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UNITED STATES
SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
Post-effective Amendment No. 1
to
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF
SECURITIES OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
SpectraFAX Corp.
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(Name of Small Business Issuer in its charter)
Florida 59-2412164
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
3050 N. Horseshoe Dr., Suite 100, Naples 34104
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number (941) 643-8700
Securities to be registered pursuant to Section 12(b) of the Act.
Title of each class Name of each exchange on which registered
None
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Securities to be registered pursuant to Section 12(g) of the Act
Common Stock, $.0001 par value
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(Title of Class)
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(Title of Class)
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CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS
The discussion contained in this Form 10-SB under the Securities
Exchange Act of 1934, as amended, contains forward-looking statements that
involve risks and uncertainties. The issuer's actual results could differ
significantly from those discussed herein. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
in "Item 1. Description of Business" and "Item 7. Management's Discussion and
Analysis or Plan of Operation" as well as those discussed elsewhere in this
Form 10. Statements contained in this Form 10 that are not historical facts are
forward-looking statements that are subject to the "safe harbor" created by the
Private Securities Litigation Reform Act of 1995. In connection with the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995, the
Company has filed Exhibit 12 which outlines cautionary statements and
identifies important factors that could cause the Company's actual results to
differ materially from those projected in forward-looking statements made by,
or on behalf of, the Company. Any forward-looking statement made within this
Form 10 should be considered in conjunction with the aforementioned Exhibit 12.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
HISTORY
SpectraFAX was organized under the laws of the State of Florida on
September 20, 1983. From inception to 1989 the Company was engaged in the
research and development of fax systems. In 1989, the Company commenced the sale
of fax systems to major corporations. However, in 1995, there was an industry
change in the operating systems of computers from DOS (disk operating system) to
NT (new technology). As a result, the Company had to re-engineer its products
(1995-1997) to conform to the NT computer. In 1997 the Company commenced selling
its new products. In 1998, the Company again had to re-engineer its products to
become Y2K compliant. This was accomplished and in 1999, the Company began
offering its Y2K compliant system. As a result of the aforementioned, revenues
to date have not been significant.
OVERVIEW
SpectraFAX manufactures and markets high quality fax processing systems
("Fax Liaison Systems") to large corporations and Government agencies. The Fax
Liaison System is a turnkey hardware/software multi-purpose fax server that
smoothly integrates fax and voice communications functions into corporate
information processing. Fax Liaison Systems come with a dedicated PC and voice
and fax cards. It runs on Microsoft Windows NT 4.0, Microsoft Office
Professional, and programs written by SpectraFAX. Fax Liaison is the "fax
gateway" for Microsoft Exchange which allows Exchange clients to send and
receive fax mail from the same mailbox used to manage their e-mail. Customers,
including IBM, Hewlett-Packard, Duracell, Bristol-Meyers and the U.S. Treasury
Department, use SpectraFAX's patented Fax Liaison(TM) fax server to deliver
information to users worldwide.
SpectraFAX has the ability to link fax processes to internal computing
environments in large organizations. This allows a fax-equipped caller to
retrieve "live data" such as current inventory levels, customer order status,
delivery notifications, and so forth by fax.
The Company's Fax Liaison System consists primarily of Fax Information
Dissemination Software, Fax Transaction Processing, and Fax Messaging.
Fax Information Dissemination Software
Through the Company's Fax Information Dissemination Software,
information can be broadly disseminated by fax through the Fax-on-Demand or Fax
Broadcast applications. Fax-on-Demand allows users to call and use touch tone
keys to access the system. In response to voice prompts, callers select the
information they wish to receive. The system then delivers the requested
information by fax. The key benefit is that the user can request information
and receive an immediate printed response 24 hours a day, 7 days a week. This
technology delivers on the promise of computer-based information systems
without requiring the user to have, or learn how to use, a computer. Fax
Broadcast, on the other hand, is the automatic transmission of fax information
to one or more recipients. The broadcast may be as a result of a request by the
recipient to be included on a distribution list (for a newsletter, product
announcement, etc.) or notification to be sent to a defined set of individuals
(sales managers, branch managers, customers, and so forth). The Fax Broadcast
application also allows centralized control of outbound fax lines from a single
control console. In addition to the inherent speed of fax messages there are
substantial savings in using fax broadcast over either enhanced delivery
services (Fed Ex.) or the U.S. Postal Service.
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Fax Transaction Processing
Through the Company's Fax Transaction Processing Services, fax machines
are used to conduct and optionally confirm a transaction. A user placing an
order enters requirements by filling out an order form and sending it, by fax,
to the system. The system "reads" the fax, extracts the data and delivers the
resulting information to an order fulfillment system. After the fulfillment
system has computed pricing, delivery, and so forth, a confirmation of the
transaction is delivered by fax moments later. When the ordered item is shipped,
an invoice can be sent by fax. If the buyer fails to pay, a dunning notice can
also be faxed.
This application is aimed at reducing the costs and time delays
inherent in current sales processes. The benefits reach far beyond the hard
dollar data entry savings to the key areas of improved customer service, reduced
selling cycle time, less chance for human error, and faster payment. Exploiting
this application is the major growth opportunity for SpectraFAX.
Fax Messaging
Through the Company's Fax Messaging, a process very similar to
voice messaging is used but, with this application, the messages stored and
retrieved are written rather than verbal. Faxes sent to a user are digitized and
stored in a confidential "Fax Mailbox". The intended recipient can call and
retrieve the stored fax messages from any convenient fax-equipped location. The
user benefits include time savings, ability to work "on the road,"
confidentiality, and message accuracy.
An additional application under Fax Messaging is interaction between
fax messaging and Local Area Networks. Substantial interest has arisen for
providing LAN users with the ability to send and receive fax messages through
fax servers connected to the network. SpectraFAX meets this demand through
their fax/e-mail/integration application. This application allows e-mail users
to send and receive faxes from their desktop PC without having to install phone
lines, fax boards and software on each user's PC. Incoming faxes are delivered
to the e-mail in-box along with e-mail messages.
The common denominator of the above applications is the requirement
that users planning to engage in the activity have easy access to a fax machine.
In a study by Davidson Consulting, it is predicted that the market for Fax
Processing Equipment will grow to more than $5 Billion by 2000. As this
explosion in the fax installed base indicates, it may be harder to avoid than to
find fax capable devices in the years to come. SpectraFAX is positioned for
rapid growth as the market expands.
SpectraFAX believes that the fax server market in general will be
larger than the equipment market (just as the market for telephone service is
larger than the market for telephone related equipment), and plans to
aggressively pursue that portion of the field in order to secure greater sales
and revenues.
Although SpectraFAX offers its Fax Server product in over 20 countries
approximately 90% of the Company's revenues currently come from domestic sales.
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BUSINESS STRATEGY
The Company's strategy is to aggressively expand its fax services as
follows:
Expand Fax Services
The Company plans to expand its Fax Services market by developing new
applications for its service and expanding its service area. Among its recent
innovations, the Company introduced its Fax Transaction Processing Service,
which combines fax processing capabilities with text recognition technology. The
result is a product capable of receiving and "reading" fax documents and
forwarding the data to an order fulfillment system for further handling. In
order to establish a platform for expanding sales of its Fax Transaction
Processing Services, the Company intends to have installed its document
distribution system in several additional locations by 2002.
Launch Fax Services
The Company intends to capitalize on the multi-billion dollar market
for Fax Services by aggressively marketing its Fax Information Dissemination
Services (including Fax Broadcast and Fax-on-Demand), Fax Transaction Processing
Services, and Fax Messaging Services through its direct sales force and sales
agents, and by installing the infrastructure required for the delivery of such
services on a worldwide basis. By utilizing the SpectraFAX Network to minimize
the cost of delivering fax documents, the Company is able to offer its Fax
Services at prices which are less than the cost which would be incurred by a
customer to deliver the fax using its regular telephone service. The Company
currently offers its Fax Service over the internet.
Expand SpectraFAX Network
In order to continue to lower its fax delivery costs, the Company seeks
to expand the SpectraFAX Network by adding new Nodes and leased
telecommunications lines. The Company has expanded its Network by faxing over
the internet. The internet message comes to the SpectraFAX Service Bureau and is
delivered to a fax machine. This has allowed the Company to expand its Fax
Services on a worldwide basis.
FAX PRODUCTS AND SERVICES
The Company currently provides a wide range of fax services, focused
primarily on reliable electronic document distribution at affordable rates.
Fax Information Dissemination Services
The Company continues to focus on the development of its Fax
Information Dissemination Services. The Company's Fax Broadcast Service enables
a customer to rapidly distribute the same document to multiple recipients by
sending a single transmission through the Company's system to a list of fax
addresses. For example, use of the Fax Broadcast service allows a newsletter
publisher to send its newsletter to all of its subscribers in a matter of
minutes by means of a single transmission of such newsletter to the Company.
This process may save significant amounts relative to the costs of printing and
mailing or managing the fax process and documenting the delivery of
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the fax communication to addressees. Customers of the Fax Broadcast service
include financial services organizations, which use the service to disseminate
research reports; cruise lines, which use the service to send notices to travel
agents regarding fares and availability; political groups, which use the service
to transmit campaign information; trade associations, which use the service to
disseminate information to their members; and public relations firms and
investor relations groups, which use the service to disseminate press releases
and earnings reports. While the Company's typical fax broadcast is transmitted
to approximately 50 to 1000 recipients, customers have sent a single fax
broadcast to as many as approximately 50,000 to 100,000 recipients. The Company
believes that its fax broadcast service is the largest component of the enhanced
fax services market.
Fax-on-Demand, the Company's other primary Fax Information
Dissemination Service, enables a customer to receive information from the
Company's system when using a fax-equipped computer or fax machine. In contrast
to the Fax Broadcast Service, in which the same document is typically
transmitted to numerous recipients using a previously stored list of fax
addresses, the Fax-on-Demand Service typically involves the transmission of a
single document to a single recipient. The Company's Fax-on-Demand Service
tends to involve the processing of a large volume of individual communications,
each of which is in the same format but contains different information. For
example, using Fax-on-Demand, a customer could place a request for information
regarding a product into the manufacturer's mainframe computer, which would
then forward the requested information to the customer, by fax, during the same
phone call. A customer dials a number from any fax machine and listens to voice
prompts, presses appropriate keys on the keypad and presses the start button on
the fax machine when prompted to do so. At that time they receive requested
information as a fax. The three main advantages to using this technology are
that the customers receive an immediate written response to their request, they
receive improved customer service, and there is no cost to the Company because
the customer pays for the call. Customers of the Fax-on-Demand Service range
from hotel-motel chains, airlines, and cruise lines, which use the service to
request room availability, to request flight schedules and ticket availability,
and various other related information and then forward this information to
their customers, who rely on this information in planning their trips,
conferences, and other business or pleasure activities.
Fax Transaction Processing Services
The Company's Fax Transaction Processing Services combines fax
processing capabilities with text recognition technology, resulting in a product
that is able to "read" and receive incoming fax documents. After the incoming
fax documents have been "read" by the system, they are forwarded to a
computer-based system for immediate and automatic fulfillment of the order.
Through the use of this type of system, a temporary employee's time card can be
faxed in, automatically "read," and a check issued without manual keying of the
data. This application is particularly useful in the areas of order entry (as
illustrated above), political polling, and survey tabulation to name a few.
Furthermore, the removal of the manual data entry process, combined with the
"paperless" fax process, avoids the labor costs, delivery expense, the element
of human error, and the delays resulting from manual processing. The use of this
type of system also leads to a reduced selling cycle time, and faster payment.
Customer Access
A key feature of the Company's Fax Services is the variety of methods
available to customers to access its services and retrieve customer service
information. The SpectraFAX Network can be accessed via fax input or input from
a sender's personal computer, mainframe, minicomputer or local
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area network ("LAN"). In addition, the Company recently implemented its XWEB
service to allow customers with internet access to subscribe to and use the
Company's fax and messaging services. The XWEB capability enables a customer to
use existing Web browser software to send fax, telex or electronic messages, and
to retrieve customer service related information, such as whether or not all of
such customer's faxes have been delivered. The Company believes the combination
of its multiple access options; proprietary software and sophisticated customer
support for all forms of computer access to the SpectraFAX Network will enhance
its ability to differentiate itself from its competitors in its markets.
