>
PART I
The Company cautions readers regarding certain forward looking statements in the
following discussion and elsewhere in this document or any other statement made
by, or on the behalf of the Company, whether or not in future filings with the
Securities and Exchange Commission. Forward-looking statements are not based on
historical information but relate to future operations, strategies, financial
results or other developments. Forward looking statements are necessarily based
upon estimates and assumptions that are inherently subject to significant
business, economic and competitive uncertainties and contingencies, many of
which are beyond the Company's control and many of which, with respect to future
business decisions, are subject to change. These uncertainties and contingencies
can affect actual results and could cause actual results to differ materially
from those expressed in any forward looking statements made by, or on behalf of,
the Company. The Company disclaims any obligation to update forward-looking
statements.
Item 1. Description of Business
FlexEmessaging.Com, Inc. was formed under the laws of the State of Idaho on
August 29, 1957 under the name of Siler Equipment Sales, Inc. to salvage and
sell scrap metal, mine timber and related mining products (the "Company").
Thereafter, the name of the Company was changed to American Network
Technologies, Inc. on February 20, 1996, to Piazztec International, Inc. on June
18, 1997 and Siler Ventures, Inc. ("SVI") on February 23, 1998. On February 15,
1999, the Company changed its name to FlexEmessaging.Com, Inc. to better reflect
the new industry in which it now operates.
On February 5, 1999, SVI entered into an acquisition agreement with Trade Wind
Communications Limited ("TWC"), a Bermudan corporation listed on the Canadian
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 (a valuation arrived at by applying a
revenue multiple to the Company's future revenue stream) based on future
revenues was determined and from this capitalization model, the total
outstanding common stock was calculated. Thereafter, the respective equity
ownership positions were negotiated.
Pursuant to the Merger Agreement, the Company entered into an agreement with
Atlantic International Capital Holdings Ltd., a Bermudan corporation ("AICH"),
with the objective of performing two tasks. First, AICH was to identify an
acquisition candidate and secondly AICH was to arrange for funding for the
Company. Pursuant to that agreement, AICH identified SVI as an acquisition
vehicle and assisted the Company in structuring and concluding the reverse
acquisition, including assisting the Company in seeking financing of $3,660,000
through the sale of the Company's common stock utilizing private placements. As
a condition of the Merger Agreement with AICH, 600,000 shares of the Company's
common stock were issued to AICH as performance shares for arranging future
financing to fund the Company's operating needs. These performance shares 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.
The Company is primarily engaged in two major business segments: Voice and Data
and electronic messaging. The Company's Voice and Data segment (hereinafter
referred to as the "Voice & Data Division") is a distributor of communication
systems and data applications for financial traders and emergency services
operations. The Company's electronic messaging segment (hereinafter referred to
as the "Flexifax Division") provides customers with a global enhanced fax and
email broadcast services originating from the customers' desktop personal
computer
-3-
<PAGE>
("PC"). The enhanced fax and email broadcast service allows clients to prepare
documents for distribution and send them directly from their PC to the Flexifax
network for distribution worldwide. Clients dial into the Flexifax service using
a modem or via the Web interface. The Company specializes in "Broadcast"
distribution whereby the same document(s) is sent to multiple recipients. Once
the document(s), together with the fax numbers and email addresses of the
recipients have been received by Flexifax they are distributed by Flexifax via
various carriers to the recipients anywhere in the world.
The Company presently operates through eight subsidiaries incorporated under the
laws of New South Wales, Australia and Singapore, and with approximately 63
employees, including 60 full-time employees as at December 15, 1999. One of the
eight subsidiaries of the acquired TWG is a wholly-owned subsidiary called Trade
Wind Marketing Pty Ltd ("TWM"), a New South Wales, Australian corporation. The
Company's above-described operating divisions operate under TWM using the
tradename of 'Flexifax Global Services' and `Trade Center Products'. The
Company's principal office is located in Sydney, Australia. The Company's assets
consist of office equipment, leasehold improvements and the value of its
on-going business operations.
Outlook
FlexiFax Division
Over the next 12 months the Company plans to re-position its offerings of
products and services into a more broad-based messaging operation, reducing its
dependence on fax and focusing on offering specific channel based value added
services to customers rather than solely carriage of fax traffic over a fax
network. Currently the Company enables clients to send documents for
distribution via fax or email and earn revenue based on a fee per minute. This
is considered a standard service. Channel based value added services ("VAS")
provides further added value by identifying the needs for certain market
segments(channels) and designing a special service around these needs (See
"Overview-FlexiFax Division - Product and Market Evolution" below for more
detail concerning VAS). Examples of such services are list and database
management and marketing services, as well as services that are complementary to
the existing messaging platforms which will drive and maximize e-commerce
opportunities and interactivity, including emarketing and one to one
(personalized) web marketing services.
To facilitate this, the Company plans to develop strategic relationships and/or
partnerships with telecommunications carriers, Internet Service Providers
("ISPs") and companies with complementary messaging technologies or services,
possibly even potential competitors. These relationships could cover areas and
activities such as sales, product marketing, services, technology sharing,
network partnering, traffic distribution and/or service provision agreements.
The Company may divest itself of certain technologies in order to move to newer
ones or seek alternative methods of global traffic distribution, thus providing
more scope for efficient and cost effective distribution of its customers
messaging traffic. The Company has already concluded one such strategic
alliance. On December 2, 1999, the Company signed an agreement with Premiere
Information Systems Pty Ltd ("Premiere"), a subsidiary of Premiere Technologies
Inc., (NASDAQ: PTEK) a communications Company based in Atlanta, Georgia whereby
the Company outsources the delivery of its fax traffic to the Premiere network.
The outsourcing to Premiere is expected to enable the FlexiFax Division to
generate a profit in the immediate future, as the Company will no longer have to
run an expensive, low traffic volume, global network supported 24 hours a day
around the world. The agreement with Premiere is for a period of two years
subject to an initial one year period wherein the Company may cancel the
agreement if the performance of the Premiere network does not meet agreed levels
of performance. Thereafter, the agreement is automatically extended subject to a
6 months cancellation clause by either party. The agreement also offers either
party the ability of badging products (selling each others products under their
own corporate banner) from the other.
The Company's unique Flexifax client software application, Web page and Gateway
technology have been retained by the Company. The Company's Gateway technology
has allowed its delivery infrastructure to be modified so that it may interface
with more than one network at a time. For example, it allows for e-mail traffic
to be delivered to a high speed internet service, while passing off fax traffic
to the Premiere network. The development of the Gateway technology has provided
the following benefits: it has streamlined the ability of the Flexifax clients
to send the same document to a mixture of e-mail and fax addresses in the same
broadcast; it unlocked Flexifax's dependence on a customized network controlled
by a mainframe computer; and it has enabled rapid development of product
-4-
<PAGE>
enhancements and the easy and sophisticated handling of different file formats,
such as "tif" for fax transmission or attachments and "pdf" for email
attachments within the same document for broadcast. The Web page technology is a
web user interface that allow clients to send lists and documents to FlexiFax
via the internet for broadcast.
Voice and Data Division
The Company plans to expand its Voice and Data Division further into call center
(now often called 'contact centers') applications and has signed a distributor
agreement with IPC Information Systems ("IPC"), a New York corporation (NASDAQ:
IPI), involved in the delivery of integrated multimedia communications solutions
to the financial trading industry, to distribute its Turret systems in
Australia. This relationship will complement the Voice and Data Division call
center operations supplying Rockwell Electronic Commerce solutions and related
activities as the convergence between dealing room operations and call center
operations continue. Rockwell Electronic Commerce ("Rockwell") is a subsidiary
of Rockwell International (NYSE: ROK) a global electronics Company with
operations in industrial automation, avionics and communications, and electronic
commerce.
Overview
FlexiFax Division
Flexifax Global Services ("Flexifax")was initially started about 5 years ago
whereby the Company saw the growing need for sending information by fax
efficiently to multiple destinations. It was envisaged that the world would be
sending their messages from the desktop rather than from the fax machine. Thus
all future development would be based on the digital environment of the desktop.
The Company purchased a software application utilizing a Tandem Computer and
enhanced its functionality and efficiency. The Company then gradually
established a global network with remote nodes, which are industrial PC's with
fax cards, in international centers such as London, New York, Hong Kong, Tokyo,
Singapore, Wellington, Auckland and most of the major cities in Australia.
Presently the Company has outsourced its networking function to Premiere in
order to reduce the high costs of maintaining such a network for its own use.
Distributors were appointed in some countries, mainly where nodes existed. The
Company also established a presence in London and Singapore.
Product and Market Evolution
FlexiFax today is a digital fax and email broadcasting service which distributes
a document from a user's desktop to potentially thousands of recipients' fax
machines and/or PCs. The software enables stand-alone or networked PC users to
connect to the network for fast transmission to worldwide recipients.
The service offers a number of key features:
o Broadcast directly from the desktop.
o Minimum online sending time.
o Fine print definition due to transmission of document in digital format.
o Flexible and secure list database management.
o Web browser connection
o File attachment
The growth of fax, and especially IP fax (see below) continues and the potential
for broadcast fax in the business-to-business area is a long way from being
fully realized.
The use of email and other forms of Internet-based messaging are also growing at
an even greater rate. These methods are complementary to, rather than
competitive with, fax broadcasts as each are suited to particular tasks.
Accordingly, FlexiFax now offers the capability of broadcasts that combine fax
and email addresses, with the added option of Web-browser access to its network,
leaving the choice of method to the senders, based on their customers'
preferences. The next stage of the Company's evolution is to provide a high
degree of specialist value added services across all messaging technologies and
become involved in the growth of technologies, such as e-mail management
-5-
<PAGE>
outsourcing and e-commerce, where messaging forms an essential part of the
service. The Company will focus on specific channel based value added services
(VAS). The first channel based VAS launched by the Company is "Flexemedia". This
service caters to companies issuing press releases to a number of specific media
editors or similar services with the hope that their story will be picked up. To
this end, the Company has developed and is maintaining a number lists on such
editors in a centralized database and has determined the preferred format
editors desire to receive releases (by fax, email or both). These lists are
subdivided by type of media editors (e.g. metropolitan newspapers, sports
editors, financial editors etc.). The client sending the press release can
therefore choose the type of media distribution they desire to target.
Other services the Company plans to offer may include compiling a recipient list
database hosting applications for use by large clients, opt in data base lists
and profiling recipients so as to assist existing and potential clients to
target their marketing projects more closely to the recipients or clients areas
of interest. This is sometimes called "Target Marketing". The Company will
undertake this by building onto its Gateway technology and Web interface,
thereby enhancing or expanding its capabilities. Ideally the Company will offer
these services from its Web page. Such specific channel VAS can command a much
higher price and therefore margin for the Company.
Market Segmentation
The large potential of the total broadcast market arises from the very large
number of fax machines installed throughout the world. Industry estimates vary
from 60 million to 100 million fax devices installed world wide all capable of
receiving fax messages from each other. The potential is also aided from
innovation and added value that message broadcasting brings to organizations
using the more conventional methods (postal mail outs, newspaper advertisements
etc).
Users of broadcast messaging include, but are not limited to:
Banks, Securities Houses and Brokers
Public Relations and Marketing Companies
Wholesale Distributors (e.g. Computer Products, Books, Records, Food)
Life Insurance and Superannuation Companies *
Shipping and Freight Forwarders
Professional Services Organizations
Professional Associations
Political and Lobby Organizations
Government and near-Government Organizations
* Superannuation companies serve as externally managed investment or
fund vehicles of employees' retirement contributions similar to the
role of defined contribution plans.
Global Service
The Flexifax Gateway technology uses Internet Protocol ("IP") or FTP to send its
traffic to the ISP or Carrier for message delivery. The agreement with Premiere
integrating the use of its Global Network opens up opportunities for business in
other locations in future by the Company asthe Premiere network consists of a
number of nodes around the world. The current operation of the Company is to
originate traffic in Australia for delivery anywhere in the world through the
Premiere network for fax. However, in the future when the Company sets up a VAS
offering in another country, the Company's services will be capable of
integration with a local Premiere node (via a Flexifax Gateway server located at
that node) to take advantage of local delivery rates. This global architecture
of the fax delivery network lends itself to the establishment of local
subsidiaries, branch offices and distributors in the future. The service can be
made available from any chosen place in the world and supported by a 24 hour
help desk.
-6-
<PAGE>
Strengths for the Future.
Frost and Sullivan, an international marketing consulting and training company,
in their report "World Internet Protocol Faxing Markets", estimated that global
IP faxing will have increased from 6 million minutes in 1997 to around 90
million minutes by the end of 2001. As for the year ending December 1999, global
IP faxing has steadily increased as projected by Frost & Sullivan. Other
industry executives and analysts note the growth of companies offering IP faxing
services and expect the growth to continue. For example, Anne Zieger of
InformationWeek, noted in "Fax Plods Along -For Most Businesses, Faxing Over IP
Networks is Still a Futuristic Technology" that many companies are starting to
implement IP faxing even as the installation and transmission of even standard
fax machines is anticipated to grow dramatically by more than 14% annually for
the next several years. The number of IP capable fax machines should also grow
from 600 machines in 1997 to about 2.9 million in 2002 with revenues relating to
IP faxing growing to $3,5 billion by 2002 as estimated by analysts at
International Data Corp. (See, InformationWeek Issue 754, dated September 27,
1999). Maury Kauffman, managing partner of Kauffman Group, an enhanced fax
- -technology, analyses and consulting firm, explains that IP faxing is in its
infancy and that Internet faxing will grow to $5 billion in three years (from
1999) as faxing will be a service that can be added to a packet network in
response to competition as this industry grows. Kauffman notes the continued
need for faxing in a worldwide market as Internet resources are not readily
available worldwide and language barriers remain in communicating. Kauffman
estimates the annual worldwide fax market to be $93 billion presently, with only
one percent of that being faxed over the Internet. There is even more rapid
growth in the volume of e-mail. FlexiFax's IP messaging technology, combining
fax and email in the same broadcast, provides a platform springboard for
becoming a broad-based global messaging Company, which stands to benefit greatly
from the expansion of the market and the power of the Internet.
Growth Record
FlexiFax has increased its volume of delivered fax minutes from 280,000 in 1995
to 19.5 million per annum for 1999.
Strategy for Future Growth
The Company recognizes that for strong growth in the future it has to
re-position itself into the broad-based electronic messaging market and focus on
specific market channels to provide value added services. The Company has
identified the need to move from its reliance on faxing technology and its use
of a fax only global network in order to share more in the high growth in the
Internet. This will involve the Company managing much higher volumes of client
electronic messaging business but with a lower unit cost and margin, preferably
with revenue realized on a per transaction basis. The first step has been the
strategic alliance with Premiere, whereby Flexifax has outsourced the delivery
of its fax traffic to the Premiere network. The Company's management plans to
further achieve its aims by aligning the Company with, and leveraging off,
larger industry players or recognized leaders in their field, and then provide
specialist added value messaging services to such players/leaders, and their
customers, in addition to providing such benefits to the Company's own
customers. This will involve partnerships, strategic alliances or even joint
ventures, with other technology companies or service providers and may involve
alternative methods of global traffic distribution and a change in the Company's
customer profile.
