SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
-----------------------------
FORM 10-QSB
-----------------------------
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For Quarter ended March 31, 2000
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No fee required)
Commission File Number: 0-27059
----------------------------
FLEXEMESSAGING.COM, INC.
-----------------------------
(Name of Small Business Issuer in its charter)
Idaho 82-0485978
----- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Level 27 Grosvenor Place
225 George Street
Sydney, Australia NSW 2000
------------------------------- --------
(Address of principal executive offices) (Zip code)
Issuer's telephone number: (011) 61 2 9250-8888
---------------
Securities to be registered pursuant to Section 12(b) of the Act: none
Securities to be registered pursuant to Section 12(g) of the Act: Common Stock
Check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. [X] Yes [ ] No
As of April 26, 2000 there were 10,400,000 shares of Common Stock, par value
$.001 per share, of the registrant outstanding.
<PAGE>
TABLE OF CONTENTS
Page
----
PART I FINANCIAL INFORMATION 3
Item 1. Financial Statements
Unaudited Consolidated Balance Sheet as of March 31, 2000 4
Unaudited Consolidated Statements of Operations for the three 5
and nine months ended March 31, 2000 and 1999
Unaudited Consolidated Statements of Cash Flows for the nine 6
Months ended March 31, 2000 and 1999
Notes to the Unaudited Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition 13
And Results of Operations
Part II - Other Information:
Item 6. Exhibits 20
Ex. 27 Financial Data Schedule
Signatures 21
-2-
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements
For financial accounting purposes, as a result of the reverse acquisition by
Flexemessaging.com, Inc. (the "Company") of the business assets of Trade Wind
Communications Limited ("TWC"), consisting of the stock of Trade Wind Group Pty
Ltd., the financial statements presented herein are the consolidated financial
statements of the Company for the nine months ended March 31, 2000 and 1999, and
the consolidated statements of loss and comprehensive loss for the three months
ended March 31, 2000
The Company has two divisions: Voice and Data Division and FlexiFax Division
operating under the trade name of FlexiFax Global Services. Voice and Data
Division is a specialist supplier and integrator of voice communication systems
and decision support applications for dealing rooms, emergency services and
other organizations with mission-critical needs. FlexiFax Division operates an
enhanced fax broadcast service over a global network. FlexiFax specializes in
quality fax broadcasts generated from customers' desktops for delivery to any
destination in the world.
-3-
<PAGE>
Flexemessaging.com, Inc
Consolidated Balance Sheets
<TABLE>
<CAPTION>
Note Unaudited
31 March
2000
- ---------------------------------------------------------------------------------------------------------------------
Assets $
<S> <C>
Current
Cash 203,424
Receivables 2,580,579
Inventory - Raw materials 181,455
Inventory - Finished goods 240,875
Costs on projects not yet billed 409,385
----------
3,615,718
----------
Capital assets 397,880
Goodwill 933
Other 24,259
----------
423,072
----------
4,038,790
- ---------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current
Trade Creditors 2,149,301
Sundry creditors and accruals 1,040,647
Customer deposits 225,416
Unearned maintenance revenue 213,407
Current portion of lease obligations 29,279
Loan payable on securitization of debt 17,184
----------
3,675,234
----------
Non Current
Non current portion of lease obligations 20,317
Loans payable 2 713,982
Employee entitlements payable 134,265
----------
868,564
----------
Total Liabilities 4,543,797
----------
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 5,023,887
Comprehensive income - foreign currency translation 3 151,244
Accumulated deficit (5,690,538)
----------
(505,007)
----------
4,038,790
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying summary of significant accounting policies and notes form an
integral part of these financial statements.