MARKETS
Fax Services
The Company presently sells its Fax Information Dissemination Services
(including Fax Broadcast and Fax-on-Demand Services), Fax Transaction Processing
Services, and Fax Messaging Services to a wide range of businesses, Government
agencies, trade and professional associations, political organizations and other
enterprises.
Since its inception, the Company has sought to meet the demands of its
customers by developing Fax Services in response to specific needs. The Company
believes that the market for Fax Services is customer and applications-driven.
Expansion in the Fax Services market is expected to be derived from the
continued development by the Company of various new applications for such
services within particular industries ("vertical markets") and the development
of individual applications which may be used in several different industries
("horizontal markets").
Fax Information Dissemination Services
The target market for the Company's Fax Information Dissemination
Services is the global fax transmission market. The worldwide (including U.S.)
fax telephone bills for the year 2002 will be over $90 billion. It was over $80
billion in 1998 (David Consulting, 1999). The Company believes that this market
will continue to grow, fueled by growth in international trade and continued
growth in the utilization of fax machines and computer fax devices.
In the year 2000, fax traffic will be 170 billion minutes in North
America and 332 billion minutes in the rest of the world for a total of 502
billion minutes (David Consulting, 1999).
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The Fax Information Dissemination Services market has historically been
dominated by Post Telephone and Telegraph organizations (PTTS), which furnish
telecommunications services in this market at regulated rates which may be
significantly greater than the underlying cost of the transmission. The Company
believes that, using the SpectraFAX Network, it can offer high quality service
to customers in these markets at rates lower than those which are available from
such other carriers.
THE SPECTRAFAX NETWORK
The SpectraFAX Network consists of the Company's document distribution
system and the leased telecommunications lines, which connect all of these
systems. A Node is an element of the SpectraFAX Network located at a
geographically distinct point of presence, which allows access to the Company's
equipment and services.
The Company's facilities have significant capacity for future growth
and have been designed for rapid expansion. The Company also believes that it
will have excess capacity during off peak hours. As the volume of its
international fax transmission has grown, the Company has observed that the
concentration of peak hour traffic is reduced.
The Company has standardized its equipment specifications and limited
the number of its suppliers to achieve cost efficiencies. However, the Company
constantly upgrades its' proprietary software. Substantially all of the
Company's computing hardware is readily available from large, well-known
suppliers such as Dialogic, Corp. and Brooktrout Technology, the Company's
principle suppliers. Product is purchased through purchase orders and not
pursuant to contractual arrangements. The Company continually evaluates new
developments in electronic document distribution technology in connection with
the design and enhancement of its system and development of services to be
offered to customers. As the Company installs its system in various locations
worldwide, the Company through its' software development is able to customize
systems for customers needs as they are implemented worldwide.
The Company has developed safeguards to minimize the impact of power
outages and other operational problems. The Company has installed
uninteruptible power supplies (UPS) at its headquarters in Naples, Florida to
provide an uninterrupted power supply in the event of a disruption in service
provided by the local utility. In addition, the Company uses a variety of
carriers such as Sprint, Sprint PCS and AT&T to transmit its telecommunications
traffic. The Company does not have any contractual arrangements with such
carriers and is billed on a monthly basis. The Company also employs a variety
of telecommunications routing technologies, including "back-up" services
currently provided by an identical Fax Liaison System in Rockford, Illinois.
These "back-up" services allow immediate re-routing of traffic in the event of
a line interruption. Based out of the Company's Naples, Florida Service Bureau,
these additional "back-up" services provide SpectraFAX's customers an
additional measure of security that their customers will not miss calls or are
unable to access their system for customer service information. The Company
also maintains business interruption insurance providing coverage of up to
$100,000, which it believes to be adequate in view of the fact that the Company
has not suffered any material interruption in its business.
SALES AND MARKETING
Selling the Company's Fax Services requires a thorough understanding of
the application of the Company's services to a particular customer's business, a
focus on the identified market opportunities, and the ability to overcome
potential customers' objections to using a third party service provider to
fulfill its electronic document distribution service needs. The Company's sales
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personnel are taught to understand and use the terminology of participants in
the targeted industry and to direct their selling efforts to the executive who
benefits from the electronic document distribution service. The sales process
for Fax Information Dissemination Services in overseas markets is similar to
that used in North America.
The Company intends to use its existing sales and distribution
organization to market its Fax Services, and plans to expand its direct sales
group in order to increase such sales. Sales and marketing of Fax Services is
expected to focus on industries with substantial international trade activity
such as shipping, import/export, freight forwarders, manufacturing and financial
services. As with all of its Fax Services, the Company believes that a direct
field sales organization is the most effective distribution channel in
addressing the Fax Services market.
The Company's marketing materials typically include direct response
advertising and public relations focused on the trade periodicals relevant to
the vertical markets and horizontal markets targeted by the Company and trade
show participation.
Direct Sales
The Company employs a sales force of six persons. Direct sales by the
Company's sales personnel accounted for approximately 90% of the Company's net
revenues in both 1998 and 1999. The Company expects that a majority of its sales
growth will continue to be generated by its direct sales force.
Sales Agents
The Company's direct sales force is assisted by leads primarily from
approximately 800 sales agents of other companies, principally Siemens and
Xerox/Omnifax, with whom the Company has developed a sales relationship over the
past several years. The Company's systems are offered as a complementary product
by such companies as needed. The Company provides customer service and billing
to the customers of such sales agents. Sales agents typically receive only a
sales commission equal to a percentage of sales. Sales agents accounted for
approximately 10% of the Company's net revenues in 1998 and 1999.
WARRANTY
The Company's products are generally sold with a one year warranty,
the cost of which is included in the price. Thereafter the Company offers an
Extended Maintenance and Parts Warranty.
COMPETITION
The Company competes based on a number of factors, such as customer
service and support, service features and price. Of these factors, the Company
believes that service and support are the most important, while price is another
critical competitive component in developed countries with high quality long
distance networks. In a service industry in which a broad range of optional
features are offered, the Company's competitive strategy emphasizes a sales and
support network that is well-versed in the capabilities of the services offered
to customers. The Company believes that, while it continues to expand its
development activity in order to add a broad range of features to its services,
it is the focus of its sales and support organizations on customers' needs that
enables the Company to compete effectively.
The competition, companies such as Right Fax and Omtool, sell fax
boards and software with a long list of hardware and additional software to be
purchased to build your own fax server.
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If there are problems with the finished system the customer must figure out the
solution. SpectraFAX sells a fully tested turnkey solution, delivers it to the
customer's site, and trains their customers technical people. If there is a
problem in the future, SpectraFAX solves the problem for the customer.
SpectraFAX also gives its customers free software upgrades whenever they are
released. Most upgrades are uploaded electronically at no material cost to the
Company.
Another alternative to using the Company's services is for a potential
customer to fulfill its own needs for fax communications services. The "home
grown" solution may simply be an individual at a fax machine or may involve the
customer acquiring its own computerized fax communications system (sometimes
known as "customer premise equipment" or "CPE"). The Company believes that the
CPE solution is suitable in some applications, but is generally not feasible for
the Company's customers, who require the capacity to effect a significant volume
of electronic document deliveries in a short period of time. The Company
believes that the CPE solution for a fax broadcast application would require the
customer to obtain and maintain a large number of telephone transmission lines
which would remain idle for significant periods of time. Further, for
international fax traffic, the customer would be required to set up a worldwide
nodal network; the Company believes that this is only practical for large
multinational firms and even these firms would be unlikely to develop a network
which would reach as many countries as the SpectraFAX Network. As a fax
communications services provider with many customers, the Company is able to
spread the costs of operating the SpectraFAX Network over a large number of
users. In addition to being concerned with the irregular nature of demand, a
customer selecting a CPE solution must consider the total cost of system
acquisition, ongoing technical support, reliability, technological obsolescence
and accountability. Based on the foregoing, the Company believes that a
substantial percentage of customers in the market for fax communications
services will elect a service provider rather than CPE.
Unlike its competitors, SpectraFAX offers both fax service and Customer
Premise Equipment. If the customer is sending his information through the
Service Bureau, and decides he wants to deliver the information from his company
directly, SpectraFAX can sell him the appropriate computer-based fax equipment
and transfer all of his information and telephone numbers to him. The customer
is not obligated to continue to use the Company's services.
Similarly, electronic transmission of information via the internet
provides an alternative to the Company's fax services. However, internet
transmission does not offer prompt confirmation of receipt of information via
written fax confirmation and has the additional risks of limited security and
confidentiality of information transmitted over a worldwide network easily
accessed by third parties. Finally, while a fax transmission alerts the
recipient that information has been delivered, information transmitted via
e-mail often relies on the recipient inquiring whether information has been
delivered. Transmission by the internet cannot be an alternative if a sender or
recipient of information does not have access to the internet.
ADDITIONAL INFORMATION
Employees
The Company considers its relationship with its employees to be
satisfactory. The Company employed 21 persons as of December 31, 1999
substantially all of who were full time employees,
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and none of whom was covered by a collective bargaining agreement. Of these
employees, 6 were engaged in sales and marketing; 8 in operations and customer
support; 4 in research and development; and 3 in general and administrative
activities. Fourteen (14) of the Company's employees are located in the
Company's Naples, Florida headquarters while the Miami, FL and Haverhill, MA
offices employ the remaining personnel.
Patents and Proprietary Information
The Company regards certain of its computer software and products as
proprietary and seeks to protect such software with United States Patents,
common law copyrights, trademarks, trade secret laws and internal non-disclosure
agreements and safeguards.
The Company currently holds United States Patent No. 5,136,634
protecting the network/server architecture used in the Special Request product
line. This patent, entitled "Voice Prompted Facsimile Data Retrieval Network",
applies to Bus, Ring or Star network topologies used for voice prompted document
selection with facsimile delivery. This patent provides the Company broad
protection in the creation of large-scale network based fax processing
equipment. The patent was granted in 1992 and expires in 2009.
The Company also holds the following proprietary trade and service
marks:
U.S. Registration
Trademark Number International Approvals
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SpectraFAX 1,645,816 France
United Kingdom
Indonesia
Australia
Japan
Singapore (pending)
Germany (pending)
Special Request 1,558,864 Australia
France
Indonesia
Japan (pending)
United Kingdom
Singapore
Germany
Liaison 1,631,355
Personal Link 1,585,389
FaxCard 1,553,522
2G0! 1,585,384
Insurance
The Company has insurance covering risks incurred in the ordinary
course of business, including general liability, special and business property
coverage (including coverage of electronic
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data processing equipment and media), and business interruption insurance. The
Company believes its insurance coverage is adequate.
RECENT ACQUISITION
On May 1, 2000 the Company purchased all of the assets of 2AlertMe.com,
Inc., an Illinois corporation for (i) 200,000 shares of SpectraFAX Common Stock
(at a market price of $.70) (ii) an option to purchase 200,000 shares of Common
Stock of SpectraFAX at a price of $3.50 per share, and (iii) cash of $125,000.
2AlertMe was organized in May 1999 and since inception has been a development
stage company, constructing a web site and developing a product, 2AlertMe.com.
The product is a real time stock alert system that notifies an investor when his
or her stock has reached either a predetermined high or low price or volume.
Once the stock has reached the predetermined trading price/volume, the investor
is notified by either (i) e-mail, (ii) fax, (iii) beeper, or (iv) telephone
call. The telephone call can then be linked to the investors' broker allowing
the subscriber to transact business anywhere, anytime, a feature only provided
by 2AlertMe. The potential customer simply signs onto the Internet,
www.2AlertMe.com, and selects the service and method by which he or she would
like to be notified. Although 2AlertMe has no revenues to date, the Company
believes there is a substantial market for this product with the expanded market
trading hours and number of people in the U.S. currently investing. Also
included in the sale are contracts allowing 2AlertMe to publish current quotes
from the New York Stock Exchange, NASDAQ, and the American Stock Exchange. See
2AlertMe's financial statements included herein.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
QUARTER ENDED MARCH 31, 2000 COMPARED TO QUARTER ENDED MARCH 31, 1999.