By re-positioning in this way the Company can seize opportunities that may
present themselves to move into yet other growth areas, such as e-commerce,
unified messaging or other growing markets. This is where the Company can take
advantage of the fact that messaging technology has to be included as an
essential part of the business. The Company's growing position in call centers
(See Voice and Data Division) is expected to open up new opportunities for
electronic messaging, universal messaging, messaging/e-mail outsourcing and
e-commerce.
Voice and Data Division
The Voice and Data Division is a leading systems integrator and distributor of
data and communications applications in Australia and New Zealand, providing
effective solutions to the critical needs of clients across many sectors. This
is evidenced by the dominant market position held in the Australian dealing room
market, as the Company has installed more systems consisting of more positions
(each trader occupies a position) than any of its industry competitors. A
dealing room consists of dedicated voice systems, which are specially designed
and developed, highly reliable voice switching systems capable of handling
multiple simultaneous calls, for financial traders. The Division has established
market leadership in 'instant-access' or 'turret' voice systems in many of these
key areas in Australia, with over 50% market share in the Australian financial
markets, and approximately 80% in emergency services. This is in addition to
-7-
<PAGE>
a steadily growing market share of the broader 'command-control' sector
including airlines, utilities, defense and other areas of government. A dealing
room is made up of specially designed, highly reliable, voice switching systems
able to handle multiple simultaneous calls to/from the financial traders.
This Division has maintained operating profits since its establishment more than
12 years ago. The Company plans to expand its opportunities in the Voice and
Data Division through the development of call centers. Call centers are growing
in Australia and Asia at an annual rate of 25% (source: New South Wales
Government report) and there is increasing demand for more sophisticated and
cost-effective technology. This Division is ideally situated to capitalize on
this growing trend with a range of world-class products.
As a leading systems integrator and distributor of data and communications
applications in Australia and New Zealand, this Division provides effective
solutions to the following cross sectors: stock and futures exchanges, financial
institutions, emergency service providers, government agencies, airlines, public
utilities, industrial companies and hospitals. This Division maintains a
dominant position in the financial, commercial, government and emergency
services markets as a specialist provider of leading edge communications
products, systems integration and turnkey solutions.
The Voice and Data Division integrates and supplies outstanding products from
the following vendors, for use by its clients, including:
o oIPC - digital dealer board ("turret") systems (previously the Company
supplied V Band turret systems. V Band was recently acquired by IPC for
which the Company has been appointed the Australian distributor). (See,
"Outlook-Voice and Data Division" and "The Future in Call Centres" in this
section, first paragraph.)
o Multitone - paging, wide-area call-out systems, DECT cordless PABX
o CSK Software - Slingshot real-time data delivery via Internet/Intranets
o Rockwell - ACD and Call Center Solutions
o Aspect - Voicetek 'Generations' Interactive Voice Response systems
o Pipkins Inc, - 'Maxima Advantage' Workforce Management software
o Witness - Quality Monitoring systems
o Webline - Web-based Telebusiness/ e-Commerce system
o Trans-Lux - electronic display systems
o Dictaphone - loggers
In addition, the Voice and Data Division has also developed certain products and
applications for the dealing room market which were previously supplied to V
Band. These include full duplex, multi channel open microphone systems for use
on V Band systems, speaker systems specifically designed for dealing rooms,
radio interfaces for emergency services integrated into V Band systems and
programmable modules for an allocation in the software and specific telephones
lines and other types of development lines programmed as part of the Company's
systems installation using V Band products and others.
The Division grew out of supplying voice turret systems to the financial market.
Over the past number of years it has added products to its offerings to suit the
markets addressed.
Major Project Installations.
Among the major project installations secured by the Company in the last year
were as follows (none of these installations represents a large percentage of
the Company's business for accounting purposes) :
o Jindalee Operational Radar Network (JORN) - a defense contract for secure
voice communications for the over-the-horizon radar monitoring system.
o Qantas Airways - digital voice and radio communications for streamlined
load control operations throughout Australia New Zealand and Papua New
Guinea.
-8-
<PAGE>
o Ambulance and Fire Brigade Services digital voice communication and
call-out systems with multi-location networking, paging and computer-aided
dispatch (CAD) systems integration.
o National Electricity Market Management Co (NEMMCO) - Operations security
communications systems. (NEMMCO is involved in the creation of an
Australia-wide electricity market.)
o Data Connections - Call Center systems including ACD, IVR and Workforce
Management.
o Parliament House, Canberra - Voice systems for Security Control Area
integrated with CCTV, perimeter door opening, intercom, lift phones and
radio channels.
o RAAF Radar Surveillance Units - secure voice communications.
o Intercapital Brokers - Turret system.
o Westpac Banking Corporation - Turret system
These project installations involve a systems integration process, whereby a
turnkey solution is implemented. The solution involves the configuration and
specification, assembly, installation and maintenance of certain voice and data
telecommunications equipment, components and accessories. The average length of
time to execute these projects is between four to six weeks, depending on the
size of the installation. The projects are normally invoiced in stages, at the
order, installation and acceptance stage.
The Future in Call Centers
The Company began its operations in this division in 1987 with a core product
distributed from V Band Corporation, ("V Band"), a New Jersey corporation, which
recently filed for protection under Chapter 11 of the US Bankruptcy Code. V Band
was acquired by its major competitor, IPC. Since then negotiations have been
successfully undertaken between the Company and IPC, with the Company emerging
as the non-exclusive Australian distributor for IPC products.
(See, "Outlook-Voice and Data Division" for description of IPC)
The Company recognized, over two years ago, that it had to diversify out of the
financial market for voice turrets as the financial market was consolidating.
The market chosen to diversify into was the call center market. Call Centers are
evolving into versatile 'customer interaction centers' facilitating contact by
telephone, email, , fax or a Web browser. The Voice & Data Division is targeting
this stage of development (which will also offer messaging opportunities to
FlexiFax Division). The new generation of call centers provides opportunities
for sales of new systems and change-outs of older technology.
Call centers used to refer mainly to communications cost centers dealing with
large volumes of inbound calls organized around Automatic Call Distribution
(ACD) or 'queuing systems'. More recently the concept has been extended to
include varying mixes of outbound as well as inbound call handling - but call
centers are still viewed largely as systems for bulk-processing of telephone
traffic. However, business and government organizations need a variety of
systems to communicate with clients, employees, business partners and the public
and call centers are now evolving into 'customer interaction centers',
facilitating contact by telephone, email, , fax or a Web browser.
Call centers can operate independently of the location of their customers, even
across international borders, and Australia is capitalizing on that flexibility.
Regional and international call centers are being installed in Australia because
of its lower staffing and establishment costs and multi-lingual workforce.
According to New South Wales Government Reports, the call center market in
Australia is growing at the rate of around 25% per annum. An estimated 550 call
centers are now operating in Australia, employing approximately 50,000 people
with an annual expenditure of $1.2 billion. A market study by Price
Waterhouse/ACA estimated the growth of this market in Australia at 20% annually.
Other sources, such as the New South Wales Department of State & Regional
Development, put this growth at 25%. According to their 1998 report, the greater
Sydney area is home to half the international call centers operating in the Asia
Pacific region.
-9-
<PAGE>
Call centers serve the whole spectrum of industry, finance, transport, utilities
and government and the division has begun to extend its traditional focus on
financial and emergency services to a much larger market.
The growth and expansion of this industry has led to a need for products and
services by call centers providing assistance and/or solutions to their strained
and growing operations. By providing such products, the Company, even as a late
entrant, can solicit any client or potential client with such product offerings,
even though that client may be using competitors equipment. As a result of the
Company's targeting initiative the Division now represents ( together with other
distributors in many cases) Rockwell Electronic Commerce (Call Centers),
Dictaphone (Loggers), Witness Systems Inc (Quality monitoring systems),
Trans-lux Corporation (wall boards), Pipkins Inc.(workforce management software)
and others. The Division uses a solution oriented approach to meet most customer
technology needs.
Divisional sales for the year ended June 30, 1999 were $5.4 million, a decrease
of 29% over the previous year. Sales in the current fiscal year were
significantly lower than in fiscal 1998 mainly as a result of reduced sales of
the core turret system product due to the financial collapse of V Band but an
order book of over $4 million will provide a greater than usual level of
certainty for the year 2000. The Company has moved into the call center market
offering a number of products in this area. This should be considered as a start
up business although the skills required to support these products are similar
to those already being deployed in the financial trading area. Revenues
increased 56% to $4,229,231 for the six months ended December 31, 1999, from
$2,705,828 for the six months ended December 31, 1998. The increase is mainly
attributable to turret system sales of $2,264,338 being concluded as a result of
the division being awarded the Australian distributorship for IPC products as
compared to $1,408,994 being generated in the comparative period. The successful
conclusion of the Australian distributorship with IPC is expected to generate
further positive results in this fiscal year, with significantly higher turret
systems sales forecasted.
Operational Concerns
International Operations. As the Company's operations are internationally based,
such operations are subject to numerous inherent risks beyond the Company's
control, including political and economic conditions affecting the countries of
operation. The Company's international business activities may include
difficulties in staffing and managing international operations, currency
fluctuations and currency management issues, difficulties in collecting accounts
receivable, imposition of public sector controls, trade and tariffs
restrictions, price or exchange controls, limitations on repatriation of
earnings, longer payment cycles, political and economic instability, seasonal
fluctuations in business activity during the summer months, foreign tax
consequences and the burdens of complying with a wide variety of foreign laws
and regulations.
The Company's revenues from countries other than Australia represent less than
10% of its revenue. The Company presently is not faced with any significant
operational risks, including regulatory compliance risks, from other countries
in which it operates than Australia. However, as the Company's revenue derived
from such countries continues to grow, the Company may experience increased risk
due to the above factors.
The Company conducts most of its business outside the US and thus most of its
expenses and revenues, if not all, are derived in foreign currencies. Thus, the
Company may experience a material loss due to fluctuations in foreign
currencies. The Company typically denominate foreign transactions in foreign
currency and have not regularly engaged in hedging transactions.
Suppliers/Service Providers.
Dependence on Key Suppliers -Should any of the Company's key suppliers
experience difficulty in providing product in a timely manner, this could
adversely effect the Company's revenues and reputation in the market.
Additionally, the failure on the part of these suppliers to develop and
manufacture or supply new or enhanced products or software that meet or
anticipate technological changes on a timely and cost-competitive basis could
have a materially adverse effect on the Company's financial condition and
results of operations. Key suppliers are:
-10-
<PAGE>
IPC - Non-exclusive distribution agreement for Australia for an initial term of
two years, with automatic extension thereafter, unless terminated in writing
upon giving 60 days notice. A performance criterion of $2 million in sales per
year is required under the contract. If this is not achieved, IPC may terminate
the agreement upon written notice.
Premiere - Exclusive agreement for Premiere to carry all the fax broadcast
traffic for a period of 12 - 24 months subject to service and pricing criteria.
Witness - Non-exclusive distribution agreement for Australia for an initial
three year period. Thereafter it may be renewed for successive one year periods
by mutual agreement. Termination upon giving 60 days notice or on breach of
contract. Performance criteria of $500,000,$1,000,000 and $1,500,000 in years
1,2 and 3 respectively.
Pipkins - Non-exclusive distribution agreement for Australia to be finalized by
June 30, 2000.
Rockwell - Non-exclusive distribution agreement for Australia for an initial
term of one year, with extension by written amendment. Termination upon giving
90 days notice or on breach of contract.
Trans-lux - No contract in place. Has been operating on a purchase order basis
for in excess of seven years.
Trend Micro - An agreement for Trend Micro to supply up to date virus scanning
software on the FlexiFax Gateway for an initial period of two years with
automatic extension. Termination upon giving 60 days notice.
Agreement with IPC - For the fiscal six months ended December 31, 1999, sales of
the IPC products accounted for 70% of the sales of the Voice and Data Division.
IPC, a previous competitor to V Band, has recently acquired V Band and the
Company has been appointed the Australian distributor of IPC products. Under the
new distributorship arrangement with IPC it is not yet certain what margins on
sales can be reasonably expected on an ongoing basis nor whether the costs to
support the new systems will be similar to those of supporting V Band products.
No Long-term Contracts - The Company does not typically have or utilize
long-term contractual agreements with its clients, suppliers or vendors and thus
such may not continue to transact business with the Company in the future if
competitors develop products and services that are more sophisticated, efficient
and cost effective, or our technological advances are not timely and responsive
to our clients individual needs or our products become obsolete. The information
and telecommunications service market continually attracts new competitors and
technologies which may offer or provide more sophisticated, efficient and cost
effective products and services which would have a material adverse effect upon
the Company's business, financial condition and operations.
Reliance on third parties - A substantial portion of the Company's total
revenues are derived from the sale of products manufactured by third parties and
the provision of professional services in connection with the sale and
maintenance of such products. As a result, any factor adversely affecting such
distribution rights or services would have a material adverse effect on the
Company's business and results of operations.
Regulations.
Enforcement of Civil Claims - The Company was incorporated under the laws of
Idaho, while the operating entities are based in Australia. Certain of its
directors and all of its officers reside, and all of its assets are located,
outside of the United States. It may not be possible for investors to effect
service of process within the United States upon the directors and officers of
the Company. It may also not be possible to enforce judgments obtained in United
States courts predicated upon the civil liability provisions of applicable
securities laws of the United States against the Company or its directors and
officers.
Change in government policies - A deterioration in economic conditions in
countries where the Company carries on business or other factors could result in
a change in government policies which may materially affect the Company's
financial position and results of operations.
-11-
<PAGE>
Regulation of the telecommunications industry - The telecommunications industry
is subject to regulatory control. Any amendments to current regulations could
have a material adverse effect on the Company's business, results of operations
and prospects.
Deregulation of the Australian Telecommunications Industry - On July 1, 1997 the
Australian Telecommunications Industry deregulated. Until late 1999, only
national and international calls were allowed to be offered by licenced
carriers. Since deregulation new and emerging carriers have been taking market
share away from the incumbent, Telstra Corporation Limited. This is evidenced by
Telstra's retail market share of the national and international call market
being forecast at below 50% in 1999, as compared to 74% in 1994
(Source:Telstra/Austel). As a result, fax broadcast revenues and margins per
minute are expected to continually reduce in order to secure market share and
customer base, as existing and new competitors continue to increase market share
through cost leadership strategies, as a result of reduced carriage costs.