-4-
<PAGE>
Consolidated Statements of Profit/(Loss) and Comprehensive Profit/(Loss)
<TABLE>
<CAPTION>
Note Unaudited Unaudited Unaudited Unaudited
Three months ended Three months ended Nine months ended Nine months ended
31 March 31 March 31 March 31 March
2000 1999 2000 1999
- ------------------------------------------------------------------------------------------------------------------------------------
$ $ $ $
<S> <C> <C> <C> <C>
Revenues 2,280,236 2,176,013 8,308,391 6,472,282
Less:
Cost of Sales 1,184,352 1,080,893 4,787,007 3,440,397
---------------------------------------------------------------------------------
Gross Profit 1,095,884 1,095,120 3,521,384 3,031,885
Operating Expenses
Network operating costs (3,930) 25,136 39,173 80,962
Selling, general and administrative 1,057,162 1,306,894 3,835,892 3,475,950
Depreciation and amortization 30,623 120,407 275,223 348,213
Restructuring Costs 6 -- -- 725,735 --
---------------------------------------------------------------------------------
Total operating expenses 1,084,553 1,452,437 4,876,023 3,905,125
---------------------------------------------------------------------------------
Profit/(loss) from Operations 11,331 (357,317) (1,354,639) (873,240)
Other income/(expense)
Interest paid
- loans - short term (7,570) (7,456) (33,282) (32,764)
Interest received 5,078 1,798 13,272 8,680
---------------------------------------------------------------------------------
Profit/(loss) for the year before
income tax 8,839 (362,975) (1,374,649) (897,324)
Income tax expense -- -- -- --
---------------------------------------------------------------------------------
Net profit/(loss) 8,839 (362,975) (1,374,649) (897,324)
Other comprehensive income, net of tax
Foreign currency translation adjustments (30,288) 35,863 12,511 55,379
---------------------------------------------------------------------------------
Comprehensive profit/(loss) (21,449) (327,112) (1,362,138) (841,945)
Net profit/loss per share 0.00 (0.04) (0.13) (0.10)
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.
-5-
<PAGE>
Notes on the Financial Statements
- --------------------------------------------------------------------------------
Consolidated Statements of Changes in Cash Flows
<TABLE>
<CAPTION>
Unaudited Unaudited
Nine months ended Nine months ended
31 March 31 March
2000 1999
- ---------------------------------------------------------------------------------------------------------------------
Cash provided/(used) by: $ $
<S> <C> <C>
Operating Activities
Operations
Net loss for the year (1,374,649) (897,324)
Items not involving cash:
Amortization 275,223 348,213
Write down of network equipment 419,418 --
Changes in operating assets and liabilities:
Accounts receivable (837,216) 159,690
Inventory (141,368) 33,662
Costs on projects not yet billed 17,387 (115,608)
Accounts payable and other accruals 1,080,960 (1,426,314)
Income taxes (107) (2)
Employee entitlement payable 18,421 8,580
---------- ----------
(541,931) (1,889,103)
Investing Activities
Investments in:
Capital assets - net (114,666) (190,306)
---------- ----------
(114,666) (190,306)
Financing Activities
Loans raised 739,638 1,250,000
Loan payable on securitization of debt (54,139) 15,798
Lease payments (3,563) (7,690)
Proceeds on issue of stock -- 640,000
Contribution of capital 64,819 807,949
---------- ----------
746,755 2,706,057
Effect of exchange rate changes on cash (5,646) 141,189
(Decrease)/Increase in cash 84,512 767,837
Cash at beginning of year 118,912 589,877
Cash at end of year 203,424 1,357,714
Supplemental non-cash investing and financing activities
Interest 33,282 32,764
</TABLE>
The accompanying summary of significant accounting policies and notes form
an integral part of these financial statements
-6-
<PAGE>
Notes on the Financial Statements
- --------------------------------------------------------------------------------
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Interim Financial Statements
The Consolidated interim financial statements included herein are
stated in US dollars and have been prepared by the Company, without
audit, in accordance with accounting principles generally accepted
in the United States and pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are
adequate to make the information presented not misleading.
These statements reflect all adjustments, consisting of normal
recurring adjustments which, in the opinion of management, are
necessary for fair presentation of the information contained
therein. It is suggested that these Consolidated interim financial
statements be read in conjunction with the financial statements of
Flexemessaging.com Inc for the year ended June 30, 1999 and notes
thereto included in the Company's registration on Form 10-SB, as
amended. The Company follows the same accounting principles in
preparation of interim reports.
Results of operations for the interim periods are not indicative of
annual results.
b. Organization
Trade Wind Communications Limited, a Bermudan corporation , listed
on the Canadian Venture Exchange (VSE: TWC) ("TWC") entered into a
business combination agreement ("Merger Agreement") on February 5,
1999 with Flexemessaging.com, Inc. (previously Siler Ventures Inc. ,
"SVI") and Atlantic International Capital Holdings Ltd. ("AICH") to
complete a reverse acquisition of Flexemessaging.com, Inc and a
financing arrangement of $3,660,000 through the sale of
Flexemessaging.com, Inc. common stock pursuant to an exemption from
the registration requirements of the Securities Act of 1933, as
amended. TWC owned all of the stock in Trade Wind Group Pty 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
-7-
<PAGE>
SVI were allocated 500,000 of the Company's common stock after it
had been recapitalized. The fair value of the assets and liabilities
assumed in the reverse acquisition were nil. AICH has also assisted
the Company in seeking financing of $3,660,000 through the sale of
the Company's common stock utilizing private placements. AICH has
made an interim placement of 300,000 shares of common stock of
Flexemessaging.com, Inc. for $750,000.