REVENUES
Net Revenues for the three months ended March 31,2000 were $130,182,
compared to net revenues of $637,229 for the three months ended March 31, 1999,
a decrease of $507,047 or 79.6%. The decrease was due primarily to a decline in
the shipment of Fax Liaison Systems. All pending orders in late 1999 were
shipped prior to year end. Pending the Y2K problem, customers wanted to take
possession of the system prior to January 1, 2000. Therefore, orders that would
have been filled in January were accelerated into December. As a result,
SpectraFAX, along with other computer companies, realized a drop in sales
during the first quarter of 2000. As of March 31, 2000, the Company had a
backlog of orders totaling approximately $194,224, which have been or will be
filled in the second quarter.
COST AND EXPENSES
Cost and Expenses in the three months ended March 31, 2000 were
$525,530, compared to $642,832 for the three months ended March 31, 1999. cost
of sales for the period was $88,883 compared to $181,549 for the three months
ended March 31, 1999. The reduction in cost of revenue was caused by the
decrease in sales of the Fax Liaison System. As a result, gross margin
decreased from $455,680 for the three months ending March 31, 1999 to $41,299
for the three months ending March 31, 2000.
Selling, General & Administration expenses, decreased from $461,283
for the three months ended March 31, 1999 to $433,647 for the three months
ended March 31, 2000. Savings in both research and development salaries and
general and administrative expenses offset an increase in expenses in sales and
marketing. Sales and marketing expenses included promotional shows, telephone
expense, and advertisement for a new product 2ALERTME.COM.
OTHER INCOME EXPENSE
Other income/expense increased by $11,118 reflecting higher interest
cost due to the private placement of $1,560,000 principal amount of 6%
Convertible Subordinated Debenture.
NET INCOME
The Company realized a loss of $433,612 for the three months ended
March 31, 2000 compared to a loss of $35,749 for the three months ended March
31, 1999.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
REVENUES
Net Revenues in fiscal 1999 remained relatively constant when compared
to the prior fiscal year.
COST AND EXPENSES
Cost of Sales decreased by 17.8% to $841,002 for the year ended
December 31, 1999, from $991,021 for the year ended December 31, 1998. The
gross margin increased in 1999 to 66.3% compared to 60.4% for the year ended
December 31, 1998. The favorable increase in gross margin is a result of
upgrading the Company's product hardware exclusively to Compaq Computers.
Additional savings occurred in warranty support salaries due to a decrease in
the number of personnel.
Selling, general and administration expenses increased from $1,898,360
for 1998 to $1,985,550 for the year ended December 31, 1999, an increase of
approximately 4.6%. The increase was due mainly to an increase in general and
administration expenses resulting from costs incurred in connection with a
private offering of common stock and other administrative charges.
OTHER INCOME/EXPENSE
Other income/expense increased by $16,940 reflecting higher interest
cost.
NET INCOME
The Company realized a loss of $447,175 for the year ended December
31, 1999, compared to a loss of $494,398 for the year ended December 31, 1998.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
REVENUES
Net Revenues in fiscal 1998 were $2,568,738, compared to net revenues
of $2,017,306 for the year ended December 31, 1997, an increase of $570,528 or
28.2% higher than the revenues for the year ended December 31, 1997.
10
<PAGE> 13
COSTS AND EXPENSES
Cost of revenues increased by $266,665, or 36.5%, to $731,573 for the
year ended December 31, 1998 from $464,908 in the year ended December 31, 1997
and resulting gross margin in 1998 decreased to 71.5% of net sales compared to
77.0% in 1997. The increase in cost of revenues resulting in a decrease in gross
margin in 1998 was due primarily to the writing off obsolete inventory.
Selling, general and administration expenses, including depreciation,
decreased from $2,270,266 in fiscal 1997 to $2,157,808 in fiscal 1998, by
$112,458, or 5.2%. The largest areas of decrease were in salaries in
Manufacturing, Research and Development and Marketing and Sales. This was offset
by an increase in legal and other expenses incurred in connection with the
Company's initial public offering.
OTHER INCOME/EXPENSE
Other income/expense decreased by $8,365 reflecting lower interest
cost.
NET INCOME
The Company's net loss decreased by $405,590 in fiscal 1998 to $425,410
from $831,000 in 1997.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased to $0 at December 31, 1999, as a
result of an increase in net cash used by operations that was partially offset
by cash from financing activities. The Company experienced negative cash flows
from operations during fiscal 1999 which were offset by debt financing,
issuance of common stock and existing cash balances. During the year, the
Company borrowed $270,000 by factoring its government receivable and paid down
or retired debt of $255,000. Shares of Common Stock were issued during the
year, which resulted in the Company realizing approximately $560,000. Such
funds were used for working capital. Subsequent to year-end, on March 6, 2000,
the Company issued $1,560,000 principal amount of 6% Convertible Subordinated
Debentures, convertible into Common Stock at $.80 per share. As a result, cash
and cash equivalents at March 31, 2000 were $1,306,471. As of May 31, 2000,
$850,000 of such notes have been converted into 1,062,500 shares of Common
Stock. In addition, certain note holders have converted $117,000 of obligations
into 117,000 shares of Common Stock. As the Company expands its distribution
activities it may continue to experience net negative cash flows from
operations and may be required to obtain additional financing to fund
operations through an equity offering of common stock and bank borrowings, to
the extent available. The Company believes it has sufficient capital to
continue its operations for at least a twelve month period.
PRO FORMA FINANCIAL INFORMATION
On June 2, 2000, SpectraFAX completed an Asset Purchase Agreement with
2AlertMe.com, Inc. (2AlertMe) for the purchase of all of the assets of 2AlertMe.
The purchase price was $125,000 less the amount of cash purchased as an asset
($14,770), issuance of 200,000 shares of SpectraFax Common Stock at $0.70 per
share, or $140,000, and the issuance of an option to acquire 200,000 shares of
SpectraFax Common Stock at $3.50 per share, expiring in ten years.
Pro forma financial information for the Company, giving effect to the
acquisition of 2AlertMe, has not been included herein. 2AlertMe is a
development stage company with no revenues to date and total assets of $14,071
at March 31, 2000. The pro forma effect on the financial statements of the
Company is an increase in intangible assets (domain name) of approximately
$250,000 which will be amortized over a ten year period.
ITEM 3. PROPERTIES
The Company leases 9,373 square feet of office space located at 3050
North Horseshoe Drive Suite Number 100, Naples, Florida 34104 for its executive
offices. The lease expires on May 31, 2003. The Company has an option to renew
the lease for an additional thirty-six (36) month term for an additional
increase in the monthly base rent of 3% on each commencement date. The base
rent is currently $8,638 per month plus additional rent equal to the pro rata
monthly operating expenses of the property of approximately $3,000, plus a
sales tax of 6% for a total of approximately $12,300 per month.
11
<PAGE> 14
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information relating to the beneficial
ownership of Company common stock as of March 31, 2000 by those persons known to
the Company to beneficially own more than 5% of the Company's common stock, by
each of the Company's directors and executive officers, and by all of the
Company's directors and executive officers as a group. The address of each
person is care of the Company.
<TABLE>
<CAPTION>
Number Percent
Name of Beneficial Owner of Shares Owned
------------------------ --------- -----
<S> <C> <C>
Timeswitch Investments(1) 3,500,000 18.6%
Lions Gate Management, Ltd. 2,986,000 15.9
A. J. Pelligrino 1,800,000 9.5
Thomas J. Conwell 886,083 4.6
Eric Ekelund 36,200 *
Vicki Koopman 37,700 *
Prakash V. Patel 10,000 *
Nalin Rathod(2) 3,520,000 18.6
All Directors & Officers as a Group 4,496,483 23.9
</TABLE>
----------
* Less than one percent
(1) An Isle of Man company owned by P.T. Bakrie & Brothers. The company is a
holding company, which owns several Indonesian companies engaged in various
enterprises.
(2) Mr. Rathod is Timeswitch Investments' representative on the Board of
Directors.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS
The members of the Board of Directors of the Company serve until the
next annual meeting of stockholders, or until their successors have been
elected. The officers serve at the pleasure of the Board of Directors. The
directors and executive officers of the Company is as follows:
<TABLE>
<CAPTION>
Name Age Title
---- --- -----
<S> <C> <C>
Thomas J. Conwell 62 Chief Executive Officer, Chairman of
the Board and Director
Eric Ekelund 56 Treasurer and Chief Financial Officer
Vicki Koopman 44 Secretary
Prakash V. Patel 49 Director
Nalin Rathod 43 Director
</TABLE>
12
<PAGE> 15
Set forth below is the business experience and other biographical information
regarding the directors and officers.
Thomas J. Conwell has been President, CEO, and a Director of the
Company since 1986. His responsibilities have included general administrative
management, marketing and sales, and research and development. Mr. Conwell is a
graduate of Northern Illinois University with a Bachelor of Science degree in
Chemistry, Mathematics and Education.
Eric Ekelund joined the Company in March of 1995 as Controller and was
appointed Treasurer in April 1996. Prior to joining the Company he served as
Controller/Treasurer of Pilot Technologies Corporation since 1991. Mr. Ekelund
holds a Bachelor of Science degree in Accounting from Sacred Heart University
and an MBA in Computer Science from the University of New Haven.
Vicki L. Koopman joined the Company in August of 1995 as Executive
Assistant to the President and was appointed Corporate Secretary in April 1996.
Prior to joining the Company she served as Manager of Sales Administrations at
Allen Systems, working with North American and International offices.
Prakash V. Patel has been the Director of the Nuclear Medicine
Diagnostic Clinic of Houston, Texas in excess of five years. His
responsibilities include administration and radiation safety.
Nalin Rathod is employed by Timeswitch Investments and represents such
company on the Board of Directors. Such company is the owner of various
industries in Indonesia, including telecommunications, gold and silver mines,
oil and rubber plantations.
ITEM 6. EXECUTIVE COMPENSATION
The following tables set forth certain information relating to the
compensation earned by the Chief Executive Officer of the Company, the only
officer who received over $100,000 for the year ended December 31, 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Awards
Compensation Salary Restricted Stock
------------------- -------------------
<S> <C> <C>
Thomas J. Conwell $129,000 58,300shs(a)
Chief Executive Officer
</TABLE>
---------
(a) The market price for the shares on the date of issuance (8/25/99) was
$.625.
13
<PAGE> 16
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On April 17, 1995, Thomas J. Conwell, CEO of the Company loaned the
Company $44,010 with interest payable at the rate of 12% per annum. In 1995,
$10,000 was paid on the note leaving a balance of $34,010 at December 31, 1995.
During 1996 the note was increased by $10,000, leaving a balance of $44,010 at
December 31, 1996 and 1997. During 1998 he advanced the Company an additional
$25,000 and was repaid $40,000, leaving a balance due of $29,010 at December
31, 1998 and 1999.
In addition to the above, during 1996, Mr. Conwell loaned the Company
$98,000 at 10% per annum, due on demand. The note was reduced by $70,000 during
1997. The balance at December 31, 1998 and 1997 was $28,000.
During 1998, Mr. Conwell loaned the Company $27,000 at 18% per annum,
due on demand. The balance due at December 31, 1999 and 1998 was $27,000.
During 1999, Mr. Conwell loaned the Company $45,000 at 12% per annum,
due on demand. The note was reduced by $38,000 during 1999. The balance due at
December 31, 1999, was $7,000.
Accrued interest on all of Mr. Conwell's loans at December 31, 1999
and 1998 was $7,434 and $8,948, respectively. As of December 31, 1999 there
were loans outstanding from Mr. Conwell totaling $91,010, bearing an average
interest rate of approximately 12% per annum.