Regulation of broadcast faxing and Emailing - In recent years, legislation has
been enacted in the United States, Europe, Australia and other countries
restricting fax or Email broadcasting especially by businesses to private
numbers/addresses. Similar restrictions are starting to appear governing
business-to-business fax broadcasting and this may have an adverse affect on the
Company's business and results. Current trends in regulation of electronic
messaging are that messages should only be sent to those that want the
information in the message or have "opted in" to receive specific types of
information from time to time. The Company is not aware if the Company's
customers have obtained 'opt in' status from the recipients to whom they intend
to send their messages.
Competition and Competitive Business Conditions.
Competition - The Company's Voice and Data Division operates in a highly
competitive environment. The markets in which the Company operates are comprised
of a substantial number of global and regional competitors, many of which have
greater financial, engineering, manufacturing and other resources than the
Company. Competing with such companies will require continued investment by the
Company in engineering, research and development, marketing and customer service
and support. Future profitability will depend upon broader market penetration
that the Company has yet to secure.The fax broadcast and messaging industry is
intensely competitive and served by a wide range of companies, including major
telephone service providers, ISPs in developed countries and other companies
specializing in providing fax services. Many of these companies have
significantly greater financial resources and reach than the Company and
extensive established networks. Typically, FlexiFax does not have long-term
contractual agreements with its clients and there can be no assurance that its
clients will continue to transact business with the Company in the future. In
addition, there can be no assurance that clients will not elect to use
alternatives to FlexiFax's fax or messaging communications services, such as the
Internet, to carry such communications or that companies offering such
alternatives will not develop product features or pricing policies which are
more attractive to clients than those offered by the Company. Such competition
companies may also invite partnering or joint venture arrangements with the
Company in one country under a mutual agreement but still remain a strong
competitor to the Company in others. This could require the Company to adapt or
change out its technology to achieve such partnering or joint venture
relationships.
Uncertainty of Strategic Relationships - The Company plans to enter into
strategic relationships or partnerships in order to enable the Company to offer
its products and services to a larger customer base and on more economies of
scale. The Company's success depends in part on the success of these
relationships and the ability of these strategic partners to market and supply
the Company's products and services. Failure of one or more of these strategic
relationships or partners to successfully develop and sustain a market for our
services or the termination of one or more of these strategic relationships
could hinder the Company's ability to increase sales and revenue. Additionally,
our strategic partners may not view their relationship with the Company as
significant to their business and thus any reassessment of their commitment to
the relationship could have a material adverse effect on the Company. The
ability of our strategic partners to incorporate our products and services into
their product and services now and in the future will require the Company to
respond timely with new products and services as technological advances are
made. If the Company fails to enhance or create new products and services in
response to technological changes such could result in the Company's strategic
partners terminating their relationship or seeking alternative providers.
-12-
<PAGE>
Further, the telecommunications industry is experiencing rapid consolidation.
Consolidation within the industry, including consolidations of the Company's
clients and strategic partners, could have a material adverse effect on the
Company's business, financial condition and operations.
Uncertainty of Market Acceptance - The Company's future success depends upon the
market acceptance of its existing and future computer product lines and services
integrating the functionality of the telephone and the computer. This will
require the market to accept a new way of exchanging and transmitting
information which will most likely depend upon several factors, including ease
of use, price, reliability, access and quality of the service, system security
and the products functionality. A decline in the demand for, or the failure to
achieve broad market acceptance of the Company's product lines and services
would have a material adverse effect on the Company's business, financial
condition and operations.
The Company believe that its future success is also dependent in part upon its
ability to route more of its client traffic through the Internet and expand its
base of Internet capable nodes. Thus, the Company is dependent upon the
viability of the Internet as a medium for the transmission of documents. The
Company relies upon third party ISP providers for access to the Internet through
Internet capable nodes at varying prices. There can be no assurance that the
current pricing structure for the Company's access and use of the Internet will
not adversely change. If the Internet proves to be an impractical or unreliable
medium for transmission of documents or material capacity constraints develop,
the Company's business, financial condition and operations may be adversely
affected.
Reliance on computer and communications systems - The Company's business is
highly dependent on its computer and telecommunications systems and those of
others, such as Premiere, for the operation and quality of service of the
FlexiFax system. The temporary or permanent loss of all or a portion of any
system, for whatever reason, could have a materially adverse effect on the
Company's business, financial condition and results of operations.
Dependence on Telephone Services - In broadcasting faxes or other messaging
technologies, FlexiFax is highly dependent on telephone service provided by
local and long distance telephone companies in countries throughout the world.
The quality and availability of telephone service varies and in some areas is
limited. Any significant interruption in telephone service could adversely
affect the Company. Rate increases imposed by telephone companies where FlexiFax
operates nodes will increase the Company's tariffs from Premiere and could
adversely affect its financial condition and results of operations. There can be
no assurance that an act of sabotage, technical failure, natural disaster or
similar event would not cause the failure of a telephone network, other portions
of the network or one of the switching facilities as a whole, resulting in the
interruption of the Company's services. Such an interruption of service could
have a material adverse impact on the Company's business, financial condition
and operations.
Dependence on Internet Service Providers (ISPs) - In using the Internet as a
receiving, transport or delivery mechanism for its messages, the service is
highly dependent on the performance of ISPs throughout the world. As message
traffic can be handed off from ISP to ISP beyond the control of the Company, any
resultant traffic loss, failure or poor performance by any ISP in the chain
could have a detrimental effect upon the service level and performance of the
Company's service. This in turn could effect the Company's clients who may then
opt not to use the service. Although the Company will always try to use reliable
ISPs there can be no assurance that such performance problems will not occur.
Dependence on key customers - FlexiFax derives a significant portion of its
revenues from a relatively small number of customers and there and there is no
assurance that such customers will continue to provide the same levels of
revenue in the futureConcentration of Clients in the Financial Services Industry
- - Historically, a significant portion of the Company's revenues have been
derived from sales to clients in the financial services industry. If the
financial services industry suffers an economic downturn, it is likely that the
Company would experience a decline in revenues, which could have a materially
adverse effect on the Company's financial condition and results of operations.
-13-
<PAGE>
Technology.
Lack of Patentable Technology - The Company owns no patentable technology. None
of the Company's distributorship agreements provide the Company with exclusive
proprietary technology and there can be no assurance that the Company will be
able to sustain a competitive advantage against other firms with access to the
same technology.
Dependence on unpatented proprietary know-how - Unlike certain of its
competitors, FlexiFax relies on unpatented proprietary know-how. This know-how,
or in house knowledge concerning the underlying concepts and operational methods
of its technology cannot be patented. While the Company employs various methods
to protect its know-how, such methods may not afford complete protection and
there can be no assurance that others will not independently develop such
know-how, obtain access thereto or develop a more efficient system.
Technology Risk - The market for the Company's products and services is
characterized by rapidly changing technology, frequent new product
introductions, evolving industry standards and evolving methods of building and
operating communications systems. The Company's ability to compete effectively
is dependent upon its ongoing significant investment in software development and
telecommunications technology by continuing to enhance its current services, and
develop and introduce new services and products in a timely fashion. There can
be no assurance that the Company will be successful in anticipating or adapting
to technological changes or in selecting and developing new and enhanced
technology on a timely basis. Future technological advances in the continually
changing telecommunications industry may result in the availability of new
services, products or methods of electronic document delivery that could compete
with the document distribution services currently provided by FlexiFax.
Moreover, decreases in the cost of existing products or services could enable
the Company's current or potential clients to fulfill their own needs for
electronic document distribution services more cost efficiently than through the
use of the Company's services. The Company could be adversely affected in the
event of such technological change, or if such changes in technology enable
additional companies to offer services which could replace some or all of the
services presently offered by FlexiFax.
Competition
The Company's competition is very strong and consists of large carriers, ISPs as
well as new start up industries. For the Flexifax Division such competitors
include Premiere Technologies Inc. (incorporating Xpedite), NetMoves (formally
FaxSav), Sprint, Cable & Wireless or other carriers or ISPs, in addition to some
large media companies distributing news releases, and some start-up companies
offering "free" fax services. The competitors for Voice and Data include British
Telecom, Lucent Technologies, Panasonic, Sony, Hanson, NEC, Nortel and any
Company offering call center services, products or solutions.
Item 2. Management's Discussion and Analysis
The core elements of the Company's business are messaging and communications
represented by the Company's two operating divisions, FlexiFax and Voice & Data.
The Company offers a range of quality products and solutions in both of these
markets. The expansion of digital messaging is particularly strong and the
FlexiFax Division is rapidly broadening its offerings to meet customer demand.
Similarly, in the systems market, the convergence of computer technology with
telecommunications infrastructures has created a demand for ever-increasing
functionality. The Voice & Data Division markets a range of products designed to
take advantage of some of these opportunities within its targeted niches of
financial trading, command/control centers and call centers.
In connection with their report on our consolidated financial statements for the
years ended June 30, 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.
See Note 1c to the Consolidated Financial Statements as well as the section on
Liquidity and Capital Resources, below, for discussion.
Plan of Operations
Management has established the following objectives for the Company over the
next 12 months:
1. Reposition the Company into a more broad based and value added messaging
service and away from its heavy reliance on fax distribution using its
proprietary network. The aim is to turn the messaging activity from a loss
-14-
<PAGE>
making operation to cashflow positive operation with eventual
profitability. The Company has outsourced its network operation to reduce
its overhead and integrated its Flexifax technology into the Premiere fax
network under a Strategic Partnership Agreement. This allowed the Company
to replace its network infrastructure and take advantage of the volume
discounts offered by Premiere. More focus can now be placed on the
customer interface and better functionality. The cost of developing the
integration technology was born by the Company as part of its in-house
development over three months.
2. Identify e-commerce opportunities complementary to the messaging basis of
the Company. These opportunities are currently under active consideration
but will involve web based development. The initial development cost is to
be raised by AICH as part of the $3.66 million capital raising effort. The
actual costs will only be known after a project research and feasibility
study is completed. This is expected to be completed by the end of the
fourth fiscal quarter.
3. Seek Partnering or Joint Venture opportunities which will be complementary
and provide opportunities for growth. The first Partner Agreement along
these lines has been with Trend Micro Australia Pty Ltd, providing
resident antivirus software on the Gateways allowing the Company to
promote distribution of email in different formats. At present, jobs are
submitted in Postscript, tiff or pdf format which has minimal risk of
distributing viruses. The Company will stamp or legend each outgoing email
with a "swept for viruses by Trend Micro" message. The Partnership will
involve minimal cash expenditure by the Company. (See, "Operational
Concerns - Dependance on Key Suppliers" for more information)
4. Expand or identify channel opportunities to service new areas of the
market. The first of these opportunities has been the Flexemedia Service
whereby the Company distributes corporate news releases to news editors
and the like based on lists maintained by the Company. Similar vertical
market applications are being pursued where centralized lists are a key
VAS to the customer. The development costs for each new activity will
depend upon the need but will likely be in the range of $50,000 to
$150,000 to launch depending upon the complexity.
5. Upgrade, add features and improve Flexifax software. The Company currently
employs 3 software engineers/developers tasked with adding functionality
to the Gateway and Web based technology and user interface software.
6. Expand the Company's Voice and Data business and product range. Due to the
consolidation in the financial dealing room market the emphasis will be
changed from turret systems to call centers and their applications. (See,
"Overview - Voice and Data Division" for details).
Most of the Company's objectives will involve minimal capital expenditure until
the capital raising being undertaken by AICH is complete. Once the capital has
been raised by AICH then these major projects will be undertaken.
As a result of the reverse acquisition of TWG by the Company in February 1999,
the financial information and financial statements presented herein are those of
TWG, the accounting acquirer. Thus, the financial position and results of
operation of the Company were recorded in Australian dollars, the functional
currency, and have been converted to US dollars.
Results of Operations and Financial Position for Fiscal Years Ending June 30,
1999 and 1998
The financial position and results of operations of the Company for the years
ended June 30, 1999 and 1998 are determined using the Australian dollar as the
functional currency. Assets and liabilities are translated at the exchange rate
in effect at each period end. Amounts on the statement of loss and comprehensive
loss are translated at the average rate of exchange prevailing during the
period. Translation adjustments arising from the use of different exchange rates
from period to period are included in the comprehensive income account in
shareholders' equity. The gains and losses from foreign currency transactions
are included in net loss. The Australian and United States dollar exchange rates
at the balance sheet date and the average exchange rates for each year under
review were as follows for $1 Australian:
-15-
<PAGE>
December 31, 1999 0.6500
July 1, 1999 - December 31, 1999 0.6533
June 30, 1999 0.6565
July 1, 1998 - June 30, 1999 0.6273
June 30, 1998 0.5980
July 1, 1997 - June 30, 1998 0.6710
June 30, 1997 0.7440
Management considers that there are no potential inflation issues affecting the
Company's business. The Company does not currently have any currency rate hedges
in place.
Management's discussion and analysis of operations for all periods are on the
converted US dollar figures. References have been made to certain figures before
taking into account the effect of the foreign currency translation adjustment
where necessary.
Combined Results of Operations
Combined revenues decreased by 20% to $8,873,845 for the year ended June 30,
1999, compared to $11,103,370 for the year ended June 30, 1998. Cost of sales
reduced to $4,686,123, down from $6,516,246 in the prior year. Cost of sales as
a percentage of revenue improved to 53%, down from 59% in the corresponding
period. Total operating expenses increased 8% to $5,713,499 from $5,267,999 in
the prior year. A net loss for the year ended June 30, 1999 of $2,122,201 was
reported, which was up from the net loss reported for the year ended June 30,
1998 of $703,094.
A detailed explanation of the results by operating division follows.
FlexiFax Division
Revenues. FlexiFax revenue decreased 0.5% to $3,447,030 for the year ended June
30, 1999 from $3,462,992 for the year ended June 30, 1998. (Revenues were 6%
higher than the comparative figure before adjusting for the foreign currency
translation difference). Revenues generated from countries other than Australia
represent less than 10% of total revenue. Revenues generated in countries
outside of the US (excluding Australia) increased by 61% while revenue generated
in Australia remained constant as growth in this market was offset by some
migration of customers due to the deregulation of the Australian
Telecommunication Industry resulting in tight competitive conditions. (See
"Operational Concerns - Deregulation of the Australian Telecommunications
Industry" for more information regarding the risks associated with
deregulation). Strong growth in international markets was achieved through
greater market penetration in existing areas such as the United Kingdom,
Singapore and Vancouver, as well as in new areas such as Switzerland. A large
amount of management effort and resources were directed to the establishment and
growth of direct sales offices located in London and Singapore, including
recruiting and training staff and establishing the office, and ongoing
operational involvement in day to day management. The expenses incurred in
relation to this expansion are identified under total operating expenses. (See
"FlexiFax Division - Total operating expenses" below).