Per the Merger Agreement, AICH is expected to place the balance of
the $3,660,000 financing through the sale of Flexemessaging.com,
Inc.'s common stock pursuant to future private placements. 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.
TWC is a holding company that did not carry on any operations. Its
only expenditures were in relation to investor relations and stock
exchange compliance relating to its capital stock as listed on the
Canadian Venture Exchange. As a result, all costs of doing business
(i.e. officer and employee salaries, rent, depreciation,
advertising, accounting, legal, interest expense) have been
reflected in the financial statements of TWG.
TWG's principal activity comprises the manufacture and sale of
telecommunication equipment and the provision of communication
services. The majority of sales to date have been concentrated in
Australia, however with the expansion of its communication services
to Europe and North America, the Company is developing a global
profile.
These financial statements are stated in US dollars and have been
prepared in accordance with generally accepted accounting principles
in United States.
These unaudited financial statements present figures for the Company
for the three and nine months ended March 31, 2000, and 1999.
-8-
<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 $5,690,539
which includes a net loss for the current period of $1,374,649. 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 is very 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 to compete successfully. 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 nine months ended March 31, 2000 and 1999 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 March 21, 2000. The note may be
prepaid at any time without penalty or premium. As the Company has
not listed on any of the above-mentioned exchanges, the Company is
not in default in the repayment of the loan.
The balance of the loan funds are unsecured with no fixed terms of
repayment and do not attract interest.
-9-
<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 12,511
-------
Balance at end of period 151,244
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 three months ended March 31, 2000
<TABLE>
<CAPTION>
Voice and Data FlexiFax Head Office Consolidated
<S> <C> <C> <C> <C>
Revenue 1,514,871 765,365 -- 2,280,236
------------------------------------------------------
Amortization 28,648 (4,192) 6,157 30,623
------------------------------------------------------
Segment operating profit/(loss) 119,450 (11,566) (96,553) 11,331
------------------------------------------------------
Identifiable assets 3,075,890 735,679 227,221 4,038,790
------------------------------------------------------
For the three months ended March 31, 1999
Revenue 1,244,051 931,962 -- 2,176,013
------------------------------------------------------
Amortization 26,811 90,877 2,719 120,407
------------------------------------------------------
Segment operating profit/(loss) 16,116 (352,297) (21,136) (357,317)
------------------------------------------------------
Identifiable assets 3,434,532 1,428,676 275,349 5,138,557
------------------------------------------------------
</TABLE>
-10-
<PAGE>
For the nine months ended March 31, 2000
<TABLE>
<CAPTION>
Voice and Data FlexiFax Head Office Consolidated
<S> <C> <C> <C> <C>
Revenue 5,744,102 2,564,289 -- 8,308,391
------------------------------------------------------
Amortization 91,368 164,188 19,667 275,223
------------------------------------------------------
Segment operating profit/(loss) 220,291 (1,314,668) (260,262) (1,354,639)
------------------------------------------------------
Identifiable assets 3,075,890 735,679 227,221 4,038,790
------------------------------------------------------
For the nine months ended March 31, 1999
Revenue 3,949,879 2,522,403 -- 6,472,282
------------------------------------------------------
Amortization 84,617 255,642 7,954 348,213
------------------------------------------------------
Segment operating profit/(loss) (56,059) (755,740) (61,441) (873,240)
------------------------------------------------------
Identifiable assets 3,434,532 1,428,676 275,349 5,138,557
------------------------------------------------------
</TABLE>
NOTE 5: PRIVATE PLACEMENT OFFERING
On August 30, 2000, the Company through AICH, has made an offering of 500,000
shares of the Company's common stock at $3.75 per share for the raising of net
proceeds of $1,725,000 by way of private placement. This offering is being made
pursuant to the limited and private offering exemption set forth in Rule 506 of
Regulation D under the US Securities Act of 1933, as amended ("the Act"), and
comparable exemptions from registration under applicable state securities laws.
Accordingly, the securities to be offered will not be and have not been
registered under the Act and may not be offered or sold in the U.S. absent
registration or an applicable exemption from registration. The securities will
be offered only to investors who are accredited investors (as that term is
defined in Regulation D of the Securities Act). The Offering has no aggregate
minimum purchase requirement. This offering is to close 180 days from the
offering date or until all shares are sold whichever is the earlier. No shares
were subscribed for under this offering.