ITEM 8. DESCRIPTION OF SECURITIES
COMMON STOCK
The Company's Articles of Incorporation authorizes the issuance of up
to 20,000,000 shares of Common Stock, $.0001 par value. The holders of the
shares of Common Stock are entitled to one vote for each share held of record on
all matters on which stockholders are entitled or permitted to vote. Such
holders may not cumulate votes in the election of directors. The holders of
Common Stock are entitled to receive such dividends as may lawfully be declared
by the Board of Directors out of funds legally available therefor and to share
pro rata in any other distribution to the holders of Common Stock. The holders
of Common Stock are entitled to share ratably in the assets of the Company
remaining after the payment of liabilities in the event of any liquidation,
dissolution, or winding up of the affairs of the Company. There are no
preemptive rights, conversion rights, redemption or sinking fund provisions or
fixed dividend rights with respect to Common Stock.
PREFERRED STOCK
The Company's Articles of Incorporation authorizes the issuance of up
to 200,000 shares of Series A Cumulative Non-Participation 12% par value
Preferred Stock, $25.00 per share ("Preferred Stock").
TRANSFER AGENT
The transfer agent and registrar for the Company's Common Stock is the
Pacific Stock Transfer Company, Las Vegas, Nevada.
14
<PAGE> 17
PART II
ITEM 1. MARKET PRICE AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
(a) The Company's Common Stock is quoted on the OTC Electronic Bulletin
Board and traded under the symbol "SRFX." The high and low market price
by quarters since 1998 have been as follows:
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
1998:
First Quarter.............................. $1.125 $0.750
Second Quarter............................. 1.031 0.500
Third Quarter.............................. 0.750 0.250
Fourth Quarter............................. 0.563 0.313
1999:
First Quarter.............................. 0.510 0.218
Second Quarter............................. 2.750 0.531
Third Quarter.............................. 0.781 0.438
Fourth Quarter............................. 0.500 0.280
2000:
First Quarter (through February 15)........ 1.375 0.300
Second Quarter (through June 15)........... 2.000 0.450
</TABLE>
(b) Approximate Number of Equity Security Holders.
As of December 31, 1999 the approximate number of record holders of
common Stock of the Company was approximately 378.
(c) Dividend History and Policy.
The Company has paid no dividends to date and does not anticipate
paying any for the foreseeable future.
ITEM 2. LEGAL PROCEEDINGS
The Company is involved from time to time in routine legal matters
incidental to its business. Management believes that the resolution of such
matters will not have a material adverse effect on the Company's financial
position or results of operations.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
None
15
<PAGE> 18
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
Since January 1,1997: The Company has issued unregistered shares as
follows:
1997:
(a) 22,000 shares for cash at $3.00 per share to one purchaser.
(b) 190,421 shares upon conversion of notes by 20 note holders
(c) 18,625 shares to 5 persons for services rendered at prices ranging
from $1.00 per share to $5.00 per share
(d) The Company consummated its initial public offering in early 1997
and sold 137,460 shares of Common Stock to 67 investors at a price
of $5.00 per share. In view of the issuance of shares as set forth
in (a)-(c) above, the Board of Directors authorized and issued an
additional 79,206 shares of Common Stock, at no cost, to the 67
purchasers of shares in the IPO, thereby reducing their cost to
$3.00 per share
1998:
(a) 152,050 shares for cash at prices ranging from $.37 to $3.00 per
share to 9 persons
(b) 41,375 shares upon conversion of debt at $1.00 and $2.00 per share
by 3 creditors
(c) 32,915 shares to 5 persons for services rendered at prices ranging
from $.50 to $1.00 per share
(d) 30,200 shares to 7 employees as bonuses, price of $.75 per share
1999:
(a) 270,125 shares for cash at prices ranging from $.30 to $.67 per
share to 5 persons
(b) 39,390 shares to 4 persons for services rendered at prices ranging
from $.32 to $1.53 per share
(c) 477,507 pursuant to a Regulation D offering at $.73 per share to 6
persons
(d) 398,000 shares to twenty employees and 60,000 shares to 3
directors as bonuses
2000:
(a) 262,741 shares for cash at prices ranging from $.10 per share to
$.80 per share
(b) $1,560,000 principal amount of Convertible Subordinated Debentures
issued to 13 persons. Subsequently $850,000 of Debentures were
converted into 1,062,500 shares of Common Stock
The following summarizes the issuances of unregistered shares since
January 1, 1997:
79,206 shares to the 67 IPO investors
921,682 shares for cash to 21 persons
231,375 shares to 23 persons upon conversion of debt
90,930 shares to 14 persons for services rendered
488,200 shares issued as bonuses to 27 employees and 3 directors
In connection with the issuance of shares since January 1, 1997, except
for the shares issued in 1997(d), 1998(d) and 1999(d), the Company relied on the
exemption from registration provided by Section 4(2) of this Act. The shares
were acquired for investment purposes only and a restrictive legend was placed
on the certificates. The shares issued in 1997(d), 1998(d) and 1999(d) were
issued for no consideration. Therefore the issuances did not constitute the sale
of a security. Legends were placed on those certificates issued in 1998 and
1999.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company has authority under applicable provisions of the Florida
Business Corporation Act to indemnify its directors and officers to the extent
provided under such Act. The Company's Bylaws provide indemnification provisions
for the benefit of the Company's directors and officers as follows:
"Each director and officer of the Corporation, whether or not then in
office, shall be indemnified by the Corporation against all costs and expenses
reasonably incurred or imposed upon him in connection with or arising out of any
claim, demand, action, suit or proceeding in which he may be involved or to
which he may be made a party by reason of his being or having been a
16
<PAGE> 19
director or officer of the Corporation (said expenses to include attorney's fees
and the costs of reasonable settlements made with a view to curtailment of costs
of litigations), except in relation to matters as to which he finally shall be
adjudged in any such action, suit or proceeding to have been derelict in the
performance of his duty as such director or officer. Such right of
indemnification shall not be exclusive of any other rights to which he may be
entitled as matter of law; and the foregoing rights of indemnification shall
inure to the benefit of the heirs, executors and the administrators of any such
director or officer."
17
<PAGE> 20
PART FS
Index to Financial Statements
<TABLE>
<S> <C>
SpectraFAX Corp.
Independent Auditors' Report............................................................ 19
Balance Sheet at December 31, 1999 and 1998............................................. 20
Statement of Operations For The Years Ended December 31, 1999 and 1998.................. 22
Statement of Stockholders' Equity (A Deficit) For The Years Ended
December 31, 1999 and 1998............................................................ 23
Statement of Cash Flows For The Years Ended December 31, 1999 and 1998.................. 24
Notes to the Financial Statements....................................................... 25
Balance Sheet at March 31, 2000 (Unaudited)............................................. 36
Statement of Operations For The Three Month Periods Ended
March 31, 2000 and 1999 (Unaudited)................................................... 37
Statement of Stockholders' Equity (A Deficit) For The Three Month Periods Ended
March 31, 2000 and 1999 (Unaudited)................................................... 38
Statement of Cash Flows For The Three Month Periods Ended
March 31, 2000 and 1999 (Unaudited)................................................... 39
Notes to the Financial Statements....................................................... 40
2AlertMe.com, Inc.
Independent Auditors' Report............................................................ 43
Balance Sheet at December 31, 1999...................................................... 44
Statement of Operations For The Period From Inception (May 26, 1999) to
December 31, 1999..................................................................... 45
Statement of Stockholders' Equity For The Period From Inception (May 26, 1999) to
December 31, 1999..................................................................... 46
Statement of Cash Flows For The Period From Inception (May 26, 1999) to
December 31, 1999..................................................................... 47
Notes to the Financial Statements....................................................... 48
Balance Sheet at March 31, 2000 (Unaudited)............................................. 52
Statement of Operations For The Three Month Period Ended
March 31, 2000 (Unaudited)............................................................ 53
Statement of Stockholders' Equity For The Three Month Period
Ended March 31, 2000.................................................................. 54
Statement of Cash Flows For The Three Month Period
Ended March 31, 2000.................................................................. 55
Notes to the Financial Statements....................................................... 56
</TABLE>
All schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
18
<PAGE> 21
INDEPENDENT AUDITORS' REPORT
Board of Directors
SpectraFAX Corp.
Naples, Florida 34104
We have audited the accompanying balance sheet of SpectraFAX Corp. (the
Company), as of December 31, 1999 and 1998 and the related statements of
operations, stockholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
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 audit of the financial statements provides a reasonable
basis for our opinion.
In our opinion, the financial statements present fairly, in all material
respects, the financial position of the Company at December 31, 1999 and 1998
and the results of its operations and its cash flows for the periods then ended,
in conformity with generally accepted accounting principles.
Clancy and Co., P.L.L.C.
Phoenix, Arizona
March 30, 2000
19
<PAGE> 22
SPECTRAFAX CORP.
BALANCE SHEET
DECEMBER 31, 1999 AND 1998
ASSETS 1999 1998
-------- --------
Current Assets
Cash $ 0 $ 29,262
Accounts Receivable 375,590 321,612
Inventory (Note 3) 25,360 71,073
Prepaid Expenses 11,950 2,507
-------- --------
Total Current Assets 412,900 424,454
Property and Equipment, Net (Note 4) 174,588 218,045
Other Assets
Deposits (Note 9) 10,658 10,658
-------- --------
Total Assets $598,146 $653,157
======== ========
The accompanying notes are an integral part of these financial statements.
20
<PAGE> 23
SPECTRAFAX CORP.
BALANCE SHEET
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS'EQUITY 1999 1998
----------- -----------
<S> <C> <C>
Current Liabilities
Checks Issued in Excess of Cash $ 14,031 0
Notes Payable (Note 5) 849,500 830,500
Accounts Payable 247,773 312,401
Deferred Revenue (Note 2, 14) 159,672 242,775
Notes Payable, Bank Current Portion (Note 6) 10,067 22,398
Due to Related Party (Note 7) 144,478 140,343
Accrued Interest Payable (Note 5, 7) 271,978 250,211
Accrued Liabilities 124,142 188,872
----------- -----------
Total Current Liabilities 1,821,641 1,987,500
Long-Term Liabilities
Notes Payable, Bank Noncurrent Portion (Note 6) 12,726 11,455
----------- -----------
Total Liabilities 1,834,367 1,998,955
Commitments and Contingencies (Note 9, 10)
Stockholders' Equity
Preferred Stock: $25.00 Par Value, 200,000 Shares
Authorized Series A Cumulative, Non Participating
12%; Issued and Outstanding, NONE 0 0
Common Stock: $0.0001 Par Value, 20,000,000
Shares Authorized; Issued and Outstanding
18,598,322 and 17,324,300 1,859 1,732
Additional Paid in Capital 8,581,578 8,024,953
Less Treasury Stock, at Cost, 4,000 Shares Outstanding (4,000) (4,000)
Accumulated Deficit (9,815,658) (9,368,483)
----------- -----------
Total Stockholders' Equity (A Deficit) (1,236,221) (1,345,798)
----------- -----------
Total Liabilities and Stockholders' Equity $ 598,146 $ 653,157
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
21
<PAGE> 24
SPECTRAFAX CORP.
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
Year Ended December 31, 1999 1998
------------ ------------
<S> <C> <C>
Revenues (Note 12) $ 2,501,084 $ 2,499,760
Cost of Sales 841,002 991,021
------------ ------------
Gross Profit 1,660,082 1,508,739
Selling, General and Administrative Expenses
Marketing and Sales 727,322 749,039
General and Administrative 837,526 746,842
Research and Development Expenses 420,702 402,479
------------ ------------
Total Selling, General and Administrative Expenses 1,985,550 1,898,360
------------ ------------
Net Operating Loss (325,468) (389,621)
Other Expense
Interest Expense (121,707) (104,767)
------------ ------------
Net Loss Available to Common Stockholders $ (447,175) $ (494,388)
============ ============
Basic Loss Per Common Share $ (0.02) $ (0.03)
============ ============
Basis Weighted Average Number of
Common Shares Outstanding 18,003,300 17,217,370
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
22
<PAGE> 25
SPECTRAFAX CORP.