Cost of sales. Cost of sales comprises local access charges, leased network
backbone circuit expenses, line rental, distributors' commission, software
maintenance and support, and domestic, long distance and international
termination charges. These are variable costs based on actual volumes. Cost of
sales amounted to $2,219,827 for the year ended June 30, 1999 compared to
$2,118,018 for the prior year. Cost of sales as a percentage of revenue
increased to 64% for the year ended June 30, 1999, compared to 61% for the
corresponding period as a result of lower revenues per minute being achieved due
to tight trading conditions.
Total operating expenses. Total operating expenses consist of expenses
associated with staff, premises, communications, travel, group management fees,
depreciation and other expenses incurred in running the operation. Total
operating expenses for the year ended June 30, 1999 amounted to $2,596,181
compared to $1,991,437 in the corresponding period. Significant expenses were
incurred in connection with the establishment of a direct office in London,
which amounted to $439,075. The balance of the increase in expenditure resulted
mainly from increased staff costs. Depreciation increased to $304,409 for the
year ended June 30, 1999, compared to $289,536 in the prior year, as a result of
network equipment acquired to increase network capacity and efficiency.
-16-
<PAGE>
Voice and Data Division
Revenues. Revenues consist of sales from systems integration solutions for
voice, call center, electronic display, paging, call recording and data
applications. Revenues decreased 29% to $5,426,815 for the year ended June 30,
1999, from $7,640,378 for the year ended June 30, 1998. The decrease is mainly
attributable to: (1) reduced sales of V Band voice systems because of the global
consolidation of financial market players and the inability of V Band Inc to
continue to operate as a going concern, (sales reduced by $ 167,830); (2)
significant customer delay (between expected order date and received order date)
in the electronic display and call center markets; (3) a large project secured
by the paging division in the prior year (sales reduced by $966,570); (4)
reduced sales activity in the Singapore region (sales reduced by $395,450). The
successful conclusion of the Australian distributorship with IPC is expected to
generate positive results in the next financial year, with turret systems sales
for fiscal 2000 forecast to be significantly higher than for the fiscal 1999
year.
Cost of sales. Cost of sales consists of the purchase of third party product,
necessary to complete the systems integration solution. Cost of sales for the
year ended June 30, 1999 amounted to $2,466,296, compared to $4,398,228 for the
previous 12 months. Cost of sales as a percentage of revenue decreased to 45%
for the current financial year down from 58% for the year ended June 30, 1998.
The decreased percentage is a result of providing a larger proportion of
relocation and ancillary support and maintenance services to the V Band voice
customer base as opposed to supplying larger project system sales, as well as a
change in the overall revenue mix, where different product groups attract
different gross margins.
Total operating expenses. Total operating expenses consist of expenses
associated with staff, premises, communications, travel, group management fees,
depreciation and other expenses incurred in running the operation. Total
operating expenses for the year ended June 30, 1999 amounted to $2,858,593
compared to $3,109,126 in the corresponding period. Depreciation increased to
$126,159 for the year ended June 30, 1999, compared to $107,558 in the prior
year,
Liquidity and Capital Resources for the fiscal years ended June 30, 1999 and
1998
The Company's consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the settlement
of liabilities in the normal course of business. In connection with their report
on our consolidated financial statements for the years ended June 30, 1999 and
1998, BDO Nelson Parkhill, our independent auditors, expressed substantial doubt
about our ability to continue as a going concern because of recurring net losses
and negative cash flows from operations. See Note 1c to the Consolidated
Financial Statements for discussion.
Our current cash requirements to satisfy the management objectives outlined
above as well as to provide working capital and sustain our operations for the
next fiscal year are estimated to be $1,100,000. We expect that these
requirements will be provided from the following sources:
o Sales of the accounts receivable of the FlexiFax Division under a working
capital based factoring facility established with Scottish Pacific
Business Finance Pty Ltd (see below for details)
o Cash profits generated from the Voice & Data division
The Company anticipates raising additional capital of $ 3.66 million with the
assistance of AICH by means of private placement. (See below for more details).
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
-17-
<PAGE>
could have a material adverse effect on the Company's financial position, its
overall business and the result of the Company's operations.
The market for fax and messaging is very competitive and the Voice and Data
Division is heavily influenced by the economic conditions existing in Australia
at the time. The Company does not expect this to change and in fact expects that
even greater effort will be needed in the future. The Company will therefore
continue to have the need for additional funding until it reaches significant
levels of revenue and margin to become cashflow positive.
The Company has financed its cash requirements for operations and investments in
capital assets mainly through private sales of equity securities and loan
finance. AICH 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 lien 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%).
Funds under the facility are advanced based on sales invoices with repayment of
such advanced funds being made from payments received relating to the invoices
and other working capital and external sources. The outstanding balance owing to
Scottish Pacific as at December 31, 1999 was $106,089. The original term of this
agreement was for a 12 month period with automatic renewal. This agreement may
be terminated by Scottish Pacific by giving one month's notice or by the Company
giving three month's notice. If this facility were terminated by the Company,
paying off the outstanding balance would result in the Company having direct
access to all the receipts on the outstanding invoices, for working capital
purposes.
As a result of operating losses, cash used in operating activities amounted to
$1,823,623 for the year ended June 30, 1999, compared to $128,251 being
generated from operations for the year ended June 30, 1998. Accounts receivable
decreased $224,035 to $1,899,714 from $2,123,749 for the year ended June 30,
1998 as a result of a general reduction in sales activity as well as the
relative cash flow timings of the Voice & Data Division revenue flows. Accounts
payable and other accruals reduced by $1,030,846 compared to an increase of
$357,100 in the prior comparative year, mainly as a result of some of the
funding received going towards reducing the payables to an acceptable level, as
well as a general reduction in sales activity.
Cash used in investing activities, consisting primarily of the purchase of
capital assets, amounted to $481,852 for the year ended June 30, 1999, compared
to an inflow of $21,246 in the corresponding period in 1998.
Cash generated from financing activities, amounted to $1,834,510 compared to
$151,861 in the prior year primarily as a result of the sale of stock. 300,000
shares were sold on March 16, 1999 at a price of $2.50 per share under a private
placement, with a further issue of 200,000 shares on June 9, 1999 at a
discounted price of $1.25 under the private placement, for the raising of
bridging finance for a potential acquisition. Capital was contributed by Trade
Wind Communications Limited in the amount of $917,435, compared to $481,659 in
the prior year.
Cash and equivalents decreased to $118,912 for the year ended June 30, 1999,
from $589,877 in the previous year, as a result of funding operations and
capital asset acquisitions, primarily through private issues of securities and
the provision of loan finance.
Results of Operations and Financial Position for the six months ended December
31, 1999 and 1998
Management's discussion and analysis of operations for the period ended December
31, 1999 and 1998 are on the
-18-
<PAGE>
converted US dollar figures. References have been made to certain figures before
taking into account the effect of the foreign currency translation adjustment
where necessary.
Consolidated Results of Operations
Consolidated revenues increased by 40% to $6,028,155 for the six months ended
December 31, 1999, compared to $4,296,269 for the six months ended December 31,
1998. As a result of increased sales volumes Cost of sales increased to
$3,602,655, from $2,359,504 in the prior period. Cost of sales as a percentage
of revenue increased to 60%, up from 55% in the corresponding period. Total
operating expenses before restructuring costs increased 25% to $3,065,735 from
$2,452,688 in the prior period. Total operating expenses after restructuring
costs increased 55% to $3,791,470 from $2,452,688 in the prior period. The net
loss before restructuring costs for the six months ended December 31, 1999 was
$657,753, which was up from the amount reported for the six months ended
December 31, 1998 of $534,349. A net loss after restructuring costs for the six
months ended December 31, 1999 of $1,383,488 was reported, which was up from the
net loss reported for the six months ended December 31, 1998 of $534,349.
A detailed explanation of the results by operating division follows.
FlexiFax Division
Revenues. FlexiFax revenues increased 13% to $1,798,924 for the six months ended
December 31, 1999 from $1,590,441 for the six months ended December 31, 1998.
Revenues generated in countries outside of the US increased by 13%. As a result
of the outsourcing of our network, the Company will only report a percentage of
the revenue generated by the customer base, now serviced by Premiere. It is
uncertain what future level of revenue is to be received from Premiere as it is
based on future levels of transaction activity generated from the former
customer base that has now been migrated to Premiere. In other words, revenue
will only be earned by the Company, if Premiere has generated revenue from the
said customer base, which is dependent on those customers using the service.
Cost of sales. Cost of sales comprises local access charges, leased network
backbone circuit expenses, line rental, distributors' commission, software
maintenance and support, and domestic, long distance and international
termination charges. These are variable costs based on actual volumes. Cost of
sales amounted to $1,009,448 for the six months ended December 31, 1999 compared
to $1,034,597 for the prior period. Cost of sales as a percentage of revenue
decreased to 56% for the six months ended December 31, 1999, compared to 65% for
the corresponding period, mainly as a result of lower termination pricing being
negotiated with carriers. Note from December 1999, cost of sales will only
include distributors' commission, software maintenance and support, and
domestic, long distance and international termination charges.
Total operating expenses. Total operating expenses consist of expenses
associated with staff, premises, communications, travel, group management fees,
depreciation, restructuring costs and other expenses incurred in running the
operations. Total operating expenses before restructuring costs for the six
months ended December 31, 1999 amounted to $1,366,843 as compared to $959,288 in
the corresponding period. Significant expenses in the amount of $178,743 were
incurred in connection with the establishment of an office in London for the six
months ended December 31, 1999. The balance of the increase in expenditure
resulted mainly from increased staff costs, largely as a result of the
establishment of the Flexemedia division, for the dissemination of news
releases. Depreciation decreased to $148,380 for the six months ended December
31, 1999, compared to $164,765 in the prior period. Total operating expenses
after restructuring costs for the six months ended December 31, 1999 amounted to
$2,092,578 as compared to $959,288 in the corresponding period. It is
anticipated that expenses will be reduced by approximately $80,000 per month as
a result of the Premiere agreement.
Voice and Data Division
Revenues. Revenues consist of sales from systems integration solutions for
voice, call centre, electronic display, paging, call recording and data
applications. Revenues increased 56% to $4,229,231 for the six months ended
December 31, 1999, from $2,705,828 for the six months ended December 31, 1998.
The increase is mainly attributable to turret system sales of $2,264,338 being
concluded as a result of the Company entering into an agreement with IPC to be
its Australian distributor for its products as compared to $1,408,994 being
generated in the comparative period. The agreement with IPC is expected to
generate further positive results in this fiscal year, with significantly higher
turret systems sales forecasted.
-19-
<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
six months ended December 31, 1999 amounted to $2,593,207 as compared to
$1,324,907 for the comparative quarter as a result of increased sales volumes.
Cost of sales as a percentage of revenue increased to 62% for the current fiscal
period as compared to 49% for the six months ended December 31, 1998. The
increased percentage is a result of supplying larger project system sales as
opposed to providing a larger proportion of relocation and ancillary support and
maintenance services to the V Band voice customer base, as well as a change in
the overall revenue mix, where different product groups attract different gross
margins. It is envisaged that the margins will be maintained around these
levels. The decrease in the margin is as a result of more turret system sales
being concluded in this period as compared to the prior period where mainly
moves, adds and changes were performed with very little turret system sales
being concluded. The turret system sales generate higher revenue but lower
margins as compared to moves, adds and changes. Increased turret system sales
was the desired effect in signing the IPC distribution agreement.
Total operating expenses. Total operating expenses consist of expenses
associated with staff, premises, communications, travel, group management fees,
depreciation and other expenses incurred in running the operations. Total
operating expenses for the six months ended December 31, 1999 amounted to
$1,535,183 as compared to $1,453,095 in the corresponding period. Depreciation
was $62,720 for the six months ended December 31, 1999, as compared to $57,806
in the prior period.
Liquidity and Capital Resources for the six months ended December 31, 1999 and
1998
The Company's consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the settlement
of liabilities in the normal course of business.
The Company anticipates raising additional capital to meet its planned
operational and expansion requirements over the remaining part of the fiscal
year ending June 30, 2000. Should the appropriate level of funding not become
available, then the Company will have to reduce its costs employed in various
areas including its global expansion activities, network expansion, new channel
marketing initiatives, R&D, sales and general marketing activities to a cost
level which will meet the anticipated cash needs for working capital and capital
expenditure requirements. Thereafter, if the Company's operations do not begin
to deliver positive cashflows in amounts sufficient 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 is heavily influenced by the economic conditions pertaining in
Australia at the time. The Company does not expect this to change. In fact, the
Company expects that it will be required to use even greater effort to remain
competitive in the future. The Company's needs 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 loan financing.
As a result of operating losses, cash used in operating activities amounted to
$508,583 for the six months ended December 31, 1999, as compared to $1,089,356
for the six months ended December 31, 1998. Accounts receivable increased to
$2,767,835 from $1,899,714 for the six months ended December 31, 1998 mainly as
a result of increased sales volumes in the second quarter. Accounts payable and
other accruals increased by $893,783 as compared to a decrease of $1,464,691 in
the prior comparative period, mainly as a result of increased sales activity in
the second quarter as well as some of the funding received going towards
reducing the payables to an acceptable level in the prior period.
Cash used in investing activities, consisting primarily of the purchase of
capital assets, amounted to $41,951 for the six months ended December 31, 1999,
and $119,083 in the corresponding period in 1998.
-20-
<PAGE>
Cash generated from financing activities, amounted to $649,147 as compared to
$672,599 in the prior period primarily as a result of unsecured loans in the
amount of $757,695. In the prior period, Trade Wind Communications Limited
contributed capital in the amount of $681,635.
New Accounting Pronouncements
In April 1998, the American Institute of Certified Public accountants issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up activities",
("SOP 98-5") which provides guidance on the financial reporting of start-up
costs and organization costs. It requires costs of start-up activities and
organization costs to be expensed as incurred. SOP 98-5 is effective for fiscal
years beginning after December 15, 1998 with initial adoption reported as the
cumulative effect of a change in accounting principle. Adoption of this standard
will not have a material effect on the financial statements.
During 1998, the FASB issued SFAS 132, "Employers' Disclosures about Pensions
and Other Post retirement Benefits". This statement revised employers'
disclosures about pension and other post retirement benefit plans but does not
change measurement of recognition of those plans. SFAS 132 is effective for
fiscal years beginning after December 15, 1998. Adoption of this standard will
not have a material effect on the financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133.
"Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133
requires companies to recognize all derivatives contracts as either assets of
liabilities in the balance sheet and to measure them at fair value. If certain
conditions are met, a derivative may be specifically designated as a hedge, the
objective of which is to match the timing of gain or loss recognition on the
hedging derivative with the recognition of (i) the changes in the fair value of
the hedged asset or liability that are attributable to the hedged risk or (ii)
the earnings effect of the hedged forecasted transaction. For a derivative not
designated as a hedging instrument, the gain or loss is recognized in income in
the period of change SFAS No. 133 is effective for all fiscal quarters of fiscal
years beginning after June 15, 2000.
Historically, the Company has not entered into derivatives contracts either to
hedge existing risks or for speculative purposes. Accordingly, the Company does
not expect adoption of the new standards on July 1, 2000 to affect its financial
statements.
Uncertainty due to the Year 2000 Issue
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information using
year 2000 dates is processed. In addition, similar problems may arise in some
systems that use certain dates in 1999 to represent something other than a date.
The effects of the Year 2000 Issue may be experienced before, on, or after
January 1, 2000, and, if not addressed, the impact on operations and financial
reporting may range from minor errors to significant systems failure that could
affect an entity's ability to conduct normal business operations.
The Company formulated a Y2K compliance program to test the Company's products
and services for compliance and all such products and services were successfully
tested. The Company received compliance statements from its principals who
supply products. 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. As of
February 29, 2000, the Company has not experienced any delays or material
adverse effect on its business as a result of Y2K.
The cost to the Company of the Y2K compliance program was not separated but was
written off into general operating expenses and leasing costs (for equipment
upgrade).
Further, there were no material or known problems concerning Y2K that have not
been fixed and remedied either prior to the change of date or since.
-21-
<PAGE>
Item 3. Description of Property
All Company property is leased. The Company currently operates from the
following offices:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Australia Sydney 27th floor Grosvenor Place Head Office address for all companies of Lease expires on
225 George Street Sydney Trade Wind Communications Limited. 31 July 2000
NSW 2000 Australia FlexiFax Sydney
- ------------------------------------------------------------------------------------------------------------------------------------
Australia Sydney 210 George Street Voice and Data Sydney address Lease expires on
NSW 2000 Australia 30 June 2000
- ------------------------------------------------------------------------------------------------------------------------------------
Australia Melbourne Level 7, Royal Insurance Building Flexifax Melbourne Monthly tenancy
440 Collins Street Voice & Data Melbourne
Melbourne Victoria 3000
- ------------------------------------------------------------------------------------------------------------------------------------
Singapore 200 Telok Ayer Street Voice & Data Singapore Lease expires on
Singapore 0106 FlexiFax Singapore 31 May 2000
- ------------------------------------------------------------------------------------------------------------------------------------
London 98 Curtain Road FlexiFax Global Services UK Monthly tenancy
London EC2A3AA
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Property occupied is currently adequate for the Company's needs.
Item 4. Security Ownership of Certain Beneficial Owners and Management
The table below lists the beneficial ownership of the Company's voting
securities by each person known by the Company to be the beneficial owner of
more than 5% of such securities, as well as the securities of the Company
beneficially owned by all directors officers of the Company. Unless otherwise
indicated, the shareholders listed possess sole voting and investment power with
respect to the stock shown.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Name Number of Shares Percentage of Outstanding Shares(6)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Skyglen Pty Limited(1) (5) 1,391,259 13.40%
- -----------------------------------------------------------------------------------------------------------------------------------
Martin McCarthy(5) 231,314 2.2%
- -----------------------------------------------------------------------------------------------------------------------------------
Minbura Holdings Pty Limited (2) (5) 536,942 5.2%
- -----------------------------------------------------------------------------------------------------------------------------------
Patvilt Pty Limited(3) (5) 1,237,073 11.9%
- -----------------------------------------------------------------------------------------------------------------------------------
Valazco Pty Limited (4) (5) 168,307 1.6%
- -----------------------------------------------------------------------------------------------------------------------------------
Trade Wind Communications Limited 8,800,000 84.6%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) An Australian trustee company controlled by Nicholas Rowland Bird.
(2) An Australian trustee company controlled by Sion Grand
(3) An Australian trustee company controlled by Arthur Christopher Walton
(4) An Australian trustee company controlled by Frank Favretto
(5) Beneficially held through Trade Wind Communications Limited.
(6) As at October 31, 1999
All Officers and Directors as a Group 17.2% (3 persons)
-22-
<PAGE>
(1) Beneficial ownership has been determined in accordance with Rule 13d-3 of
the Securities Exchange Act of 1934. Generally, a person is deemed to be the
beneficial owner of a security if he has the right to acquire voting or
investment power within 60 days.
(2) Unless otherwise indicated, all addresses are at the Company's office.
The balance of the Company's securities are held by approximately fifty persons.
AICH, directly or indirectly, beneficially owns 800,000 shares of the Company's
common stock. However 600,000 of these shares are subject to a lock up agreement
and potential cancellation if AICH fails to perform under the terms of its
agreement with the Company.
Item 5. Directors, Executive Officers, Promoters and Control Persons.
The directors and officers of the Company are as follows:
Name Age Position
- ---- --- --------
Nicholas Bird 61 CEO, Director
Frank Favretto 47 Director
Martin McCarthy 43 Director
Nicholas Bird is a co-founder of TWC and has extensive engineering and
managerial experience, especially in South East Asia. In 1970, he joined Philips
Telecommunications Industries, Hilversum, Holland in their Singapore operation
and was soon promoted to Regional Manager of South East Asia for
Telecommunications and Data Systems. During this time, he set up a
telecommunications factory in Singapore for PABX and application development.
Until 1981, Mr. Bird led Philips Telecommunications' Singapore operation in
becoming a market leader in most of its chosen areas, increasing annual revenues
of S$250,000 to in excess of S$20 million. Philips transferred Mr. Bird to
Australia in 1985 as its Group Product Manager, Telecommunications and Data
Systems. In this position, he was responsible for strategy and direction to make
the Australian operations profitable. Philips instructed its Australian Company
to rationalize its operations through a management buy-out. He participated in
the buy-out and founded Trade Wind Technologies Pty Ltd (formerly known as Trade
Wind Communications Pty Ltd) in December 1986. He has been significant in the
growth and development of TWC and he now uses his expertise for the continued
growth of the Company in the capacity of Chief Executive Officer. Mr. Bird was
appointed as Chief Executive Officer and as a Director to the Board of Directors
of the Company on February 5, 1999.
Frank Favretto is a Chartered Accountant in Australia and is the non-executive
director of AusAsean Management Ltd., an Australian private Company and Chairman
of Coms21 Limited, an Australian public Company. Mr. Favretto established
Bankers Trust Australia's stockbroking operations in 1984 and held the positions
of Chairman and non-member director of its Australian Stock Exchange membership
from 1984 to 1991. In 1991, he became Executive Vice-President of Bankers Trust
Australia's equity underwriting committee. In this role, Mr. Favretto gained
considerable experience in private and public capital raisings. He was appointed
a Director of TWC in November, 1996 and has been appointed to the Board of
Directors of the Company since completion of the reverse acquisition.
Martin McCarthy, was recently appointed a Director of the Company in May, 1999.
Mr. McCarthy was the President and CEO of IDD Enterprises, L.P. ("IDD") which
was recently sold to Dow Jones and Company. Mr. McCarthy has been a pioneer in
the online world for almost two decades. He has managed large organizations
which have created, commercialized and deployed leading edge technologies in the
areas of communications, information services and transactions. Prior to joining
IDD in 1988, Mr. McCarthy served as Vice President of Office Message and
Information Services at Western Union and was the youngest corporate officer in
the firm's 130 year history. Mr. McCarthy has an MBA from Harvard University.
-23-
<PAGE>
The above listed officers and directors will serve until the next annual meeting
of the shareholders or until their death, resignation, retirement, removal, or
disqualification, or until their successors have been duly elected and
qualified. Vacancies in the existing Board of Directors are filled by majority
vote of the remaining Directors. Officers of the Company serve at the will of
the Board of Directors.
Conflicts of Interest
Members of the Company's management are associated with other firms involved in
a range of business activities. Consequently, there are potential inherent
conflicts of interest in their acting as officers and directors of the Company.
Insofar as the officers and directors are engaged in other business activities,
management anticipates it will devote only a minor amount of time to the
Company's affairs.
The officers and directors of the Company are now and may in the future become
shareholders, officers or directors of other companies which may be formed for
the purpose of engaging in business activities similar to those conducted by the
Company. Accordingly, additional direct conflicts of interest may arise in the
future with respect to such individuals acting on behalf of the Company or other
entities. Moreover, additional conflicts of interest may arise with respect to
opportunities which come to the attention of such individuals in the performance
of their duties or otherwise.
The officers and directors are, so long as they are officers or directors of the
Company, subject to the restriction that all opportunities contemplated by the
Company's plan of operation which come to their attention, either in the
performance of their duties or in any other manner, will be considered
opportunities of, and be made available to the Company and the companies that
they are affiliated with on an equal basis. A breach of this requirement will be
a breach of the fiduciary duties of the officer or director. If the Company or
the companies in which the officers and directors are affiliated with both
desire to take advantage of an opportunity, then said officers and directors
would abstain from negotiating and voting upon the opportunity. However, all
directors may still individually take advantage of opportunities if the Company
should decline to do so. Furthermore, no officer or director of the Company has
ever promoted, is promoting or will be promoting any other blank check Company
during their tenure as an officer and director of the Company. Accordingly,
there presently exists no conflict of interest in this regard. Except as set
forth above, the Company has not adopted any other conflict of interest policy
with respect to such transactions.
Item 6. Executive Compensation.
The Company does not currently compensate any executive directly. Nicholas Bird
is an employed by TWG, the Company's operating subsidiary, under the terms of an
employment agreement. For the year ended June 30, 1999, Mr. Bird received total
remuneration of $81,543 (1998: $91,209), which comprised base salary of $41,713
(1998: $65,620), and other compensation, comprising superannuation contributions
(similar to defined contribution plans) and life insurance premiums of $39,830
(1998: $25,589). No employees received in excess of $100,000.
Board of Directors Compensation
The Company does not pay directors who are also executive officers for service
on the Board of Directors. Non-executive directors receive $1,500 per meeting
and are reimbursed for their expenses incurred in attending meetings of the
Board of Directors.
Long-term Incentive and Pension Plans
The Company does not hold any long-term incentive or defined benefit pension
plans. In relation to the Company's subsidiary operations in Australia,
according to legislation the Company provides funds for long service leave to
which staff become eligible after 10 years continuous service. Superannuation
(defined contribution benefits) payments are in line with norms in the various
countries that the Company and its subsidiaries does business in.
The Company is presently reviewing the merits of establishing an incentive stock
option plan for its key executives and employees; however, no such plan has been
approved or implemented.
-24-
<PAGE>
Other
No director or executive officer is involved in any material legal proceeding
against the Company in which he will receive a benefit from such legal
proceedings.
Employment Agreements
The Company currently has no employment agreement any of its employees. Certain
employees have appointment letters which set out the standard terms and
conditions of employment but do not incorporate any contractual obligations on
employees to remain in the employ of the Company.
Indemnification of Directors and Officers
The Company's Charter and Bylaws provide that indemnification for all directors
and officers to the full extent permitted by the Idaho Corporation Law. Under
such provisions, any director or officer who, in such capacity, is made or
threatened to be made a party to any suit or proceeding, may be indemnified if
the Board determines the director or officer acted in good faith and in a manner
the director or officer reasonably believed to be in or not opposed to the
Company's best interest. The Charter, Bylaws, and the Idaho Corporation Law
further provide that indemnification is not exclusive of any other rights to
which individuals may be entitled under the Charter, the Bylaws, any agreement,
any vote of stockholders or disinterested directors, or otherwise.
The Company has the power to purchase and maintain insurance on behalf of any
person who is or was our director, officer, employee, or agent, or is or was
serving at our request as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, or other enterprise against any
expense, liability, or loss incurred by any person in any capacity or arising
out of his status as, whether or not we would have the power to indemnify person
against liability under Idaho law.
Item 7. Certain Relationships and Related Transactions.
There have been no related party transactions, or any other transactions or
relationships required to be disclosed pursuant to Item 404 of Regulation S-B.
Item 8. Description of Securities.
The Company's authorized capital stock consists of 20,000,000 shares of Common
Stock, par value $0.001 per share and 5,000,000 shares of Preferred Stock, par
value $0.001 per share. There are 10,400,000 Common Stock issued and outstanding
as of the date of this filing. There are no preferred stock issued or
outstanding.
Common Stock. All shares of Common Stock have equal voting rights and, when
validly issued and outstanding, are entitled to one vote per share in all
matters to be voted upon by shareholders. The shares of Common Stock have no
preemptive, subscription, conversion or redemption rights and may be issued only
as fully-paid and non-assessable stock. Cumulative voting in the election of
directors is not permitted, which means that the holders of a majority of the
issued and outstanding stock of Common Stock represented at any meeting at which
a quorum is present will be able to elect the entire Board of Directors if they
so choose and, in such event, the holders of the remaining shares of Common
Stock will not be able to elect any directors. In the event of liquidation of
the Company, each shareholder is entitled to receive a proportionate share of
the Company's assets available for distribution to shareholders after the
payment of liabilities and after distribution in full of preferential amounts,
if any. All stock of the Company's Common Stock issued and outstanding are
fully-paid and non-assessable. Holders of the Common Stock are entitled to share
pro rata in dividends and distributions with respect to the Common Stock, as may
be declared by the Board of Directors out of funds legally available therefor.
Preferred Stock. No Preferred Stock of the Company is presently issued or
outstanding. The Preferred Stock of the Company may be issued in various series
and shall have preferences as to dividends and to liquidation rights. The Board
of Directors shall establish the specific rights, preferences, voting privileges
and restrictions of such Preferred Stock or any series thereof.
-25-
<PAGE>
PART II
Item 1. Market Price for Common Equity and Related Stockholder Matters.
The Company's Common Stock is quoted at the present time on the
"Over-the-Counter Bulletin Board. The Company's Common Stock commenced trading
in April 1999 at $3.00 per share under the symbol of "FLXM". Quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission, and may
not represent actual transactions.
- --------------------------------------------------------------------------------
High Bid Low Bid
-------- -------
- --------------------------------------------------------------------------------
Qtr ended June 30, 1999 $4.50 $3.00
- --------------------------------------------------------------------------------
Qtr ended September 30, 1999 $3.375 $2.00
- --------------------------------------------------------------------------------
Qtr ended December 31, 1999 $4.875 $4.53
- --------------------------------------------------------------------------------
There are approximately 50 holders of the Company's Common Stock. From 1970 to
1984 the Company issued its common stock to various independent contractors and
employees for their services. Presently there are 10,400,000 shares of the
Company's Common Stock outstanding with 20,000,000 common stock authorized. All
of the issued and outstanding stock of the Company's Common Stock were issued
pursuant to an exemption from the registration requirements of the Securities
Act of 1933, as amended.