NOTE 6: RESTRUCTURING COSTS
One of the core management objectives has been to re-position the Company more
towards a broad based messaging service and away from the heavy reliance on fax
running on a proprietary fax network. This plan would involve the closure of the
existing proprietary fax network and the cessation of use of the related network
equipment and resources. This is considered to be a closure of the existing
proprietary fax delivery network and the cessation of use of the related network
equipment and resources. This is considered to be a closure of part of a line of
business. Currently only customer bases in the UK, Canada, USA, Switzerland and
Singapore are affected by this closure. Revenues from this service comprise less
than 9% of FlexiFax's total revenues.
-11-
<PAGE>
In connection with this plan the Company signed an exclusive agreement on
December 2, 1999, with Premiere Information Systems Pty Ltd ("Premiere"), a
subsidiary of Premiere Technologies Inc., a communications company based in
Atlanta, Georgia whereby the Company has outsourced the delivery of its fax
traffic to the Premiere network. This agreement provides for Premiere to
transmit all fax broadcast traffic for the Company for a period of 12 to 24
months subject to certain service and pricing criteria. The customer bases in
the UK, Canada, the USA, Switzerland and Singapore (representing the
discontinued and/or outsourced service) will now be serviced by Premiere with
the Company receiving a commission on revenues generated over the next 24 months
following the execution of the agreement.
FlexiFax will still provide enhanced fax and email broadcast services to their
existing customers, namely Australia and New Zealand, which comprise 92% of the
segment's revenue. The Company is still billing the remaining customers that
have not been affected and the manner in which they transact with the Company is
unaltered.
As a result, with effect from December 1, 1999 all expenses in respect of
network operations (leased network backbone circuit expenses, facilities
management, software and hardware expenses and maintenance, network staff
resources) will not be continued.
The costs and liabilities of this plan includes:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Expensed Applied against Payments Balance
related asset Mar 31, 2000
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assumed obligations on closed network operations 188,723 (57,711) 131,012
- ------------------------------------------------------------------------------------------------------------------------
Severance and other employee costs(3 employees) 117,594 (99,219) 18,375
- ------------------------------------------------------------------------------------------------------------------------
Impairment loss on network equipment 419,418 (419,418) - -
- ------------------------------------------------------------------------------------------------------------------------
725,735 (419,418) (156,930) 149,387
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
Accrued liabilities for network operations in the amount of $131,012 as of March
31, 2000 relate to termination costs of contracts and other contractual
agreements with third parties.
Estimated severance and other employee costs in the amount of $18,375 as of
March 31, 2000 relate to estimated severance for terminated employees. Employee
groups affected include management and network support personnel. As of March
31, 2000 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.
There were not any further expenses incurred which would have the effect of
adjusting the restructuring liabilities. During the quarter, payments of $87,314
were made, comprised of $7,595 in connection with line rentals and other carrier
related costs and $79,719 as a result of termination payments to a former
employee.
On December 16, 1999 Trade Centre Systems Holdings Pte Ltd ("TCSH"), an
indirectly wholly owned subsidiary of the Company, operating in Singapore
entered into an agreement with Jebsen and Jessen Communications Pte Ltd ("J&J").
Under the agreement TCSH has transferred its Voice & Data business to J&J in
return for revenue based commissions on sales and maintenance through to October
31, 2000. J&J have agreed to offer employment to certain of the employees of
TCSH. TCSH has agreed to provide J&J with certain stock and spare parts in order
to perform the maintenance function as well providing client site configuration
details. This agreement relates to the transfer/disposal of a geographical
portion of a segment and does not constitute a discontinued operation. This
transfer will not have a material impact on the performance of the Company as
the anticipated commission revenue stream represents less than 5% of the
Company's total revenues.
-12-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The Company cautions readers regarding certain forward looking statements in the
following discussion and elsewhere in this document or any other statement made
by, or on the behalf of the Company, whether or not in future filings with the
Securities and Exchange Commission. Forward-looking statements are not based on
historical information but relate to future operations, strategies, financial
results or other developments. Forward looking statements are necessarily based
upon estimates and assumptions that are inherently subject to significant
business, economic and competitive uncertainties and contingencies, many of
which are beyond the Company's control and many of which, with respect to future
business decisions, are subject to change. These uncertainties and contingencies
can affect actual results and could cause actual results to differ materially
from those expressed in any forward looking statements made by, or on behalf of,
the Company. The Company disclaims any obligation to update forward-looking
statements.