STATEMENT OF STOCKHOLDERS' EQUITY (A Deficit)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
Additional
Preferred Stock Common Stock Paid In Treasury Accumulated
Shares Amount Shares Amount Capital Stock Deficit Total
--------- ------ ---------- ------- ---------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1997,
as previously
reported 0 0 17,105,260 $ 1,710 $ 7,804,580 $ (4,000) $ (8,700,298) $ (898,008)
Adjustment for
Deferment of
Warranty Revenue
(Note 14) (173,797) (173,797)
------------ -----------
Balance,
December 31, 1997,
as restated 0 0 17,105,260 1,710 7,804,580 (4,000) (8,874,095) (1,071,805)
Correction of
Prior Years Issuance (37,250) (4) 4 0
Issuance of Stock For
Cash at $0.75
Per Share
During 1998 72,000 7 53,993 54,000
Issuance of Stock For
Cash at $1.00
Per Share
During 1998 5,000 1 4,999 5,000
Issuance of Stock For
Cash at $0.37
Per Share
During 1998 27,000 3 9,997 10,000
Issuance of Stock For
Cash at $0.43
Per Share
During 1998 30,000 3 12,997 13,000
Issuance of Stock For
Administrative
Services at
$1.00 Per Share
(Note 11) 2,700 0 2,700 2,700
Issuance of Stock For
Marketing Services
at $0.50
Per Share (Note 11) 11,613 1 5,805 5,806
Conversion of 12%
Convertible Notes to
Equity at
$2.00 Per Share
(Note 5) 26,625 3 53,247 53,250
Conversion of 12%
Convertible Notes to
Equity at
$1.00 Per Share
(Note 5) 25,000 2 24,998 25,000
Conversion of 10%
Convertible
Subordinated
Debentures to Equity
at Per Share
(Note 5) 7,500 1 14,999 15,000
Issuance of Stock For
Consulting Services
at $0.75 Per Share 48,852 5 36,634 36,639
Loss, Year Ended
December 31, 1998 (494,388) (494,388)
------------ -----------
Balance,
December 31, 1998 0 0 17,324,300 1,732 8,024,953 (4,000) (9,368,483) (1,345,798)
Correction of
Prior Years Issuance 29,000 2 (2) 0
Issuance of
Stock For Cash 747,632 75 438,875 438,950
Issuance of
Stock For Services
(Note 11) 497,390 50 117,752 117,802
Loss, Year Ended
December 31, 1999 (447,175) (447,175)
------------ -----------
Balance,
December 31, 1999 0 $ 0 18,598,322 $ 1,859 $ 8,581,578 $ (4,000) $ (9,815,658) $(1,236,221)
= ==== ========== ======== =========== ======== ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
23
<PAGE> 26
SPECTRAFAX CORP.
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
Year Ended December 31, 1999 1998
--------- ---------
<S> <C> <C>
Cash Flows From Operating Activities
Net Loss $(447,175) $(494,388)
Adjustments to Reconcile Net Loss to Net Cash Used In Operating
Activities
Depreciation 91,256 88,303
Issuance of Common Stock for Services 117,802 45,145
Changes in Assets and Liabilities
(Increase) Decrease in Accounts Receivable (53,978) (156,236)
(Increase) Decrease in Inventory 45,713 110,073
(Increase) Decrease in Prepaid Expenses (9,443) 29,914
Increase (Decrease) in Accounts Payable (64,628) (2,488)
Increase (Decrease) in Deferred Revenue (83,103) 68,978
Increase (Decrease) in Accrued Interest Payable 21,767 48,628
Increase (Decrease) in Accrued Liabilities (64,730) (29,371)
--------- ---------
Total Adjustments 656 202,946
--------- ---------
Net Cash Used In Operating Activities (446,519) (291,442)
Cash Flows From Investing Activities
Capital Expenditures (47,799) (76,131)
--------- ---------
Net Cash Flows Used In Investing Activities (47,799) (76,131)
Cash Flows From Financing Activities
Checks Issued in Excess of Cash 14,031 0
Proceeds From the Issuance Notes Payable 224,617 430,000
Repayments on Notes Payable (205,617) (237,000)
Advances From Related Party, Officer 45,000 52,000
Repayments to Related Party, Officer (38,000) (40,000)
Proceeds From Notes Payable, Bank 0 36,275
Repayments on Notes Payable, Bank (11,060) (2,422)
Payments on Royalty Agreement (2,865) (2,850)
Proceeds From the Sale of Common Stock 438,950 82,000
--------- ---------
Net Cash Provided By Financing Activities 465,056 318,003
--------- ---------
Year Ended December 31, 1999 1998
--------- ---------
Decrease in Cash and Cash Equivalents (29,262) (49,570)
Cash and Cash Equivalents, Beginning of Year 29,262 78,832
--------- ---------
Cash and Cash Equivalents, End of Year $ 0 $ 29,262
========= =========
Supplemental Information
Cash paid for:
Interest $ 143,474 $ 132,079
========= =========
Income taxes $ 0 $ 0
========= =========
Noncash Activities:
Exchange of Note Payable for Common Stock $ 0 $ 93,250
========= =========
Common Stock Issued for Services $ 117,802 $ 45,145
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
24
<PAGE> 27
SPECTRAFAX CORP.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 1 - ORGANIZATION
SpectraFAX Corp. (the Company) (formerly known as LaserFAX, Inc.) was
incorporated under the laws of the State of Florida on September 20,
1983, and has an authorized capital of 20,000,000 shares of par value
common stock at one/hundredth of a cent ($0.0001) per share and 200,000
shares of preferred series A cumulative, nonparticipating 12% par value
preferred stock at $25.00 per share.
The Company markets and distributes proprietary (patented) automated
facsimile management systems.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As shown in the financial
statements, the Company has incurred net losses for the periods
presented, current liabilities exceed current assets, and have net
stockholders' deficits. These factors raise substantial doubt about the
Company's ability to continue as a going concern.
The Company's ability to continue as a going concern is alleviated
because the Company raised $1,560,000 through the issuance of 6%
convertible subordinated debentures in March 2000, maturing in March
2005. (See Note 13) Additionally, the Company has an agreement with its
President to provide funding to the Company for at least the next
twelve months, as necessary. Therefore, for at least the next twelve
months, the Company can continue to operate as a going concern.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
A. Accounting Method
The Company's financial statements are prepared using the accrual
method of accounting.
B. Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with a
maturity of three months or less when acquired to be cash and cash
equivalents.
C. Accounts Receivable
Accounts Receivable consists of sales to business customers on a
contract basis, principally in the United States. The majority of the
accounts are paid within a 60-day period. The Company considers all of
its accounts to be collectible. The allowance for uncollectible
accounts has a zero balance at this time as a result of the type of
contracts with businesses, customers and the federal government.
Accounts Receivable are stated net of the allowance for uncollectible
accounts. Management reviews this process annually. No single customer
provides 10% or more of the Company's revenues.
25
<PAGE> 28
SPECTRAFAX CORP.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
D. Revenue Recognition
Revenue from products is recognized when related products are shipped.
Revenue from fax information dissemination services and transaction
processing services (service bureau) is recognized upon completion of
the transmission. Revenue from separately priced extended warranty and
product maintenance contracts is deferred at the point of sale and
recognized on a straight-line basis over the life of the contract.
Related warranty expenses and obligations are not accrued, but booked
in the period incurred. The warranties are for maintenance and parts.
Maintenance represents approximately 97% of warranty costs. These costs
are recorded in the period incurred, due to their insignificance.
Losses from warranty obligations are not accrued because it has been
the Company's experience that insignificant claims have arisen under
the warranty obligations.
E. Cost Recognition
Cost of Sales includes all direct material and labor costs and those
indirect costs of bringing raw materials to sale condition. Selling,
general and administrative costs are charged to operating expenses as
incurred. Research and Development costs are charged to operations as
incurred, and are included in selling, general and administrative
costs. The amounts charged during 1999 and 1998 were $420,702 and
$402,479, respectively.
F. Inventory
The inventory is valued at the lower of cost or market, determined on a
first-in first-out basis.
G. Property and Equipment
Expenditures that increase asset lives are capitalized at cost. Normal
maintenance and repairs are expensed as incurred. The cost and
accumulated depreciation of assets retired or disposed of are removed
from the accounts and any resulting gain or loss is included in the
statement of operations. Depreciation is reported on a straight-line
basis over the estimated useful lives of the assets ranging from three
to ten years.
H. Long-Lived Assets
The Company's long-lived assets consists of patents, that are being
amortized over the estimated useful lives of the patents, but not
longer than 17 years.
I. Income Taxes
The Company accounts for income taxes under the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes." Under SFAS 109, deferred tax liabilities are determined
based on the difference between the financial statement and tax bases
of assets and liabilities, using enacted tax rates in effect for the
year in which the differences are expected to reverse. See Note 8.
26
<PAGE> 29
SPECTRAFAX CORP.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
J. Per Share of Common Stock
Basic earnings or loss per share has been computed based on the
weighted average number of common shares outstanding. All earnings or
loss per share amounts in the financial statements are basic earnings
or loss per share, as defined by SFAS No. 128, "Earnings Per Share."
Convertible securities that could potentially dilute basic earnings per
share in the future were not included in the computation of diluted
earnings per share because to do so would be antidilutive for the
periods presented. Diluted earnings or loss per share does not differ
materially from basic earnings or loss per share for all periods
presented.
K. Stock Issuance Costs
Costs and fees incurred to raise capital for the Company are charged
against the proceeds of the related offering.
L. Capital Structure
The Company has implemented SFAS No. 130, "Reporting Comprehensive
Income," effective January 1, 1998, which requires companies to
classify items of other comprehensive income by their nature in a
financial statement and display the accumulated balance of other
comprehensive income separately from retained earnings and additional
paid in capital in the equity section of a statement of financial
position. The implementation of SFAS No. 130 had no effect on the
financial statements.
M. Stock-Based Compensation
The Company accounts for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." Compensation cost for stock
options, if any, is measured as the excess of the quoted market price
of the Company's stock at the date of grant over the amount an employee
must pay to acquire the stock.
SFAS No. 123, "Accounting for Stock-Based Compensation," established
accounting and disclosure requirements using a fair-value-based method
of accounting for stock-based employee compensation plans. The Company
has elected to continue its current method of accounting as described
above, and has adopted the disclosure-only requirements of SFAS No.
123, effective January 1997. The implementation of SFAS No. 128 had no
effect on the Company's financial statements.
N. Business Segment Information
The Company implemented SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," effective January 1, 1998. The
Company operates predominantly in one industry segment, that being the
marketing and distribution of pro
27
<PAGE> 30
SPECTRAFAX CORP.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
prietary (patented) automated facsimile management systems. The
Company's segment information is disclosed separately in Note 12.
O. 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 amounts reported in the financial
statements and accompanying notes. Actual results could differ from
those estimates.
P. Pending Accounting Pronouncements
It is anticipated that current pending accounting pronouncements will
not have an adverse impact on the financial statements of the Company.
Q. Presentation
Certain prior year amounts have been reclassified to conform to the
current year presentation.
NOTE 3 - INVENTORY
Inventory at December 31, 1999 and 1998 of $25,360 and $71,073,
respectively, consists of computer parts and accessories used in the
assembly and further enhancement of computer applications and parts for
repairs and replacement.
NOTE 4 - PROPERTY AND EQUIPMENT, NET
Property and Equipment consists of the following at December 31:
1999 1998
--------- ---------
Machinery and Equipment $ 170,397 $ 157,424
Computer Equipment 473,050 438,224
Furniture and Fixtures 36,544 36,544
Display Booth 8,076 8,076
Software 121,539 121,539
--------- ---------
Total 809,606 761,807
Less Accumulated Depreciation (635,018) (543,762)
--------- ---------
Net Book Value $ 174,588 $ 218,045
========= =========
Depreciation expense charged to operations during 1999 and 1998 was
$91,256 and $88,303, respectively.