As of the date of this Form 10-SB, 10,400,000 shares of the Company's Common
Stock are eligible for sale under Rule 144 promulgated under the Securities Act
of 1933, as amended, subject to certain limitations included in said Rule. In
general, under Rule 144, a person (or persons whose stock are aggregated), who
has satisfied a one-year holding period, under certain circumstances, may sell
within any three-month period, a number of stock which does not exceed the
greater of one percent of the then outstanding Common Stock or the average
weekly trading volume during the four calendar weeks prior to such sale. Rule
144 also permits, under certain circumstances, the sale of stock without any
quantity limitation by a person who has satisfied a two-year holding period and
who is not, and has not been for the preceding three months, an affiliate of the
Company.
The Company has not paid any dividends to date and has no plans to do so in the
immediate future.
Item 2. Legal Proceedings.
There is no litigation pending or threatened by or against the Company.
Item 3. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
Not applicable.
Item 4. Recent Sales of Unregistered Securities.
On February 18 1999, the Company sold 300,000 shares of Common Stock at $2.50
per share to the following three accredited investors presented to the Company
by AICH:
John L. Patten 100,000 shares
Kathleen N. Patten 100,000 shares
Benchmark Capital LLC 100,000 shares
This stock was sold at $2.50 based on AICH recommendation as to price per share
for total proceeds in the amount of $750,000.
-26-
<PAGE>
As of April 6, 1999 a private placement was made as a result of immediate short
term bridge financing of $US1,250,000 arranged by AICH. The proceeds were to be
used to make a bid for Newsnet, a company under administration and in the same
business of fax broadcasting. As consideration for providing this facility on
very short notice the Company issued 200,000 shares at $1.25 ($250,000), a
$550,000 discount on fair value, to AICH, the cost of which was to be deducted
from the $1,250,000 proceeds. After lengthy negotiation the Company decided to
withdraw from pursuing the acquisition further and returned the funds to AICH,
although the shares remain issued and outstanding.
Item 5. Indemnification of Directors and Officers.
The Company's by-laws include provisions providing for the indemnification of
officers and directors and other persons against expenses, judgments, fines and
amounts paid in settlement in connection with threatened, pending or completed
suits or proceedings against such persons by reason of serving or having served
as officers, directors or in other capacities, except in relation to matters
with respect to which such persons shall be determined not to have acted in good
faith and in the best interests of the Company. With respect to matters as to
which the Company's officers and directors and others are determined to be
liable for misconduct or negligence, including gross negligence in the
performance of their duties to the Company, Idaho law provides for
indemnification only to the extent that the court in which the action or suit is
brought determines that such person is fairly and reasonably entitled to
indemnification for such expenses which the court deems proper.
Insofar as indemnification for liabilities arising under the 1933 Act may be
permitted to officers, directors or persons controlling the Company pursuant to
the foregoing, the Company has been informed that in the opinion of the U.S.
Securities and Exchange Commission such indemnification is against public policy
as expressed in the 1933 Act, and is therefore unenforceable.
In accordance with the laws of the State of Idaho, the Company's by-laws
authorize indemnification of a director, officer, employee, or agent of the
Company for expenses incurred in connection with any action, suit, or proceeding
to which he or she is named a party by reason of his having acted or served in
such capacity, except for liabilities arising from his own misconduct or
negligence in performance of his or her duty. In addition, even a director,
officer, employee, or agent of the Company who was found liable for misconduct
or negligence in the performance of his or her duty may obtain such
indemnification if, in view of all the circumstances in the case, a court of
competent jurisdiction determines such person is fairly and reasonably entitled
to indemnification.
PART F/S
Financial Statements.
The following financial statements are attached hereto and filed as a part
hereof.
1) Table of Contents - Financial Statements
2) Independent Auditors' Report
3) Consolidated Balance Sheet
4) Consolidated Statements of Loss and Comprehensive Loss
5) Consolidated Statements of Changes in Cash Flows
6) Consolidated Statement of Stockholders' Equity
7) Notes to Financial Statements
8) Interim Consolidated Balance Sheet
9) Interim Consolidated Statements of Loss and Comprehensive Loss
10) Interim Consolidated Statements of Changes in Cash Flows
11) Notes to Interim Financial Statements
-27-
<PAGE>
PART III
Item 1. Exhibit Index
No. Sequential
Page No.
(3) Certificate of Incorporation and Bylaws
3.1 Certificate of Incorporation and
Amendments Thereto*
3.2 Bylaws*
(10) Material Contracts
10.1 Merger Agreement*
10.2 IPC Information Systems Inc - Distribution Agreement*
10.3 Premiere Information Systems Pty Ltd - Heads of Agreement*
10.4 Premiere Information Systems Pty Ltd - Wholesale Agreement*
10.5 Trend Micro - Partnership Agreement*
10.6 Scottish Pacific Business Finance Limited - Undisclosed
Factoring Agreement*
(21) List of Subsidiaries*
(27) Financial Data Schedule
27.1 Financial Data Schedule*
- ------------------------
*Previously filed.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the Registrant has duly caused this amendment to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized.
FLEXEMESSAGING.COM, INC.
(Registrant)
Date: April 24, 2000
/s/ Nicholas Bird
------------------------------
Nicholas Bird, President
<PAGE>
Flexemessaging.com, Inc
REPORT FOR THE YEAR ENDED JUNE 30, 1999
<PAGE>
For financial accounting purposes, as a result of the reverse acquisition by
Flexemessaging.com, Inc. (the "Company") of the business assets of Trade Wind
Communications Limited ("TWC"), consisting of the stock of Trade Wind Group Pty
Ltd., the financial statements presented herein are the consolidated financial
statements of the Company for the year ended June 30, 1999 and June 30, 1998.
The Company has two divisions: Voice and Data Division and FlexiFax Division
operating under the trade name of FlexiFax Global Services. The Voice and Data
Division is a specialist supplier and integrator of voice communication systems
and decision support applications for dealing rooms, emergency services and
other organizations with mission-critical needs. The FlexiFax Division operates
an enhanced fax broadcast service over a global network. FlexiFax specializes in
quality fax broadcasts generated from customers' desktops for delivery to any
destination in the world.
SCHEDULE A Financial Information
<PAGE>
TO THE SHAREHOLDERS
FLEXEMESSAGING.COM,INC
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated balance sheet of
Flexemessaging.com,Inc. as of June 30, 1999 and the related consolidated
statements of loss and comprehensive loss, stockholders' equity and cash flows
for the years ended June 30, 1999 and l998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion of these financial statements based on our audits.
We conducted our audits in accordance with Australian generally accepted
auditing standards in the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Flexemessaging.com,lnc. at June 30, 1999 and the consolidated results of their
operations and their cash flows for the years ended June 30, 1999 and 1998 in
conformity with generally accepted accounting principles in the United States.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1c to the
financial statements, the Company has suffered recurring losses from operations
and has a net working capital deficiency that raise substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 1c. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Sydney, Australia BDO NELSON PARKHILL
October 27, 1999 CHARTERED ACCOUNTANTS
F-1
<PAGE>
<TABLE>
<CAPTION>
Flexemessaging.com, Inc
Consolidated Balance Sheet
Note 30 June
1999
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets $
Current
Cash 2 118,912
Receivables 3 1,899,714
Inventory 4 306,370
Costs on projects not yet billed 456,784
2,781,780
--------------
Capital assets 5 1,010,902
Goodwill 6 9,531
Other 7 20,610
1,041,043
3,822,823
--------------
Liabilities and Shareholders' Equity
Current
Trade Creditors 1,541,309
Sundry creditors and accruals 8 784,269
Customer deposits 248,495
Unearned maintenance revenue 196,882
Current portion of lease obligations 9 31,382
Loans payable 10 74,435
Income taxes payable 111
2,876,883
--------------
Non Current
Non current portion of lease obligations 9 21,777
Employee entitlements payable 131,851
153,628
--------------
Total Liabilities 3,030,511
Shareholders' Equity
Common Stock, $0.001 par value; 20,000,000 shares
Authorized; 10,400,000 shares issued 10,400
Preferred Stock, $0.001 par value; 5,000,000 shares
Authorized; no shares issued -
Additional paid-in capital 4,959,068
Comprehensive income - foreign currency translation 12 138,733
Accumulated deficit (4,315,889)
792,312
3,822,823
</TABLE>
The accompanying summary of significant accounting policies and notes form an
integral part of these financial statements.
F-2
<PAGE>
Consolidated Statements of Loss and Comprehensive Loss
<TABLE>
<CAPTION>
Note 30 June June
1999 1998
$ $
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues 8,873,845 11,103,370
---------------------------------------------------
Less:
Cost of Sales 4,686,123 6,516,246
---------------------------------------------------
Gross Profit 4,187,722 4,587,124
---------------------------------------------------
Operating Expenses
Network operating costs 106,217 116,730
Selling, general and administrative 5,121,234 4,699,497
Depreciation and amortization 486048 451772
Total operating expenses 5,713,499 5,267,999
Loss from Operations (1,525,777) (680,875)
---------------------------------------------------
Other income/(expense)
Interest paid
- leases (1,436) (1,451)
- loans - short term (59,619) (29,983)
- Discount on stock issuance (550,000) -
Interest received 14,631 9,215
---------------------------------------------------
Loss for the year before income tax (2,122,201) (703,094)
---------------------------------------------------
Income tax expense 13 - -
---------------------------------------------------
Net loss (2,122,201) (703,094)
---------------------------------------------------
Other comprehensive (loss)/income, net of tax
Foreign currency translation adjustments (96,431) 211,266
Comprehensive loss (2,218,632) (491,828)
---------------------------------------------------
Net loss per share (0.23) (0.08)
---------------------------------------------------
Weighted average number of shares 9,075,000 8,800,000
</TABLE>
The accompanying summary of significant accounting policies and notes form an
integral part of these financial statements.
F-3
<PAGE>
Consolidated Statements of Changes in Cash Flows
<TABLE>
<CAPTION>
30 June 30 June
1999 1998
- ------------------------------------------------------------------------------------------------------
$ $
----------------------------------------
Cash provided/(used) by:
Operating Activities
Operations
<S> <C> <C>
Net loss for the year (2,122,201) (703,094)
----------------------------------------
Items not involving cash:
Amortization 486,048 451,772
----------------------------------------
Interest expenses related to issuance of
stock at a discount
550,000 -
----------------------------------------
Increase/(decrease) from changes in:
Accounts receivable 224,035 (28,150)
Inventory (39,644) (43,055)
Costs on projects not yet billed 83,921 152,652
Accounts payable and other (1,030,846) 357,100
Accruals
Income taxes (3) (56)
Employee entitlement payable 25,067 (58,918)
(1,823,623) 128,251
----------------------------------------
Investing Activities
Investments in:
----------------------------------------
Capital assets - net (481,852) 21,246
(481,852) 21,246
----------------------------------------
Financing Activities
Loans raised 1,250,000 -
Loans repaid (1,000,000) (319,920)
Loan payable 2,687 71,748
Lease payments (25,183) (81,626)
Proceeds on issue of stock 689,571 -
Contribution of capital 917,435 481,659
1,834,510 151,861
----------------------------------------
(Decrease)/Increase in cash (470,965) 301,358
Cash at beginning of year 589,877 288,519
Cash at end of year 118,912 589,877
----------------------------------------
Supplemental non-cash investing and
financing activities
Capital lease obligations 59,191 -
Interest 61,055 28,532
----------------------------------------
</TABLE>
The accompanying summary of significant accounting policies and notes form an
integral part of these financial statements.
F-4
<PAGE>
Consolidated Statement of Stockholders' Equity
<TABLE>
<CAPTION>
Common Stock
-------------------------
Additional
Shares Amount Paid in Accumulated
Capital Deficit
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, at June 30, 1997 680,800 506,515 1,574,378 (1,490,594)
Contributed capital 481,659
Net loss for the year (703,094)
--------------- ---------------- ----------------------- ----------------------
Balance at June 30, 1998 680,800 506,515 2,056,037 (2,193,688)
--------------- ---------------- ----------------------- ----------------------
Recapitalization on 8,119,200 (497,715) 497,715
February 5, 1999 (see note (a))
--------------- ---------------- ----------------------- ----------------------
Common stock for SVI 500,000 500 (500)
--------------- ---------------- ----------------------- ----------------------
Shares issued to 600,000 600 (600)
AICH for placement
Agreement
--------------- ---------------- ----------------------- ----------------------
Common stock issued on 300,000 300 749,700
March 16, 1999 @ $2.50
per share
Listing costs (60,429)
Attributable
To issuance
Contributed Capital 917,345
On March 31, 1999
--------------- ---------------- ----------------------- ----------------------
Common stock issued 200,000 200 249,800
On June 9, 1999 at
$1.25 per share
--------------- ---------------- ----------------------- ----------------------
Interest expense 550,000
Related to stock
Issued at a discount
--------------- ---------------- ----------------------- ----------------------
Net loss for the year (2,122,201)
--------------- ---------------- ----------------------- ----------------------
Balance, at June 30, 1999 10,400,000 10,400 4,959,068 (4,315,889)
</TABLE>
(a) The recapitilization that occurred on February 5, 1999 was necessary in
order to adjust the issued share capital to 8,800,000 shares. As described in
Note 1 to the financial statements, Flexemessaging.com, Inc. acquired the
business assets of TWC, consisting of the stock of TWG, in exchange for
8,800,000 shares of common stock of Flexemessaging.com, Inc.
F-5
<PAGE>
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. 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 (a valuation arrived at by applying
a revenue multiple to the Company's future revenue stream) based on
future revenues was determined and from this capitalization model,
the total outstanding common stock was calculated. Thereafter, the
respective equity ownership positions were negotiated.
Pursuant to the Merger Agreement, the Company entered into an
agreement with AICH, a Bermudan corporation, with the objective of
performing two tasks. First, AICH was to identify an acquisition
candidate and secondly AICH was to arrange for funding for the
Company. Pursuant to that agreement, AICH identified SVI as an
acquisition vehicle and assisted the Company in structuring and
concluding the reverse acquisition. In return, the shareholders of
SVI were allocated 500,000 of the Company's common stock after it
had been recapitilized. The fair value of the assets and liabilities
assumed in the reverse acquisition were nil. AICH has also assisted
the Company in seeking financing of $3,660,000 through the sale of
the Company's common stock utilizing private placements. AICH has
made an interim placement of 300,000 shares of common stock of
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. 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. 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
F-6
<PAGE>
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 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.
These financial statements present figures for the Company for the
years ended June 30, 1999, and June 30, 1998.
b. Principles of Consolidation
The consolidated accounts comprise the accounts of the Company and
all of its subsidiaries. All material interCompany accounts and
transactions have been eliminated.
c. Going Concern
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the
satisfaction of liabilities and commitments in the normal course of
business.