The core elements of the Company's business are messaging and communications,
represented by the Company's two operating divisions, FlexiFax and Voice & Data.
The Company offers a range of quality products and solutions in both of these
markets. The expansion of digital messaging is particularly strong and the
FlexiFax Division is rapidly broadening its offerings to meet customer demand.
Similarly, in the systems market, the convergence of computer technology with
telecommunications infrastructures has created a demand for ever-increasing
functionality. The Voice & Data Division markets a range of products designed to
take advantage of some of these opportunities within its targeted niches of
financial trading, command/control centers and call centers.
As a result of the reverse acquisition of TWG by the Company in February 1999,
the financial information and financial statements presented herein are those of
TWG, the accounting acquirer. Thus, the financial position and results of
operation of the Company were recorded in Australian dollars, the functional
currency, and have been converted to US dollars.
-13-
<PAGE>
One of the core management objectives has been to re-position the Company more
towards a broad based messaging service and away from the heavy reliance on fax
running on a proprietary fax network. This plan would involve the closure of the
existing proprietary fax network and the cessation of use of the related network
equipment and resources. This is considered to be a closure of the existing
proprietary fax delivery network and the cessation of use of the related network
equipment and resources. This is considered to be a closure of part of a line of
business. Currently only customer bases in the UK, Canada, USA, Switzerland and
Singapore are affected by this closure. Revenues from this service comprise less
than 9% of FlexiFax's total revenues.
In connection with this plan the Company signed an agreement on December 2,
1999, with Premiere whereby the Company has outsourced the delivery of its fax
traffic to the Premiere network. This agreement provides for Premiere to
transmit all fax broadcast traffic for the Company for a period of 12 to 24
months subject to certain service and pricing criteria. The customer bases in
the UK, Canada, the USA, Switzerland and Singapore (representing the
discontinued and/or outsourced service) will now be serviced by Premiere with
the Company receiving a commission on revenues generated over the 24 months
following the execution of the agreement.
FlexiFax will still provide enhanced fax and email broadcast services to their
existing customers, namely Australia and New Zealand, which comprise 92% of the
segment's revenue. The Company is still billing the remaining customers that
have not been affected and the manner in which they transact with the Company is
unaltered.
As a result, with effect from December 1, 1999 all expenses in respect of
network operations (leased network backbone circuit expenses, facilities
management, software and hardware expenses and maintenance, network staff
resources) will not be continued.
On December 16, 1999, TCSH entered into an agreement with 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 of the employees of TCSH. TCSH has
agreed to provide J&J with certain stock and spare parts in order to perform the
maintenance function as well providing client site configuration details. This
agreement relates to the transfer/disposal of a geographical portion of a
segment and does not constitute a discontinued operation. This transfer will not
have a material impact on the performance of the Company as the anticipated
commission revenue stream represents less than 5% of the Company's total
revenues.
Results of operations and financial position for the three months ended March
31, 2000 and 1999
Management's discussion and analysis of operations for the period ended March
31, 2000 and 1999 are on the converted US dollar figures. References have been
made to certain figures before taking into account the effect of the foreign
currency translation adjustment where necessary.
Consolidated Results of Operations
Consolidated revenues increased by 5% to $2,280,236 for the three months ended
March 31, 2000, as compared to $2,176,013 for the three months ended March 31,
1999. As a result of increased sales volumes, cost of sales increased to
$1,184,352 from $1,080,893 in the prior period. Cost of sales as a percentage of
revenue increased to 52%, up from 50% in the corresponding period. Total
operating expenses decreased 25% to $1,084,553 from $1,452,437 in the prior
period. The net profit for the three months ended March 31, 2000 was $8,839,
which was up from the net loss reported for the three months ended March 31,
1999 of $362,975.
-14-
<PAGE>
A detailed explanation of the results by operating division follows.
FlexiFax Division
Revenues. Revenue decreased 18% to $765,365 for the three months ended March 31,
2000 from $931,962 for the three months ended March 31, 1999. This is a direct
result of lower revenues reported from those countries where the Division has
transferred the customer base to Premiere. As a result of the outsourcing of our
network, the Company will only report a percentage of the revenue generated by
the customer base, now serviced by Premiere. It is uncertain what future level
of revenue is to be received from Premiere as it is based on future levels of
transaction activity generated from the former customer base that has now been
migrated to Premiere. In other words, revenue will only be earned by the
Company, if Premiere has generated revenue from the Company's former 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 $434,219 for the three months ended March 31, 2000 compared to
$511,802 for the prior period. Cost of sales as a percentage of revenue
increased to 57% for the three months ended March 31, 2000, compared to 55% for
the corresponding period, directly as a result of the outsourcing of the
delivery network to Premiere. The delivery network outsourcing will result in
higher termination costs, but in lower overall total delivery costs, which will
translate to lower total operating expenses (see "Total Operating Expenses"
below).
