<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB
(MARK ONE)
[X] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934.
For quarterly period ended June 30, 2000
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File No: 0-29747
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SPECTRAFAX CORP.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida 59-2412164
---------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
3050 N. Horseshoe Dr., Suite 100, Naples 34104
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(941)643-8700
--------------------------------------------------
Registrant's telephone number, including Area Code
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
As of June 30, 2000, 21,036,943 shares of Common Stock were
outstanding.
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PART I FINANCIAL INFORMATION
SPECTRAFAX CORP.
BALANCE SHEET
(UNAUDITED)
6/30/00 12/31/99
---------- --------
ASSETS
Current Assets
Cash $ 526,782 0
Accounts Receivable 194,726 375,590
Inventory 36,121 25,360
Prepaid Expenses 91,235 11,950
---------- --------
Total Current Assets 848,864 412,900
Property & Equipment -Net (Note 2) 215,540 174,588
Other Assets
Deposits 10,758 10,658
Goodwill Arising from Acquisition (Note 3) 310,929
---------- --------
Total Other Assets 321,687 10,658
---------- --------
Total Assets $1,386,091 $598,146
========== ========
2
<PAGE> 3
SPECTRAFAX CORP.
BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
6/30/00 12/31/99
------------ -----------
<S> <C> <C>
Current Liabilities
Checks in Excess of Cash $ 14,031
Notes Payable (Note 4) $ 691,500 849,500
Accounts Payable 202,763 247,773
Deferred Revenue 204,755 159,672
Notes Payable, Bank Current Portion 8,762 10,067
Due to Related Party 120,768 144,478
Accrued Interest Payable 238,225 271,978
Accured Liabilities 53,384 124,142
------------ -----------
Total Current Liabilities 1,520,157 1,821,641
Long-Term Liabilities
Notes Payable Noncurrent Portion (Note 4) 517,000 12,726
------------ -----------
Total Liabilities 2,037,157 1,834,367
Stockholders' Equity
Preferred Stock: $25.00 Par Value, 200,000 Shares 0 0
Authorized Series A Cumulative, Non Participating
12%; Issued and Outstanding, None
Common Stock: $0.0001 Par Value, 40,000,000 2,103 1,859
Shares Authorized, Issued and Outstanding
21,036,943 and 18,598,322 (Note 5)
Additional Paid In Capital 10,222,597 8,581,581
Less Treasury Stock, at Cost, 4,000 Shares Outstanding (4,000) (4,000)
Accumulated Deficit (10,871,766) (9,815,658)
------------ -----------
Total Shareholders' Equity (A Deficit) (651,066) (1,236,221)
------------ -----------
Total Liabilities & Stockholder' Equity $ 1,386,091 $ 598,146
============ ===========
</TABLE>
3
<PAGE> 4
SPECTRAFAX CORP.
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Revenues $ 261,077 $ 620,563
Cost of Sales 144,270 199,385
------------ ------------
Gross Profit 116,807 421,178
Selling, General & Administrative
Marketing & Sales 264,332 219,187
General & Administrative 314,541 195,758
Research & Development Expense 135,020 113,800
------------ ------------
Total Selling, General & Administrative Expense 713,893 528,745
------------ ------------
Net Operating Loss (597,086) (107,567)
------------ ------------
Other Income (Expense)
Interest Income 9,833
Interest Expense (35,243) (20,087)
------------ ------------
Total Other Income and (Expense) (25,410) (20,087)
------------ ------------
Net Loss Available to Common Stockholders $ (622,496) $ (127,654)
============ ============
Basic Loss Per Common Share $ (0.03) $ (0.01)
Basic Weighted Average Number of
Common Shares Outstanding $ 18,105,463 $ 17,357,411
============ ============
</TABLE>
4
<PAGE> 5
SPECTRAFAX CORP.