28
<PAGE> 31
SPECTRAFAX CORP.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 5 - NOTES PAYABLE
The following is a summary of Notes Payable at December 31:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C> <C>
(1) 15% Demand Note $ 50,000 $ 50,000
(2) 12% Convertible Notes at $2.00 Per Share 225,500 261,500
1999 1998
-------- --------
(3) 10% Convertible Notes at $2.00 Per Share 0 8,000
(4) 12% Short Term Notes 24,000 24,000
(5) 10% Convertible Subordinated Debentures
Due October 31, 1990 - Scheduled Redemption
Subordinated to Other Senior Obligations 108,000 125,000
(6) 18% Secured Factoring Promissory Notes 442,000 362,000
-------- --------
Total $849,500 $830,500
======== ========
</TABLE>
(1) A demand note in the amount of $50,000, dated April, 1995, with
interest at 15 percent per annum. The note was renewed on May 3, 1996,
and is currently in default. Accrued interest at December 31, 1999 and
1998 was $15,021 and $12,521, respectively.
(2) The 12% convertible notes at $2.00 per share represent a series of
notes from individuals dated from April 1990 through October 1993. The
notes were for one year with interest payable annually. All of the
notes are due in full. The notes carry a conversion, that on maturity,
in lieu of receiving the stipulated principal and interest at maturity,
the holder may elect to apply said principal and accrued interest as
payment in full for the purchase of the Company's common stock at $2.00
per share. For the years ended December 31,1998, certain 12%
convertible notes were converted to 26,625 shares of common stock at
$2.00 per share, or $53,250, representing principal of $37,500 and
interest of $15,750. Additionally, during 1998, the Company converted
one 12% convertible note to 25,000 shares of common stock at $1.00 per
share, or $25,000. Due to the default status of this note, the note
holder agreed to modify the conversion terms of this note from $2.00 to
$1.00 in partial satisfaction of the principal amount outstanding.
Payments on 12% convertible notes were $36,000 and $4,000 during 1999
and 1998, respectively.
Accrued interest at December 31, 1999 and 1998 was $170,980 and
$150,920, respectively.
(3) The 10% convertible notes represent a series of notes from
individuals dated from March 1992 through November 1993. The notes were
for one year with interest payable
29
<PAGE> 32
SPECTRAFAX CORP.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
annually. All of the notes are due in full. The notes carry a
conversion, that on maturity, in lieu of receiving the stipulated
principal and interest at maturity, the holder may elect to apply said
principal and accrued interest as payment in full for the purchase of
the Company's common stock at $2.00 per share. For the year ended
December 31, 1999, the 10% convertible notes were repaid in full for
$8,000.
(4) The 12% short term notes represent a series of notes from
individuals dated December 1990 through March 1991. The notes are one
year notes that rollover automatically. The holder has the option after
one year to demand payment in full. Accrued interest at December 31,
1999 and 1998 was $14,400 and $11,520, respectively.
(5) The 10% convertible subordinated debentures are a series of notes
from individuals dated October 31, 1985 and had a maturity date of
October 31, 1990. The notes are convertible at the rate of $2.00 per
share of the Company's common stock. For the year ended December 31,
1998, certain 10% convertible subordinated debentures were converted to
7,500 shares of common stock for total of $15,000, representing
principal of $12,000 and interest of $3,000. Payments on the 10%
convertible notes were $17,000 and $8,000 during 1999 and 1998,
respectively. Accrued interest at December 31, 1999 and 1998 was
$57,675 and $45,387, respectively.
(6) The 18% secured factoring promissory notes are a series of notes
from individuals at various dates during the last three years. These
notes are secured by U.S. government receivables. Payment of principal
and interest is due in full to each individual upon payment of invoices
under contract. For the year ended December 31, 1999 and 1998, total
payments were $144,617 and $225,000, and additional notes issued
totaled $224,617 and $430,000, respectively. Accrued interest at
December 31, 1999 and 1998 was $5,004 and $5,114, respectively.
All of the notes are due at December 31, 1999.
NOTE 6 - NOTES PAYABLE, BANK
During 1998, the Company obtained financing from a local bank for
$36,275, with interest at prime plus one percent (9.75% at December 31,
1999 and 1998) per annum, due September 01, 2001, and secured by all
Company assets. Total principal payments during 1999 and 1998 were
$11,060 and $2,422, respectively.
Total $ 22,793
Less Current Portion 10,067
---------
Long-Term Debt $ 12,726
=========
30
<PAGE> 33
SPECTRAFAX CORP.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
Future minimum maturities of long-term debt are as follows at December
31:
2000 $ 10,067
2001 $ 12,726
NOTE 7 - RELATED PARTIES
The President loans the Company funds whenever necessary and is paid
with interest, due on demand. Total loans outstanding due the President
is $91,010 at December 31, 1999. The loan activity is as follows
through December 31, 1999:
On April 17, 1995, the President loaned the Company $44,010 with
interest payable at the rate of 14% per annum, due on demand. In 1995,
$10,000 was paid on the note leaving a balance of $34,010. During 1996,
the note was increased by $10,000, leaving a balance of $44,010 at
December 31, 1996 and 1997. During 1998, the President advanced the
Company $25,000 and was repaid $40,000, for a net decrease in the note
of $15,000, leaving a balance due of $29,010 at December 31, 1999 and
1998.
During 1996, the President loaned the Company an additional $98,000 at
10% per annum, due on demand. The note was reduced by $70,000 during
1997. The balance at December 31, 1998 and 1997 is $28,000 and $28,000,
respectively.
During 1998, the President loaned the Company an additional $27,000 at
18% per annum, due on demand. The balance at December 31, 1999 and 1998
is $27,000.
During 1999, the President loaned the Company an additional $45,000 at
12% per annum, due on demand. The note was reduced by $38,000 during
1999. The balance at December 31, 1999, is $7,000.
Accrued interest on all the related party loans at December 31, 1999
and 1998 was $7,434 and $8,948, respectively.
LFX (LFX) Associates, Ltd., a related Company, is due $53,468 and
$56,333 at December 31, 1999 and 1998, respectively, representing
royalty payments due under an expired agreement that it had with the
Company. The payable is reduced each year for payments made on behalf
of LFX by the Company, such as accounting fees and filing fees.
NOTE 8 - INCOME TAXES
There is no current or deferred tax expense for the years ended
December 31, 1999 and 1998, due to the Company's loss position. The
benefits of timing differences have not been previously recorded.
31
<PAGE> 34
SPECTRAFAX CORP.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 8 - INCOME TAXES (CONTINUED)
The deferred tax consequences of temporary differences in reporting
items for financial statement and income tax purposes are recognized,
as appropriate. Realization of the future tax benefits related to the
deferred tax assets is dependent on many factors, including the
Company's ability to generate taxable income within the net operating
loss carry forward period. Management has considered these factors in
reaching its conclusion as to the valuation allowance for financial
reporting purposes. The income tax effect of temporary differences
comprising the deferred tax assets and deferred tax liabilities on the
accompanying balance sheet is a result of the following:
Deferred Taxes 1999 1998
-------------- ----------- ------------
NOL Carryforwards $ 3,435,480 $ 3,278,969
Deferred Revenue (55,885) (84,971)
----------- ------------
Total 3,379,595 3,193,998
Valuation Allowance (3,379,595) (3,193,998)
----------- -----------
Net Deferred Tax Assets $ 0 $ 0
=========== ===========
A reconciliation between the statutory federal income tax rate (35%)
and the effective rate of income tax expense for each of the years
during the period ended December 31 follows:
1999 1998
------ ------
Statutory Federal Income Tax Rate (35.0)% (35.0)%
Increase in Valuation Allowance 35.0 % 35.0 %
------ ------
Effective Income Tax Rate 0.0 % 0.0 %
The Company has available net operating loss carryforwards of
approximately $9,800,000 for tax purposes to offset future taxable
income, and expire principally in the year 2014.
NOTE 9 - OPERATING LEASES
Property Lease - The Company leases 9,373 square feet of office space
located at 3050 North Horseshoe Drive, Suite Number 100, Naples,
Florida, 34104, for its executive offices. The lease is for a period of
three years commencing June 1, 1997 and ending May 30, 2000. The
Company has an option to renew for two additional thirty-six (36) month
terms for an additional increase in the monthly base rent of 3% on each
commencement date. The base rent is $8,386 per month plus additional
rent equal to the pro rata monthly operating expenses of the property
of approximately $3,616, or $12,002 at December 31, 1999. The lessor
holds a security deposit in the amount of $10,658 paid by the Company.
32
<PAGE> 35
SPECTRAFAX CORP.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 9 - OPERATING LEASES (CONTINUED)
Lease expense for the years ended December 31, 1999 and 1998 was
$131,860 and $138,925, respectively.
Future minimum annual lease obligations at December 31 are as follows:
1999 $ 144,024
2000 $ 60,010
Equipment Lease - The Company leases various equipment under
noncancelable operating leases for five year terms. The lease expense
for the year ended December 31, 1999 and 1998 was $7,702 and $6,808.
Future minimum annual lease obligations are as follows:
2000 $ 11,328
2001 $ 8,416
2002 $ 6,960
2003 $ 3,480
NOTE 10 - CONTRACTS/BACKLOG
Total backlog at December 31, 1999 and 1998 was approximately $55,000
and $265,000, respectively.
NOTE 11 - COMMON STOCK
During 1998, the Company issued 2,700 shares of common stock for
consulting services rendered at $1.00 per share, or $2,700, and the
Company issued 11,613 shares of common stock for consulting services at
$0.50 per share, or $5,806. The shares were issued at the fair market
value of the services rendered.
During 1999, the Company issued 497,390 shares for services rendered as
follows: 4,500 shares of common stock for consulting services rendered
at $0.44 per share, or $1,980; 5,000 shares of common stock for
consulting services rendered at $0.32 per share, or $1,600; 487,890
shares of common stock to current and past employees, directors, and
sales representatives for services rendered as follows: 159,100 shares
at $0.116 per share, or $18,456; 103,000 shares at $0.331 per share, or
$34,093; 165,000 shares at $0.265 per share, or $43,725; 25,000 shares
at $.252 per share, or $6,300; 30,700 shares at $0.248 per share, or
$7,614; 200 shares at $0.364 per share, or $73; and 4,890 shares at
$0.81 per share, or $$3,961. The shares were issued at the fair market
value.
During the years ended 1999 and 1998, the Company adjusted the shares
of common stock outstanding for a correction of a prior years issuance
for an increase of 29,000 in
33
<PAGE> 36
SPECTRAFAX CORP.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
1999 and a decrease of 37,250 in 1998. Prior to 1996, the Company had
been maintaining the stock ownership records manually, and in 1996
turned the records over to a transfer agent for record keeping. In the
process, the Company did not turn over all of the certificates to the
transfer agent and adjustments have arisen.
NOTE 12 - SEGMENT INFORMATION
The Company operates predominantly in one industry segment, that being
the marketing and distribution of proprietary (patented) automated
facsimile management systems. Revenues generated from this industry
include revenues from the sale of tangible products (fax liaison),
revenues from fax information dissemination services and transaction
processing services (service bureau), and revenues from separately
priced extended warranty and product maintenance contracts (warranty.)
Management evaluates the performance of its segments and allocates
resources to them primarily based on pretax income along with cash
flows and overall economic returns. The accounting policies of the
segments are substantially the same as those described in the summary
of significant accounting policies, as discussed in Note 2.
Certain items are maintained at the Company's corporate level and are
not allocated to the segments. They primarily include the Company's
debt and cash and cash equivalents and related net interest expense and
corporate headquarters costs.