Total operating expenses. Total operating expenses consist of expenses
associated with staff, premises, communications, travel, group management fees,
depreciation, and other expenses incurred in running the operation. Total
operating expenses for the three months ended March 31, 2000 amounted to
$342,712 resulting in a decrease of 56% as compared to $772,457 in the
corresponding period. This reduction was a direct result of achieving a lower
operating cost structure following the outsourcing of the delivery network to
Premiere. Restructuring costs have been incurred as a result of closing down the
Company's network and releasing some employees in connection with the agreement
with Premiere, whereby the end delivery of transmissions will be performed by
Premiere. No restructuring costs were incurred in the quarter ended March 31,
2000 as all these costs were incurred in the previous quarter.
Voice and Data Division
Revenues. Revenues consist of sales from systems integration solutions for
voice, call center, electronic display, paging, call recording and data
applications. Revenues increased 22% to $1,514,871 for the three months ended
March 31, 2000, from $1,244,051 for the three months ended March 31, 1999. The
increase is mainly attributable to turret system sales of $858,672 resulting
from the Division entering into an agreement with IPC Information Systems, a New
York corporation and successor in interest of V Band Corporation ("IPC"), as its
Australian distributor for its products as compared to $118,556 generated in the
comparative period. The agreement with IPC is expected to generate further
positive results in this fiscal year, with turret systems sales forecasted to be
significantly higher than for the fiscal 2000 year.
Cost of sales. Cost of sales consists of the purchase of third party product,
necessary to complete the systems integration solution. Cost of sales for the
three months ended March 31, 2000 amounted to $750,133 compared to $569,091 for
the comparative quarter as a result of increased sales volumes. Cost of sales as
a percentage of revenue increased to 50% for the current fiscal period from 46%
for the three months ended March 31, 1999. The increased percentage is a result
of supplying larger project system sales as opposed to providing a larger
proportion of relocation and ancillary support and maintenance services to the 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
-15-
<PAGE>
concluded in this period as compared to the prior period where mainly moves,
adds and changes were performed with very little turret system sales being
concluded. The turret system sales generate higher revenue but lower margins as
compared to moves, adds and changes. Increased turret system sales was the
desired effect in signing the IPC distribution agreement. The Company is subject
to a performance criterion of $2 million sales per year under this distribution
agreement with IPC.
Total operating expenses. Total operating expenses consist of expenses
associated with staff, premises, communications, travel, group management fees,
depreciation and other expenses incurred in running the operation. Total
operating expenses for the three months ended March 31, 2000 amounted to
$645,288 compared to $658,844 in the corresponding period. Depreciation was
$28,648 for the three months ended March 31, 2000, compared to $26,811 in the
prior period.
Results of operations and financial position for the nine months ended March 31,
2000 and 1999
Management's discussion and analysis of operations for the period ended March
31, 2000 and 1999 are on the converted US dollar figures. References have been
made to certain figures before taking into account the effect of the foreign
currency translation adjustment where necessary.
Consolidated Results of Operations
Consolidated revenues increased by 28% to $8,308,391 for the nine months ended
March 31, 2000, as compared to $6,472,282 for the nine months ended March 31,
1999. As a result of increased sales volumes Cost of sales increased to
$4,787,007, from $3,440,397 in the prior period. Cost of sales as a percentage
of revenue increased to 58%, up from 53% in the corresponding period. Total
operating expenses before restructuring costs increased 6% to $4,150,288 from
$3,905,125 in the prior period. Total operating expenses after restructuring
costs increased 25% to $4,876,023 from $3,905,125 in the prior period. The net
loss before restructuring costs for the nine months ended March 31, 2000 was
$648,914, which was 28% less than the amount reported for the nine months ended
March 31, 1999 of $897,324. A net loss after restructuring costs for the nine
months ended March 31, 2000 of $1,374,649 was reported, which was up from the
net loss reported for the nine months ended March 31, 1999 of $897,324.
A detailed explanation of the results by operating division follows.
FlexiFax Division
Revenues. FlexiFax revenues increased 13% to $2,564,289 for the nine months
ended March 31, 2000 from $2,522,403 for the nine months ended March 31, 1999.