F-7
<PAGE>
The Company has incurred cumulative losses to date of $4,315,889
that includes a net loss for the current period of $2,122,201. The
Company anticipates raising additional capital to meet its planned
operational and expansion requirements over the remaining part of
the fiscal year ending June 30, 2000. Should the appropriate level
of funding not become available, then the Company will have to
reduce its costs employed in various areas including its global
expansion activities, network expansion, new channel marketing
initiatives, R&D, sales and general marketing activities 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. Goodwill and intangibles
Goodwill is recorded initially at the amount by which the purchase
price for a business or for ownership interest in a controlled
entity exceeds the fair value attributed to its net tangible assets
at date of acquisition. Goodwill is amortized on a straight-line
basis over a period of 10 years. Intangibles represent trademarks
and customer list acquisition. Intangibles are amortized on a
straight-line basis over a period of 5 years.
e. Long-lived Assets
Long-lived assets, consisting principally of capital assets and
goodwill, are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be
recoverable. If the sum of the expected future undiscounted cash
flows is less than the carrying amount of the asset a loss is
recognized for the difference between the fair value and the
carrying value.
f. Inventories
Inventories are measured at the lower of cost and net realizable
value. Costs are assigned on a first-in first-out basis and include
direct materials, direct labor and an appropriate proportion of
variable and fixed overhead expenses.
g. Income Tax
The Company accounts for income taxes under an asset and liability
approach that requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that
have been recognized in the Company's financial statements or tax
returns. To the extent it is more likely than not that all of the
Company's deferred tax assets will not be realized a valuation
allowance is recorded to reduce the deferred tax asset to its
estimated Net Realizable Value.
h. Capital Assets
Capital assets are recorded at cost. Amortization is provided on
owned plant and equipment over their estimated useful lives ranging
from 3 to 8 years using either the straight line or diminishing
balance method. Leased assets are amortized over the shorter of the
estimated life of the assets or the term of the lease.
F-8
<PAGE>
i. Research and Development
Research and Development expenditures are expensed as incurred.
j. Employee Benefits
Provision is made in respect of the Company's liability for annual
leave and long service leave at the balance sheet date. Long service
leave is accrued in respect of all employees.
Contributions are made by the Company to an employee superannuation
fund (similar to a defined contribution plan) and are charged as
expenses when incurred. The amount contributed to the fund was
$235,701 (1998: $178,970). The Company has a statutory obligation to
contribute 7% of total remuneration to the employee superannuation
fund. The contributions are paid to externally managed funds. The
Company has no other legal obligation to provide benefits to
employees on retirement.
k. Revenue Recognition
Projects for the Voice & Data Division relate to systems integration
of hardware and bundled software and are accounted for under SOP
97-2, Software Revenue Recognition. Revenue on these projects, which
are completed within one to two months, are recognized upon
installation, or upon delivery when there is a reasonable basis for
estimating that the installation criteria will be met. The
installation criteria involve cut-over or powering the system up to
go live. The costs associated with installation are minimal. All
costs that have not been incurred at the revenue recognition stage
are accrued to ensure proper matching of revenues and expenditurees.
There is normally one week between delivery and installation and
historically the Company has not experienced significant delays or
problems with the installations. Until revenue recognition occurs
upon installation or delivery, accumulated costs are held in Costs
and Projects Not Yet Billed.
Projects exceeding two months are accounted for on a percentage of
completion basis, based on direct costs. Unearned maintenance
revenue represents revenue received in advance of the period covered
by the maintenance agreement. This revenue is recognized evenly over
the period covered by the maintenance agreement.
Sales revenue for the Flexifax Division is recognized upon
successful transmission of fax deliveries.
l. Foreign Currency Transactions and Balances
The financial position and results of operations of the Company are
determined using the Australian dollar as the functional currency.
Assets and liabilities are translated at the exchange rate in effect
at each period end. Amounts on the statement of loss and
comprehensive loss are translated at the average rate of exchange
prevailing during the period. Translation adjustments arising from
the use of different exchange rates from period to period are
included in the comprehensive income account in shareholders'
equity. The gains and losses from foreign currency transactions are
included in net loss.
m. Financial Instruments
The Company's financial instruments consist of cash, receivables,
accounts payable, other loans, and employee entitlements payable.
Unless otherwise noted, it is management's opinion that the Company
is not exposed to significant interest, currency or credit risks
arising from these financial instruments. The fair values of these
financial instruments approximate their carrying values, unless
otherwise noted.
n. Use of Estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could materially differ from these estimates. The assets which
required management to make significant estimates and assumptions in
determining carrying values include plant and equipment and all
other non-current assets.
F-9
<PAGE>
o. Loss per share
Basic earnings per share is computed by dividing the net loss by the
weighted average number of stock of common stock outstanding each
year. Diluted earnings per share is computed in a manner consistent
with that of basic earnings per share while giving effect to all
potentially dilutive common stock equivalents that were outstanding
during the period. For the years ended June 30, 1999 and 1998 there
were no common stock equivalents, therefore both basic and dilutive
earnings per share were the same amounts for both periods. Net loss
per share is calculated assuming recapitalization occurred at the
beginning of the earliest period shown. As the 600,000 shares
directly or indirectly beneficially owned by AICH are performance
based, they have been excluded from the weighted average number of
shares.
p. New Accounting Pronouncements
In April 1998, the American Institute of Certified Public
accountants issued Statement of Position 98-5, "Reporting on the
Costs of Start-Up activities", ("SOP 98-5") which provides guidance
on the financial reporting of start-up costs and organization costs.
It requires costs of start-up activities and organization costs to
be expensed as incurred. SOP 98-5 is effective for fiscal years
beginning after December 15, 1998 with initial adoption reported as
the cumulative effect of a change in accounting principle. Adoption
of this standard will not have a material effect on the financial
statements.
During 1998, the FASB issued SFAS 132, "Employers' Disclosures about
Pensions and Other Post retirement Benefits". This statement revised
employers' disclosures about pension and other post retirement
benefit plans but does not change measurement of recognition of
those plans. SFAS 132 is effective for fiscal years beginning after
December 15, 1998. Adoption of this standard will not have a
material effect on the financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS
No. 133. "Accounting for Derivative Instruments and Hedging
Activities". SFAS No. 133 requires companies to recognize all
derivatives contracts as either assets of liabilities in the balance
sheet and to measure them at fair value. If certain conditions are
met, a derivative may be specifically designated as a hedge, the
objective of which is to match the timing of gain or loss
recognition on the hedging derivative with the recognition of (i)
the changes in the fair value of the hedged asset or liability that
are attributable to the hedged risk or (ii) the earnings effect of
the hedged forecasted transaction. For a derivative not designated
as a hedging instrument, the gain or loss is recognized in income in
the period of change SFAS No. 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 2000.
Historically, the Company has not entered into derivatives contracts
either to hedge existing risks or for speculative purposes.
Accordingly, the Company does not expect adoption of the new
standards on January 1, 2000 to affect its financial statements.
q. Risks and Uncertainties
A significant portion of the Company's client base is concentrated
within the financial services industry. An economic downturn in the
financial services industry could have a material adverse effect on
the Company's results of operations.
r. Sale of Accounts Receivable
The Company has adopted SFAS No 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities"
("SFAS 125"), which provides consistent standards for distinguishing
transfers of financial assets that are sales from transfers that are
secured borrowings. The Company has established a factoring line
with Scottish Pacific which enables the Company to sell selected
accounts receivable invoices to the bank with full recourse against
the Company. Pursuant to the provisions of SFAS 125, the Company
reflected the transactions as a sale of assets and established and
established an accounts receivable from Scottish Pacific for the
retained amount less the costs of the transaction and less any
anticipated future loss in the value of the retained asset. The
retained amount is equal to 15% of the total accounts receivable
invoice sold to the bank less 0.7% of the total invoice as an
administrative fee and an annual interest loading of 2% per annum
F-10
<PAGE>
of the total outstanding accounts receivable as a finance fee. The
amount owing to Scottish Pacific as at June 30, 1999 was $74,435 as
compared to $71,748 as at June 30, 1998. The amount owing at
December 31, 1999 was $106,089.
F-11
<PAGE>
<TABLE>
<CAPTION>
30 June
1999
- ---------------------------------------------------------------------------------------------------
$
-------------------
NOTE 2: CASH
<S> <C>
Cash at bank and on deposit 111,293
Cash on hand 7,619
118,912
-------------------
NOTE 3: RECEIVABLES
Trade debtors 1,744,978
Allowance for doubtful debts (86,812)
Other debtors 241,548
1,899,714
-------------------
NOTE 4: INVENTORY
Raw material 176,711
Finished goods 129,659
306,370
-------------------
NOTE 5: CAPITAL ASSETS
(a) Plant and Equipment - at cost 1,692,447
Furniture and Fittings - at cost 552,206
Motor Vehicles - at cost 85,084
Leasehold improvements - at cost 333,970
Less accumulated amortization (1,703,491)
960,216
-------------------
(b) Leased
Leased Motor Vehicles -
Capitalized leased assets 219,941
Less accumulated amortization (169,255)
50,686
-------------------
Total
Cost 2,883,648
Less accumulated amortization (1,872,746)
Cost less accumulated amortization 1,010,902
-------------------
Depreciation periods for each class of assets are as follows:
Plant and Equipment 2.5 - 4 years
Furniture and Fittings 8 years
Motor Vehicles 3 - 4 years
Leasehold Improvements 8 years
NOTE 6: GOODWILL
Goodwill 103,614
Less accumulated amortization (94,083)
9,531
-------------------
NOTE 7: OTHER NON CURRENT ASSETS
Trademarks 26,412
Less accumulated amortization (5,802)
20,610
-------------------
</TABLE>
F-12
<PAGE>
<TABLE>
<CAPTION>
30 June
1999
- --------------------------------------------------------------------------------------------------------
$
-----------------
NOTE 8: SUNDRY CREDITORS AND ACCRUALS
<S> <C>
Sundry creditors and accruals 584,162
Employee entitlements 200,107
784,269
-----------------
NOTE 9: LEASE LIABILITIES
(a) Finance Leasing Commitments
-----------------
Payable
- not later than one year 31,492
- later than one year but not later than 2 years 11,948
- later than 2 years but not later than 3 years 9,932
- later than 3 years but not later than 4 years -
- later than 4 years but not later than 5 years -
Minimum lease payments 53,372
-----------------
Less future finance charges 213
Total lease liability 53,159
Current portion 31,382
Non-current portion 21,777
53,159
-----------------
Finance lease liabilities are
collateralized by the underlying lease
assets
(b) Operating Lease Commitments
Non-cancelable operating leases
contracted for but not capitalized in
the accounts
Payable
- not later than one year 352,599
- later than one year but not later than 2 years 445,832
- later than 2 years but not later than 3 years 11,805
- later than 3 years but not later than 4 years -
- later than 4 years but not later than 5 years -
810,236
Rent expense incurred for the year ended
June 30, 1999 was $435,496 (1998: $324,419)
-----------------
</TABLE>
F-13
<PAGE>
NOTE 10: LOANS PAYABLE
In September 1997, the Company arranged an unlimited working capital-based
facility with Scottish Pacific Business Finance Limited ("Scottish Pacific")in
respect of the Australian domiciled customers of FlexiFax Global Services. In
accordance with Scottish Pacific lending criteria, this facility has been
secured by a charge over the assets of Trade Wind Marketing Pty Ltd (a wholly
owned subsidiary of 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
renewals. This agreement may be terminated by Scottish Pacific by giving one
month's notice or by the Company giving three month's notice. (See Note 1(r)).
As of April 6, 1999 a private placement was made as a result of immediate short
term bridge financing of $US1,250,000 arranged by AICH. The proceeds were to be
used to make a bid for Newsnet, a company under administration and in the same
business of fax broadcasting. As consideration for providing this facility on
very short notice the Company issued 200,000 shares at $1.25 ($250,000), a
$250,000 discount on fair value, to AICH, the cost of which was to be deducted
from the $1,250,000 proceeds. The shares were issued at $1.25 as compared to a
previous placement price per share of $2.50 and $4.00 as quoted on the OTCBB as
of the date of issue. After lengthy negotiation the Company decided to withdraw
from pursuing the acquisition and the funds were returned to AICH as per the
agreement. As AICH provided the necessary funding, the shares were issued on
June 9, 1999.
NOTE 11: CONTRIBUTED CAPITAL
In the past, loans were payable to Trade Wind Communications Limited. These
loans were unsecured and did not attract interest or have timetables for set
repayment. All loans have been forgiven at certain times. The forgiveness has
been reflected in paid-in capital.
NOTE 12: COMPREHENSIVE INCOME - FOREIGN CURRENCY TRANSLATION
In accordance with SFAS 130, the accumulated comprehensive income comprises the
following:
Accumulated comprehensive income
Balance at beginning of year 235,164
Foreign currency translation adjustments (96,431)
--------
Balance at end of year 138,733
NOTE 13: INCOME TAX EXPENSE
Estimated tax losses available to the Company to be carried forward to future
years amount to $5,975,184 (1998: $4,057,173). These losses are not subject to
an expiry date, however, the benefits of these losses will only be obtained if:
(a) the Company derives future assessable income of a nature and of an
amount sufficient to enable the benefit from the deduction for the loss
to be realized;
(b) the Company continues to comply with the conditions for deductibility
imposed by law; and
(c) no change in tax legislation adversely affect the Company in realizing
the benefit from the deduction for the loss.
Differences between the effective income tax rate and the statutory income tax
rate were primarily the result of the valuation allowance, which fully reserved
the net deferred tax asset. The net deferred tax asset arose primarily from the
taxable losses generated during the years ended June 30, 1992 through June 30,
1999.
F-14
<PAGE>
NOTE 14: SEGMENTED FINANCIAL INFORMATION
The Company operates two business divisions, Voice and Data and FlexiFax. The
Voice and Data Division is a specialist supplier and integrator of voice
communications systems and decision support applications for dealing rooms,
emergency services dispatch and similar operations. The FlexiFax Division
operates an enhanced fax broadcast system. It is not considered necessary to
show geographic segmented financial information as revenues generated from
countries other than Australia [30] are not considered significant and represent
less than 10% of total revenue. The accounting principles used to report the
segment amounts is the same as that used to report the financial statements.