A summary is of segment information is as follows at December 31:
<TABLE>
<CAPTION>
Service
1999 Fax Liaison Bureau Warranty Other Total
---- ----------- ---------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues $ 1,919,905 $ 200,530 $380,649 $ 0 $ 2,501,084
Operating Income (Loss) 1,302,187 96,168 261,727 (1,985,550) (325,468)
Total Assets 394,668 5,282 1,000 197,196 598,146
Capital Expenditures 13,279 2,495 825 31,200 47,799
Depreciation 69,355 8,213 4,563 9,125 91,256
1998
----
Revenues $ 1,872,654 $ 249,533 $377,573 $ 0 $ 2,499,760
Operating Income (Loss) 1,123,393 141,097 244,249 (1,898,360) (389,621)
Total Assets 385,203 6,482 1,000 260,472 653,157
Capital Expenditures 63,719 5,321 5,995 1,096 76,131
Depreciation 68,876 6,181 5,298 7,948 88,303
</TABLE>
34
<PAGE> 37
SPECTRAFAX CORP.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 13 - SUBSEQUENT EVENTS
During March 2000, the Company issued 6% convertible subordinated
debentures totaling $1,560,000, due March 2005, convertible into one
(1) fully paid and nonassessable share of common stock at the
conversion rate of $0.80 (principal amount) per share, exercisable at
any time after six (6) months from the date of the note. The Company
can prepay the debentures at any time by giving the holder no less than
thirty (30) days written notice.
NOTE 14 - PRIOR PERIOD ADJUSTMENT
Retained earnings has been restated for the year ended December 31,
1997, by $173,797, representing deferred warranty revenue, due to a
correction of an error. In prior period financial statements, the
Company recognized revenue from separately priced extended warranty and
product maintenance contracts as the payments were received under the
contract. Under generally accepted accounting principles, warranty
revenue is deferred at the point of sale and recognized on a
straight-line basis over the life of the contract, which is primarily a
one year contract for the Company. Revenues for the years ended
December 31, 1998 and 1997, were overstated by $68,978 and $173,797.
Revenues for the year ended December 31, 1999, were understated by
$259,482. The effect of the restatement for all periods presented is as
follows:
<TABLE>
<CAPTION>
As Reported 1999 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C>
Revenue $ 2,417,981 $ 2,568,738 $ 2,015,716
Net Loss (530,278) (425,410) (831,000)
Basic Loss Per Common Share (0.03) (0.02) (0.04)
Accumulated Deficit (9,655,986) (9,125,708) (8,700,298)
As Restated
-----------
Revenue $ 2,501,084 $ 2,499,760 $ 1,841,919
Net Loss (447,175) (494,388) (1,004,797)
Basic Loss Per Common Share (0.02) (0.03) (0.05)
Accumulated Deficit (9,815,658) (9,368,483) (8,874,095)
</TABLE>
35
<PAGE> 38
SPECTRAFAX CORP.
BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
March 31,
2000
ASSETS -------------
<S> <C>
Current Assets
Cash & Cash Equivalents $ 1,306,471
Accounts Receivable 154,691
Inventory 33,524
Prepaid Expenses 4,298
------------
Total Current Assets 1,498,984
Net Property & Equipment (Note 2) 210,960
Other Assets 10,658
------------
Total Assets 1,720,602
============
LIABILITIES
Current Liabilities
Checks In Excess Of Cash 0
Short Term Notes Payable (Notes 3 & 5) 809,500
Notes Payable, Current Portion 9,100
Accounts Payable 166,096
Due To Related Party 132,468
Accrued Liabilities 418,741
Customer Advances 132,388
------------
Total Current Liabilities 1,668,293
Long Term Debt Less Current Maturities (Notes 4 & 5) 1,569,742
------------
Total Liabilities 3,238,035
Stockholders' Equity
Common Stock @ $.0001 per share Par Value 1,885
Additional Paid In Capital 8,733,952
Treasury Stock at Cost (4,000)
Accumulated Deficit (10,249,270)
------------
Total Stockholders' Equity (a Deficit) (1,517,433)
Total Liabilities & Stockholders' Equity $ 1,720,602
============
</TABLE>
36
<PAGE> 39
SPECTRAFAX CORP.
STATEMENT OF OPERATIONS
For three months ended
March 31, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
2000 1999
---------- ----------
<S> <C> <C>
Revenues $ 129,313 $ 637,229
Miscellaneous Other Income 869 0
---------- ----------
Total Revenues 130,182 637,229
Cost of Sales 88,88 181,549
Gross Profit 41,299 455,680
Selling, General and Administrative Expenses
Research & Development 93,693 133,534
Marketing & Sales 180,888 156,767
General & Administrative 159,066 170,982
---------- ----------
Total Selling, General and Administrative Expenses 433,647 461,283
---------- ----------
Net Operating Loss
Interest Expense 41,264 30,146
---------- ----------
Net Loss Available to Common Stockholders $ (433,612) $ (35,749)
========== ==========
Basic Loss per Common Share $ (0.02) $ (0.00)
========== ==========
Basis Weighted Average
Number of Common Shares
Outstanding 18,134,670 17,413,853
</TABLE> ========== ==========
37
<PAGE> 40
SPECTRAFAX CORP.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the three months ended March 31, 2000
(Unaudited)
<TABLE>
<CAPTION>
Additional
Common Stock Paid In Accum.
Shares Amount Capital Treasury Deficit Total
------------ ----------- -------------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1999 18,598,322 $1,859 $8,581,578 ($4,000) ($9,815,658) ($1,236,221)
Issuance of Stock for Cash at $.40
Per Share During January 2000 12,500 1 4,999 5,000
Issuance of Stock for Cash at $.80
Per Share During February 2000 13,000 1 10,399 10,400
Issuance of Stock for Cash at $.58
Per Share During February 2000 17,241 2 9,998 10,000
Issuance of Stock for Cash at $.50
Per Share During February 2000 100,000 10 49,990 50,000
Issuance of Stock for Cash at $.10
Per Share During February 2000 20,000 2 1,998 2,000
Issuance of Stock for Cash at $.75
Per Share During March 2000 100,000 10 74,990 75,000
Loss, Three Months Ended
March 31, 2000 (433,612) (433,612)
------------ ----------- -------------- ------------- -------------- --------------
March 31, 2000 18,861,063 $1,885 $8,733,952 ($4,000) ($10,249,270) ($1,517,433)
</TABLE>
38
<PAGE> 41
SPECTRAFAX CORP.
STATEMENT OF CASH FLOWS
For the three months ended March 31, 2000
(Unaudited)
<TABLE>
<S> <C>
Cash flows from Operating Activities:
Net Loss $ (433,612)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 21,780
Decrease (increase) in operating assets:
Accounts Receivable 220,900
Inventory (8,164)
Prepaid Expenses 7,652
Increase (decrease) in operating liabilities:
Accounts Payable (81,677)
Accrued Liabilities 22,620
Customer Advance (27,284)
Checks in Excess of Cash (14,031)
Total Adjustments to net Profit 141,796
Net Cash used in Operating Activities (291,816)
Cash Flows from Investing Activities:
Property and Equipment Expenditures (58,151)
Cash used by Investing Activities (58,151)
Cash Flows from Financing Activities:
Payments on Short Term Debt Borrowing (92,962)
Proceeds from Short Term Debt Borrowing 37,000
Proceeds from Long Term Debt Borrowing 1,560,000
Proceeds from Issuance of Common Stock (Net) 152,400
Net Cash Provided by Financial Activities 1,656,438
Net Increase in Cash 1,306,471
-----------
Cash at December 31, 1999 0
Cash at March 31, 2000 $ 1,306,471
</TABLE>
39
<PAGE> 42
SPECTRAFAX CORP.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of business
The Company, which began operations October 1, 1984, developed, produced and
marketed a digital color scanner, a product line it has since discontinued. The
Company then developed facsimile boards for Matsushita Electric Industrial
Company Ltd. and Intel Corporation and shares joint rights to these products.
It presently markets proprietary (patented) automated facsimile management
systems.
This Company was formerly known as LaserFAX, Inc.
Summary of significant accounting policies
Inventory
Inventory costs are stated at the lower of cost (first in, first out method) or
market.
Property and Equipment
Property and equipment is stated at cost. Depreciation is computed on the
straight-line basis.
Maintenance
Maintenance, repairs and minor renewals are charged to earnings in the year in
which the expense is incurred. Additions, improvement, and major renewals are
capitalized.
Cost of assets retired or sold
The cost of assets retired or sold, together with the related accumulated
depreciation, are removed from the accounts and any profit or loss on
depreciation is credited or charged to earnings.
Debt Issue Costs
Legal fees, filing fees and commissions associated with the issuance of the 10%
subordinated convertible debentures have been amortized on the straight-line
method over the life of the debentures.
40
<PAGE> 43
Income Taxes
The Company has filed income tax returns for all closed fiscal periods.
Cumulatively, there are no material books to tax differences.
Investment Tax Credits
Investment tax credit carryovers through December 31, 1985 amounting to $11,000
will be recognized as a reduction of income tax expense in that period in which
the Company first becomes liable for income tax payments and will result in a
reduction of tax payments.
Advertising costs
Advertising costs are expensed when incurred.
NOTE 2. PROPERTY AND EQUIPMENT
Property and equipment is comprised as follows at March 31, 2000:
<TABLE>
<S> <C>
Computer Equipment $ 529,471
Furniture and Fixtures 38,275
Display Booth and Other Equipment 178,473
Software 121,758
---------
867,758
Less accumulated depreciation (656,798)
---------
Net Property and Equipment $ 210,960
NOTE 3. SHORT TERM DEBT
15% Short Term Demand Note $ 50,000
12% Short Term Notes Convertible @ $2.00 /Share 225,500
10-18% Notes Secured by US Government Receivables 402,000
12% Short Term Equipment Notes 24,000
10% Convertible Subordinated Debenture 108,000
---------
$ 809,500
</TABLE>
41
<PAGE> 44
NOTE 4. LONG TERM DEBT
<TABLE>
<S> <C>
6% Convertible Subordinated Debentures due March 2005
(Scheduled Redemption subordinated to other senior obligations) 1,560,000
Long Term Portion of 9.75% Bank Note 9,742
----------
Total Long Term Debt $1,569,742
</TABLE>
NOTE 5. SUBSEQUENT EVENTS
Converted $850,000 of the 6% Convertible Subordinated Debenture at $.80 per
share in May 2000.
Converted $116,900 both principal and interest of 10-12% Notes at $1 per share
in May 2000.
42
<PAGE> 45
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
2AlertMe.com, Inc.
Rockford, Illinois 61111
We have audited the accompanying balance sheet of 2AlertMe.com, Inc. (A
Development Stage Company) (the "Company") as of December 31, 1999, and the
related statement of operations, stockholders' equity and cash flows for the
period from inception (May 26, 1999) to December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company at December 31,
1999, and the results of its operations and cash flows for the period indicated,
in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern.
As discussed in Note 1, the Company has been in the development stage since its
inception May 26, 1999. The Company is devoting substantially all of its present
efforts in establishing a new business and although planned principal operations
have commenced, there have been no significant revenues derived therefrom.
Additionally, the Company does not have adequate financing to carry out its
business plan. These factors raise substantial doubt about its ability to
continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Clancy and Co., P.L.L.C.
Phoenix, Arizona
June 15, 2000
43
<PAGE> 46
2ALERTME.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
DECEMBER 31, 1999
Assets
------
Current Assets
Cash $ 20,193
--------
Total Assets $ 20,193
========
Liabilities and Stockholders' Equity
------------------------------------
Current Liabilities None
Stockholders' Equity
Common Stock: No Par Value, 2,000,000 Shares
Authorized; Issued and Outstanding 1,185,000 30,000
Additional Paid in Capital 6,722
Accumulated Deficit (16,529)
--------
Total Stockholders' Equity 20,193
--------
Total Liabilities and Stockholders' Equity $ 20,193
========
The accompanying notes are an integral part of these financial statements.
44
<PAGE> 47
2ALERTME.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (MAY 26, 1999)
TO DECEMBER 31, 1999
Revenues $ 0
Cost of Sales 0
---------
Gross Profit 0
General and Administrative Expenses
General and Administrative 2,580
Research and Development 13,949
---------
Total General and Administrative Expenses 16,529
---------
Net Loss Available to Common Stockholders $ (16,529)
=========
Basic Loss Per Common Share $ (0.04)
=========
Basis Weighted Average Number of
Common Shares Outstanding 444,375
=========
The accompanying notes are an integral part of these financial statements.