Revenues generated in countries outside of the US increased by 2%. As a result
of the outsourcing of our network, the Company now only reports 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 Company's
former customer base that is now being serviced by Premiere. In other words,
revenue will only be earned by the Company if Premiere has generated revenue
from the former 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 $1,443,667 for the nine months ended March 31, 2000 compared
to $1,546,399 for the prior period. Cost of sales as a percentage of revenue
decreased to 56% for the nine months ended March 31, 2000, compared to 61% for
the corresponding period, mainly as a result of lower termination pricing being
negotiated with carriers. From December 1999, cost of sales will only include
distributors' commission, software maintenance and support, and domestic, long
distance and international termination charges as a result of the agreement with
Premiere.
-16-
<PAGE>
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 nine
months ended March 31, 2000 amounted to $1,709,555 as compared to $1,731,745 in
the corresponding period. This reduction is despite significant expenses being
incurred in connection with the establishment of an office in London amounting
to $178,743. The reduction in expenditure is a direct result of maintaining a
lower operating structure, facilitated by the outsourcing of the delivery
network to Premiere. Depreciation decreased to $164,188 for the nine months
ended March 31, 2000, compared to $255,642 in the prior period. Total operating
expenses after restructuring costs for the nine months ended March 31, 2000
amounted to $2,435,290 as compared to $1,731,745 in the corresponding period.
Voice and Data Division
Revenues. Revenues consist of sales from systems integration solutions for
voice, call centre, electronic display, paging, call recording and data
applications. Revenues increased 56% to $5,744,102 for the nine months ended
March 31, 2000, from $3,949,879 for the nine months ended March 31, 1999. The
increase is mainly attributable to turret system sales of $3,123,010 resulting
from the Division entering into an agreement with IPC as its Australian
distributor for its products as compared to $1,527,550 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.
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
nine months ended March 31, 2000 amounted to $3,343,340 as compared to
$1,893,998 for the comparative quarter as a result of increased sales volumes.
Cost of sales as a percentage of revenue increased to 58% for the current fiscal
period up from 48% for the nine months ended March 31, 1999. The increased
percentage is a result of supplying larger project system sales as opposed to
providing a larger proportion of relocation and ancillary support and
maintenance services to the V Band voice customer base, as well as a change in
the overall revenue mix, where different product groups attract different gross
margins. It is envisaged that the margins will be maintained around these
levels. The decrease in the margin is as a result of more turret system sales
being concluded in this period as compared to the prior period where mainly
moves, adds and changes were performed with very little turret system sales
being concluded. The turret system sales generate higher revenue but lower
margins as compared to moves, adds and changes. Increased turret system sales
was the desired effect in signing the IPC distribution agreement. The Company is
subject to a performance criterion of $2 million sales per year under this IPC
distribution agreement.
Total operating expenses. Total operating expenses consist of expenses
associated with staff, premises, communications, travel, group management fees,
depreciation and other expenses incurred in running the operations. Total
operating expenses for the nine months ended March 31, 2000 amounted to
$2,180,471 as compared to $2,111,939 in the corresponding period. Depreciation
was $91,368 for the nine months ended March 31, 2000, as compared to $84,617 in
the prior period.
Liquidity and Capital Resources
The Company's consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the settlement
of liabilities in the normal course of business. In connection with their report
on our consolidated financial statements for the years ended June 30, 2000 and
1999, BDO Nelson Parkhill, our independent auditors, expressed substantial doubt
about our ability to continue as a going concern because of recurring net losses
and negative cash flows from operations.
Our current cash requirements to satisfy the management objectives outlined
above as well as to provide working capital and sustain our operations for the
next fiscal year are estimated to be $1,100,000. We expect that these
requirements will be provided from the following sources:
-17-
<PAGE>
o Sales of the accounts receivable of the FlexiFax Division under a working
capital based factoring facility established with Scottish Pacific
Business Finance Pty Ltd (see below for details)
o Cash profits generated from the Voice & Data Division
The Company anticipates raising additional capital of $ 3.66 million with the
assistance of AICH by means of private placement.
If the private placement is not completed, the Company will:
o Restructure certain business activities in order to reduce the negative
cash flows and to transform loss making operations into profitable ones.
This would be achieved by cost reduction and identifying areas that could
provide efficiency with an outsourced solution.
Thereafter, if the Company's operations do not begin to deliver positive
cashflows in amounts enough to satisfy the Company's requirements, then it will
be necessary for the Company to source alternative funds through bank debt,
equity funding, partnering with others or undertake appropriate divestment
strategies of certain technologies for equity or cash. Additional funding may
not be available, or may not be available on terms and timing acceptable to the
Company, which could have a material adverse effect on the Company's financial
position, its overall business and the result of the Company's operations.