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Revenues (Note 6) $ 390,391 $ 1,318,486
Cost of Sales 256,855 386,902
------------ ------------
Gross Profit 133,536 931,584
Selling, General & Administrative
Marketing & Sales 445,221 375,955
General & Administrative 473,606 366,740
Research & Development Expense 205,012 241,366
------------ ------------
Total Selling, General & Administrative Expense 1,123,839 984,061
------------ ------------
Net Operating Loss (990,303) (52,477)
------------ ------------
Other Income (Expense)
Interest Income 10,701
Interest Expense (76,506) (50,233)
------------ ------------
Total Other Income (Expense) (65,805) (50,233)
------------ ------------
Net Loss Available to Common Stockholders $ (1,056,108) $ (102,710)
============ ============
Basic Loss Per Common Share $ (0.05) $ (0.01)
============ ============
Basic Weighted Average Number of
Common Shares Outstanding $ 20,000,913 $ 17,639,188
============ ============
</TABLE>
5
<PAGE> 6
SPECTRAFAX CORP.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
JUNE JUNE
2000 1999
<S> <C> <C>
Cash Flows from Operating Activities:
Net (Loss) $(1,056,108) $(102,601)
Adjustments to reconcile net (loss) to Net Cash
Used in operating activities:
Options Granted 100,513
Common Stock Issued for Services 49,350
Depreciation 43,560 52,800
Decrease (increase) in operating assets:
Accounts Receivable 180,864 (428,129)
Inventory (10,761) 45,212
Prepaid Expenses and Deposits (79,384) (26,742)
Increase (decrease) in operating liabilities:
Accounts Payable (45,010) (36,612)
Accrued Liabilities (42,613) 20,928
Due to Related Party (2,865)
Customer Advance 45,083
Checks in Excess of Cash (14,031)
----------- ---------
Total Adjustments to Net Profit 227,571 (375,408)
Net Cash Provided by Operating Activities (828,537) (478,009)
Cash Flows from Investing Activities:
Property and Equipment Expenditures (82,836) (35,043)
Other Assets (2Alertme) (112,604)
----------- ---------
Cash Used by Investing Activities (195,440) (35,043)
Cash Flows from Financing Activities:
Payments on Notes Payable (89,000) (134,432)
Payments on Bank Note (7,031)
Proceeds from Issuance of Notes Payable 1,570,000 244,617
Offering Cost (54,600)
Proceeds from Issuance of Common Stock (Net) 152,400 442,530
Advances from Officer 27,000
Payments to Officer (48,010)
----------- ---------
Net Cash Provided By Financing Activities 1,550,759 552,715
----------- ---------
Net Increase (decrease) in Cash 526,782 39,663
=========== =========
Cash at 12/31/99 0 29,262
----------- ---------
Cash at $ 526,782 $ 68,925
=========== =========
Supplemental Information
Cash Paid for:
Interest $ 46,486 $ 55,286
=========== =========
Income Taxes 0 0
Non Cash Investing and Financing Activities:
Conversion of Accts Payable, Related Party to Com Stock 2,710 0
=========== =========
Conversion of Notes Payable to Equity including
Accrued interest $ 1,190,000 $ 0
=========== =========
</TABLE>
6
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SPECTRAFAX CORP.
NOTES TO FINANCIAL STATEMENTS
Note 1. Statement of Information Furnished
The accompanying unaudited interim consolidated financial statements have been
prepared in accordance with Form 10SQB instructions and in the opinion of
management contains all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the financial position as of June 30,
2000, the results of operations for the three and six months ended June 30,
2000, and the statement of cash flows for the three and six months ended June
30, 2000. These results have been determined on the basis of generally accepted
accounting principles and practices and applied consistently with those used in
the preparation of the Company's 1999 Annual Report on Form 10-SB.
Certain information and footnote disclosure normally included in the financial
statements presented in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that the accompanying financial
statements be read in conjunction with the accompanying financial statements and
notes thereto incorporated by reference in the Company's 1999 Annual Report on
Form 10-SB.
Note 2. Property and Equipment
Property and equipment is comprised as follows at June 30, 2000:
Computer Equipment $555,830
Furniture and Fixtures 38,275
Display booth and other equipment 178,473
Software 121,539
--------
894,117
Less accumulated depreciation (678,577)
--------
Net Property and Equipment $215,540
Depreciation expense charged to operations during the six months ending June 30,
2000 and June 30, 1999 was $43,560 and $52,800 respectively.