45
<PAGE> 48
2ALERTME.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (MAY 26, 1999) TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
Additional
Common Stock Paid In Accumulated
Shares Amount Capital Deficit Total
--------- -------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
Initial Capital Contribution $ 1,000 $ 1,000
Common Stock Issued For Cash 1,185,000 $ 30,000 30,000
Additional Capital Contributions 5,722 5,722
Loss, Inception (May 26, 1999) to
December 31, 1999 (16,529) (16,529)
---------- --------
Balance, December 31, 1999 1,185,000 $ 30,000 $ 6,722 $ (16,529) $ 20,193
========= ======== ======= ========== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
46
<PAGE> 49
2ALERTME, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (MAY 26, 1999)
TO DECEMBER 31, 1999
Cash Flows From Operating Activities
Net Loss $(16,529)
--------
Net Cash Used In Operating Activities (16,529)
Cash Flows From Investing Activities --
Cash Flows From Financing Activities
Capital Contributions 6,722
Proceeds From Sale of Common Stock 30,000
--------
Net Cash Provided By Financing Activities 36,722
--------
Increase in Cash and Cash Equivalents 20,193
Cash and Cash Equivalents, Beginning of Year 0
--------
Cash and Cash Equivalents, End of Year $ 20,193
========
Supplemental Information
Cash paid for:
Interest $ 0
========
Income taxes $ 0
========
The accompanying notes are an integral part of these financial statements.
47
<PAGE> 50
2ALERTME.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 1 - ORGANIZATION
2AlertMe.com, Inc. (A Development Stage Company) (the Company) was
incorporated under the laws of the State of Illinois on May 26, 1999,
with an authorized capital of 2,000,000 shares of no par value common
stock.
The Company's product is a notification system that enables subscribers
to receive real time notification when their stock reaches a
predetermined trading price or volume. Notification channels include
touch-tone phone, PCS phone, pager, e-mail and/or fax. If notified by
phone, subscribers can be automatically connected to a broker to place
trades immediately in response to market changes.
The Company is a development stage company, as defined in Financial
Accounting Standards Board No. 7. The Company is devoting substantially
all of its present efforts in securing and establishing a new business,
and although its planned principal operations have commenced, there
have been no significant revenues derived therefrom. In addition, the
Company does not presently have adequate financing to carry out its
business plan. Management's plans include obtaining working capital
funds by seeking additional funding from private and public equity
investments to meet such needs.
The accompanying financial statements should not be regarded as typical
for normal operating periods. The financial statements have been
prepared on the basis of accounting principles applicable to a going
concern. The financial statements do no include any adjustments that
might result from the outcome of this uncertainty. The continuation of
the Company as a going concern is dependent upon the success of the
Company in obtaining additional funding and the future success of its
operations. The Company's ability to achieve these objectives cannot be
determined at this time.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Accounting Method
The Company's financial statements are prepared using the accrual
method of accounting.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with a
maturity of three months or less when acquired to be cash and cash
equivalents.
Property and Equipment
Property and equipment is stated at cost. Depreciation is provided on
the straight-line method over the estimated useful life of the asset.
Revenue Recognition
Revenue is recognized when earned. Revenues are recognized over the
period the services are provided.
48
<PAGE> 51
2ALERTME.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cost Recognition
Selling, general and administrative costs are charged to operating
expenses as incurred. Research and development costs are expensed as
incurred.
Product Development Costs
In accordance with SOP 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," computer software
costs incurred in the preliminary project stage, such as direct labor
and related overhead, and purchased software and computer equipment
from third parties, are expensed as incurred. SFAS No 86, "Accounting
for the Costs of Computer Software to Be Sold, Leased, or Otherwise
Marketed," does not materially affect the Company.
Advertising Costs
Advertising costs are expensed as incurred.
Start-Up Costs
The Company adopted the provisions of the American Institute of
Certified Public Accountants' Statement of Position (SOP) 98-5,
"Reporting on the Costs of Start-Up Activities." SOP 98-5 provides
guidance on the financial reporting of start-up and organization costs
and requires such costs to be expensed as incurred.
Long-lived Assets
Long-lived assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be
recoverable. If the fair value is less than the carrying amount of the
asset, a loss is recognized for the difference.
Income Taxes
The Company is an "S" corporation, and therefore all taxable income or
losses and available tax credits are passed from the corporate entity
to the stockholders'. It is the responsibility of the stockholders' to
report the taxable income or losses and tax credits, and to pay any
resulting income taxes. Thus, there is no provision for income taxes
included in these financial statements.
Per Share of Common Stock
Basic earnings or loss per share has been computed based on the
weighted average number of common shares outstanding. All earnings or
loss per share amounts in the financial statements are basic earnings
or loss per share, as defined by SFAS No. 128, "Earnings Per Share."
Diluted earnings or loss per share does not differ materially from
basic earnings or loss per share for all periods presented. All per
share and per share information are adjusted retroactively for changes
in par value and stock splits.
49
<PAGE> 52
2ALERTME.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Capital Structure
The Company has implemented SFAS No. 130, "Reporting Comprehensive
Income," which requires companies to classify items of other
comprehensive income by their nature in a financial statement and
display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid in capital in the
equity section of a statement of financial position. The implementation
of SFAS No.
130 had no effect on the financial statements.
Stock-Based Compensation
The Company accounts for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." Compensation cost for stock
options, if any, is measured as the excess of the quoted market price
of the Company's stock at the date of grant over the amount an employee
must pay to acquire the stock.
SFAS No. 123, "Accounting for Stock-Based Compensation," established
accounting and disclosure requirements using a fair-value-based method
of accounting for stock-based employee compensation plans. The Company
has elected to continue its current method of accounting as described
above, and has adopted the disclosure-only requirements of SFAS No.
123. The implementation of SFAS No. 128 had no effect on the Company's
financial statements.
Business Segment Information
The Company implemented SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." The implementation of SFAS No. 131
had no effect on the Company's financial statements.
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 amounts reported in the financial
statements and accompanying notes. Actual results could differ from
those estimates.
Pending Accounting Pronouncements
It is anticipated that current pending accounting pronouncements will
not have an adverse impact on the financial statements of the Company.
50
<PAGE> 53
2ALERTME.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 3 - SUBSEQUENT EVENTS
On May 1, 2000, the Company entered into an "Asset Purchase Agreement"
with SpectraFax Corp., whereby all of the Company's assets, properties,
goodwill and business of every kind was transferred to SpectraFax Corp.
The purchase price was $125,000 less the amount of cash purchased as an
asset, issuance of 200,000 shares of SpectraFax Corp. common stock to
the Company, and an option to acquire 200,000 shares of SpectraFax
Corp. stock at $3.50 per share, expiring in ten years.
51
<PAGE> 54
2ALERTME.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
(Unaudited)
March 31, 2000
--------------
Assets
Current Assets
Cash & Cash Equivalents $ 12,396
--------
Total Current Assets 12,396
Property & Equipment 1,675
Total Assets 14,071
--------
Liabilities
Total Liabilities 0
Shareholders' Equity
Common Stock 30,000
Paid In Capital 6,722
Deficit (16,529)
Year To Date Earnings (6,122)
Total Shareholders' Equity (14,071)
--------
Total Liabilities & Shareholders' Equity $ 14,071
--------
52
<PAGE> 55
2ALERTME.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED
MARCH 31, 2000
(Unaudited)
Revenues $ 0
Cost of Sales 0
-------
Gross Profit 0
Operating Expenses
Depreciation 186
General & Administrative Expense 1,936
Programming 4,000
Total Operating Expenses 6,122
Miscellaneous Other Deductions 0
-------
Total Expenses 6,122
-------
Earnings (Loss) $(6,122)
53
<PAGE> 56
2ALERTME.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the Three Months Ended March 31, 2000
(Unaudited)
<TABLE>
<CAPTION>
Paid In Accum.
Common Shares Common Stock Capital Deficit Total
------------- ------------ ------- ------- ---------
<S> <C> <C> <C> <C> <C>
December 31, 1999 1,185,000 $30,000 $6,722 $(16,529) $(20,193)
Loss, Month Ending March 31, 2000 6,722 (6,122) (6,122)
--------- ------- ------ -------- --------
Balance, March 31, 2000 1,185,000 $30,000 $6,722 $(22,651) $ 14,071
</TABLE>
54
<PAGE> 57
2ALERTME.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
For the Three Months ended March 31, 2000
(Unaudited)
<TABLE>
<S> <C>
Cash Flows from Operating Activities:
Net Profit (Loss) $ (6,122)
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 186
Decrease (increase) in operating assets: 0
Increase (decrease) in operating liabilities: 0
--------
Total Adjustments to Net Profit 186
Net Cash Provided by Operating Activities (5,935)
Cash Flows from Investing Activities:
Property and Equipment Expenditures (1,861)
Cash Used by Investing Activities 1,861
Cash Flows from Financing Activities:
Net Cash Provided By Financing Activities 0
Net Increase (decrease) in Cash (7,797)
--------
Cash at December 31, 1999 20,193
Cash at March 31, 2000 $ 12,396
</TABLE>
55
<PAGE> 58
2ALERTME.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION
2AlertMe.com, Inc. (A Development Stage Company) (the "Company") was
incorporated under the laws of the State of Illinois on May 26, 1999,
with an authorized capital of 2,000,000 shares of no par value common
stock.
The Company's product is a notification system that enables
subscribers to receive real time notification when their stock reaches
a predetermined trading price or volume. Notification channels include
touch-tone phone, PCS phone, pager, e-mail and/or fax. If notified by
phone, subscribers can be automatically connected to a broker to place
trades immediately in response to market changes.
The Company is a development stage company, as defined in Financial
Accounting Standards board No. 7. The Company is devoting
substantially all of its present efforts in securing and establishing
a new business, and although its planned principal operations have
commenced, there have been no significant revenues derived therefrom.
In addition, the Company does not presently have adequate financing to
carry out its business plan. Management's plans include obtaining
working capital funds by seeking additional funding from private and
public equity investments to meet such needs.
The accompanying financial statements should not be regarded as
typical for normal operating periods. The financial statements have
been prepared on the basis of accounting principles applicable to a
going concern. The continuation of the Company as a going concern is
dependent upon the success of the Company in obtaining additional
funding and the future success of 2AlertMe operations.
NOTE 2 - SUBSEQUENT EVENTS
On May 1, 2000, the Company entered into an "Asset Purchase Agreement"
with SpectraFAX Corp., whereby all of the Company's assets, properties,
goodwill and business of every kind was transferred to SpectraFAX Corp.
The purchase price was $125,000 less the amount of cash ($14,771)
purchased as an asset, issuance of 200,000 shares of SpectraFAX Corp.
common stock, and an option to acquire 200,000 shares of SpectraFAX
Corp. stock at $3.50 per share, expiring in ten years.
56
<PAGE> 59
PART III
ITEM 1. INDEX TO EXHIBITS
2.1 Articles of Incorporation*
2.2 By-laws*
3.1 See Exhibits 2.1 and 2.2 for provisions of the Articles of
Incorporation and Bylaws of the Company defining rights of holders of
the Company's Common Stock*
3.2 Specimen Stock Certificate*
10 Consent of Independent Auditor
10.1 Copy of Asset Purchase Agreement dated as of May 1, 2000 among
2AlertMe, Inc., an Illinois corporation and StectraFAX Corp.,
a Florida corporation
12 Cautionary Statements for Purposes of the "Safe Harbor" Provisions of
the Private Securities Litigation Reform Act of 1995*
-----------
* Previously Filed
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the Registrant has duly caused this to be signed on its behalf by
the undersigned, thereunto duly authorized as of this 19th day of June, 2000.
SpectraFAX Corp.
By: /s/ Thomas Conwell
------------------------------
Name: Thomas Conwell
Title: Chief Executive Officer
57