The market for fax and messaging is very competitive and the Voice and Data
Division is heavily influenced by the economic conditions existing in Australia
at the time. The Company does not expect this to change and in fact expects that
even greater effort will be needed in the future to compete successfully. The
Company's need for additional funding will continue until it reaches significant
levels of revenue and margin to become cashflow positive.
The Company has financed its cash requirements for operations and investments in
capital assets mainly through private sales of equity securities and loan
finance.
AICH were engaged by the Company to raise up to $3.66 million through private
placements. In July 1999, AICH has provided a bridge loan for US$500,000 secured
by a promissory note, accruing interest only after AICH had raised minimum net
capital of $1.5 million for the Company. The promissory note will be repaid out
of proceeds of the intended private placement capital raising of $3.66 million,
once the Company is listed on a national exchange such as American Stock
Exchange, NASDAQ or other national exchange. AICH was expected to arrange for
the 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, 2000 was 10.93% (1999: 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 March 31, 2000 was $17,184. 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
$541,931 for the nine months ended March 31, 2000, as compared to $1,889,103 for
the nine months
-18-
<PAGE>
ended March 31, 1999. Accounts receivable increased to $2,580,579 from
$1,899,714 for the nine months ended March 31, 1999 mainly as a result of
increased sales volumes in the third quarter. Accounts payable and other
accruals increased by $1,080,961 as compared to a decrease of $1,426,314 in the
prior comparative period, mainly as a result of increased sales activity in the
third quarter as well a portion of the prior period funding received going
towards reducing the payables to an acceptable level.
Cash used in investing activities, consisting primarily of the purchase of
capital assets amounted to $114,666 for the nine months ended March 31, 2000,
compared to $190,306 in the corresponding period in 1999.
Cash generated from financing activities, amounted to $746,755 as compared to
$2,706,057 in the prior period primarily as a result of unsecured loans raised
in the amount of $739,638, as compared to loans of $1,250,000 being raised and
stock issued in the amount of $640,000 in the prior period. In addition, TWC
contributed capital in the amount of $64,819 in the nine months ended March 31,
2000 as compared to $807,949 in the comparative period.
Uncertainty due to the Year 2000 Issue
As of April 28, 2000 the Company has not experienced any material effect or
delay as a result of the Y2K issue.
Flexifax Division. As a result of the Premiere transaction (whereby Flexifax
outsources final delivery of their fax traffic to the Premiere network) the Y2K
risk lies primarily with the Premiere network readiness. Flexifax has asked (and
has received) from Premiere a Y2K compliance status and fall back plan. To date,
the Company has not experienced any difficulties with delay or material adverse
effects from the services provided by Premiere as a result of Y2K.
Voice and Data Division. Any software designed by the Company over the last year
has been Y2K compliant. The equipment distributed from the Company's principals
have also undergone test simulations for Y2K of the generic product. Similar
tests were not done at client's sites but the Company believes most clients are
conducting their own compliance programs. To date, the Company has not
experienced any difficulties with delay or material adverse effects as a result
Y2K.
-19-
<PAGE>
Part II OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
- ------------------
-20-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the Registrant has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized.
FLEXEMESSAGING.COM, INC.
(Registrant)
Date: May 12, 2000
/s/ Nicholas Bird
------------------------------
Nicholas Bird, President
-21-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Form 10-QSB for the nine month period ended March 31, 2000 and is
qualified in its entirety by reference to such finanical statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> MAR-31-2000
<CASH> 203,424
<SECURITIES> 0
<RECEIVABLES> 2,580,579
<ALLOWANCES> 86,812
<INVENTORY> 181,455
<CURRENT-ASSETS> 3,615,718
<PP&E> 2,578,896
<DEPRECIATION> 2,181,016
<TOTAL-ASSETS> 4,038,790
<CURRENT-LIABILITIES> 3,675,233
<BONDS> 780,762
0
0
<COMMON> 10,400
<OTHER-SE> 515,407
<TOTAL-LIABILITY-AND-EQUITY> 4,038,790
<SALES> 8,308,391
<TOTAL-REVENUES> 8,308,391
<CGS> 0
<TOTAL-COSTS> 4,787,007
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33,282
<INCOME-PRETAX> (1,374,649)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,374,649)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,374,649)
<EPS-BASIC> (0.13)
<EPS-DILUTED> (0.13)
</TABLE>