Note 3. Asset Purchase
On May 1, 2000, SpectraFAX Corp. completed an "Asset Purchase Agreement" with
2AlertMe.com, Inc. to purchase all of its assets, properties and goodwill. The
purchase price was $125,000 cash, less the amount of cash purchased as an asset,
or $12,396, the issuance of 200,000 shares of SpectraFAX common stock at $0.70
per share, and an option to acquire 200,000 shares of SpectraFAX common stock at
$3.50 per share, expiring in ten years. SpectraFAX paid $125,000 and recorded
the issuance of the 200,000 shares of common stock at the fair market value of
the common stock at the date of issuance, which was $1.00 per share, because the
fair market value exceeded the value in the asset purchase agreement. The
options were not valued because the exercise price of the options exceeded the
fair market value of the common stock at the date of issuance.
7
<PAGE> 8
SPECTRAFAX CORP.
NOTES TO FINANCIAL STATEMENTS CONTINUED
The estimated purchase price and preliminary adjustments to historical book
value of 2AlertMe as a result of the 2AlertMe transaction are as follows:
Purchase price:
Cash $125,000
Common Stock Issued 200,000 $325,000
--------
Book Value of net assets acquired:
Cash 12,396
Computer 1,675 (14,071)
-------- --------
Purchase price in excess of net assets acquired (goodwill) $310,929
--------
(1) The acquisition of 2AlertMe's assets was accounted for by the purchase
method of accounting, which allocates the excess of the total purchase
price exceeding the sum of amounts assigned to the assets and liabilities
acquired, to intangible assets ("Goodwill"). Goodwill is being amortized
over its estimated useful life, not to exceed ten years. Fixed Assets are
being depreciated over estimated useful lives, or five years. Included in
pro forma adjustments at December 31, 1999 and operations at June 30, 2000,
is Goodwill and depreciation of $15,546 and $168 respectively.
Note 4. Notes Payable Notes Payable consists of the following:
15% Short Term Demand Note $ 50,000
12% Short Term Notes Convertible @$2.00/Share 190,500
Notes Secured by US Government Receivables 349,000
12% Short Term Equipment Notes 24,000
10% Convertible Subordinated Debenture 78,000
--------
$691,500
8
<PAGE> 9
SPECTRAFAX CORP.
NOTES TO FINANCIAL STATEMENTS CONTINUED
On December 31, 1999 the Short Term Notes totaled $ 849,500. The following
transactions occurred during the six months ending June 30, 2000.
Converted to Stock at $1.00/share, 10 & 12% Convertible Notes $ 79,000
Notes Secured by US Government Receivables, borrowed (10,000)
Notes Secured by US Government Receivables, paid cash 83,000
Paid cash on 12% Short Term Note 6,000
--------
$158,000
Accrued interest was $ 61,900
Accrued interest converted to stock was $61,900 at $1.00 per share
Long Term Debt $1,560,000
6% Convertible Subordinated Debentures due
March 2005 (Scheduled redemption
subordinated to other senior obligations)
Converted $1,050,000 @ $.080 on May 12, 2000. 510,000
Long Term Portion of 9.75% Bank Note 7,000
--------
Total Long Term Debt $517,000
Note 5. Common Stock
Issued 2,438,621 shares of common stock during the six month period ending
6/30/00:
Issued for cash 262,741 shares $ 152,400
Issued for Conversion of 6% Debenture 1,312,500 shares 1,050,000
Issued for Conversion of Convertible Notes 140,900 shares 140,900
Issued for Services 522,480 shares 215,730
Issued for the acquisition of 2AlertMe 200,000 shares 200,000
---------------- ----------
Total 2,438,621 1,759,030
Stock Options 100,513
Less Offering Cost (218,280)
Less Common Stock @ .0001 (244)
----------
Paid in Capital $1,641,019
9
<PAGE> 10
SPECTRAFAX CORP.
NOTES TO FINANCIAL STATEMENTS CONTINUED
Note 6. Segment Information
The Company's revenues are classified into four principal reportable segments
that provide different products or services.