Segmented financial information for these two divisions follows:
For the year ending June 30, 1999
<TABLE>
<CAPTION>
Voice and FlexiFax Head Office Consolidated
Data
<S> <C> <C> <C> <C>
Revenue 5,426,815 3,447,030 - 8,873,845
Amortization 126,159 304,409 55,480 486,048
Segment operating profit/(loss) 101,925 (1,368,978) (258,724) (1,525,777)
Identifiable assets 2,365,313 1,248,780 208,730 3,822,823
For the year ending June 30, 1998
Revenue 7,640,378 3,462,992 - 11,103,370
Amortization 107,558 289,536 54,678 451,772
Segment operating profit/(loss) 133,024 (625,520) (188,379) (680,875)
Identifiable assets 3,098,631 1,252,369 252,626 4,603,626
</TABLE>
NOTE 15: EVENTS SUBSEQUENT TO BALANCE SHEET DATE
On August 30, 1999, the Company through AICH, has made an offering of 500,000
shares of the Company's common stock at $3.75 per share to raise net proceeds of
$1,725,000 by way of a private placement. This offering is being made pursuant
to the limited and private offering exemption set forth in Rule 506 of
Regulation D under the US Securities Act of 1933, as amended ("the Act"), and
comparable exemptions from registration under applicable state securities laws.
Accordingly, the securities to be offered will not be and have not been
registered under the Act and may not be offered or sold in the U.S. absent
registration or an applicable exemption from registration.. The securities will
be offered only to investors who are accredited investors (as that term is
defined in Regulation D of the Securities Act). The Offering has no aggregate
minimum purchase requirement. This offering is to close 180 days from the
offering date or until all shares are sold whichever is the earlier. No shares
were subscribed to under this offering.
As of July 1999, AICH has advanced bridge financing in the sum of $499,500, in
return for an unsecured promissory note on the Company. The loan bears interest
at the rate announced, from time to time, by Nationsbank N.A. as its prime rate,
plus 200 basis points, per annum. Interest is calculated on the basis of a
360-day year, but only to the extent that the unpaid principal remains
outstanding. Interest accrues and is payable from the day that the Company
receives net proceeds of not less than $1,500,000 from the above-mentioned
private placement. The promissory note is to be repaid on the later of
commencement of trading of securities of the Company on the American
F-15
<PAGE>
Stock Exchange, NASDAQ or another exchange acceptable to the Company, or
December 21, 1999. The note may be prepaid at any time without penalty or
premium.
On August 16, 1999, the Company filed a Form 10SB with the US Securities and
Exchange Commission to become a reporting entity as of October 15, 1999.
F-16
<PAGE>
Flexemessaging.com, Inc
REPORT FOR THE PERIOD ENDED DECEMBER 31, 1999
F-17
<PAGE>
Flexemessaging.com, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
Note Unaudited
31 December
1999
- -------------------------------------------------------------------------------- -------------- --------------------------
Assets $
Current
<S> <C>
Cash 217,525
Receivables 2,767,835
Inventory - Raw materials 142,369
Inventory - Finished goods 163,251
Costs on projects not yet billed 278,445
--------------------------
3,749,425
--------------------------
Capital assets 438,225
Goodwill 3,805
Other 25,745
Liabilities and Shareholders' Equity
Current
Trade Creditors 2,171,288
Sundry creditors and accruals 1,007,855
Customer deposits 272,188
Unearned maintenance revenue 213,407
Current portion of lease obligations 31,071
Loan payable on securitization of debt 106,089
Non Current
Non current portion of lease obligations 21,561
Loans payable 2 757,695
Employee entitlements payable 138,098
917,354
--------------------------
Total Liabilities 4,719,252
--------------------------
Shareholders' Equity
Common Stock, $0.001 par value; 20,000,000 shares 10,400
Authorized; 10,400,000 shares issued
Preferred Stock, $0.001 par value; 5,000,000 shares -
Authorized; no shares issued
Additional paid-in capital 4,825,393
Comprehensive income - foreign currency translation 3 181,532
Accumulated deficit (5,699,377)
--------------------------
(682,052)
--------------------------
4,037,200
</TABLE>
The accompanying summary of significant accounting policies and notes form an
integral part of these financial statements.
F-18
<PAGE>
Consolidated Statements of Loss and Comprehensive Loss
<TABLE>
<CAPTION>
Note Unaudited Unaudited Unaudited Unaudited
Three months ended Three months ended Six months ended Six months ended
31 December 31 December 31 December 31 December
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
$ $ $ $
<S> <C> <C> <C> <C>
Sales 3,950,865 1,815,329 6,028,155 4,296,269
Less:
Cost of Sales 2,553,135 1,021,128 3,602,655 2,359,504
------------------------------------------------------------------------------
Gross Profit 1,397,730 794,201 2,425,500 1,936,765
Operating Expenses
Network operating costs 18,574 27,140 42,405 55,826
Selling,general and administrative 1,424,742 1,043,562 2,778,730 2,169,056
Depreciation and amortization 134,707 120,689 244,600 227,806
Restructuring Costs 725,735 - 725,735
------------------------------------------------------------------------------
Total operating expenses 2,303,758 1,191,391 3,791,470 2,452,688
------------------------------------------------------------------------------
Loss from Operations (906,028) (397,190) (1,365,970) (515,923)
Other income/(expense)
Interest paid
- loans - short term (14,698) (16,903) (25,712) (25,308)
Interest received 6,882 4,747 8,194 6,882
------------------------------------------------------------------------------
Loss for the year before income tax (913,844) (409,346) (1,383,488) (534,349)
Income tax expense - - - -
------------------------------------------------------------------------------
Net loss (913,844) (409,346) (1,383,488) (534,349)
Other comprehensive income, net of tax
Foreign currency translation adjustments 13,458 17,287 42,799 19,516
------------------------------------------------------------------------------
Comprehensive loss (900,386) (392,059) (1,340,689) (514,833)
Net loss per share (0.09) (0.05) (0.13) (0.06)
Weighted average number of shares 10,400,000 8,800,000 10,400,000 8,800,000
</TABLE>
The accompanying summary of significant accounting policies and notes form an
integral part of these financial statements.
F-19
<PAGE>
Consolidated Statements of Changes in Cash Flows
<TABLE>
<CAPTION>
Unaudited Unaudited
Six months ended Six months ended
31 December 31 December
1999 1998
- -------------------------------------------------------------------------------------------------------------------------
Cash provided/(used) by: $ $
Operating Activities
Operations
<S> <C> <C>
Net loss for the year (1,383,488) (534,349)
Items not involving cash:
Amortization 244,600 227,806
Write down of network equipment 419,418
Changes in operating assets and liabilities:
Accounts receivable (868,121) 387,727
Inventory 750 (57,232)
Costs on projects not yet billed 178,339 343,677
Accounts payable and other 893,783 (1,464,691)
accruals
Income taxes (111) 1
Employee entitlement payable 6,247 7,705
----- -----
(508,583) (1089,356)
Investing Activities
Investments in:
Capital assets - net (41,951) (119,083)
-------- ---------
(41,951) (119,083)
Financing Activities
Loans raised 757,695 -
Loan payable on securitization of debt 31,654 (1,761)
Lease payments (6,527) (7,275)
Contribution of capital - 681,635
Distributions (133,675) -
--------- -
649,147 672,599
(Decrease)/Increase in cash 98,613 (535,840)
Cash at beginning of year 118,912 589,877
Cash at end of year 217,525 54,037
Supplemental non-cash investing and financing activities
Capital lease obligations - -
Interest 25,712 25,308
</TABLE>
The accompanying summary of significant accounting policies and notes form an
integral part of these financial statements.
F-20
<PAGE>
Notes on the Financial Statements
- --------------------------------------------------------------------------------
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Interim Financial Statements
The Consolidated interim financial statements included herein are
stated in US dollars and have been prepared by the Company, without
audit, in accordance with accounting principles generally accepted
in the United States and pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are
adequate to make the information presented not misleading.
These statements reflect all adjustments, consisting of normal
recurring adjustments which, in the opinion of management, are
necessary for fair presentation of the information contained
therein. It is suggested that these Consolidated interim financial
statements be read in conjunction with the financial statements of
Flexemessaging.com, Inc. for the year ended June 30, 1999 and notes
thereto included in the Company's registration on Form 10-SB. 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 (a valuation arrived at by applying
a revenue multiple to the Company's future revenue stream) based on
future revenues was determined and from this capitalization model,
the total outstanding common stock was calculated. Thereafter, the
respective equity ownership positions were negotiated.
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 offered 500,000 of the Company's common stock. 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.
F-21
<PAGE>
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. 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. 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 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.
These unaudited financial statements present figures for the
Company for the three and six months ended December 31, 1999, and
1998.
F-22
<PAGE>
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 $5,699,377
which includes a net loss (after extraordinary items) for the
current period of $1,383,488. 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. For the six months ended December 31, 1999 and 1998 there were
no common stock equivalents. 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 of
Flexemessaging.com, Inc. The loan bears interest at the rate
announced, from time to time, by Nationsbank N.A. as its prime rate,
plus 200 basis points, per annum. Interest is calculated on the
basis of a 360-day year, but only to the extent that the unpaid
principal remains outstanding. Interest accrues and is payable from
the day that the Company receives net proceeds of not less than
$1,500,000 from the offering described in Note 5. The promissory
note is to be repaid on the later of commencement of trading of
securities of the Company on the American Stock Exchange, NASDAQ or
another national exchange acceptable to the Company, or December 21,
1999. The note may be prepaid at any time without penalty or
premium.
The balance of the loan funds are unsecured with no fixed terms of
repayment and do not attract interest.
F-23
<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 period 138,733
Foreign currency translation adjustments 42,799
-------
Balance at end of period 181,532
NOTE 4: SEGMENTED FINANCIAL INFORMATION
The Company operates two business divisions, Voice and Data and FlexiFax. The
Voice and Data Division is a specialist supplier and integrator of voice
communications systems and decision support applications for dealing rooms,
emergency services dispatch and similar operations. The FlexiFax Division
operates an enhanced fax broadcast system. It is not considered necessary to
show geographic segmented financial information as revenues generated from
countries other than Australia are not considered significant and represent less
than 10% of total revenue. The accounting principles used to report the segment
amounts is the same as that used to report the financial statements. Segmented
financial information for these two divisions follows:
For the six months ended December 31, 1999
<TABLE>
<CAPTION>
Voice and Data FlexiFax Head Office Consolidated
<S> <C> <C> <C> <C>
Revenue 4,229,231 1,798,924 - 6,028,155
----------------- --------------------------------------------------------
Amortization 62,720 168,380 13,500 244,600
----------------- --------------------------------------------------------
Segment operating profit/(loss) 100,841 (1,303,102) (163,709) (1,365,970)
----------------- --------------------------------------------------------
Identifiable assets 3,151,820 651,169 234,211 4,037,200
----------------- --------------------------------------------------------
For the six months ended December 31, 1998
Revenue 2,705,828 1,590,441 - 4,296,269
----------------- --------------------------------------------------------
Amortization 57,806 164,765 5,235 227,806
----------------- --------------------------------------------------------
Segment operating profit/(loss) (72,175) (403,443) (40,305) (515,923)
----------------- --------------------------------------------------------
Identifiable assets 1,839,389 1,205,656 259,360 3,304,405
----------------- --------------------------------------------------------
</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
F-24
<PAGE>
to raise net proceeds of $1,725,000 by way of private placement. This offering
is being made pursuant to the limited and private offering exemption set forth
in Rule 506 of Regulation D under the US Securities Act of 1933, as amended
("the Act"), and comparable exemptions from registration under applicable state
securities laws. Accordingly, the securities to be offered will not be and have
not been registered under the Act and may not be offered or sold in the U.S.
absent registration or an applicable exemption from registration. The securities
will be offered only to investors who are accredited investors (as that term is
defined in Regulation D of the Securities Act). The Offering has no aggregate
minimum purchase requirement. This offering is to close 180 days from the
offering date or until all shares are sold whichever is the earlier. To date no
shares have been subscribed for in this offering.
NOTE 6: RESTRUCTURING COSTS
One of the core management objectives has been to re-position the Company more
towards a broad based messaging service and away from the heavy reliance on fax
running on a proprietary fax network. This plan would involve the closure of the
existing proprietary fax network and the cessation of use of the related network
equipment and resources. This is considered to be a closure of the existing
proprietary fax delivery network and the cessation of use of the related network
equipment and resources. This is considered to be a closure of part of a line of
business. Currently only customer bases in the UK, Canada, the USA, Switzerland
and Singapore are effected by this closure. Revenues from this service comprises
less than 9% of FlexiFax's total revenues.
In connection with this plan the Company signed an agreement on December 2,
1999, with Premiere, a subsidiary of Premiere Technologies Inc., a
communications company based in Atlanta, Georgia whereby the Company would
outsource the delivery of its fax traffic to the Premiere network. The customer
bases in the UK, Canada, the USA, Switzerland and Singapore (representing the
discontinued and/or outsourced service) will now be serviced by Premiere with
the Company receiving a commission on revenues generated for the next 24 months.
FlexiFax will still provide enhanced fax and email broadcast services to their
existing customers, namely Australia and New Zealand, which comprises 92% of the
segment's revenue. The Company is still billing the remaining customers that
have not been affected and the manner in which they transact with the Company is
unaltered.
As a result, with effect from December 1, 1999 all expenses in respect of
network operations (leased network backbone circuit expenses, facilities
management, software and hardware expenses and maintenance, network staff
resources) will not be continued.
The costs and liabilities of this plan includes:
<TABLE>
<CAPTION>
Expensed Applied against Payments Balance
related asset Dec 31, 1999
<S> <C> <C> <C> <C>
Assumed obligations on closed network operations 188,723 (50,116) 138,607
Severance and other employee costs(3 employees) 117,594 (19,500) 98,094
Impairment loss on network equipment 419,418 (419,418) - -
725,735 (419,418) (69,616) (236,701)
</TABLE>
Accrued liabilities for network operations in the amount of $138,607 as of
December 31, 1999 relate to termination costs of contracts and other contractual
agreements with third parties.
Estimated severance and other employee costs in the amount of $98,094 as of
December 31, 1999 relate to estimated severance for terminated employees.
Employee groups affected include management and network support personnel. As of
December 31, 1999 the accrual related to one senior employee.
The impairment loss on network equipment relates to network equipment that is to
be abandoned or otherwise disposed of. These assets are no longer being used in
the continued operations of the Company.
On December 16, 1999 Trade Centre Systems Holdings Pte Ltd ("TCSH"), an
indirectly wholly owned subsidiary of the Company, operating in Singapore
entered into an agreement with Jebsen and Jessen Communications Pte Ltd ("J&J").
Under the agreement TCSH has transferred its Voice & Data business to J&J in
return for revenue based commissions on sales and maintenance through October
31, 2000. J&J have agreed to offer employment to certain employees of TCSH. TCSH
has agreed to provide J&J with certain stock and spare parts in order to perform
the maintenance function as well as providing client site configuration details.
This agreement relates to the transfer/disposal of a geographical portion of a
segment and does not constitute a discontinued operation. This transfer will not
have a material impact on the performance of the Company as the anticipated
commission revenue stream represents less than 5% of the Company's total
revenues.
F-25