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. Certain items are maintained at the Company's corporate level and are
not allocated to the segments. They primarily include the Company's corporate
headquarters costs, such as General and Administrative expenses, related
employee benefits, travel and promotion, rent expense, consulting and
professional fees.
A summary of the segment information is as follows:
<TABLE>
<CAPTION>
SERVICE
JUNE 30, 2000 FAX LIAISON BUREAU WARRANTY OTHER TOTAL
<S> <C> <C> <C> <C> <C>
Revenues $ 219,127 $ 29,897 $ 116,329 $ 25,038 $ 390,391
Operating (Loss) (723,366) (44,490) (133,469) (88,979) (990,303)
Total Assets 1,157,217 124,748 6,930 97,196 1,386,091
Capital
Expenditures 5,127 2,501 -- 76,883 84,511
Depreciation 32,155 5,125 3,248 3,052 43,580
</TABLE>
<TABLE>
<CAPTION>
SERVICE
JUNE 30, 1999 FAX LIAISON BUREAU WARRANTY OTHER TOTAL
<S> <C> <C> <C> <C> <C>
Revenues $ 1,010,552 $ 59,105 $ 220,699 $ 28,130 $ 1,318,486
Operating (Loss) (36,734) (2,624) (7,872) (5,248) (52,477)
Total Assets 394,668 55,282 51,000 97,196 598,146
Capital
Expenditures 7,052 1,904 2,750 16,805 28,511
Depreciation 37,139 3,128 2,775 9,758 52,800
</TABLE>
10
<PAGE> 11
SPECTRAFAX CORP.
NOTES TO FINANCIAL STATEMENTS CONTINUED
Note 7. Operating Lease
The Company entered into a lease for 1,006 square feet of office space located
at 1732 Windsor Road, Loves Park, IL 61111. The lease begins May 1, 2000 and
extends for 2 years ending April 30, 2002. The basic rent is $1,000 per month
plus one month security.
Note 8. Stock Options
The Company has issued stock options to certain individuals as additional
performance incentives to promote the success of the Company by providing these
individuals with the opportunity to acquire common stock. The status of the
SpectraFAX's outstanding stock options is summarized below as of June 30, 2000:
<TABLE>
<CAPTION>
Number of Option Expiration
Shares Price Date
--------- ------ ----------
<S> <C> <C> <C>
Granted During February 2000 20,000 $ .25 Feb 2001
40,000 $ .50 Feb 2001
Granted During April 2000 1,100,001 $ 1.50 April 2007
136,500 $ .80 April 2003
200,000 $ 3.50 April 2010
Granted During May 5,000
---------
Total outstanding, June 30, 2000 1,501,501
=========
</TABLE>
The Company accounts for stock-based compensation using the intrinsic
value method prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," under which no compensation
cost for stock options is recognized for stock options awards granted
at or above fair market value. Had compensation expense for the
Company's stock-based compensation plans been determined under SFAS No.
123, based on the fair market value at the grant dates, the Company's
pro forma net loss and pro forma net loss per share would have been
reflected as follows at June 30, 2000:
Net Loss
As reported $ 1,056,108
Pro forma $ 1,258,468
Net Loss Per Share
As reported $ 0.05
Pro forma $ 0.06
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumption used for those options granted: dividend yield of 0%, expected
volatility of 170%, risk-free interest rate of 5%, and an expected life of 5
years.
11
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
When used in this discussion, the words "believes", "anticipates", "expects",
and similar expressions are intended to identify forward-looking statements.
Such statements are subject to certain risks and uncertainties, which could
cause actual results to differ materially from those projected. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date hereof. SpectraFAX Corp. (SpectraFAX) undertakes no
obligation to republish revised forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events. Readers are also urged to carefully review and consider
the various disclosures made by SpectraFAX which attempt to advise interested
parties of the factors which affect SprectraFAX's business in this report.
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1999 AND THE SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE
30, 1999.
REVENUES
Net Revenues for the three months ended June 30, 2000 were $261,077 compared to
net revenues of $ 620,563 for the three months ended June 30, 1999, a decrease
of $ 359,486 or 58%. Net Revenues for the six months ended June 30, 2000 were
$390,391, compared to net revenues of $1,318,486 for the six months ended June
30, 1999, a decrease of $928,095 or approximately 70.4%. The decrease was due
primarily to a decline in the sale of Fax Liaison systems. The first quarter of
this year was affected due to the fact that 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. In addition, the
Company has seen a shift from fax products to internet products during the last
twelve month period, which is a major reason for the Company purchasing
2AlertMe.com, Inc. The new product, 2AlertMe, which has revitalized the need for
the Company's Fax Liaison system, is a fax, voice, E-mail messaging system. The
new product, which is commercially marketable, is an internet stock alert
program, that "runs" on the Fax Liaison messaging system. The Company is
presently negotiating sales orders with several Wall Street brokerage firms to
install 2AlertMe and Fax Liaison systems on their site. There is no assurance
that sales however will be consummated.
COST AND EXPENSES
Cost of revenues for the three months ended June 30, 2000 was $144,270 (55.3% of
Revenue) compared to $ 199,385 (32.1% of Revenue) for the three months ended
June 30, 1999. Cost of revenues for the six months ended June 30, 2000, was
$256,855 (65.8% of Revenue) compared to $386,902 (29.3% of Revenue) for the six
months ended June 30, 1999. The increase as a percentage of revenue was due to
the reduction in sales
12
<PAGE> 13
of Fax Liaison systems, while the company incurred constant fixed costs in
operations. As a result, gross margin decreased from $421,178 for the three
months ended June 30, 1999 to $116,807 for the three months ended June 30, 2000.
The gross margin decreased from $931,584 or 70.7% for the six months ending June
30, 1999 to $133,536 or 34.2% for the six months ending June 30, 2000.
Selling, General and Administration and Research and Development expenses,
increased from $528,745 in the three months ended June 30, 1999 to $713,893 in
the three months ended June 30, 2000. The expenses for the six months ended June
30, 1999 increased from $ $984,061 to $1,123,839 for the same period ending June
30, 2000, approximately 7%. Expenses did not decrease commensurate with the
decrease in revenue as the Company maintained its overhead expenses in
anticipation of increased sales of 2AlertMe. In addition, increases were
realized in several areas due to the purchase of 2AlertMe. A Director of
Research and Development was hired to plan the marketing of 2AlertMe. Attorney
fees were incurred due to the purchase of 2AlertMe and sales and marketing
expenses now include the expenses for the satellite office in Loves Park, IL.
OTHER INCOME EXPENSE,
Other expense increased by $ 5,323 for the three months and $15,572 for the
first six months reflecting higher interest cost due to loans to related
parties, and the private placement of the 6% Convertible Subordinated Debenture
in March 2000, for $1,560,000.
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital requirements have been and will continue to be
significant, and its cash requirements have exceeded cash flow from operations
since inception. As a result, the Company has been substantially dependent on
the proceeds of earlier private placements of debt and equity securities to
satisfy its working capital requirements.
In March 2000 the Company consummated the sale, in a private offering, of
$1,560,000 principal amount of convertible subordinated debentures bearing
interest at the rate of 6% per annum and convertible at $.80 per share. As a
result, cash at June 30, 2000 was $526,782. In May $1,050,000 principal amount
of Debentures was converted into 1,312,500 shares of common stock. The Company
believes that the proceeds received from the sale of debentures will satisfy the
cash requirement of the Company over the next twelve months. Furthermore, the
Chief Executive Officer has agreed to provide funding, as necessary, to the
Company to assure continued operations for the next twelve months. If the
Company does not attain a positive cash flow by then, it will need to seek
additional equity or debt financing, to the extent available. There can be no
assurance that additional financing from any source will be available when
needed on commercially reasonable terms, or at all.
13
<PAGE> 14
PART II OTHER INFORMATION
ITEMS 1-5 - None
ITEM 6 - Exhibit 27 - Financial Data Schedule (for SEC use only)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized on August 14, 2000.
SpectraFAX Corp.
/s/ Thomas J. Conwell
------------------------------------------
Thomas J. Conwell, Chief Executive Officer
/s/ Erik Ekelund
------------------------------------------
Erik Ekelund, Chief Financial Officer
14
